| SEGMENT INFORMATION | 9. 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 (CODMs) are our Chief Executive Officer and Chief Technology Officer. We are organized by line of business and geographically. While our CODMs 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. The tabular information below presents financial information that is provided to our CODMs for their review and assists our CODMs with evaluating the company’s performance and allocating company resources . We have three businesses—cloud and license, hardware and services—each of which is comprised of a single operating segment. All three of our businesses market and sell our offerings globally to businesses of many sizes, government agencies, educational institutions and resellers with a worldwide sales force positioned to offer the combinations that best meet customer needs. Our cloud and license business engages in the sale, marketing and delivery of our enterprise applications and infrastructure technologies through cloud and on-premise deployment models including our cloud services and license support offerings; and our cloud license and on-premise license offerings. Cloud services and license support revenues are generated from offerings that are typically contracted with customers directly, billed to customers in advance, delivered to customers over time with our revenue recognition occurring over the contractual terms and renewed by customers upon completion of the contractual terms. Cloud services and license support contracts provide customers with access to the latest updates to the applications and infrastructure technologies as they become available and for which the customer contracted and also include related technical support services over the contractual term. 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. We generally recognize revenues at the point in time the software is made available to the customer to download and use, which typically is immediate upon signature of the license contract. In each fiscal year, our cloud and license business’ contractual activities are typically highest in our fourth fiscal quarter and the related cash flows are typically highest in the following quarter (i.e., in the first fiscal quarter of the next fiscal year) as we receive payments from these contracts. Our hardware business provides infrastructure technologies including Oracle Engineered Systems, servers, storage, industry-specific hardware, operating systems, virtualization, management and other hardware-related software to support diverse IT environments. Our hardware business also offers hardware support, which provides customers with software updates for the software components that are essential to the functionality of their hardware products and can also include product repairs, maintenance services and technical support services that are typically delivered and recognized ratably over the contractual term. Our services business provides services to customers and partners to help maximize the performance of their investments in Oracle applications and infrastructure technologies. We do not track our assets for each business. Consequently, it is not practical to show assets by operating segment. The following table presents summary results for each of our three businesses:
Three Months Ended Nine Months Ended
(in millions) February 29, February 28, February 29, February 28,
Cloud and license:
Revenues $ 11,219 $ 10,211 $ 32,392 $ 29,565
Cloud services and license support expenses 2,288 1,842 6,433 5,209
Sales and marketing expenses 1,758 1,874 5,339 5,738
Margin (1) $ 7,173 $ 6,495 $ 20,620 $ 18,618
Hardware:
Revenues $ 754 $ 811 $ 2,224 $ 2,424
Hardware products and support expenses 208 236 623 758
Sales and marketing expenses 72 81 220 243
Margin (1) $ 474 $ 494 $ 1,381 $ 1,423
Services:
Revenues $ 1,307 $ 1,376 $ 4,058 $ 4,129
Services expenses 1,120 1,147 3,431 3,265
Margin (1) $ 187 $ 229 $ 627 $ 864
Totals:
Revenues $ 13,280 $ 12,398 $ 38,674 $ 36,118
Expenses 5,446 5,180 16,046 15,213
Margin (1) $ 7,834 $ 7,218 $ 22,628 $ 20,905 (1) The margins reported reflect only the direct controllable costs of each line of business and do not include allocations of research and development, general and administrative and certain other allocable expenses, net. Additionally, the margins reported above do not reflect amortization of intangible assets, acquisition related and other expenses, restructuring expenses, stock-based compensation, interest expense or certain other non-operating expenses, net. Refer to the table below for a reconciliation of our total margin for operating segments to our income before income taxes as reported per our condensed consolidated statements of operations. The following table reconciles total operating segment margin to income before income taxes:
Three Months Ended Nine Months Ended
(in millions) February 29, February 28, February 29, February 28,
Total margin for operating segments $ 7,834 $ 7,218 $ 22,628 $ 20,905
Research and development ( 2,248 ) ( 2,146 ) ( 6,689 ) ( 6,397 )
General and administrative ( 377 ) ( 402 ) ( 1,146 ) ( 1,179 )
Amortization of intangible assets ( 749 ) ( 886 ) ( 2,267 ) ( 2,712 )
Acquisition related and other ( 155 ) ( 37 ) ( 214 ) ( 140 )
Restructuring ( 90 ) ( 78 ) ( 311 ) ( 359 )
Stock-based compensation for operating segments ( 368 ) ( 316 ) ( 1,014 ) ( 864 )
Expense allocations and other, net ( 97 ) ( 93 ) ( 320 ) ( 301 )
Interest expense ( 876 ) ( 908 ) ( 2,636 ) ( 2,550 )
Non-operating expenses, net ( 9 ) ( 134 ) ( 72 ) ( 386 )
Income before income taxes $ 2,865 $ 2,218 $ 7,959 $ 6,017 Disaggregation of Revenues We have considered information that is regularly reviewed by our CODMs in evaluating financial performance and disclosures presented outside of our financial statements in our earnings releases and used in investor presentations to disaggregate revenues to depict how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. The principal category we use to disaggregate revenues is the nature of our products and services as presented in our condensed consolidated statements of operations. The following table is a summary of our total revenues by geographic region:
Three Months Ended Nine Months Ended
(in millions) February 29, February 28, February 29, February 28,
Americas $ 8,270 $ 7,671 $ 24,177 $ 22,649
EMEA (1) 3,316 3,067 9,491 8,653
Asia Pacific 1,694 1,660 5,006 4,816
Total revenues $ 13,280 $ 12,398 $ 38,674 $ 36,118 (1) Comprised of Europe, the Middle East and Africa The following table presents our cloud services and license support revenues by offerings:
Three Months Ended Nine Months Ended
(in millions) February 29, February 28, February 29, February 28,
Cloud services $ 5,054 $ 4,053 $ 14,464 $ 11,445
License support 4,909 4,870 14,685 14,493
Total cloud services and license support revenues $ 9,963 $ 8,923 $ 29,149 $ 25,938 The following table presents our cloud services and license support revenues by applications and infrastructure ecosystems:
Three Months Ended Nine Months Ended
(in millions) February 29, February 28, February 29, February 28,
Applications cloud services and license support $ 4,584 $ 4,166 $ 13,529 $ 12,262
Infrastructure cloud services and license support 5,379 4,757 15,620 13,676
Total cloud services and license support revenues $ 9,963 $ 8,923 $ 29,149 $ 25,938 |
