Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
We begin Management's Discussion and Analysis of Financial Condition and Results of Operations with an overview of our businesses and significant trends. This overview is followed by a summary of our critical accounting estimates that we believe are important to understanding significant assumptions and judgments incorporated in our reported financial results. We then provide a more detailed analysis of our results of operations and financial condition for fiscal 2025 compared to fiscal 2024. A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended May 31, 2024, as filed with the SEC on June 20, 2024, which is available free of charge on the SEC's website at www.sec.gov and on our Investor Relations website at www.oracle.com/investor.
Business Overview
Oracle provides products and services that address enterprise IT needs. Our products and services include enterprise applications and infrastructure offerings that are delivered worldwide through a variety of flexible and interoperable IT deployment models. These models include on-premise, cloud-based and hybrid deployments (an approach that combines both on-premise and cloud-based deployments). Accordingly, we offer choice and flexibility to our customers and facilitate the product, service and deployment combinations that best suit our customers' needs. Through our worldwide sales force and Oracle Partner Network, we sell to customers all over the world including businesses of many sizes, government agencies, educational institutions and resellers.
We have three businesses: cloud and license; hardware; and services; each of which comprises a single operating segment. The descriptions set forth below as a part of this Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations and the information contained within Item 1 Business and Note 13 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report provide additional information related to our businesses and operating segments and align to how our chief operating decision makers (CODMs), which are our Chief Executive Officer and Chief Technology Officer, view our operating results and allocate resources.
Cloud and License Business
Our cloud and license business, which represented 86% and 84% of our total revenues in fiscal 2025 and 2024, respectively, markets, sells and delivers a broad spectrum of enterprise applications and infrastructure technologies through our cloud and license offerings. Revenue streams included in our cloud and license business are:
•Cloud services and license support revenues, which include:
ocloud services revenues, which are earned by providing customers access to Oracle Cloud applications and infrastructure technologies via cloud-based deployment models that Oracle develops, provides unspecified updates and enhancements for, deploys, hosts, manages and supports and that customers access by entering into a subscription agreement with us for a stated period. Oracle Cloud Services arrangements generally: are billed in advance of the cloud services being delivered; have durations of one to four years; are renewed at the customer's option; and are recognized as revenues ratably over the contractual period of the cloud contract or, in the case of usage model contracts, as the cloud services are consumed over time; and
olicense support revenues, which are earned by providing Oracle license support services to customers that have elected to purchase support services in connection with the purchase of Oracle applications and infrastructure software licenses for use in cloud, on-premise and other IT environments. Substantially all license support customers renew their support contracts with us upon expiration in order to continue to benefit from technical support services and the periodic issuance of unspecified updates and enhancements, which current license support customers are entitled to receive. License support contracts are generally: priced as a percentage of the net fees paid by the customer to purchase a cloud license and/or on-premise license; billed in advance of the support services being performed; renewed at the customer's option; and recognized as revenues ratably over the contractual period that the support services are provided, which is generally one year.
•Cloud license and on-premise license revenues, which include revenues from the licensing of our software products including Oracle Applications, Oracle Database, Oracle Middleware and Java, among others, which our customers deploy within cloud-based, on-premise or other IT environments. Our cloud license and on-premise license transactions are generally perpetual in nature and are generally recognized as revenues up front at the point in time when the software is made available to the customer to download and use. Revenues from usage-based royalty arrangements for distinct cloud licenses and on-premise licenses are recognized at the point in time when the software end user usage occurs. The timing of a few large license transactions can substantially affect our quarterly license revenues due to the point-in-time nature of revenue recognition for license transactions, which is different than the typical revenue recognition pattern for our cloud services and license support revenues in which revenues are recognized over time. Cloud license and on-premise license customers have the option to purchase and renew license support contracts, as further described above.
Providing choice and flexibility to our customers as to when and how they deploy Oracle applications and infrastructure technologies are important elements of our corporate strategy. In recent periods, customer demand for our applications and infrastructure technologies delivered through our Oracle Cloud Services has increased. To address customer demand and enable customer choice, we have certain programs for customers to pivot their applications and infrastructure software licenses and the related license support to the Oracle Cloud for new deployments and to migrate to and expand with the Oracle Cloud for their existing workloads. The proportion of our cloud services revenues relative to our total revenues has increased and we expect this trend to continue. Cloud services revenues represented 43%, 37% and 32% of our total revenues during fiscal 2025, 2024 and 2023, respectively.
Our cloud and license business' revenue growth is affected by many factors, including the strength of general economic and business conditions, including the effects of inflation, tariffs and trade policy, geopolitical conditions and other macroeconomic factors on customer demand; governmental budgetary constraints; the strategy for and competitive position of our offerings; customer satisfaction with our offerings; the continued renewal of our cloud services and license support customer contracts by the customer contract base; substantially all customers continuing to purchase license support contracts in connection with their license purchases; the pricing of license support contracts sold in connection with the sales of licenses; the pricing, amounts and volumes of licenses and cloud services sold; our ability to manage Oracle Cloud capacity requirements to meet existing and prospective customer demand; and foreign currency rate fluctuations.
On a constant currency basis, we expect that our total cloud and license revenues generally will continue to increase due to:
•expected growth in our cloud services offerings; and
•continued demand for our cloud license and on-premise license and license support offerings.
We believe these factors should contribute to future growth in our cloud and license business' total revenues, which should enable us to continue to make investments in research and development and our cloud operations to develop, improve, increase the capacity of and expand the geographic footprint of our cloud and license products and services.
Our cloud and license business' margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our cloud and license business' revenues over those quarterly periods and because the majority of our costs for this business are generally fixed in the short term. The historical upward trend of our cloud and license business' revenues over the course of the four quarters within a particular fiscal year is primarily due to the addition of new cloud services and license support contracts to the customer contract base, which we generally recognize as revenues ratably or based upon customer usage over the respective contractual terms and the renewal of existing customers' cloud services and license support contracts over the course of each fiscal year, which we generally recognize as revenues in a similar manner; and the historical upward trend of our cloud license and on-premise license revenues, which we generally recognize at a point in time upon delivery; in each case over those four fiscal quarterly periods. Our margin for this business may be adversely impacted due to increases in supply chain and energy costs, the impact of tariffs and trade policy and other factors.
Hardware Business
Our hardware business, which represented 5% and 6% of our total revenues in fiscal 2025 and 2024, respectively, provides a broad selection of enterprise hardware products and hardware-related software products including Oracle Engineered Systems, servers, storage, industry-specific hardware offerings, operating systems, virtualization, management and other hardware-related software and related hardware support. Each hardware product and its related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation. The revenues for this combined performance obligation are generally recognized at the point in time that the hardware product and its related software are delivered to the customer and ownership is transferred to the customer. We expect to continue to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services. The majority of our hardware products are sold through indirect channels, including independent distributors and value-added resellers. Our hardware support offerings provide customers with unspecified software updates for software components that are essential to the functionality of our hardware products and associated software products. Our hardware support offerings can also include product repairs, maintenance services and technical support services. Hardware support contracts are entered into and renewed at the option of the customer, are generally priced as a percentage of the net hardware products fees and are generally recognized as revenues ratably as the hardware support services are delivered over the contractual terms.
We generally expect our hardware business to have lower operating margins as a percentage of revenues than our cloud and license business due to the incremental costs we incur to produce and distribute these products and to provide support services, including direct materials and labor costs.
Our quarterly hardware revenues are difficult to predict. Our hardware revenues, cost of hardware and hardware operating margins that we report are affected by many factors, including our manufacturing partners' abilities to timely and cost-effectively manufacture or deliver a few large hardware transactions; our strategy for and the pricing and position of our hardware products relative to competitor offerings; customer demand for competing offerings, including cloud infrastructure offerings; the strength of general economic and business conditions, including the effects of inflation, tariffs and trade policy, geopolitical conditions and other macroeconomic factors on customer demand; governmental budgetary constraints; whether customers decide to purchase hardware support contracts at or in close proximity to the time of hardware product sale; the percentage of our hardware support contract customer base that renews its support contracts; the effect of tariffs and other trade barriers on our costs, and our ability to pass such costs on to customers; the geographic locations of our customers; the close association between hardware products, which have a finite life, and customer demand for related hardware support as hardware products age; customer decisions to either maintain or upgrade their existing hardware infrastructure to newly developed technologies that are available; and foreign currency rate fluctuations.
Services Business
Our services business, which represented 9% and 10% of our total revenues in fiscal 2025 and 2024, respectively, helps customers and partners maximize the performance of their investments in Oracle applications and infrastructure technologies. We believe that our services are differentiated based on our focus on Oracle technologies, extensive experience, broad sets of intellectual property and best practices. Our services offerings include consulting services and advanced customer services. Our services business has lower margins than our cloud and license and hardware businesses. Our services revenues are affected by many factors including our strategy for, and the competitive position of, our services; customer demand for our cloud and license and hardware offerings and the related services that we may market and sell in connection with these offerings; general economic conditions; governmental budgetary constraints; personnel reductions in our customers' IT departments; tighter controls over customer discretionary spending; and foreign currency rate fluctuations.
Acquisitions
Our selective and active acquisition program is another important element of our corporate strategy. Historically, we have invested billions of dollars to acquire a number of complementary companies, products, services and
39
technologies. As compelling opportunities become available, we may acquire companies, products, services and technologies in furtherance of our corporate strategy.
We believe that we can fund our future acquisitions with our internally available cash, cash equivalents and marketable securities balances, cash generated from operations, additional borrowings or from the issuance of additional securities. We estimate the financial impact of any potential acquisition with regard to earnings, operating margin, cash flows and return on invested capital targets, among others, before deciding to move forward with an acquisition.
Investment in Ampere Computing Holdings LLC
From time to time since 2017, we have made investments in Ampere, a related party entity, in the form of equity and convertible debt instruments. The total carrying value of our investments in Ampere, after accounting for losses under the equity method of accounting, was $1.6 billion and $1.5 billion as of May 31, 2025 and 2024, respectively.
Our equity investments in Ampere represent an ownership interest of approximately 29% as of May 31, 2025 and 2024. We also own convertible debt investments in Ampere which, under the terms of an agreement with Ampere and other co-investors, will mature in June 2026 and are convertible into equity securities at the holder's option under certain circumstances. During the fiscal year ended May 31, 2025, we invested an aggregate of $341 million in convertible debt instruments issued by Ampere. In accordance with the terms of an agreement with other co-investors, we are also a counterparty to certain put (exercisable by a co-investor) and call (exercisable by Oracle) options at prices of approximately $500 million to $1.5 billion, respectively, to acquire additional equity interests in Ampere from our co-investors through January 2027.
On March 19, 2025, SoftBank Group Corp. announced that it had entered into an agreement with Ampere and its equity holders to acquire all of the equity interests of Ampere. The transaction is subject to customary closing conditions, including regulatory approvals. When the Ampere Acquisition closes, we will cease to be an investor in Ampere. During the period prior to the closing of the Ampere Acquisition, the amount of our investments in Ampere could increase for a variety of reasons and we will continue to recognize our share of loss in Ampere's net earnings until the closure of the acquisition.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP), which requires us to make certain estimates, judgments and assumptions that can affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. 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. To the extent that there are differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. We have critical accounting estimates in the areas of income taxes and non-marketable investments. Refer to Note 1 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for more discussion of our significant accounting policies.
Income Taxes
Judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenues and expenses that qualify for preferential tax treatment and the segregation of foreign and domestic earnings and expenses to avoid double taxation. Although we believe that our estimates are reasonable, the final tax outcome of these matters could be different from that which is reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such determination is made.
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We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in those jurisdictions where the deferred tax assets are located. We consider future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, taxable income in prior years, if carryback is permitted under the law, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance would be charged to earnings in the period in which we make such a determination, or goodwill would be adjusted at our final determination of the valuation allowance related to an acquisition within the measurement period. If we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance as an adjustment to our provision for income taxes at such time.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the global tax implications are known, which can materially impact our effective tax rate.
The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue may require certain judgments.
We account for uncertain tax issues pursuant to the Financial Accounting Standards Board's Accounting Standards Codification (ASC) 740, Income Taxes, which contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Although we believe that we have adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, judicial rulings and refinement of estimates or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences generally will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the related interest and penalties.
Non-Marketable Investments
We assess our non-marketable debt and equity investments for credit losses and impairment on a quarterly basis and as facts and circumstances change. Our analysis includes an assessment of various qualitative and quantitative factors, including the investee's historical financial results, current financial projections, rate of cash usage and assumptions regarding product acceptance and opportunity within the market. This analysis requires significant judgment in evaluating underlying factors. In some instances, investee specific information available to us to make this assessment may be limited or may be available on a delayed basis. If the investment is determined to be impaired, we adjust the carrying amount of such investment to its estimated fair value by recognizing a charge, which is included in non-operating income (expenses), net in our consolidated statements of operations. Estimating the fair value of an investment upon impairment involves a significant level of estimation, uncertainty and judgment. We may incur future losses due to impairments, which could have a material impact on our results of operations and financial position.
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Results of Operations
Presentation of Operating Segment Results and Other Financial Information
In our results of operations discussion below, we provide an overview of our total consolidated revenues, total consolidated operating expenses and total consolidated operating margin, all of which are presented on a GAAP basis. We also present a GAAP-based discussion below for substantially all of the other expense items as presented in our consolidated statements of operations that are not directly attributable to our three businesses.
In addition, we discuss below the results of each of our three businesses-cloud and license, hardware and services-which are our operating segments as defined pursuant to ASC 280, Segment Reporting. The financial reporting for our three businesses that is presented below is presented in a manner that is consistent with that used by our CODMs. Our operating segment presentation below reflects revenues, direct costs and sales and marketing expenses that correspond to and are directly attributable to each of our three businesses. We also utilize these inputs to calculate and present a segment margin for each of our three businesses in the discussion below.
Consistent with our internal management reporting processes, research and development expenses, general and administrative expenses, stock-based compensation expenses, amortization of intangible assets, certain other expense allocations, acquisition related and other expenses, restructuring expenses, interest expense, non-operating income (expenses), net and provision for income taxes are not attributed to our three operating segments because our management does not view the performance of our three businesses including such items and/or it is impracticable to do so. Refer to "Supplemental Disclosure Related to Certain Charges" below for additional discussion of certain of these items and Note 13 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for a reconciliation of the summations of total segment margin as presented in the discussion below to total income before income taxes as presented per our consolidated statements of operations for fiscal 2025 and 2024.
Constant Currency Presentation
Our international operations have provided, and are expected to continue to provide, a significant portion of each of our businesses' revenues and expenses. As a result, each of our businesses' revenues and expenses and our total revenues and expenses will continue to be affected by changes in the U.S. Dollar against major international currencies. In order to provide a framework for assessing how our underlying businesses performed, excluding the effects of foreign currency rate fluctuations, we compare the percent change in the results from one period to another period in this Annual Report using constant currency. To present this information, current and comparative prior period results for entities reporting in currencies other than U.S. Dollars are converted into U.S. Dollars at constant exchange rates (i.e., the rates in effect on May 31, 2024, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods. For example, if an entity reporting in Euros had revenues of 1.0 million Euros from products sold on May 31, 2025 and 2024, our financial statements would reflect reported revenues of $1.13 million in fiscal 2025 (using 1.13 as the applicable average exchange rate for the period) and $1.09 million in fiscal 2024 (using 1.09 as the applicable average exchange rate for the period). The constant currency presentation, however, would translate the fiscal 2025 results using the fiscal 2024 exchange rate and indicate, in this example, no change in revenues between the periods compared. In each of the tables below, we present the percent change based on actual, unrounded results in reported currency and in constant currency.
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Total Revenues and Operating Expenses
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Total Revenues by Geography:
Americas
$
36,339
10%
11%
$
33,122
EMEA(1)
14,025
8%
7%
13,030
Asia Pacific
7,035
3%
5%
6,809
Total revenues
57,399
8%
9%
52,961
Total Operating Expenses
39,721
6%
6%
37,608
Total Operating Margin
$
17,678
15%
16%
$
15,353
Total Operating Margin %
31%
29%
% Revenues by Geography:
Americas
63%
62%
EMEA
25%
25%
Asia Pacific
12%
13%
Total Revenues by Business:
Cloud and license
$
49,230
11%
11%
$
44,464
Hardware
2,936
-4%
-4%
3,066
Services
5,233
-4%
-3%
5,431
Total revenues
$
57,399
8%
9%
$
52,961
% Revenues by Business:
Cloud and license
86%
84%
Hardware
5%
6%
Services
9%
10%
(1)Comprised of Europe, the Middle East and Africa
Total revenues increased by $4.4 billion in reported currency in fiscal 2025 relative to fiscal 2024 due to a $4.8 billion increase in cloud and license revenues, partially offset by a $198 million decrease in services revenues and a $130 million decrease in hardware revenues, in each case during fiscal 2025 relative to fiscal 2024. Excluding the unfavorable effects of foreign currency rate fluctuations of 1% in fiscal 2025 on total revenues, the constant currency increase in our cloud and license business revenues was primarily due to growth in our cloud services revenues as customers purchased our applications and infrastructure technologies and also renewed their related cloud contracts. In constant currency, applications cloud services and license support and infrastructure cloud services and license support contributed 26% and 74%, respectively, of the growth in cloud services and license support revenues in fiscal 2025. In our hardware business, the constant currency decrease in revenues in fiscal 2025 was due to the emphasis we placed on the marketing and sale of our growing cloud-based infrastructure technologies. In our services business, the constant currency decrease in revenues in fiscal 2025 was attributable to a decrease in revenues from each of our primary services offerings. The Americas, the EMEA and the Asia Pacific regions contributed 74%, 19% and 7%, respectively, to the constant currency total revenue growth during fiscal 2025.
Total GAAP operating expenses increased by $2.1 billion in reported currency in fiscal 2025 relative to fiscal 2024. The increase in GAAP operating expenses in reported currency during fiscal 2025 relative to fiscal 2024 was primarily due to a $2.1 billion increase in cloud services and license support expenses primarily due to higher infrastructure expenses and higher employee-related expenses, including higher expenses relating to stock-based compensation, that were incurred to support the growth in our cloud services revenues; a $945 million increase in research and development expenses primarily due to an $813 million increase in employee-related expenses, including higher stock-based compensation expenses, and a $112 million increase in infrastructure expenses; a $377 million increase in sales and marketing expenses; and a $54 million increase in general and administrative expenses primarily due to higher employee-related expenses, including higher stock-based compensation expenses. These increases in GAAP operating expenses in reported currency during fiscal 2025 relative to fiscal 2024 were partially offset by a $703 million decrease in expenses for the amortization of intangible assets as certain of our assets were fully amortized; a $249 million decrease in services expenses primarily due to decreases in external contractor and employee-related expenses; a $239 million decrease in acquisition related and other expenses due to lower asset impairment and litigation-related charges; a $109 million decrease in hardware expenses due to lower hardware product and support costs; and a $105 million decrease in restructuring expenses.
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In constant currency, our total operating margin and total operating margin as a percentage of revenues increased in fiscal 2025 relative to fiscal 2024 due to higher revenues.
Supplemental Disclosure Related to Certain Charges
To supplement our consolidated financial information, we believe that the following information is helpful to an overall understanding of our past financial performance and prospects for the future.
Our operating results reported pursuant to GAAP included the following business combination accounting adjustments and expenses related to acquisitions and certain other expenses, including stock-based compensation, that affected our GAAP net income:
Year Ended May 31,
(in millions)
2025
2024
Amortization of intangible assets(1)
$
2,307
$
3,010
Acquisition related and other(2)
75
314
Restructuring(3)
299
404
Stock-based compensation, operating segments(4)
1,597
1,382
Stock-based compensation, R&D and G&A(4)
3,077
2,592
Income tax effects(5)
(2,514
)
(2,459
)
$
4,841
$
5,243
(1)Represents the amortization of intangible assets, all of which were acquired in connection with our acquisitions. As of May 31, 2025, estimated future amortization related to intangible assets was as follows (in millions):
Fiscal 2026
$
1,639
Fiscal 2027
672
Fiscal 2028
635
Fiscal 2029
561
Fiscal 2030
522
Thereafter
558
Total intangible assets, net
$
4,587
(2)Acquisition related and other expenses consist of personnel-related costs for transitional and certain other employees, certain business combination adjustments including certain adjustments after the measurement period has ended and certain other operating items, net.
(3)Restructuring expenses in fiscal 2025 and 2024 primarily related to employee severance in connection with the Fiscal 2024 Oracle Restructuring Plan (2024 Restructuring Plan). Additional information regarding certain of our restructuring plans is provided in management's discussion below under "Restructuring Expenses," and in Note 7 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
(4)Stock-based compensation was included in the following operating expense line items of our consolidated statements of operations (in millions):
Year Ended May 31,
2025
2024
Cloud services and license support
$
609
$
525
Hardware
29
23
Services
202
167
Sales and marketing
757
667
Stock-based compensation, operating segments
1,597
1,382
Research and development
2,638
2,225
General and administrative
439
367
Total stock-based compensation
$
4,674
$
3,974
(5)For fiscal 2025 and 2024, the applicable jurisdictional tax rates applied to our income before income taxes after excluding the tax effects of items within the table above such as for stock-based compensation, amortization of intangible assets, restructuring and certain acquisition related and other items, and after excluding the net deferred tax effects associated with a previously recorded income tax benefit that resulted from a partial realignment of our legal entity structure. These adjustments resulted in an effective tax rate of 19.7%, instead of 12.1%, for fiscal 2025 and 19.2%, instead of 10.9%, for fiscal 2024, which in each case represented our effective tax rates as derived per our consolidated statements of operations.
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Cloud and License Business
Our cloud and license business engages in the sale and marketing of our applications and infrastructure technologies that are delivered through various deployment models and include: Oracle Cloud Services offerings; Oracle cloud license and on-premise license offerings; and Oracle license support offerings. Our cloud services deliver applications and infrastructure technologies on a subscription basis via cloud-based deployment models that we develop, provide unspecified updates and enhancements for, deploy, host, manage and support. Revenues for our cloud services are generally recognized ratably over the contractual term, which is generally one to four years, or in the case of usage model contracts, as the cloud services are consumed. Cloud license and on-premise license revenues represent fees earned from granting customers licenses, generally on a perpetual basis, to use our database and middleware and our applications software products within cloud and on-premise IT environments and are generally recognized up front at the point in time when the software is made available to the customer to download and use. License support revenues are typically generated through the sale of applications and infrastructure software license support contracts related to cloud licenses and on-premise licenses; are purchased by our customers at their option; and are generally recognized as revenues ratably over the contractual term, which is generally one year. We continue to place significant emphasis, both domestically and internationally, on direct sales through our own sales force. We also continue to market certain of our offerings through indirect channels. Costs associated with our cloud and license business are included in cloud services and license support expenses and sales and marketing expenses. These costs are largely personnel- and infrastructure-related and include the cost of providing our cloud services and license support offerings, salaries and commissions earned by our sales force for the sale of our cloud and license offerings and marketing program costs.
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Cloud and License Revenues:
Americas
$
31,714
12%
13%
$
28,196
EMEA
11,773
9%
9%
10,771
Asia Pacific
5,743
4%
6%
5,497
Total revenues
49,230
11%
11%
44,464
Expenses:
Cloud services and license support(1)
10,827
23%
24%
8,783
Sales and marketing(1)
7,473
4%
5%
7,167
Total expenses(1)
18,300
15%
15%
15,950
Total Margin
$
30,930
8%
9%
$
28,514
Total Margin %
63%
64%
% Revenues by Geography:
Americas
64%
64%
EMEA
24%
24%
Asia Pacific
12%
12%
Revenues by Offerings:
Cloud services
$
24,506
24%
24%
$
19,774
License support
19,523
0%
0%
19,609
Cloud license and on-premise license
5,201
2%
3%
5,081
Total revenues
$
49,230
11%
11%
$
44,464
Cloud Services and License Support Revenues by Ecosystem:
Applications cloud services and license support
$
19,383
7%
7%
$
18,172
Infrastructure cloud services and license support
24,646
16%
17%
21,211
Total cloud services and license support revenues
$
44,029
12%
12%
$
39,383
(1)Excludes stock-based compensation and certain expense allocations. Also excludes amortization of intangible assets and certain other GAAP-based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under "Presentation of Operating Segment Results and Other Financial Information" above.
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Our cloud and license business' total revenues increased by $4.8 billion in reported currency in fiscal 2025 relative to fiscal 2024 primarily due to a $4.7 billion increase in cloud services revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts and a $120 million increase in cloud license and on-premise license revenues. These increases were partially offset by an $86 million decrease in license support revenues in fiscal 2025 relative to fiscal 2024. In constant currency, applications cloud services and license support and infrastructure cloud services and license support contributed 26% and 74%, respectively, of the growth in cloud services and license support revenues in fiscal 2025. The Americas, the EMEA and the Asia Pacific regions contributed 75%, 19% and 6%, respectively, to the constant currency revenue growth for this business during fiscal 2025.
Total cloud and license business' expenses increased by $2.4 billion in reported currency in fiscal 2025 relative to fiscal 2024. Excluding the favorable effects of currency rate fluctuations of less than 1% in fiscal 2025, the constant currency increase in expenses in fiscal 2025 relative to fiscal 2024 was primarily due to a $1.6 billion increase in infrastructure expenses; a $359 million increase in employee-related expenses for employees engaged in cloud services delivery; and a $350 million increase in sales and marketing expenses to support the increase in our cloud services revenues. Our cloud services and license support expenses have grown in recent periods, and we expect this trend to continue during fiscal 2026 as we increase our existing data center capacity and establish data centers in new geographic locations in order to meet current and expected customer demand.
Excluding the effects of currency rate fluctuations, our cloud and license business' total margin increased in fiscal 2025 relative to fiscal 2024 due to increases in total revenues for this business. Total margin as a percentage of revenues in constant currency decreased in fiscal 2025 relative to fiscal 2024 due to an increase in total expenses for this business.
Hardware Business
Our hardware business' revenues are generated from the sales of our Oracle Engineered Systems, server, storage and industry-specific hardware offerings. The hardware product and related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation. The revenues for this combined performance obligation are generally recognized at the point in time that the hardware product is delivered to the customer and ownership is transferred to the customer. Our hardware business also earns revenues from the sale of hardware support contracts purchased by our customers at their option and that are generally recognized as revenues ratably as the hardware support services are delivered over the contractual term, which is generally one year. The majority of our hardware products are sold through indirect channels such as independent distributors and value-added resellers and we also market and sell our hardware products through our direct sales force. Operating expenses associated with our hardware business include the cost of hardware products, which consists of expenses for materials and labor used to produce these products by our internal manufacturing operations or by third-party manufacturers, warranty and related expenses and the impact of periodic changes in inventory valuation, including the impact of inventory determined to be excess and obsolete; the cost of materials used to repair customer products with eligible support contracts; the cost of labor and infrastructure to provide support services; and sales and marketing expenses, which are largely personnel-related and include variable compensation earned by our sales force for the sales of our hardware offerings.
46
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Hardware Revenues:
Americas
$
1,441
-4%
-3%
$
1,494
EMEA
893
-3%
-3%
921
Asia Pacific
602
-8%
-7%
651
Total revenues
2,936
-4%
-4%
3,066
Expenses:
Hardware products and support(1)
742
-13%
-12%
855
Sales and marketing(1)
276
-7%
-6%
296
Total expenses(1)
1,018
-12%
-11%
1,151
Total Margin
$
1,918
0%
1%
$
1,915
Total Margin %
65%
62%
% Revenues by Geography:
Americas
49%
49%
EMEA
30%
30%
Asia Pacific
21%
21%
(1)Excludes stock-based compensation and certain expense allocations. Also excludes amortization of intangible assets and certain other GAAP-based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under "Presentation of Operating Segment Results and Other Financial Information" above.
Total hardware revenues decreased by $130 million in reported currency in fiscal 2025 relative to fiscal 2024. Excluding the unfavorable impact of currency rate fluctuations of less than 1% in fiscal 2025, the decrease in hardware revenues was primarily due to our continued emphasis on the marketing and sale of our cloud-based infrastructure technologies, which resulted in reduced sales volumes of certain of our hardware product lines and also impacted the volume of hardware support contracts sold in recent periods. Geographically, we experienced constant currency hardware revenue declines in all regions in fiscal 2025.
Total hardware expenses decreased by $133 million in reported currency in fiscal 2025 relative to fiscal 2024. The decrease in hardware expenses aligned with lower hardware revenues. Excluding the favorable currency rate fluctuations effect of 1% in fiscal 2025, the constant currency decrease in hardware expenses during fiscal 2025 relative to fiscal 2024 was due to a $106 million decrease in hardware product and support costs and an $18 million decrease in sales and marketing expenses.
In constant currency, our hardware business' total margin and total margin as a percentage of revenues increased in fiscal 2025 relative to fiscal 2024 due to lower total expenses for this business.
Services Business
Our services offerings are designed to help maximize the performance of customer investments in Oracle applications and infrastructure technologies and include our consulting services and advanced customer services offerings. Services revenues are generally recognized over time as the services are performed. The cost of providing our services consists primarily of personnel-related expenses, technology infrastructure expenditures, facilities expenses and external contractor expenses.
47
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Services Revenues:
Americas
$
3,184
-7%
-6%
$
3,432
EMEA
1,359
2%
1%
1,338
Asia Pacific
690
4%
6%
661
Total revenues
5,233
-4%
-3%
5,431
Total Expenses(1)
4,240
-6%
-6%
4,515
Total Margin
$
993
8%
9%
$
916
Total Margin %
19%
17%
% Revenues by Geography:
Americas
61%
63%
EMEA
26%
25%
Asia Pacific
13%
12%
(1)Excludes stock-based compensation and certain allocations. Also excludes certain other GAAP-based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under "Presentation of Operating Segment Results and Other Financial Information" above.
Total services revenues decreased by $198 million in reported currency in fiscal 2025 relative to fiscal 2024. Excluding the effects of unfavorable currency rate fluctuations of 1% in fiscal 2025, the decrease in total services revenues in fiscal 2025 relative to fiscal 2024 was due to a decrease in revenues in each of our primary services offerings. The constant currency decrease in services revenues in the Americas region was partially offset by a constant currency increase in services revenues in the EMEA and the Asia Pacific regions in fiscal 2025.
Total services expenses decreased by $275 million in reported currency in fiscal 2025 relative to fiscal 2024. Excluding the favorable effects of currency rate fluctuations of less than 1% in fiscal 2025, the constant currency decrease in services expenses in fiscal 2025 relative to fiscal 2024 was primarily due to a $158 million decrease in external contractor expenses and an $81 million decrease in employee-related expenses.
In constant currency, our services business' total margin and total margin as a percentage of revenues increased in fiscal 2025 relative to fiscal 2024 due to lower total expenses for this business.
Research and Development Expenses: Research and development expenses consist primarily of personnel-related expenditures. We intend to continue to invest significantly in our research and development efforts because, in our judgment, they are essential to maintaining our competitive position.
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Research and development(1)
$
7,222
8%
9%
$
6,690
Stock-based compensation
2,638
19%
19%
2,225
Total expenses
$
9,860
11%
11%
$
8,915
% of Total Revenues
17%
17%
(1)Excluding stock-based compensation
Total research and development expenses increased by $945 million in reported currency in fiscal 2025 relative to fiscal 2024. Excluding the favorable effects of currency rate fluctuations of less than 1% in fiscal 2025, the increase in research and development expenses was primarily due to an increase in employee-related expenses, including higher stock-based compensation expenses.
48
General and Administrative Expenses: General and administrative expenses primarily consist of personnel-related expenditures for IT, finance, legal and human resources support functions.
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
General and administrative(1)
$
1,163
-2%
-1%
$
1,181
Stock-based compensation
439
20%
20%
367
Total expenses
$
1,602
3%
4%
$
1,548
% of Total Revenues
3%
3%
(1)Excluding stock-based compensation
Total general and administrative expenses increased by $54 million in reported currency in fiscal 2025 relative to fiscal 2024. Excluding the favorable effects of currency rate fluctuations of 1% in fiscal 2025, the increase in general and administrative expenses was primarily due to higher stock-based compensation expenses.
Amortization of Intangible Assets: Substantially all our intangible assets were acquired through our business combinations. We amortize our intangible assets over, and monitor the appropriateness of, the estimated useful lives of these assets. We also periodically review these intangible assets for potential impairment based upon relevant facts and circumstances. Refer to Note 5 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding our intangible assets and related amortization.
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Developed technology
$
642
-5%
-5%
$
676
Cloud services and license support agreements and related relationships
714
-30%
-30%
1,026
Cloud license and on-premise license agreements and related relationships
462
-1%
-1%
467
Other
489
-42%
-42%
841
Total amortization of intangible assets
$
2,307
-23%
-23%
$
3,010
Amortization of intangible assets decreased by $703 million in reported currency in fiscal 2025 relative to fiscal 2024 due to a reduction in expenses associated with certain of our intangible assets that became fully amortized.
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.
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Transitional and other employee-related costs
$
3
-81%
-81%
$
19
Business combination adjustments, net
(26
)
125%
125%
(12
)
Other, net
98
-68%
-68%
307
Total acquisition related and other expenses
$
75
-76%
-76%
$
314
Acquisition related and other expenses decreased by $239 million in reported currency in fiscal 2025 relative to fiscal 2024 due to a $209 million decrease in other expenses related to certain asset impairment and litigation-related charges and a $30 million total decrease in transitional and other employee-related costs and business combination adjustments, net.
49
Restructuring Expenses: Restructuring expenses resulted from the execution of management-approved restructuring plans that were generally developed to improve our cost structure and/or operations, often in conjunction with our acquisition integration strategies and/or other strategic initiatives. Restructuring expenses consist of employee severance costs, contract termination costs and certain other exit costs to improve our cost structure prospectively. For additional information regarding our restructuring plans, see Note 7 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Restructuring expenses
$
299
-26%
-26%
$
404
Restructuring expenses in fiscal 2025 and 2024 primarily related to the 2024 Restructuring Plan, which is substantially complete. Our management approved, committed to and initiated the 2024 Restructuring Plan in order to restructure and further improve efficiencies in our operations. We may incur additional restructuring expenses in future periods due to the initiation of new restructuring plans or from changes in estimated costs associated with existing restructuring plans.
The majority of the initiatives undertaken by the 2024 Restructuring Plan were effected to implement our continued emphasis in developing, marketing, selling and delivering our cloud-based offerings. Certain of the cost savings realized pursuant to the 2024 Restructuring Plan initiatives were offset by investments in resources and geographies that we believe better address the development, marketing, sale and delivery of our cloud-based offerings, including investments in the development and delivery of our second-generation cloud infrastructure.
Interest Expense:
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Interest expense
$
3,578
2%
2%
$
3,514
Interest expense increased in fiscal 2025 relative to fiscal 2024 primarily due to the issuance of $14.0 billion of senior notes in fiscal 2025, partially offset by lower interest expense due to scheduled repayments of borrowings made during fiscal 2025 and 2024.
Non-Operating Income (Expenses), net: Non-operating income (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 marketable and non-marketable investments, including losses attributable to equity method investments (primarily Ampere) 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.
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Interest income
$
578
28%
28%
$
451
Foreign currency losses, net
(147
)
-35%
-37%
(228
)
Noncontrolling interests in income
(184
)
-1%
-1%
(186
)
Losses from marketable and non-marketable investments, net
(278
)
-8%
-8%
(303
)
Other income, net
91
-46%
-46%
168
Total non-operating income (expenses), net
$
60
$
(98
)
Not meaningful
50
Our non-operating income (expenses), net increased by $158 million in reported currency in fiscal 2025 relative to fiscal 2024 primarily due to a $127 million increase in interest income, an $81 million decrease in foreign currency losses and a $25 million decrease in losses from marketable and non-marketable investments. These contributors to the increase in non-operating income (expenses), net were partially offset by a $77 million decrease in other income, net, which was primarily attributable to lower gains associated with an investment portfolio that we held for our employee deferred compensation plan, and for which an equal and offsetting amount was recorded to our operating expenses during the same period.
Provision for Income Taxes: Our effective income tax rates for each of the periods presented were the result of the mix of income earned and losses incurred in various tax jurisdictions that apply a broad range of income tax rates. Refer to Note 12 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for a discussion regarding the differences between the effective income tax rates as presented for the periods below and the U.S. federal statutory income tax rates that were in effect during these periods. Future effective tax rates could be adversely affected by an unfavorable shift of earnings weighted to jurisdictions with higher tax rates, by unfavorable changes in tax laws and regulations, by adverse rulings in tax-related litigation, or by shortfalls in stock-based compensation realized by employees relative to stock-based compensation that was recorded for book purposes, among others.
Year Ended May 31,
Percent Change
(Dollars in millions)
2025
Actual
Constant
2024
Provision for income taxes
$
1,717
35%
36%
$
1,274
Effective tax rate
12.1%
10.9%
Provision for income taxes increased in fiscal 2025 relative to fiscal 2024 primarily due to an unfavorable jurisdictional mix of earnings of $380 million, the absence of the realization of a one-time tax attribute of $238 million, higher income before provision for income taxes of $195 million and the absence of the revaluation benefit of net deferred tax assets due to a change in tax rate of $105 million, partially offset by a combination of the absence of changes in unrecognized tax benefits of $233 million and an increase in tax benefits related to stock-based compensation of $223 million.
Liquidity and Capital Resources
As of May 31,
(Dollars in millions)
2025
Change
2024
Working capital
$
(8,064
)
-10%
$
(8,990
)
Cash, cash equivalents and marketable securities
$
11,203
5%
$
10,661
Working capital: The increase in working capital as of May 31, 2025 in comparison to May 31, 2024 was primarily due to favorable impacts from net income and proceeds from the issuance of senior notes, net of issuance costs, of $13.9 billion (refer to Note 6 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information) during fiscal 2025. This increase was partially offset by $21.2 billion of cash used for capital expenditures; $4.9 billion of long-term borrowings that were reclassified to current liabilities; $4.7 billion of cash used to pay dividends to our stockholders; $600 million of cash used for repurchases of our common stock; $294 million of cash used for purchases, net of sales and maturities of non-current investments; and $247 million of net cash used for our employee stock programs during fiscal 2025. Our working capital may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable.
Cash, cash equivalents and marketable securities: Cash and cash equivalents primarily consist of deposits held at major banks, money market funds and other securities with original maturities of 90 days or less. Marketable securities consist primarily of time deposits with original maturities at the time of purchase greater than 90 days. The increase in cash, cash equivalents and marketable securities as of May 31, 2025 in comparison to May 31, 2024 was primarily due to cash inflows from our operations; proceeds from the issuance of senior notes, net of issuance
51
costs, of $13.9 billion and the issuance of commercial paper, net of repayments, of $1.9 billion during fiscal 2025 (refer to Note 6 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information); and $1.1 billion of cash inflows from other financing activities, net. This increase was partially offset by $21.2 billion of cash used for capital expenditures; $10.2 billion of cash used for scheduled repayments of borrowings; $4.7 billion of cash used to pay dividends to our stockholders; $600 million of cash used for repurchases of our common stock; $496 million of cash used for purchases, net of sales and maturities of investments; and $247 million of net cash used for our employee stock programs during fiscal 2025. Our cash and cash equivalents may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable.
Year Ended May 31,
(Dollars in millions)
2025
Change
2024
Net cash provided by operating activities
$
20,821
12%
$
18,673
Net cash used for investing activities
$
(21,711
)
195%
$
(7,360
)
Net cash provided by (used for) financing activities
$
1,098
$
(10,554
)
Not meaningful
Cash flows from operating activities: Our largest source of operating cash flows is cash collections from our customers following the purchase and renewal of their cloud services and license support agreements. Customers for these cloud services and license support agreements are generally billed in advance of services being provided. Over the course of a fiscal year, we also generate cash from the sales of new licenses, hardware offerings and other services. Our primary uses of cash from operating activities are typically for employee-related expenditures, material and manufacturing costs related to the production of our hardware products, taxes, interest payments and leased facilities.
Net cash provided by operating activities increased by $2.1 billion in fiscal 2025 relative to fiscal 2024 primarily due to higher net income adjusted for certain non-cash charges, partially offset by certain cash unfavorable working capital changes, net.
Cash flows from investing activities: The changes in cash flows from investing activities primarily relate to our investments in capital assets primarily to support the growth in our cloud and license business and acquisitions, purchases, maturities and sales of our investments in marketable securities and other instruments.
Net cash used for investing activities increased by $14.4 billion in fiscal 2025 relative to fiscal 2024 primarily due to the increase in capital expenditures.
Cash flows from financing activities: The changes in cash flows from financing activities primarily relate to borrowings and repayments related to our debt instruments, stock repurchases, dividend payments and net proceeds related to employee stock programs.
Net cash provided by financing activities was $1.1 billion in fiscal 2025 compared to the net cash used for financing activities of $10.6 billion in fiscal 2024. The increase in net cash provided by financing activities in fiscal 2025 relative to fiscal 2024 was primarily due to proceeds from the issuance of senior notes, net of issuance costs, of $13.9 billion; higher issuances of commercial paper notes of $2.1 billion, net of repayments; lower net cash used for our employee stock programs of $1.1 billion; higher net cash provided by other financing activities of $1.1 billion; and lower net cash used for repurchases of common stock of $602 million. These increases were partially offset by higher scheduled repayments of borrowings of $6.7 billion and higher dividend payments of $352 million. Further, during fiscal 2025, we refinanced our term loan credit agreement that we entered into in fiscal 2023 (Term Loan Credit Agreement), which resulted in no net impact on financing cash flows for the period reported.
52
Free cash flow: To supplement our statements of cash flows presented on a GAAP basis, we use non-GAAP measures of cash flows on a trailing 4-quarter basis to analyze cash flows generated from our operations. We believe that free cash flow is also useful as one of the bases for comparing our performance with that of our competitors. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity. We calculate free cash flow as follows:
Year Ended May 31,
(Dollars in millions)
2025
Change
2024
Net cash provided by operating activities
$
20,821
12%
$
18,673
Capital expenditures
(21,215
)
209%
(6,866
)
Free cash flow
$
(394
)
$
11,807
Net income
$
12,443
$
10,467
Net cash provided by operating activities as a percent of net income
167%
178%
Free cash flow as percent of net income
-3%
113%
Not meaningful
Recent Financing Activities:
Cash Dividends: In fiscal 2025, we declared and paid aggregate cash dividends of $1.70 per share of outstanding common stock that totaled $4.7 billion. In June 2025, our Board declared a quarterly cash dividend of $0.50 per share of our outstanding common stock payable on July 24, 2025 to stockholders of record as of the close of business on July 10, 2025. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board.
Term Loan Credit Agreements: On June 10, 2024, we terminated the Term Loan Credit Agreement and repaid the principal amount outstanding together with interest accrued up to the date of repayment. Simultaneously, we borrowed up to the maximum commitment amount of $5.6 billion pursuant to a term loan credit agreement (Term Loan Credit Agreement 2) executed on the same date. In fiscal 2025, we made scheduled repayments totaling $211 million of the Term Loan Credit Agreement 2. Refer to Note 6 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional details about our borrowings, including the repayment terms of the Term Loan Credit Agreement 2. Any remaining unpaid principal balance under the Term Loan Credit Agreement 2 will become fully due and payable on August 16, 2027, unless the termination date of the Term Loan Credit Agreement 2 is extended.
Senior Notes: During fiscal 2025, we issued $14.0 billion aggregate principal amount of senior notes composed of the following:
•$500 million aggregate principal amount of floating rate notes due August 2028;
•$1.5 billion aggregate principal amount of 4.80% senior notes due August 2028;
•$1.5 billion aggregate principal amount of 4.20% senior notes due September 2029;
•$1.25 billion aggregate principal amount of 5.25% senior notes due February 2032;
•$1.75 billion aggregate principal amount of 4.70% senior notes due September 2034;
•$1.75 billion aggregate principal amount of 5.50% senior notes due August 2035;
•$1.75 billion aggregate principal amount of 5.375% senior notes due September 2054;
•$1.75 billion aggregate principal amount of 6.00% senior notes due August 2055;
•$1.25 billion aggregate principal amount of 5.50% senior notes due September 2064; and
•$1.0 billion aggregate principal amount of 6.125% senior notes due August 2065.
53
We issued the senior notes to repay all or a portion of senior notes due between November 2024 and July 2026, and to pay accrued interest and any related premiums, fees and expenses in connection therewith; to make scheduled payments of principal and interest on borrowings under our Term Loan Credit Agreement 2; to repay all or a portion of commercial paper notes outstanding; and to use any remaining net proceeds from the borrowing for general corporate purposes, which may include stock repurchases, payment of cash dividends on our common stock, repayment of other indebtedness and future acquisitions. Refer to Note 6 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information.
Common Stock Repurchase Program: Our Board has approved a program for us to repurchase shares of our common stock. As of May 31, 2025, approximately $6.4 billion remained available for stock repurchases pursuant to our stock repurchase program. We repurchased 3.9 million shares for $600 million, 10.6 million shares for $1.2 billion and 17.0 million shares for $1.3 billion in fiscal 2025, 2024 and 2023, respectively. Our stock repurchase authorization does not have an expiration date and the pace of our repurchase activity will depend on factors such as our working capital needs, our cash requirements for acquisitions and dividend payments, our debt repayment obligations or repurchases of our debt, our stock price and economic and market conditions. Our stock repurchases may be effected from time to time through open market purchases or pursuant to a Rule 10b5-1 trading plan. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.
Contractual Obligations: Our largest contractual obligations as of May 31, 2025 consisted of:
•principal payments related to our senior notes and other borrowings that were included in our consolidated balance sheet and the related periodic interest payments;
•routine tax payments including those that are payable pursuant to the transition tax under the U.S. Tax Cuts and Jobs Act of 2017 that were included in our consolidated balance sheet;
•lease liabilities that were included in our consolidated balance sheet;
•lease commitments that have not yet commenced and were not included in our consolidated balance sheet; and
•other contractual commitments associated with agreements that are enforceable and legally binding.
In addition, as of May 31, 2025, we had $12.0 billion of gross unrecognized income tax benefits, including related interest and penalties, recorded on our consolidated balance sheet, the nature of which is uncertain with respect to settlement or release with the relevant tax authorities, although we believe it is reasonably possible that certain of these liabilities could be settled or released during fiscal 2026. We are involved in claims and legal proceedings, which are inherently uncertain with respect to outcomes, estimates and assumptions that we make as of each reporting period, are inherently unpredictable, and many aspects are out of our control. Notes 6, 9, 12 and 15 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report include additional information regarding our most material contractual obligations and contingencies.
We believe that our current cash, cash equivalents and marketable securities balances, cash generated from operations and our borrowing arrangements will be sufficient to meet our working capital, capital expenditures and contractual obligations requirements. In addition, we believe that we could fund our future acquisitions, dividend payments and repurchases of common stock or debt with our internally available cash, cash equivalents and marketable securities, cash generated from operations, additional borrowings or from the issuance of additional securities.
Stock-Based Awards
Our stock-based compensation program is a key component of the compensation package we provide to attract and retain certain of our talented employees and align their interests with the interests of existing stockholders.
We recognize that stock-based awards dilute existing stockholders and have sought to control the number of stock-based awards granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution since June 1, 2022 has been an annualized rate of 1.7% per year. The potential dilution percentage is calculated as the average annualized new stock-based awards granted and assumed, net of
54
stock-based awards forfeited by employees leaving the company, divided by the weighted-average outstanding shares during the calculation period. This maximum potential dilution will only result if all stock-based awards vest and, if applicable, are exercised. Of the outstanding stock options as of May 31, 2025, which generally have a ten-year exercise period, all have exercise prices lower than the market price of our common stock on such date. In recent years, our stock repurchase program has partially offset the dilutive effect of our stock-based compensation program. However, we may modify the levels of our stock repurchases in the future depending on a number of factors, including the amount of cash we have available for acquisitions, to pay dividends, to repay or repurchase indebtedness or for other purposes. As of May 31, 2025, the maximum potential dilution from all outstanding stock-based awards, regardless of when granted and regardless of whether vested or unvested, was 5.6%.
During fiscal 2025, the Compensation Committee reviewed and approved the annual organization-wide stock-based award grants to selected employees; all stock-based award grants to senior officers; and any individual grant of RSUs with a value of $5 million or greater. Each member of a separate executive officer committee, referred to as the Plan Committee, was allocated a fiscal 2025 equity budget that could be used throughout the fiscal year to grant equity subject to certain limitations established by the Compensation Committee.
Stock-based awards activity from June 1, 2022 through May 31, 2025 is summarized as follows (shares in millions):
Stock-based awards outstanding as of May 31, 2022
225
Stock-based awards granted and assumed
168
Stock-based awards vested and issued and, if applicable, exercised
(209
)
Forfeitures, cancellations and other, net
(26
)
Stock-based awards outstanding as of May 31, 2025
158
Annualized stock-based awards granted and assumed, net of forfeitures and cancellations
48
Annualized stock repurchases
(11
)
Shares outstanding as of May 31, 2025
2,807
Basic weighted-average shares outstanding from June 1, 2022 through May 31, 2025
2,743
Stock-based awards outstanding as a percent of shares outstanding as of May 31, 2025
5.6%
Total in the money stock-based awards outstanding (based on the closing price of our common stock on the last trading day of fiscal 2025) as a percent of shares outstanding as of May 31, 2025
5.6%
Annualized stock-based awards granted and assumed, net of forfeitures and cancellations and before stock repurchases, as a percent of weighted-average shares outstanding from June 1, 2022 through May 31, 2025
1.7%
Annualized stock-based awards granted and assumed, net of forfeitures and cancellations and after stock repurchases, as a percent of weighted-average shares outstanding from June 1, 2022 through May 31, 2025
1.3%
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements, and the impact of these pronouncements on our consolidated financial statements, see Note 1 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.