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Table of Contents

 

 

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 August 31, 2022

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.)

 

 

 

2300 Oracle Way
Austin, Texas

 

78741

(Address of principal executive offices)

 

(Zip Code)

 

(737) 867-1000

(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 

3.125% senior notes due July 2025 

ORCL

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 September 8, 2022 was: 2,695,653,000.

 

 

 


Table of Contents

 

 

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 August 31, 2022 and May 31, 2022

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended August 31, 2022 and 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended August 31, 2022 and 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended August 31, 2022 and 2021

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended August 31, 2022 and 2021

 

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

 

 

 

 


Table of Contents

 

 

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 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and Section 27A of the Securities Act of 1933, as amended (Securities Act). These include, among other things, statements regarding:

 

our expectations regarding the impacts on our business as a result of the global COVID-19 pandemic;

 

our expectation that we may acquire, and realize the anticipated benefits of acquiring, 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 license support offerings, and continued demand for our cloud license and on-premise license offerings;

 

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 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;

 

our expectation that variable expenditures that were curtailed primarily in response to COVID-19 may normalize in future periods provided global economic and health conditions improve;

 

our expectation that the proportion of our cloud services revenues relative to our total revenues will continue to increase;

 

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 likely 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 financial position or results of operations;

 

the timing and amount of expenses we expect to incur;

 

the cost savings we expect to realize pursuant to our Fiscal 2022 Oracle Restructuring Plan;

 

declarations of future cash dividend payments and the timing and amount of future 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


Table of Contents

 

 

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

 

our ability to predict revenues, particularly certain cloud license and on-premise license revenues and hardware revenues;

 

the percentages of remaining performance obligations that we expect to recognize as revenues over respective future periods;

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,” “endeavors,” “estimates,” “will,” “should,” “is designed to” and similar expressions. We claim the protection of the safe harbor for forward-looking statements contained in the Exchange Act and the Securities Act 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, including our Annual Report on Form 10-K for our fiscal year ended May 31, 2022 and our other Quarterly Reports on Form 10-Q to be filed by us in our fiscal 2023, which runs from June 1, 2022 to May 31, 2023.

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


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

ORACLE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

As of August 31, 2022 and May 31, 2022

(Unaudited)

 

(in millions, except per share data)

 

August 31,

2022

 

 

May 31,

2022

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,448

 

 

$

21,383

 

Marketable securities

 

 

772

 

 

 

519

 

Trade receivables, net of allowances for credit losses of $385 and $362 as of August 31, 2022 and May 31, 2022, respectively

 

 

5,937

 

 

 

5,953

 

Prepaid expenses and other current assets

 

 

3,847

 

 

 

3,778

 

Total current assets

 

 

21,004

 

 

 

31,633

 

Non-current assets:

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

12,280

 

 

 

9,716

 

Intangible assets, net

 

 

12,499

 

 

 

1,440

 

Goodwill, net

 

 

61,629

 

 

 

43,811

 

Deferred tax assets

 

 

12,065

 

 

 

12,782

 

Other non-current assets

 

 

10,832

 

 

 

9,915

 

Total non-current assets

 

 

109,305

 

 

 

77,664

 

Total assets

 

$

130,309

 

 

$

109,297

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Notes payable and other borrowings, current

 

$

16,097

 

 

$

3,749

 

Accounts payable

 

 

1,461

 

 

 

1,317

 

Accrued compensation and related benefits

 

 

1,958

 

 

 

1,944

 

Deferred revenues

 

 

10,473

 

 

 

8,357

 

Other current liabilities

 

 

4,830

 

 

 

4,144

 

Total current liabilities

 

 

34,819

 

 

 

19,511

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Notes payable and other borrowings, non-current

 

 

75,480

 

 

 

72,110

 

Income taxes payable

 

 

12,128

 

 

 

12,210

 

Deferred tax liabilities

 

 

7,693

 

 

 

6,031

 

Other non-current liabilities

 

 

5,638

 

 

 

5,203

 

Total non-current liabilities

 

 

100,939

 

 

 

95,554

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Oracle Corporation stockholders’ deficit:

 

 

 

 

 

 

 

 

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: 2,696 shares and 2,665 shares as of August 31, 2022 and May 31, 2022, respectively

 

 

27,224

 

 

 

26,808

 

Accumulated deficit

 

 

(31,134

)

 

 

(31,336

)

Accumulated other comprehensive loss

 

 

(1,965

)

 

 

(1,692

)

Total Oracle Corporation stockholders’ deficit

 

 

(5,875

)

 

 

(6,220

)

Noncontrolling interests

 

 

426

 

 

 

452

 

Total stockholders’ deficit

 

 

(5,449

)

 

 

(5,768

)

Total liabilities and stockholders’ deficit

 

$

130,309

 

 

$

109,297

 

 

 

See notes to condensed consolidated financial statements.

3


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ORACLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended August 31, 2022 and 2021

(Unaudited)

 

 

 

Three Months Ended

August 31,

 

(in millions, except per share data)

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

Cloud services and license support

 

$

8,417

 

 

$

7,371

 

Cloud license and on-premise license

 

 

904

 

 

 

813

 

Hardware

 

 

763

 

 

 

763

 

Services

 

 

1,361

 

 

 

781

 

Total revenues

 

 

11,445

 

 

 

9,728

 

Operating expenses:

 

 

 

 

 

 

 

 

Cloud services and license support(1)

 

 

1,735

 

 

 

1,214

 

Hardware(1)

 

 

249

 

 

 

245

 

Services(1)

 

 

1,053

 

 

 

644

 

Sales and marketing(1)

 

 

2,177

 

 

 

1,854

 

Research and development

 

 

2,093

 

 

 

1,684

 

General and administrative

 

 

411

 

 

 

298

 

Amortization of intangible assets

 

 

919

 

 

 

303

 

Acquisition related and other

 

 

41

 

 

 

21

 

Restructuring

 

 

144

 

 

 

38

 

Total operating expenses

 

 

8,822

 

 

 

6,301

 

Operating income

 

 

2,623

 

 

 

3,427

 

Interest expense

 

 

(787

)

 

 

(705

)

Non-operating expenses, net

 

 

(180

)

 

 

(41

)

Income before income taxes

 

 

1,656

 

 

 

2,681

 

Provision for income taxes

 

 

108

 

 

 

224

 

Net income

 

$

1,548

 

 

$

2,457

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.58

 

 

$

0.89

 

Diluted

 

$

0.56

 

 

$

0.86

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

2,685

 

 

 

2,769

 

Diluted

 

 

2,747

 

 

 

2,861

 

 

(1)

Exclusive of amortization of intangible assets, which is shown separately.

 

 

 

See notes to condensed consolidated financial statements.

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ORACLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months Ended August 31, 2022 and 2021

(Unaudited)

 

 

 

Three Months Ended

August 31,

 

(in millions)

 

2022

 

 

2021

 

Net income

 

$

1,548

 

 

$

2,457

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Net foreign currency translation losses

 

 

(288

)

 

 

(223

)

Net unrealized (losses) gains on defined benefit plans

 

 

(1

)

 

 

2

 

Net unrealized gains on cash flow hedges

 

 

17

 

 

 

 

Total other comprehensive loss, net

 

 

(272

)

 

 

(221

)

Comprehensive income

 

$

1,276

 

 

$

2,236

 

 

 

 

See notes to condensed consolidated financial statements.

 

5


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ORACLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Three Months Ended August 31, 2022 and 2021

(Unaudited)

 

 

 

Three Months Ended

August 31,

 

(in millions, except per share data)

 

2022

 

 

2021

 

Common stock and additional paid in capital

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

26,808

 

 

$

26,533

 

Common stock issued

 

 

515

 

 

 

148

 

Stock-based compensation

 

 

750

 

 

 

545

 

Repurchases of common stock

 

 

(73

)

 

 

(872

)

Other, net

 

 

(776

)

 

 

(820

)

Balance, end of period

 

$

27,224

 

 

$

25,534

 

Accumulated deficit

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(31,336

)

 

$

(20,120

)

Repurchases of common stock

 

 

(486

)

 

 

(7,128

)

Cash dividends declared

 

 

(860

)

 

 

(887

)

Net income

 

 

1,548

 

 

 

2,457

 

Other, net

 

 

 

 

 

(1

)

Balance, end of period

 

$

(31,134

)

 

$

(25,679

)

Other stockholders' deficit, net

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(1,240

)

 

$

(461

)

Other comprehensive loss, net

 

 

(272

)

 

 

(221

)

Other, net

 

 

(27

)

 

 

(303

)

Balance, end of period

 

$

(1,539

)

 

$

(985

)

Total stockholders’ deficit

 

$

(5,449

)

 

$

(1,130

)

Cash dividends declared per common share

 

$

0.32

 

 

$

0.32

 

 

 

 

See notes to condensed consolidated financial statements.

 

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ORACLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended August 31, 2022 and 2021

(Unaudited)

 

 

 

Three Months Ended

August 31,

 

(in millions)

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,548

 

 

$

2,457

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

547

 

 

 

454

 

Amortization of intangible assets

 

 

919

 

 

 

303

 

Deferred income taxes

 

 

(344

)

 

 

(15

)

Stock-based compensation

 

 

750

 

 

 

545

 

Other, net

 

 

156

 

 

 

(27

)

Changes in operating assets and liabilities, net of effects from acquisitions:

 

 

 

 

 

 

 

 

Decrease in trade receivables, net

 

 

761

 

 

 

852

 

Decrease in prepaid expenses and other assets

 

 

44

 

 

 

270

 

Decrease in accounts payable and other liabilities

 

 

(166

)

 

 

(713

)

Increase (decrease) in income taxes payable

 

 

145

 

 

 

(221

)

Increase in deferred revenues

 

 

2,034

 

 

 

1,486

 

Net cash provided by operating activities

 

 

6,394

 

 

 

5,391

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities and other investments

 

 

(57

)

 

 

(7,671

)

Proceeds from sales and maturities of marketable securities and other investments

 

 

138

 

 

 

8,002

 

Acquisitions, net of cash acquired

 

 

(27,798

)

 

 

(50

)

Capital expenditures

 

 

(1,719

)

 

 

(1,062

)

Net cash used for investing activities

 

 

(29,436

)

 

 

(781

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments for repurchases of common stock

 

 

(552

)

 

 

(7,995

)

Proceeds from issuances of common stock

 

 

515

 

 

 

148

 

Shares repurchased for tax withholdings upon vesting of restricted stock-based awards

 

 

(829

)

 

 

(820

)

Payments of dividends to stockholders

 

 

(860

)

 

 

(887

)

Proceeds from borrowings, net of issuance costs

 

 

20,046

 

 

 

 

Repayments of borrowings

 

 

(5,883

)

 

 

(1,500

)

Other, net

 

 

(127

)

 

 

(414

)

Net cash provided by (used for) financing activities

 

 

12,310

 

 

 

(11,468

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(203

)

 

 

(181

)

Net decrease in cash and cash equivalents

 

 

(10,935

)

 

 

(7,039

)

Cash and cash equivalents at beginning of period

 

 

21,383

 

 

 

30,098

 

Cash and cash equivalents at end of period

 

$

10,448

 

 

$

23,059

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Fair values of stock awards assumed in connection with acquisitions

 

$

55

 

 

$

 

 

 

 

See notes to condensed consolidated financial statements.

 

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ORACLE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

(Unaudited)

 

1.

BASIS OF PRESENTATION, RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER

Basis of Presentation

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, 2022.

On June 8, 2022, we completed our acquisition of Cerner Corporation (Cerner), a provider of digital information systems used within hospitals and health systems, by means of a merger of one of our wholly owned subsidiaries with and into Cerner such that Cerner became an indirect, wholly owned subsidiary of Oracle. Through our acquisition of Cerner, we enhanced our offerings of each of our three existing businesses, cloud and license, hardware and services. The condensed consolidated financial statements included in this Quarterly Report include the financial results of Cerner prospectively from the date of acquisition. Refer to Note 2 below for additional details regarding our acquisition of Cerner.

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, 2023.

There have been no changes to our significant accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2022 that had a significant impact on our condensed consolidated financial statements or notes thereto as of and for the three months ended August 31, 2022.

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ORACLE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

August 31, 2022

(Unaudited)

 

Use of Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification, and we consider various staff accounting bulletins and other applicable guidance issued by the SEC. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent that there are differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

During the first quarter of fiscal 2023, we completed an assessment of the useful lives of our servers and increased the estimate of the useful lives from four years to five years effective at the beginning of fiscal 2023. Based on the carrying value of our servers as of May 31, 2022, this change in accounting estimate decreased our total operating expenses by $131 million for the first quarter of fiscal 2023.

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 August 31, 2022 and May 31, 2022 and our condensed consolidated statements of cash flows for the three months ended August 31, 2022 and 2021 was nominal.

Remaining Performance Obligations from Contracts with Customers

Trade receivables, net of allowance for credit losses, and deferred revenues are reported net of related uncollected deferred revenues in our condensed consolidated balance sheets as of August 31, 2022 and May 31, 2022. The revenues recognized during the three months ended August 31, 2022 and 2021, respectively, that were included in the opening deferred revenues balances as of May 31, 2022 and 2021, respectively, were approximately $3.5 billion and $3.7 billion, respectively. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial in each of the three months ended August 31, 2022 and 2021.  

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, 2022, were $60.7 billion as of August 31, 2022, approximately 49% of which we expect to recognize as revenues over the next twelve months, 34% over the subsequent month 13 to month 36, and the remainder thereafter.

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ORACLE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

August 31, 2022

(Unaudited)

 

Sales of Financing Receivables

We offer certain of our customers the option to acquire certain of our cloud and license, hardware 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 $927 million and $656 million for the three months ended August 31, 2022 and 2021, respectively.

Non-Marketable Investments

Our non-marketable debt investments and equity securities and related instruments totaled $1.5 billion and $1.2 billion as of August 31, 2022 and May 31, 2022, respectively, and are included in other non-current assets in the accompanying consolidated balance sheets and are subject to periodic impairment reviews. Certain of these non-marketable equity securities and related instruments are adjusted for observable price changes from orderly transactions. The substantial majority of the non-marketable investments held as of these dates were with a related party entity for which we follow the equity method of accounting. We are also a counterparty to certain options to acquire additional equity interests in that entity at various times through December 2023 and we could obtain control of that entity should such options be exercised.

Acquisition Related and Other Expenses

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

 

 

 

Three Months Ended

August 31,

 

(in millions)

 

2022

 

 

2021

 

Transitional and other employee related costs

 

$

17

 

 

$

2

 

Business combination adjustments, net

 

 

5

 

 

 

3

 

Other, net

 

 

19

 

 

 

16

 

Total acquisition related and other expenses

 

$

41

 

 

$

21

 

Non-Operating Expenses, net

Non-operating expenses, 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), net losses related to equity investments including losses attributable to equity method investments and net other income and expenses, including net unrealized gains and losses from our investment portfolio related to our deferred compensation plan, and non-service net periodic pension income and losses.

 

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ORACLE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

August 31, 2022

(Unaudited)

 

 

 

 

Three Months Ended

August 31,

 

(in millions)

 

2022

 

 

2021

 

Interest income

 

$

38

 

 

$

20

 

Foreign currency losses, net

 

 

(71

)

 

 

(35

)

Noncontrolling interests in income

 

 

(38

)

 

 

(47

)

Losses from equity investments, net

 

 

(86

)

 

 

(22

)

Other (losses) gains, net

 

 

(23

)

 

 

43

 

Total non-operating expenses, net

 

$

(180

)

 

$

(41

)

 

Recent Accounting Pronouncements

Financial Instruments:  In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04) and also issued subsequent amendments to the initial guidance (collectively, Topic 848). Topic 848 provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. We will adopt Topic 848 when our relevant contracts are modified upon transition to alternative reference rates and expect this to occur through December 31, 2022. We do not expect our adoption of Topic 848 to have a material impact on our consolidated financial statements.

 

2.

ACQUISITIONS

Acquisition of Cerner Corporation

On December 20, 2021, we entered into an Agreement and Plan of Merger (Merger Agreement) with Cerner, a provider of digital information systems used within hospitals and health systems that are designed to enable medical professionals to deliver better healthcare to individual patients and communities.

On January 19, 2022, pursuant to the Merger Agreement, we commenced a tender offer to purchase all of the issued and outstanding shares of common stock of Cerner at a purchase price of $95.00 per share, net to the seller in cash, without interest thereon, based upon the terms and subject to the conditions set forth in the Offer to Purchase dated January 19, 2022, and the related Letter of Transmittal.

On June 8, 2022, pursuant to the terms of the tender offer and applicable Delaware law, we acquired all the outstanding Cerner shares and effectuated the merger of Cerner with and into a wholly-owned subsidiary of Oracle and Cerner became an indirect, wholly-owned subsidiary of Oracle. Vested equity awards outstanding immediately prior to the consummation of the merger were cancelled in exchange for the right to receive an amount in cash based on a formula contained in the Merger Agreement. The unvested equity awards to acquire Cerner common stock that were outstanding immediately prior to the conclusion of the merger were converted into equity awards denominated in shares of Oracle common stock based on formulas contained in the Merger Agreement. We have included the financial results of Cerner in our consolidated financial statements from the date of acquisition. For the first quarter of fiscal 2023, Cerner contributed $1.4 billion to our total revenues.

The total preliminary purchase price for Cerner is approximately $28.2 billion, which consisted of approximately $28.2 billion in cash and $55 million for the fair values of restricted stock-based awards and stock options assumed. Pursuant to our business combinations accounting policy, we estimated the preliminary fair values of net tangible and intangible assets acquired, and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill. The preliminary fair values of net tangible assets and intangible assets acquired were based on preliminary valuations, and our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain tangible assets and liabilities acquired, certain legal matters, income and non-income based taxes and residual goodwill. We expect to continue to obtain information to assist us in determining the fair values of the net assets acquired during the measurement period. The following table summarizes the estimated preliminary fair values of net tangible and intangible assets acquired from Cerner:

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ORACLE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

August 31, 2022

(Unaudited)

 

(in millions)

 

 

 

 

Cash and marketable securities

 

$

769

 

Trade receivables, net

 

 

885

 

Property, plant and equipment, net

 

 

1,514

 

Intangible assets

 

 

11,972

 

Goodwill

 

 

17,871

 

Other assets

 

 

840

 

Accounts payable and other liabilities

 

 

(968

)

Deferred revenues

 

 

(420

)

Senior notes and other borrowings

 

 

(1,600

)

Deferred tax liabilities, net

 

 

(2,638

)

Total

 

$

28,225

 

Of the $1.6 billion of senior notes and other borrowings assumed through our Cerner acquisition, $1.5 billion were paid on June 8, 2022. Refer to Note 5 below for more information. We do not expect the goodwill recognized as a part of our acquisition of Cerner to be deductible for income tax purposes.

Other Fiscal 2023 and 2022 Acquisitions

During the first quarter of fiscal 2023 and full year fiscal 2022, we acquired certain other companies and purchased certain technology and development assets primarily to expand our products and services offerings. These acquisitions were not significant individually or in the aggregate to our condensed consolidated financial statements.

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ORACLE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

August 31, 2022

(Unaudited)

 

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Oracle and Cerner. The unaudited pro forma financial information for all periods presented included the business combination accounting effects resulting from this acquisition, including amortization charges from acquired intangible assets (certain of which are preliminary), stock-based compensation charges for unvested restricted stock-based awards and stock options assumed and the related tax effects as though Cerner was combined as of the beginning of fiscal 2022. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2022.

The unaudited pro forma financial information for the three months ended August 31, 2022 and 2021 combined the historical results of Oracle for the three months ended August 31, 2022 and 2021, respectively, the historical results of Cerner for the three months ended June 30, 2022 and 2021, respectively, (adjusted due to differences in reporting periods and considering the date we acquired Cerner) and the effects of the pro forma adjustments listed above. The unaudited pro forma financial information was as follows:

 

 

Three Months Ended

August 31,

 

(in millions, except per share data)

 

2022

 

 

2021

 

Total revenues

 

$

11,556

 

 

$

11,178

 

Net income

 

$

1,501

 

 

$

1,852

 

Basic earnings per share

 

$

0.56

 

 

$

0.67

 

Diluted earnings per share

 

$

0.55

 

 

$

0.65

 

 

 

3.

FAIR VALUE MEASUREMENTS

We perform fair value measurements in accordance with FASB Accounting Standards Codification (ASC) 820, Fair Value Measurement. ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at their fair values, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions and risk of nonperformance.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

 

Level 1:  quoted prices in active markets for identical assets or liabilities;

 

Level 2:  inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

 

Level 3:  unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

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Table of Contents

 

ORACLE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

August 31, 2022

(Unaudited)

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Our assets and liabilities measured at fair value on a recurring basis consisted of the following (Level 1 and Level 2 inputs are defined above):

 

 

 

August 31, 2022

 

 

May 31, 2022

 

 

 

Fair Value Measurements

Using Input Types

 

 

 

 

 

 

Fair Value Measurements

Using Input Types

 

 

 

 

 

(in millions)

 

Level 1

 

 

Level 2

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

2,545

 

 

$

 

 

$

2,545

 

 

$

12,842

 

 

$

 

 

$

12,842

 

Time deposits and other

 

 

197

 

 

 

438

 

 

 

635

 

 

 

240

 

 

 

280

 

 

 

520

 

Commercial paper debt securities

 

 

 

 

 

167

 

 

 

167

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

 

 

 

17

 

 

 

17

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,742

 

 

$

622

 

 

$

3,364

 

 

$

13,082

 

 

$