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SEGMENT INFORMATION
 9 Months Ended
Feb. 29, 2016
Segment Information [Abstract]  
SEGMENT INFORMATION

11.    SEGMENT INFORMATION

 

ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision makers are our Chief Executive Officers. We are organized geographically and by line of business. While our Chief Executive Officers evaluate results in a number of different ways, the line of business management structure is the primary basis for which the allocation of resources and financial results are assessed.

 

We have three businesses—cloud and on-premise software, hardware and services—which are further divided into certain operating segments. Our cloud and on-premise software business is comprised of three operating segments: (1) cloud software and on-premise software, which includes our cloud SaaS and PaaS offerings, (2) cloud infrastructure as a service and (3) software license updates and product support. Our hardware business is comprised of two operating segments: (1) hardware products and (2) hardware support. All other operating segments are combined under our services business.

 

Our cloud software and on-premise software line of business markets, sells and delivers our application and platform technologies, including our SaaS and PaaS offerings, which provide customers a choice of software applications and platforms that are delivered via a cloud-based IT environment that we host, manage and support, and the licensing of our software products including Oracle Applications, Oracle Database, Oracle Fusion Middleware and Java, among others.

 

The cloud infrastructure as a service line of business provides comprehensive software and hardware management and maintenance services for customer IT infrastructure for a fee for a stated term that is hosted at our data center facilities, select partner data centers or physically on-premise at customer facilities; and deployment and management offerings for our software and hardware and related IT infrastructure including virtual machine instances that are subscription-based and designed for computing and reliable and secure object storage. 

 

The software license updates and product support line of business generates revenues through the sale of software support contracts relating to on-premise new software licenses purchased by our customers. The software license updates and product support line of business provides our on-premise software customers with rights to software product upgrades and maintenance releases, patches released, internet access to technical content, as well as internet and telephone access to technical support personnel during the support period.

 

The hardware line of business provides Oracle Engineered Systems, servers, storage, networking, industry specific hardware, virtualization software, operating systems including the Oracle Solaris Operating System and management software to support diverse IT environments, including cloud computing environments.

 

Our hardware support line of business provides customers with software updates for the software components that are essential to the functionality of our hardware products, such as Oracle Solaris and certain other software products, and can include product repairs, maintenance services and technical support services. 

 

Our services business is comprised of the remainder of our operating segments and offers consulting, advanced customer support services and education services. Our consulting line of business primarily provides services to customers in business and IT strategy alignment, enterprise architecture planning and design, initial product implementation and integration and ongoing product enhancements and upgrades. Advanced customer support provides support services, both on-premise and remote, to our customers to enable increased performance and higher availability of their products and services and also includes certain other services. Education services provide training to customers, partners and employees as a part of our mission of accelerating the adoption and use of our software and hardware products and to create opportunities to grow our product revenues.

 

We do not track our assets by operating segments. Consequently, it is not practical to show assets by operating segment.

 

The following table presents summary results for each of our three businesses and for the operating segments of our cloud and on-premise software and hardware businesses:

 

 

 

 

Three Months Ended

 

Nine Months Ended

(in millions)

 

February 29,

 

February 28,

 

February 29,

 

February 28,

2016

2015

2016

2015

Cloud software and on-premise software:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

2,265

 

$

2,356

 

$

6,030

 

$

6,469

Cloud software as a service and platform as a service expenses

 

 

284

 

 

195

 

 

822

 

 

494

Sales and distribution expenses

 

 

1,469

 

 

1,390

 

 

4,224

 

 

4,106

Margin(2)

 

$

512

 

$

771

 

$

984

 

$

1,869

Cloud infrastructure as a service:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

152

 

$

155

 

$

477

 

$

448

Cloud infrastructure as a service expenses

 

 

84

 

 

84

 

 

256

 

 

242

Sales and distribution expenses

 

 

17

 

 

25

 

 

54

 

 

65

Margin(2)

 

$

51

 

$

46

 

$

167

 

$

141

Software license updates and product support:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

4,669

 

$

4,664

 

$

14,049

 

$

14,170

Software license updates and product support expenses

 

 

276

 

 

281

 

 

823

 

 

820

Margin(2)

 

$

4,393

 

$

4,383

 

$

13,226

 

$

13,350

Total cloud and on-premise software business:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

7,086

 

$

7,175

 

$

20,556

 

$

21,087

Expenses

 

 

2,130

 

 

1,975

 

 

6,179

 

 

5,727

Margin(2)

 

$

4,956

 

$

5,200

 

$

14,377

 

$

15,360

Hardware products:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

604

 

$

712

 

$

1,746

 

$

2,007

Hardware products expenses

 

 

337

 

 

366

 

 

963

 

 

1,030

Sales and distribution expenses

 

 

197

 

 

211

 

 

614

 

 

632

Margin(2)

 

$

70

 

$

135

 

$

169

 

$

345

Hardware support:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

531

 

$

588

 

$

1,640

 

$

1,794

Hardware support expenses

 

 

165

 

 

209

 

 

504

 

 

602

Margin(2)

 

$

366

 

$

379

 

$

1,136

 

$

1,192

Total hardware business:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

1,135

 

$

1,300

 

$

3,386

 

$

3,801

Expenses

 

 

699

 

 

786

 

 

2,081

 

 

2,264

Margin(2)

 

$

436

 

$

514

 

$

1,305

 

$

1,537

Total services business:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

793

 

$

859

 

$

2,519

 

$

2,653

Services expenses

 

 

630

 

 

694

 

 

1,976

 

 

2,097

Margin(2)

 

$

163

 

$

165

 

$

543

 

$

556

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

$

9,014

 

$

9,334

 

$

26,461

 

$

27,541

Expenses

 

 

3,459

 

 

3,455

 

 

10,236

 

 

10,088

Margin(2) 

$

5,555

 

$

5,879

 

$

16,225

 

$

17,453

 

______________________

(1)

Cloud software and on-premise software, software license updates and product support and hardware support revenues for management reporting included revenues related to cloud SaaS and PaaS, software support and hardware support contracts that would have otherwise been recorded by the acquired businesses as independent entities but were not recognized in our condensed consolidated statements of operations for the periods presented. See Note 7 for an explanation of these adjustments and the table below for a reconciliation of our total operating segment revenues to our total revenues as reported in our condensed consolidated statements of operations. Our cloud software and on-premise software and services revenues for management reporting also differ from amounts reported per our consolidated statements of operations for the periods presented due to certain insignificant reclassifications between these lines for management reporting purposes.

 

 

(2)

The margins reported reflect only the direct controllable costs of each line of business and do not include allocations of product development, marketing and partner programs, and corporate, general and administrative and information technology expenses. Additionally, the margins reported do not reflect amortization of intangible assets, acquisition related and other expenses, restructuring expenses, stock-based compensation, interest expense or certain other income (expense), net.

 

The following table reconciles total operating segment revenues to total revenues as well as total operating segment margin to income before provision for income taxes:

 

 

Three Months Ended

 

Nine Months Ended

(in millions)

 

February 29,

 

February 28, 2015

 

February 29, 2016

 

February 28, 2015

2016

Total revenues for operating segments

 

$

9,014

 

$

9,334

 

$

 26,461

 

$

27,541

Cloud software as a service and platform as a service revenues(1)

 

 

(2)

 

 

(3)

 

 

(6)

 

 

(9)

Software license updates and product support revenues(1)

 

 

—

 

 

(3)

 

 

(1)

 

 

(9)

Hardware support revenues(1)

 

 

—

 

 

(1)

 

 

(1)

 

 

(3)

Total revenues

 

$

9,012

 

$

9,327

 

$

26,453

 

$

27,520

 

Total margin for operating segments

 

$

5,555

 

$

5,879

 

$

16,225

 

$

17,453

Cloud software as a service and platform as a service revenues(1)

 

 

(2)

 

 

(3)

 

 

(6)

 

 

(9)

Software license updates and product support revenues(1)

 

 

—

 

 

            (3)

 

 

(1)

 

 

(9)

Hardware support revenues(1)

 

 

—

 

 

(1)

 

 

(1)

 

 

(3)

Product development

 

 

(1,219)

 

 

(1,180)

 

 

(3,652)

 

 

(3,562)

Marketing and partner program expenses

 

 

(110)

 

 

(116)

 

 

(356)

 

 

(370)

Corporate, general and administrative and information technology expenses

 

 

(403)

 

 

(377)

 

 

(1,197)

 

 

(1,105)

Amortization of intangible assets

 

 

(408)

 

 

(527)

 

 

(1,283)

 

 

(1,642)

Acquisition related and other

 

 

(11)

 

 

   (8)

 

 

(35)

 

 

(12)

Restructuring

 

 

(115)

 

 

(48)

 

 

(293)

 

 

(168)

Stock-based compensation

 

 

(260)

 

 

(233)

 

 

(765)

 

 

(684)

Interest expense

 

 

(360)

 

 

(273)

 

 

(1,105)

 

 

(817)

Non-operating income, net

 

 

65

 

 

                    40

 

 

179

 

 

                  65

Income before provision for income taxes

 

$

2,732

 

$

3,150

 

$

7,710

 

$

9,137

______________________

(1)

Cloud software as a service and platform as a service revenues, software license updates and product support revenues and hardware support revenues for management reporting included revenues that would have otherwise been recorded by our acquired businesses as independent entities but were not recognized in our condensed consolidated statements of operations for the periods presented due to business combination accounting requirements.