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BASIS OF PRESENTATION, RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER (Policies)

6 Months Ended

Nov. 30, 2019

We have prepared the condensed consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures herein are adequate to ensure the information presented is not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2019.

We believe that all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying financial statements to present fairly the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for our fiscal year ending May 31, 2020.

During the first half of fiscal 2020, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet, operating and financing lease liabilities and corresponding right-of-use (ROU) assets. We adopted this new standard using the effective date of June 1, 2019 as our initial application date. Consequently, financial information for the comparative periods was not updated. We elected the package of practical expedients permitted under the transition guidance of the new standard, which allows us to carry forward our historical lease classification. The adoption of Topic 842 did not result in a cumulative catch-up adjustment to the opening of the accumulated deficit balance as of June 1, 2019. There was no material impact to our condensed consolidated statements of operations and condensed consolidated statements of cash flows for the six months ended November 30, 2019 due to the adoption of Topic 842. Except for the updates to our leases accounting policy noted below, there have been no other changes to our significant accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2019 that had a significant impact on our condensed consolidated financial statements or notes thereto as of and for the six months ended November 30, 2019.

Leases

We determine if an arrangement is a lease at its inception. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, because the implicit rate of the lease is generally not known. ROU assets related to our operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease payments and less any lease incentives. Our lease terms that are used in determining our operating lease liabilities at lease inception may include options to extend or terminate the leases when it is reasonably certain that we will exercise such options. We amortize our ROU assets as operating lease expense generally on a straight-line basis over the lease term and classify both the lease amortization and imputed interest as operating expenses. We have lease agreements with lease and non-lease components, and in such cases, we generally account for the components as a single lease component.

We have operating leases that primarily relate to certain of our facilities, data centers and vehicles. As of November 30, 2019, our operating leases substantially have remaining terms of one year to twelve years, some of which include options to extend and/or terminate the leases. We do not recognize lease assets and lease liabilities for any lease with an original lease term of less than one year.

At November 30, 2019, ROU assets of $1.9 billion related to our operating leases are included in other non-current assets; and operating lease liabilities of $584 million are included in other current liabilities, and $1.4 billion are included in other non-current liabilities in our condensed consolidated balance sheets. Cash flow movements related to our lease activities are included in prepaid expenses and other assets and accounts payable and other liabilities as presented in net cash provided by operating activities in our condensed consolidated statement of cash flows for the six months ended November 30, 2019.

For the three and six months ended November 30, 2019, operating lease expenses totaled $150 million and $298 million, respectively, net of sublease income of $4 million and $8 million, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $156 million and $304 million for three and six months ended November 30, 2019, respectively. We recorded ROU assets of $2.2 billion in exchange for operating lease obligations during the six months ended November 30, 2019, which included $1.9 billion for operating leases existing on June 1, 2019 that were recognized upon our initial adoption of Topic 842 and $301 million for operating leases that were contracted during the first half of fiscal 2020. As of November 30, 2019, the weighted average remaining lease term for operating leases was approximately five years and the weighted average discount rate used for calculating operating lease obligations was 3.2%.

Maturities of operating lease liabilities were as follows as of November 30, 2019 (in millions):

Remainder of fiscal 2020	$	347
Fiscal 2021		561
Fiscal 2022		442
Fiscal 2023		287
Fiscal 2024		187
Fiscal 2025		135
Thereafter		234
Total operating lease payments		2,193
Less: imputed interest		(200	)
Total operating lease liability	$	1,993

Revenue Recognition

Remaining Performance Obligations from Contracts with Customers

Trade receivables, net of allowance for doubtful accounts, and deferred revenues are reported net of related uncollected deferred revenues in our condensed consolidated balance sheets as of November 30, 2019 and May 31, 2019. The revenues recognized during the six months ended November 30, 2019 and 2018, respectively, that were included in the opening deferred revenues balance as of May 31, 2019 and 2018, respectively, were approximately $6.2 billion during each period. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial in each of the three and six months ended November 30, 2019 and 2018, respectively.

Remaining performance obligations, as defined in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2019, were $32.8 billion as of November 30, 2019, approximately 60% of which we expect to recognize as revenues over the next twelve months and the remainder thereafter.

Sales of Financing Receivables

We offer certain of our customers the option to acquire our software products, hardware products and services offerings through separate long-term payment contracts. We generally sell these contracts that we have financed for our customers on a non-recourse basis to financial institutions within 90 days of the contracts’ dates of execution. We record the transfers of amounts due from customers to financial institutions as sales of financing receivables because we are considered to have surrendered control of these financing receivables. Financing receivables sold to financial institutions were $196 million and $876 million for the three and six months ended November 30, 2019, respectively, and $216 million and $1.0 billion for the three and six months ended November 30, 2018, respectively.

Cash, Cash Equivalents and Restricted Cash

Restricted cash that was included within cash and cash equivalents as presented within our condensed consolidated balance sheets as of November 30, 2019 and May 31, 2019 and our condensed consolidated statements of cash flows for the six months ended November 30, 2019 and 2018 was nominal.

Acquisition Related and Other Expenses

Acquisition related and other expenses primarily consist of personnel related costs for transitional and certain other employees, integration related professional services, certain business combination adjustments including adjustments after the measurement period has ended and certain other operating items, net.

	Three Months Ended November 30,					Six Months Ended November 30,
(in millions)	2019			2018		2019		2018
Transitional and other employee related costs	$	3		$	11	$	7	$	25
Business combination adjustments, net		(4	)		3		2		1
Other, net		13			4		28		6
Total acquisition related and other expenses	$	12		$	18	$	37	$	32

Non-Operating Income, net

Non-operating income, net consists primarily of interest income, net foreign currency exchange losses, the noncontrolling interests in the net profits of our majority-owned subsidiaries (primarily Oracle Financial Services Software Limited and Oracle Corporation Japan) and net other income, including net realized gains and losses related to all of our investments, net unrealized gains and losses related to the small portion of our investment portfolio related to our deferred compensation plan, net unrealized gains and losses related to certain equity securities and non-service net periodic pension income (losses).

	Three Months Ended November 30,						Six Months Ended November 30,
(in millions)	2019			2018			2019			2018
Interest income	$	145		$	296		$	335		$	644
Foreign currency losses, net		(26	)		(22	)		(80	)		(55	)
Noncontrolling interests in income		(46	)		(32	)		(87	)		(71	)
Other income (loss), net		19			(50	)		23			(34	)
Total non-operating income, net	$	92		$	192		$	191		$	484

Recent Accounting Pronouncements

Financial Instruments: In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for us in our first quarter of fiscal 2021, and earlier adoption is permitted beginning in the first quarter of fiscal 2020. We are currently evaluating the impact of our pending adoption of Topic 326 on our consolidated financial statements.