UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2020

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 001-35992

Oracle Corporation

(Exact name of registrant as specified in its charter)

Delaware	54-2185193
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
500 Oracle Parkway	94065
Redwood City, California
(Address of principal executive offices)	(Zip Code)

(650) 506-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share 2.25% senior notes due January 2021  3.125% senior notes due July 2025	ORCL — —	New York Stock Exchange New York Stock Exchange  New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ☒	Accelerated filer   ☐
Non-accelerated filer   ☐	Smaller reporting company   ☐
Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    ☐  No    ☒

The number of shares of registrant’s common stock outstanding as of March 9, 2020 was: 3,153,584,000.

ORACLE CORPORATION 

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of February 29, 2020 and May 31, 2019	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended February 29, 2020 and February 28, 2019	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended February 29, 2020 and February 28, 2019	5
	Condensed Consolidated Statements of Equity for the Three and Nine Months Ended February 29, 2020 and February 28, 2019	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended February 29, 2020 and February 28, 2019	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	44
PART II.	OTHER INFORMATION	45
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
	Signatures	47

Cautionary Note on Forward-Looking Statements

For purposes of this Quarterly Report, the terms “Oracle,” “we,” “us” and “our” refer to Oracle Corporation and its consolidated subsidiaries. This Quarterly Report on Form 10-Q contains statements that are not historical in nature, are predictive in nature, or that depend upon or refer to future events or conditions or otherwise contain forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These include, among other things, statements regarding:

• our expectations regarding the potential impacts on our business of the outbreak of the novel coronavirus COVID-19;

• our expectation that we may acquire companies, products, services and technologies to further our corporate strategy as compelling opportunities become available;

• our expectation that, on a constant currency basis, our total cloud and license revenues generally will continue to increase due to expected growth in our cloud services and our license support offerings, and continued demand for our cloud license and on-premise license offerings;

• our belief that our Oracle Cloud Software-as-a-Service and Infrastructure-as-a-Service (SaaS and IaaS, respectively, and collectively, Oracle Cloud Services) offerings are opportunities for us to expand our cloud and license business, and that demand for our Oracle Cloud Services will continue to increase;

• our expectation that substantially all of our customers will renew their license support contracts annually;

• our expectation that our hardware business will have lower operating margins as a percentage of revenues than our cloud and license business;

• our expectation that we will continue to place significant emphasis, both domestically and internationally, on direct sales through our own sales force;

• our expectation that we will continue to make significant investments in research and development, and our belief that research and development efforts are essential to maintaining our competitive position;

• our expectation that our international operations will continue to provide a significant portion of our total revenues and expenses;

• the sufficiency of our sources of funding for working capital, capital expenditures, contractual obligations, acquisitions, dividends, stock repurchases, debt repayments and other matters;

• our belief that we have adequately provided under U.S. generally accepted accounting principles for outcomes related to our tax audits and that the final outcome of our tax related examinations, agreements or judicial proceedings will not have a material effect on our results of operations, and our belief that our net deferred tax assets will be realized in the foreseeable future;

• our belief that the outcome of certain legal proceedings and claims to which we are a party will not, individually or in the aggregate, result in losses that are materially in excess of amounts already recognized, if any;

• the possibility that certain legal proceedings to which we are a party could have a material impact on our future cash flows and results of operations;

• our expectations regarding the timing and amount of expenses relating to the Fiscal 2019 Oracle Restructuring Plan and the improved efficiencies in our operations that such a plan will create;

• the timing and amount of future cash dividend payments and stock repurchases, including our expectation that the levels of our future stock repurchase activity may be modified in comparison to past periods in order to use available cash for other purposes;

1

• our expectations regarding the impact of recent accounting pronouncements on our consolidated financial statements;

• our expectation that, to the extent customers renew support contracts or cloud SaaS and IaaS contracts from companies that we have acquired, we will recognize revenues for the full contracts’ values over the respective renewal periods;

• our ability to predict quarterly hardware revenues;

• the percentage of remaining performance obligations that we expect to recognize as revenues over the next twelve months;

as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may be preceded by, followed by or include the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “strives,” “estimates,” “will,” “should,” “is designed to” and similar expressions. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about our business that could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” included in documents we file from time to time with the U.S. Securities and Exchange Commission (the SEC), including our Annual Report on Form 10-K for our fiscal year ended May 31, 2019 and our other Quarterly Reports on Form 10-Q filed by us in our fiscal 2020, which runs from June 1, 2019 to May 31, 2020.

We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. New information, future events or risks could cause the forward-looking events we discuss in this Quarterly Report not to occur. You should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this Quarterly Report.

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ORACLE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

As of February 29, 2020 and May 31, 2019

(Unaudited)

(in millions, except per share data)	February 29, 2020			May 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	23,829		$	20,514
Marketable securities		2,029			17,313
Trade receivables, net of allowances for doubtful accounts of $387 and $371 as of February 29, 2020 and May 31, 2019, respectively		4,162			5,134
Prepaid expenses and other current assets		3,422			3,425
Total current assets		33,442			46,386
Non-current assets:
Property, plant and equipment, net		6,248			6,252
Intangible assets, net		4,088			5,279
Goodwill, net		43,781			43,779
Deferred tax assets		2,883			2,696
Other non-current assets		6,262			4,317
Total non-current assets		63,262			62,323
Total assets	$	96,704		$	108,709
LIABILITIES AND EQUITY
Current liabilities:
Notes payable, current	$	2,355		$	4,494
Accounts payable		533			580
Accrued compensation and related benefits		1,317			1,628
Deferred revenues		7,814			8,374
Other current liabilities		3,721			3,554
Total current liabilities		15,740			18,630
Non-current liabilities:
Notes payable and other borrowings, non-current		49,320			51,673
Income taxes payable		13,168			13,295
Other non-current liabilities		3,595			2,748
Total non-current liabilities		66,083			67,716
Commitments and contingencies
Oracle Corporation stockholders’ equity:
Preferred stock, $0.01 par value—authorized: 1.0 shares; outstanding: none		—			—
Common stock, $0.01 par value and additional paid in capital—authorized: 11,000 shares; outstanding: 3,161 shares and 3,359 shares as of February 29, 2020 and May 31, 2019, respectively		26,685			26,909
Accumulated deficit		(10,771	)		(3,496	)
Accumulated other comprehensive loss		(1,679	)		(1,628	)
Total Oracle Corporation stockholders’ equity		14,235			21,785
Noncontrolling interests		646			578
Total equity		14,881			22,363
Total liabilities and equity	$	96,704		$	108,709

See notes to condensed consolidated financial statements.

3

ORACLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended February 29, 2020 and February 28, 2019

(Unaudited)

	Three Months Ended						Nine Months Ended
(in millions, except per share data)	February 29, 2020			February 28, 2019			February 29, 2020			February 28, 2019
Revenues:
Cloud services and license support	$	6,930		$	6,662		$	20,546		$	19,908
Cloud license and on-premise license		1,231			1,251			3,169			3,334
Hardware		857			915			2,542			2,711
Services		778			786			2,372			2,416
Total revenues		9,796			9,614			28,629			28,369
Operating expenses:
Cloud services and license support(1)		991			937			2,994			2,807
Hardware(1)		271			339			828			998
Services(1)		702			700			2,147			2,127
Sales and marketing(1)		2,049			2,051			6,135			6,191
Research and development		1,500			1,426			4,588			4,464
General and administrative		288			316			903			935
Amortization of intangible assets		400			407			1,221			1,265
Acquisition related and other		7			(4	)		44			29
Restructuring		60			43			181			275
Total operating expenses		6,268			6,215			19,041			19,091
Operating income		3,528			3,399			9,588			9,278
Interest expense		(456	)		(509	)		(1,416	)		(1,557	)
Non-operating income, net		4			198			195			681
Income before provision for income taxes		3,076			3,088			8,367			8,402
Provision for income taxes		505			343			1,348			1,059
Net income	$	2,571		$	2,745		$	7,019		$	7,343
Earnings per share:
Basic	$	0.81		$	0.78		$	2.16		$	1.98
Diluted	$	0.79		$	0.76		$	2.10		$	1.93
Weighted average common shares outstanding:
Basic		3,190			3,526			3,251			3,716
Diluted		3,271			3,617			3,337			3,811

⁽¹⁾ Exclusive of amortization of intangible assets, which is shown separately.

See notes to condensed consolidated financial statements.

4

ORACLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Nine Months Ended February 29, 2020 and February 28, 2019

(Unaudited)

	Three Months Ended						Nine Months Ended
(in millions)	February 29, 2020			February 28, 2019			February 29, 2020			February 28, 2019
Net income	$	2,571		$	2,745		$	7,019		$	7,343
Other comprehensive (loss) income, net of tax:
Net foreign currency translation (losses) gains		(86	)		10			(178	)		(148	)
Net unrealized gains on defined benefit plans		34			6			45			19
Net unrealized gains on marketable securities		3			233			91			120
Net unrealized gains (losses) on cash flow hedges		7			(18	)		(9	)		(36	)
Total other comprehensive (loss) income, net		(42	)		231			(51	)		(45	)
Comprehensive income	$	2,529		$	2,976		$	6,968		$	7,298

See notes to condensed consolidated financial statements.

5

ORACLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three and Nine Months Ended February 29, 2020 and February 28, 2019

(Unaudited)

	Three Months Ended						Nine Months Ended
(in millions, except per share data)	February 29, 2020			February 28, 2019			February 29, 2020			February 28, 2019
Common stock and additional paid in capital
Balance, beginning of period	$	26,374		$	27,430		$	26,909		$	28,950
Common stock issued		615			450			1,232			1,476
Stock-based compensation		361			427			1,204			1,259
Repurchase of common stock		(599	)		(1,533	)		(2,033	)		(4,496	)
Other, net		(66	)		(42	)		(627	)		(457	)
Balance, end of period	$	26,685		$	26,732		$	26,685		$	26,732
Accumulated deficit
Balance, beginning of period	$	(9,174	)	$	5,107		$	(3,496	)	$	19,111
Cumulative-effect of accounting change	—				—		—				(110	)
Repurchase of common stock		(3,401	)		(8,466	)		(11,967	)		(25,505	)
Cash dividends declared		(768	)		(670	)		(2,330	)		(2,126	)
Net income		2,571			2,745			7,019			7,343
Other, net		1			—			3			3
Balance, end of period	$	(10,771	)	$	(1,284	)	$	(10,771	)	$	(1,284	)
Other equity, net
Balance, beginning of period	$	(1,015	)	$	(1,482	)	$	(1,050	)	$	(1,188	)
Other comprehensive (loss) income, net		(42	)		231			(51	)		(45	)
Other, net		24			41			68			23
Balance, end of period	$	(1,033	)	$	(1,210	)	$	(1,033	)	$	(1,210	)
Total stockholders' equity	$	14,881		$	24,238		$	14,881		$	24,238
Cash dividends declared per common share	$	0.24		$	0.19		$	0.72		$	0.57

See notes to condensed consolidated financial statements.

6

ORACLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended February 29, 2020 and February 28, 2019

(Unaudited)

	Nine Months Ended
(in millions)	February 29, 2020			February 28, 2019
Cash flows from operating activities:
Net income	$	7,019		$	7,343
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,025			900
Amortization of intangible assets		1,221			1,265
Deferred income taxes		(398	)		(741	)
Stock-based compensation		1,204			1,259
Other, net		167			144
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease in trade receivables, net		946			1,106
Decrease in prepaid expenses and other assets		718			168
Decrease in accounts payable and other liabilities		(1,035	)		(647	)
Decrease in income taxes payable		(789	)		(410	)
Decrease in deferred revenues		(553	)		(258	)
Net cash provided by operating activities		9,525			10,129
Cash flows from investing activities:
Purchases of marketable securities and other investments		(399	)		(1,310	)
Proceeds from maturities of marketable securities and other investments		3,165			10,210
Proceeds from sales of marketable securities		12,575			11,328
Acquisitions, net of cash acquired		(111	)		(330	)
Capital expenditures		(1,131	)		(1,247	)
Net cash provided by investing activities		14,099			18,651
Cash flows from financing activities:
Payments for repurchases of common stock		(13,935	)		(29,887	)
Proceeds from issuances of common stock		1,232			1,468
Shares repurchased for tax withholdings upon vesting of restricted stock-based awards		(624	)		(455	)
Payments of dividends to stockholders		(2,330	)		(2,126	)
Repayments of borrowings		(4,500	)		(4,500	)
Other, net		(108	)		(95	)
Net cash used for financing activities		(20,265	)		(35,595	)