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SEGMENT INFORMATION | 6 Months Ended
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Nov. 30, 2020
Segment Reporting [Abstract] |
SEGMENT INFORMATION |
10. | 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 the financial information 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 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, such as Oracle Solaris and certain other software, and can also include product repairs, maintenance services and technical support services. 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 November 30, |  |  | Six Months Ended November 30, |
(in millions) |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Cloud and license: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues(1) |  | $ | 8,204 |  |  | $ | 7,938 |  |  | $ | 16,038 |  |  | $ | 15,556 |
Cloud services and license support expenses |  |  | 1,008 |  |  |  | 970 |  |  |  | 1,966 |  |  |  | 1,901 |
Sales and marketing expenses |  |  | 1,620 |  |  |  | 1,856 |  |  |  | 3,253 |  |  |  | 3,612 |
Margin(2) |  | $ | 5,576 |  |  | $ | 5,112 |  |  | $ | 10,819 |  |  | $ | 10,043 |
Hardware: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  | $ | 844 |  |  | $ | 871 |  |  | $ | 1,658 |  |  | $ | 1,686 |
Hardware products and support expenses |  |  | 236 |  |  |  | 277 |  |  |  | 475 |  |  |  | 541 |
Sales and marketing expenses |  |  | 94 |  |  |  | 114 |  |  |  | 192 |  |  |  | 231 |
Margin(2) |  | $ | 514 |  |  | $ | 480 |  |  | $ | 991 |  |  | $ | 914 |
Services: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  | $ | 752 |  |  | $ | 806 |  |  | $ | 1,472 |  |  | $ | 1,593 |
Services expenses |  |  | 595 |  |  |  | 700 |  |  |  | 1,180 |  |  |  | 1,365 |
Margin(2) |  | $ | 157 |  |  | $ | 106 |  |  | $ | 292 |  |  | $ | 228 |
Totals: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues(1) |  | $ | 9,800 |  |  | $ | 9,615 |  |  | $ | 19,168 |  |  | $ | 18,835 |
Expenses |  |  | 3,553 |  |  |  | 3,917 |  |  |  | 7,066 |  |  |  | 7,650 |
Margin(2) |  | $ | 6,247 |  |  | $ | 5,698 |  |  | $ | 12,102 |  |  | $ | 11,185 |
(1) | Cloud and license revenues presented for management reporting included revenues related to cloud and license obligations 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 due to business combination accounting requirements. See Note 9 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended May 31, 2020 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.
(2) | 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 income, 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 November 30, |  |  | Six Months Ended November 30, |
(in millions) |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Total revenues for operating segments |  | $ | 9,800 |  |  | $ | 9,615 |  |  | $ | 19,168 |  |  | $ | 18,835 |
Cloud and license revenues(1) |  |  | — |  |  |  | (1 | ) |  |  | (1 | ) |  |  | (3 | )
Total revenues |  | $ | 9,800 |  |  | $ | 9,614 |  |  | $ | 19,167 |  |  | $ | 18,832 |
Total margin for operating segments |  | $ | 6,247 |  |  | $ | 5,698 |  |  | $ | 12,102 |  |  | $ | 11,185 |
Cloud and license revenues(1) |  |  | — |  |  |  | (1 | ) |  |  | (1 | ) |  |  | (3 | )
Research and development |  |  | (1,601 | ) |  |  | (1,531 | ) |  |  | (3,190 | ) |  |  | (3,088 | )
General and administrative |  |  | (324 | ) |  |  | (323 | ) |  |  | (619 | ) |  |  | (615 | )
Amortization of intangible assets |  |  | (345 | ) |  |  | (407 | ) |  |  | (690 | ) |  |  | (821 | )
Acquisition related and other |  |  | (76 | ) |  |  | (12 | ) |  |  | (95 | ) |  |  | (37 | )
Restructuring |  |  | (96 | ) |  |  | (42 | ) |  |  | (270 | ) |  |  | (120 | )
Stock-based compensation for operating segments |  |  | (133 | ) |  |  | (84 | ) |  |  | (249 | ) |  |  | (220 | )
Expense allocations and other, net |  |  | (89 | ) |  |  | (115 | ) |  |  | (194 | ) |  |  | (221 | )
Interest expense |  |  | (600 | ) |  |  | (465 | ) |  |  | (1,214 | ) |  |  | (959 | )
Non-operating (expense) income, net |  |  | (11 | ) |  |  | 92 |  |  |  | (13 | ) |  |  | 191 |
Income before provision for income taxes |  | $ | 2,972 |  |  | $ | 2,810 |  |  | $ | 5,567 |  |  | $ | 5,292 |
(1) | Cloud and license revenues presented for management reporting included revenues related to cloud and license obligations 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 due to business combination accounting requirements. See Note 9 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended May 31, 2020 for an explanation of these adjustments and this table for a reconciliation of our total operating segment revenues to our total revenues as reported in our condensed consolidated statements of operations.
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 total of which is reconciled to revenues from our reportable segments as per the preceding tables of this footnote. The following table is a summary of our total revenues by geographic region. The relative proportion of our total revenues between each geographic region as presented in the table below was materially consistent across each of our operating segments’ revenues for the periods presented.
|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
(in millions) |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Americas |  | $ | 5,259 |  |  | $ | 5,304 |  |  | $ | 10,327 |  |  | $ | 10,454 |
EMEA(1) |  |  | 2,852 |  |  |  | 2,695 |  |  |  | 5,590 |  |  |  | 5,248 |
Asia Pacific |  |  | 1,689 |  |  |  | 1,615 |  |  |  | 3,250 |  |  |  | 3,130 |
Total revenues |  | $ | 9,800 |  |  | $ | 9,614 |  |  | $ | 19,167 |  |  | $ | 18,832 |
(1) | Comprised of Europe, the Middle East and Africa
The following table presents our cloud services and license support revenues by applications and infrastructure ecosystems.
|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
(in millions) |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Applications cloud services and license support |  | $ | 2,901 |  |  | $ | 2,753 |  |  | $ | 5,717 |  |  | $ | 5,457 |
Infrastructure cloud services and license support |  |  | 4,211 |  |  |  | 4,058 |  |  |  | 8,342 |  |  |  | 8,159 |
Total cloud services and license support revenues |  | $ | 7,112 |  |  | $ | 6,811 |  |  | $ | 14,059 |  |  | $ | 13,616 |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8924-108599 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8981-108599 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 21 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9031-108599 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -Subparagraph (e) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8844-108599 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9038-108599 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 22 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8736-108599 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9054-108599 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8657-108599 Reference 13: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 21 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599 Reference 14: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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