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SEGMENT INFORMATION
 12 Months Ended
May 31, 2016
Segment Information [Abstract]  
SEGMENT INFORMATION

16. 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 IaaS 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 a broad spectrum of application and platform technologies through our SaaS and PaaS offerings, which are certain of our software applications and platforms that are delivered via a cloud-based IT environment that we host, manage and support, and through the licensing of our software products including Oracle Applications, Oracle Database, Oracle Fusion Middleware and Java, among others.

 

The cloud IaaS line of business provides infrastructure cloud services that are enterprise-grade, hosted and supported within the Oracle Cloud to perform elastic compute, storage and networking services on a subscription basis; and Oracle Managed Cloud Services, which are comprehensive software and hardware management and maintenance services for customer IT infrastructure for a fee for a stated term that are hosted at our Oracle data center facilities, select partner data centers or physically on-premise at customer facilities.

 

The software license updates and product support line of business generates revenues through the sale of software support contracts related to 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 products 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 cloud, on-premise software and hardware offerings.

 

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:

 

 

 

 

Year Ended May 31,

(in millions)

 

2016

 

2015

 

2014

Cloud software and on-premise software:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

9,488

 

$

10,025

 

$

10,542

Cloud software as a service and platform as a service expenses

 

 

1,116

 

 

742

 

 

437

Sales and distribution expenses

 

 

6,010

 

 

5,812

 

 

5,666

Margin(2)

 

$

2,362

 

$

3,471

 

$

4,439

Cloud infrastructure as a service:

 

 

 

 

 

 

 

 

 

Revenues

 

$

646

 

$

608

 

$

456

Cloud infrastructure as a service expenses

 

 

352

 

 

329

 

 

304

Sales and distribution expenses

 

 

74

 

 

89

 

 

61

Margin(2)

 

$

220

 

$

190

 

$

91

Software license updates and product support:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

18,863

 

$

18,858

 

$

18,209

Software license updates and product support expenses

 

 

1,077

 

 

1,130

 

 

1,111

Margin(2)

 

$

17,786

 

$

17,728

 

$

17,098

Total cloud and on-premise software business:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

28,997

 

$

29,491

 

$

29,207

Expenses

 

 

8,629

 

 

8,102

 

 

7,579

Margin(2)

 

$

20,368

 

$

21,389

 

$

21,628

Hardware products:

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,471

 

$

2,825

 

$

2,976

Hardware products expenses

 

 

1,364

 

 

1,465

 

 

1,516

Sales and distribution expenses

 

 

850

 

 

864

 

 

940

Margin(2)

 

$

257

 

$

496

 

$

520

Hardware support:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

2,198

 

$

2,384

 

$

2,407

Hardware support expenses

 

 

665

 

 

783

 

 

802

Margin(2)

 

$

1,533

 

$

1,601

 

$

1,605

Total hardware business:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

4,669

 

$

5,209

 

$

5,383

Expenses

 

 

2,879

 

 

3,112

 

 

3,258

Margin(2)

 

$

1,790

 

$

2,097

 

$

2,125

Total services business:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

3,391

 

$

3,553

 

$

3,716

Services expenses

 

 

2,645

 

 

2,818

 

 

2,822

Margin(2)

 

$

746

 

$

735

 

$

894

Totals:

 

 

 

 

 

 

 

 

 

Revenues(1)

$

37,057

 

$

38,253

 

$

38,306

Expenses

 

$

14,153

 

 

14,032

 

 

13,659

Margin(2) 

$

22,904

 

$

24,221

 

$

24,647

 

 

 

 

 

 

 

 

 

 

__________

(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 consolidated statements of operations for the periods presented. See Note 10 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 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 IT 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:

 

 

Year Ended May 31,

(in millions)

 

2016

 

2015

 

2014

Total revenues for operating segments

 

$

37,057

 

$

38,253

 

$

38,306

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

 

 

(7)

 

 

(12)

 

 

(17)

Software license updates and product support revenues(1)

 

 

(2)

 

 

(11)

 

 

(3)

Hardware support revenues(1)

 

 

(1)

 

 

(4)

 

 

(11)

Total revenues

 

$

37,047

 

$

38,226

 

$

38,275

 

Total margin for operating segments

 

$

22,904

 

$

24,221

 

$

24,647

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

 

 

(7)

 

 

(12)

 

 

(17)

Software license updates and product support revenues(1)

 

 

(2)

 

 

(11)

 

 

(3)

Hardware support revenues(1)

 

 

(1)

 

 

(4)

 

 

(11)

Product development

 

 

(4,978)

 

 

(4,812)

 

 

(4,590)

Marketing and partner program expenses

 

 

(505)

 

 

(520)

 

 

(564)

Corporate, general and administrative and information technology expenses

 

 

(1,635)

 

 

(1,496)

 

 

(1,384)

Amortization of intangible assets

 

 

(1,638)

 

 

(2,149)

 

 

(2,300)

Acquisition related and other

 

 

(42)

 

 

(211)

 

 

(41)

Restructuring

 

 

(458)

 

 

(207)

 

 

(183)

Stock-based compensation

 

 

(1,034)

 

 

(928)

 

 

(795)

Interest expense

 

 

(1,467)

 

 

(1,143)

 

 

(914)

Non-operating income (expense), net

 

 

305

 

 

106

 

 

(141)

Income before provision for income taxes

 

$

11,442

 

$

12,834

 

$

13,704

__________

(1)

Cloud SaaS and PaaS 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 consolidated statements of operations for the periods presented due to business combination accounting requirements.

 

Geographic Information

 

Disclosed in the table below is geographic information for each country that comprised greater than three percent of our total revenues for any of fiscal 2016, 2015 or 2014.

 

 

 

As of and for the Year Ended May 31,

 

 

2016

 

2015

 

2014

(in millions)

 

Revenues

 

Long Lived Assets(1)

 

Revenues

 

Long Lived Assets(1)

 

Revenues

 

Long Lived Assets(1)

United States

 

$

17,264

 

$

3,646

 

$

17,325

 

$

3,341

 

$

16,809

 

$

 2,993

United Kingdom

 

 

2,349

 

 

 334

 

 

2,388

 

 

 309

 

 

2,309

 

 

 236

Japan

 

 

1,465

 

 

375

 

 

1,433

 

 

338

 

 

1,558

 

 

414

Germany

 

 

1,438

 

 

40

 

 

1,466

 

 

33

 

 

1,483

 

 

35

Canada

 

 

1,096

 

 

44

 

 

1,286

 

 

58

 

 

1,190

 

 

 31

France

 

 

1,039

 

 

 26

 

 

1,044

 

 

 33

 

 

1,148

 

 

 28

Other countries

 

 

12,396

 

 

963

 

 

13,284

 

 

1,007

 

 

13,778

 

 

879

Total

 

$

37,047

 

$

5,428

 

$

38,226

 

$

5,119

 

$

38,275

 

$

 4,616

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

__________

(1)

Long-lived assets exclude goodwill, intangible assets, equity investments and deferred taxes, which are not allocated to specific geographic locations as it is impracticable to do so.