Notes to Financial Statements
December 31, 2016
1. Description of
the Plan
The following description of the Oracle Corporation 401(k) Savings and Investment Plan (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, 2016 ($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. Effective October 1, 2016, 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, 2016
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, 2016, Oracle used $5,975,000 of forfeited balances to reduce its matching contribution obligations. The amounts of unallocated forfeitures at December 31, 2016 and 2015 were $681,000 and
$936,000, 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, 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, 2016
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 choose to utilize available revenue sharing (based on a revenue sharing agreement between Oracle and Fidelity) 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 (U.S. GAAP). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could
differ from those estimates.
During 2016, the Plan adopted Financial Accounting Standards Board Accounting Standards Update No. 2015-12,
Plan
Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part
III) Measurement Date Practical Expedient
(ASU 2015-12) and Accounting Standards Update No. 2015-07,
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or
Its Equivalent)
(ASU 2015-07), both of which required that certain 2015 balances be reclassified and related disclosures revised to conform to the 2016 presentation and neither of which had a material impact to the Plans financial
statements and notes thereto.
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, 2016 and 2015. 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, 2016 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.
6
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2016
The Oracle Stock Fund (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 common stock and the cash
investments held by the Fund. At December 31, 2016, 2,451,197 units were outstanding with a value of $289.03 per unit. At December 31, 2015, 2,573,027 units were outstanding with a value of $270.57 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, 2016, net
appreciation in fair values of investments totaled $798 million. 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, 2016
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, 2016
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December 31, 2015
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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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223,396
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$
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$
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223,396
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$
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172,288
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$
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$
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172,288
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Oracle Corporation and other common stock
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1,537,625
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1,537,625
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1,502,351
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1,502,351
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Mutual funds
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4,732,217
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4,732,217
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4,180,038
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4,180,038
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Corporate securities and others
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7,762
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7,880
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15,642
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4,162
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8,011
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|
|
12,173
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Total investments measured at fair value
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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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$
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5,858,839
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|
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$
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8,011
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$
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5,866,850
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Common/collective trust funds measured at net asset value
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5,622,520
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5,354,280
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Investments, at fair value
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$
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12,131,400
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$
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11,221,130
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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. The Plans valuation techniques used to measure the fair
value of level 2 instruments listed in the table above were derived from the following: non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as
discounted cash flow techniques, with all significant inputs derived from or corroborated by various observable market data. 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, 2016 and 2015 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, 2016 and 2015 (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, 2016
Vanguard Target Retirement Trusts
The Plan held investments in Vanguard Target Retirement Trusts (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, 2016 and 2015. 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, 2016 and 2015, 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, 2016 and 2015, 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 (in thousands):
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December 31,
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2016
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|
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2015
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Security-backed investment contracts
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$
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677,789
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$
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566,325
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Separate account guaranteed investment contracts
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89,274
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80,554
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Total investment contracts
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$
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767,063
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$
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646,879
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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, 2016
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,
2016, the Plan made purchases of approximately $51,963,000 and sales of approximately $65,611,000 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 $12,426,000 during the year ended December 31, 2016.
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, 2016.
As noted 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 (in thousands):
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December 31,
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2016
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2015
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Net assets available for benefits per the financial statements
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|
$
|
13,015,463
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|
|
$
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11,990,143
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Adjustment from contract value to fair value of certain Galliard Stable Value Fund assets
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695
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2,683
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Amounts allocated to withdrawing participants and other
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(1,285
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)
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(880
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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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13,014,873
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$
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11,991,946
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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 (in thousands):
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Year Ended December 31,
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2016
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2015
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Net increase (decrease) in net assets available for benefits per the financial statements
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$
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1,025,320
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$
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(115,213
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)
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Net change in fair value adjustment of certain Galliard Stable Value Fund assets
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|
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(2,301
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)
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|
|
(5,201
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)
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Net change in amounts allocated to withdrawing participants and other
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(92
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)
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|
|
447
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Net income (loss) per the Form 5500
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|
$
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1,022,927
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|
$
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(119,967
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)
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10
Oracle Corporation
401(k) Savings and Investment Plan
Notes to Financial Statements(Continued)
December 31, 2016
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, 2016 and 2015, 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, 2016 included approximately $202,000 of excess contributions (net of
corresponding gains and losses) that were remitted during January 2017 through April 2017 to certain participants. The excess deferral contributions, originally deducted in the year ended December 31, 2016, 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, 2016.
11