Notes to Financial Statements
December 31, 2017
1. Description
of the Plan
The following description of the Oracle Corporation 401(k) Savings and Investment Plan (the Plan) provides only general
information. Participants should refer to the Plan document for a more complete description of the Plans provisions.
General
The Plan is a defined contribution plan originally established in 1986 that has since been amended and for which Oracle Corporation (Oracle) is
the current sponsor. The Plan was established for the purpose of providing retirement benefits for the U.S. employees of Oracle and its subsidiaries. The Plan is intended to qualify as a profit sharing plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the Code), with a salary reduction feature qualified under Section 401(k) of the Code. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Plan
is administered by the 401(k) Committee, members of which are appointed by the Compensation Committee of Oracles Board of Directors or the Executive Vice President, Human Resources. Fidelity Management Trust Company is the directed trustee of
the Plan; Fidelity Investments Institutional Operations Company, Inc. (Fidelity) serves as the record keeper to maintain the individual accounts of each of the Plans participants.
Eligibility
All employees
regularly scheduled to work a minimum of 20 hours per week or 1,000 hours in a Plan year on the domestic payroll of Oracle and its subsidiaries that have adopted the Plan are eligible to participate in the Plan as of the first date, or any
succeeding entry date following the date the employee is credited with one hour of service with Oracle. However, the following employees or classes of employees are not eligible to participate: (i) employees whose compensation and conditions of
employment are subject to determination by collective bargaining; (ii) employees who are
non-resident
aliens and who received no earned income (within the meaning of the Code) from Oracle;
(iii) workers who are performing services at an Oracle facility as an employee of a third-party entity that is not an employment agency; (iv) employees of employment agencies; and (v) persons who are not classified as employees for
tax purposes.
Contributions
Each year, participants may contribute up to 40% of their eligible compensation as defined by the Plan document. Annual participant
contribution amounts are limited to $18,000 of salary deferrals for the year ended December 31, 2017 ($24,000 for participants 50 years old and older), as determined by the Internal Revenue Service (IRS). Salary deferrals consist of
pre-tax
and/or Roth 401(k) contributions. Participants may also contribute up to 15% of their eligible compensation, subject to certain annual dollar limitations, on a
post-tax
basis.
Oracle matches 50% of an active participants salary deferrals up to a
maximum deferral of 6% of compensation for the pay period, with maximum aggregate matching of $5,100 in any calendar year. Oracle has the right, under the Plan, to discontinue or modify its matching contributions at any time. Participants may also
contribute amounts representing distributions from other qualified plans. All of Oracles matching contributions are made in cash on a
pre-tax
basis.
4
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2017
Investment Options
Participants direct the investment of their contributions and Oracles matching contributions into various investment options offered by
the Plan. The Plan currently offers investments in Oracles common stock, common/collective trust funds, mutual funds, separately managed account funds (including a stable value fund) and Brokerage Link. Brokerage Link balances consist of the
mutual funds offered by the Plan, as well as mutual funds offered by other registered investment companies, common stock or other investment products.
Participant Accounts
Each
participants account is credited with the participants and Oracles contributions and allocations of Plan earnings. All amounts in participant accounts are participant directed.
Vesting
All elective
contributions made by participants and earnings on those contributions are 100% vested at all times. Participants vesting in Oracles matching contributions is based on years of service. Participants are 25% vested after one year of
service and vest an additional 25% on each successive service anniversary date, becoming 100% vested after four years of service.
Participants forfeit the nonvested portion of their accounts in the Plan upon termination of employment with Oracle. Forfeited balances of
terminated participants nonvested accounts may be used at Oracles discretion, as outlined in the Plan, to reduce its matching contribution obligations. During the year ended December 31, 2017, Oracle used $7,700,000 of forfeited
balances to reduce its matching contribution obligations. The amounts of unallocated forfeitures at December 31, 2017 and 2016 were $822,000 and $681,000, respectively.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of $1,000 and up to a maximum of $50,000 or 50% of their vested account balance,
whichever is less. Loan terms may not exceed five years unless the loan is used to purchase a participants principal residence, in which case repayment terms may not exceed 10 years. The loans are secured by the balance in the
participants account and bear interest at a rate commensurate with local prevailing lending rates determined by the 401(k) Committee. Principal and interest is paid ratably through payroll deductions, and participants may elect to submit
additional payments outside of payroll deductions in order to reduce principal loan balances on an accelerated basis. Loans are generally due in full within 60 days of termination with Oracle unless the participant arranges for loan repayments to
continue via monthly debit from a checking or savings account in a bank located in the United States.
Payment of Benefits
Upon termination of service, death, disability, or normal or early retirement, participants may elect to receive a
lump-sum
amount equal to the vested value of their account or may waive receipt of a lump sum benefit and elect to receive monthly, quarterly or annual installments, a partial distribution, or may request a rollover
from the Plan to another eligible retirement plan. Failure of a participant to make an election of one of these options within 60 days is deemed to be an election to defer commencement of payment. If the participants account is valued at
$1,000 or less, the amount is distributed in a lump sum. Distributions of investments in Oracles common stock may be taken in the form of common stock. Hardship withdrawals are permitted if certain criteria are met.
5
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2017
Investment Management Fees and Operating Expenses
Investment management fees and operating expenses charged to the Plan for investments in the various funds are deducted from income earned on a
daily basis and are reflected as a component of net appreciation in fair values of investments.
Administrative Expenses
Administrative expenses are borne by Oracle, except for fees related to administration of participant loans and certain withdrawal
transactions, which are deducted from the applicable participants accounts. Oracle, at its discretion, may also choose to utilize available revenue sharing (based on a revenue sharing agreement between Oracle and Fidelity) or forfeited
balances of terminated participants nonvested accounts to pay for reasonable expenses related to the administration of the Plan.
Plan
Termination
Although it has not expressed any intent to do so, Oracle has the right, under provisions of the Plan, to terminate
the Plan, subject to the provisions of ERISA. In the event of the Plans termination, participants will become 100% vested in their accounts.
2.
Summary of Significant Accounting Policies
Basis of Accounting and Presentation
The accompanying financial statements of the Plan are prepared on the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes and
supplemental schedule. Actual results could differ from those estimates.
Investments Valuation and Income Recognition
The Plans investments are generally stated at their fair values with the exception of the Galliard Stable Value Fund (a
separately-managed account fund investment), which is stated at its contract value in the statements of net assets available for benefits at December 31, 2017 and 2016. The shares of registered investment companies (mutual funds) are valued at
quoted market prices. The money market funds are valued at cost plus accrued interest, which approximated fair values. Common stock, including Oracles common stock, is traded on a national securities exchange and is valued at the last reported
sales price on the last day of the Plan year. The valuation techniques used to measure the fair values of the common/collective trust funds with significant balances as of December 31, 2017 are included in Note 4 below.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on an accrual basis. Dividends are recorded
on the
ex-dividend
date.
The Oracle Stock Fund (the Fund) is tracked on a unitized basis, which
allows for daily trades. The Fund consists of Oracle common stock and investment in the Fidelity Investments Money Market Government Portfolio sufficient to meet the Funds daily cash needs. The value of a unit reflects the combined market
value of Oracle
6
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2017
common stock and the cash investments held by the Fund. At December 31, 2017, 2,313,067 units were outstanding with a value of $360.56 per unit. At December 31, 2016, 2,451,197 units
were outstanding with a value of $289.03 per unit.
Fair Value Measurements
The Plan performs fair value measurements in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification 820,
Fair Value Measurement
(ASC 820). Refer to Note 3 for the fair value measurement disclosures associated with the Plans investments.
Risks and Uncertainties
The Plan
provided for various investment options in common stock, registered investment companies (mutual funds), common/collective trusts, separately-managed account funds (including a stable value fund) and short-term investments. The Plans exposure
to credit losses in the event of nonperformance of investments is limited to the carrying value of such investments. Investment securities, in general, are exposed to various risks, such as risk of foreign currency fluctuations relative to the
U.S. Dollar, interest rate risk, credit risk, and overall market volatility risk. During the year ended December 31, 2017, net appreciation in fair values of investments totaled $2.4 billion. Due to the level of risk associated with
certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for
benefits, participant account balances and the statement of changes in net assets available for benefits.
3. Fair Value Measurements
The Plan performs fair value measurements in accordance with the guidance provided by ASC 820. 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, the Plan considers the principal or most advantageous market in which it would transact and considers 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 the Plan to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. An assets or a liabilitys 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:
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Level 1: quoted prices in active markets for identical assets or liabilities;
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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
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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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7
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2017
Investments Measured at Fair Value on a Recurring Basis
Investments measured at fair value on a recurring basis consisted of the following types of instruments (Level 1 and 2 inputs are defined
above):
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December 31, 2017
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December 31, 2016
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Fair Value Measurements
Using Input Types
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Fair Value Measurements
Using Input Types
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(in thousands)
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Level 1
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Level 2
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Total
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Level 1
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Level 2
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Total
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Money market funds
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$
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208,606
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$
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$
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208,606
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$
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223,396
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$
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$
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223,396
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Oracle Corporation and other common stock
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1,729,843
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1,729,843
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1,537,625
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1,537,625
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Mutual funds
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2,921,731
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2,921,731
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4,732,217
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4,732,217
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Corporate securities and others
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17,287
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4,067
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21,354
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7,762
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7,880
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15,642
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Total investments measured at fair value
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$
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4,877,467
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$
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4,067
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$
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4,881,534
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$
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6,501,000
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$
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7,880
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$
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6,508,880
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Common/collective trust funds measured at net asset value
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9,685,100
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5,622,520
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Total investments
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$
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14,566,634
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$
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12,131,400
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The Plans valuation techniques used to measure the fair values of money market funds, common stock,
mutual funds and corporate securities and others that were classified as Level 1 in the table above were derived from quoted market prices as substantially all of these instruments have active markets. Our level 2 instruments are valued based
on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar securities, the securities are valued using a discounted cash flow approach that maximizes
observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks. A description of the valuation techniques used to measure the fair values of
common/collective trust funds and separately-managed account fund investments with significant balances as of December 31, 2017 and 2016 are included in Note 4 below. Redemption for common collective trust funds is permitted daily with no
restrictions and
same-day
or
one-day
notice periods and there are no unfunded commitments.
4. Composition and Valuation of Certain Plan Investments
Fidelity Commingled Funds
The Plan
held investments in Fidelity Contrafund Commingled Pool, Fidelity Growth Company Commingled Pool and Fidelity
Low-Priced
Stock Commingled Pool as of December 31, 2017 and 2016 (collectively, the Fidelity
Commingled Funds). The Fidelity Commingled Funds are common/collective trust funds managed by Fidelity Management Trust Company. Fidelity Pricing and Cash Management Services, an affiliate of Fidelity Management Trust Company, determines the fair
values of the Fidelity Commingled Funds on a daily basis using the net asset value (NAV) of units held of the commingled funds. The NAV is based on the fair value of the underlying investments held by each commingled fund less its liabilities. The
fair value of the underlying investments is generally derived from the quoted prices in active markets of the underlying securities as substantially all of the underlying investments have active markets.
8
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2017
Vanguard Trusts
The Plan held investments in certain Vanguard Institutional Index Trusts and certain Vanguard Target Retirement Trusts (collectively, the
Vanguard Trusts), which are more specifically listed in Schedule H, Line 4(i)Schedule of Assets (Held at End of Year) as of December 31, 2017 and 2016. The Vanguard Trusts are common/collective trust funds sponsored and maintained by
Vanguard Fiduciary Trust Company. The trustee, Vanguard Fiduciary Trust Company, generally determines the fair values of the Vanguard Trusts units each day the New York Stock Exchange is open for trading. The underlying investments of the
Vanguard Trusts are valued based on quoted market prices as substantially all of these underlying investments have active markets. The values of the Vanguard Trusts are determined based upon the values of these underlying investments held for
benefit of the Vanguard Trusts less any liabilities.
Galliard Stable Value Fund
During the years ended December 31, 2017 and 2016, the Plan held investments in Galliard Stable Value Fund (Galliard Fund). The Galliard
Fund is exclusively managed for the Plan by Galliard Capital Management, Inc. The Galliard Fund primarily invests in common/collective trust funds in the Plans name for the sole benefit of Plan participants, security-backed investment
contracts, separate accounts guaranteed investment contracts and money market funds.
Security-backed
investment contracts are issued by insurance companies and other financial institutions that wrap underlying
bond funds, fixed income common/collective trust funds or separate accounts (Wrap Contract).
The issuer of the Wrap Contract guarantees a
minimum rate of return and provides full benefit responsiveness, provided that all terms of the Wrap Contract have been met. Wrap Contracts are normally agreements entered with issuers rated in the top three long-term rating categories (equaling
A-
or above) as determined by any of the nationally recognized rating organizations. The Galliard Fund is credited with contributions from participants and earnings on the underlying investments and charged for
participant withdrawals and administrative expenses.
As of December 31, 2017 and 2016, there were no reserves against the Wrap
Contracts carrying values due to credit risks of the issuers. Certain events limit the ability of the Plan to transact at contract value with the wrap issuer. However, the Plans management is not aware of the occurrence or likely
occurrence of any such events, which would limit the Plans ability to transact at contract value with participants. The issuer may terminate a Wrap Contract at any time.
The following table provides the disaggregation of contract value between types of investment contracts held by the Plan:
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December 31,
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(in thousands)
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2017
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2016
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Security-backed investment contracts
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$
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675,005
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$
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677,789
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Separate account guaranteed investment contracts
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88,687
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89,274
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Total investment contracts
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$
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763,692
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$
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767,063
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5. Income Tax Status
On October 20, 2015, the Plan received a determination letter from the IRS stating that the Plan is qualified under Section 401(a) of
the Code, and therefore, the related trust is exempt from taxation. This determination
9
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2017
letter superseded the determination letters issued by the IRS on April 3, 2015 and May 29, 2014. The 401(k) Committee believes the Plan is being operated in compliance with the
applicable requirements of the Code and, therefore, believes that the Plan is qualified and the related trust is tax exempt. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in
progress.
6.
Party-in-Interest
Transactions
Transactions in shares of Oracle common stock qualify as
party-in-interest
transactions under the provisions of ERISA. During the year ended December 31, 2017, the Plan made purchases of approximately $41,565,000 and
sales of approximately $60,898,000 of Oracle common stock. In addition, the Plan made
in-kind
transfers of Oracle common stock to participants, related to certain qualifying distribution, of approximately
$16,402,000 during the year ended December 31, 2017.
Certain members of Oracle Corporation management perform administrative and
fiduciary duties for the Plan that qualify them as
parties-in-interest
and/or related parties of the Plan. Transactions between such members of Oracle Corporation
management and the Plan were routine in nature and conducted pursuant to the Plans provisions as of and during the year ended December 31, 2017.
As described in Note 1 above, Fidelity Management Trust Company is a directed trustee of the Plan and Fidelity Investments Institutional
Operations Company, Inc. serves as the record keeper to maintain the individual accounts of each Plan participant. Certain Plan investments include shares of mutual funds that are managed by affiliates of Fidelity.
7. Differences between Financial Statements and Form 5500
The following is a reconciliation of the net assets available for benefits per the financial statements to the Plans Form 5500:
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December 31,
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(in thousands)
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2017
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2016
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Net assets available for benefits
per the financial statements
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|
$
|
15,444,333
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|
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$
|
13,015,463
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Adjustment from contract value to fair value of certain Galliard Stable Value Fund assets
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(388
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)
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695
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Amounts allocated to withdrawing participants and other
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(1,190
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)
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(1,285
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)
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Net assets available for benefits per the Form 5500
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$
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15,442,755
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$
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13,014,873
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The following is a reconciliation of the changes in net assets available for benefits per the financial
statements to the Plans Form 5500:
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Year Ended December 31,
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(in thousands)
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2017
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2016
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Net increase in net assets available for benefits per the financial statements
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|
$
|
2,428,870
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|
|
$
|
1,025,320
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Net change in fair value adjustment of certain Galliard Stable Value Fund assets
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(1,083
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)
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|
(2,301
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)
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Net change in amounts allocated to withdrawing participants and other
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95
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(92
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)
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Net income per the Form 5500
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|
$
|
2,427,882
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$
|
1,022,927
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10
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2017
The fair value adjustment for certain Galliard Stable Value Fund assets represented the
differences between contract values of certain fully benefit-responsive contracts within the Galliard Fund as included in the statements of changes in net assets available for benefits for the years ended December 31, 2017 and 2016, and the
respective fair values of these contracts as reported in the respective Form 5500. Certain investments within the Galliard Fund are presented at contract value in both the statements of changes in net assets available for benefits and the Form 5500,
and therefore, do not result in a difference between the Plans financial statements and the Form 5500. Amounts allocated to withdrawing participants are recorded on the Form 5500 for benefit claims that have been processed and approved for
payment prior to each respective
year-end
but were not yet paid.
8. Excess Contributions
Contributions received from participants for the year ended December 31, 2017 included approximately $257,000 of excess contributions (net
of corresponding gains and losses) that were remitted during January 2018 through April 2018 to certain participants. The excess deferral contributions, originally deducted in the year ended December 31, 2017, were returned to comply with the
participants applicable maximum annual contributions permitted under the Code. The amount is included in the Plans statement of net assets available for benefits as excess deferrals due to participants at December 31, 2017.
11