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SEGMENT INFORMATION
 3 Months Ended
Aug. 31, 2015
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; 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; and certain of our Oracle Engineered Systems and related support offerings that are deployed in our customers’ data centers for a monthly fee. 

 

The software license updates and product support line of business provides 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. 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

August 31,

(in millions)

 

2015

 

2014

Cloud software and on-premise software:

 

 

 

 

 

 

Revenues(1)

 

$

1,603

 

$

1,707

Cloud software as a service and platform as a service expenses

 

 

268

 

 

143

Sales and distribution expenses

 

 

1,286

 

 

1,279

Margin(2)

 

$

49

 

$

285

Cloud infrastructure as a service:

 

 

 

 

 

 

Revenues

 

$

160

 

$

138

Cloud infrastructure as a service expenses

 

 

85

 

 

76

Sales and distribution expenses

 

 

22

 

 

18

Margin(2)

 

$

53

 

$

44

Software license updates and product support:

 

 

 

 

 

 

Revenues(1)

 

$

4,697

 

$

4,731

Software license updates and product support expenses

 

 

271

 

 

257

Margin(2)

 

$

4,426

 

$

4,474

Total cloud and on-premise software business:

 

 

 

 

 

 

Revenues(1)

 

$

6,460

 

$

6,576

Expenses

 

 

1,932

 

 

1,773

Margin(2)

 

$

4,528

 

$

4,803

Hardware products:

 

 

 

 

 

 

Revenues

 

$

570

 

$

578

Hardware products expenses

 

 

301

 

 

297

Sales and distribution expenses

 

 

204

 

 

201

Margin(2)

 

$

65

 

$

80

Hardware support:

 

 

 

 

 

 

Revenues(1)

 

$

559

 

$

588

Hardware support expenses

 

 

172

 

 

184

Margin(2)

 

$

387

 

$

404

Total hardware business:

 

 

 

 

 

 

Revenues(1)

 

$

1,129

 

$

1,166

Expenses

 

 

677

 

 

682

Margin(2)

 

$

452

 

$

484

Total services business:

 

 

 

 

 

 

Revenues(1)

 

$

862

 

$

857

Services expenses

 

 

678

 

 

665

Margin(2)

 

$

184

 

$

192

Totals:

 

 

 

 

 

 

Revenues(1)

$

8,451

 

$

8,599

Expenses

 

 

3,287

 

 

3,120

Margin(2) 

$

5,164

 

$

5,479

 

 

 

 

 

 

 

__________

 

 

(1)

Cloud software and on-premise software revenues for management reporting included revenues related to cloud SaaS and PaaS contracts that would have otherwise been recorded by the acquired businesses as independent entities but were not recognized in the accompanying condensed consolidated statements of operations in the amounts of $1 million and $2 million for the three months ended August 31, 2015 and 2014, respectively. Software license updates and product support revenues for management reporting included revenues related to software support contracts that would have otherwise been recorded by the acquired businesses as independent entities but were not recognized in the accompanying condensed consolidated statements of operations in the amount of $1 million for the three months ended August 31, 2015. In addition, we did not recognize hardware support revenues related to hardware support contracts that would have otherwise been recorded by the acquired businesses as independent entities in the amount of $1 million for each of the three months ended August 31, 2015 and 2014, respectively. 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. Our new software license 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

August 31,

(in millions)

 

2015

 

2014

Total revenues for operating segments

 

$

8,451

 

$

                    8,599

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

 

 

          (1)

 

 

          (2)

Software license updates and product support revenues(1)

 

 

          (1)

 

 

—

Hardware support revenues(1)

 

 

          (1)

 

 

(1)

Total revenues

 

$

8,448

 

$

                       8,596

 

 

Total margin for operating segments

 

$

5,164

 

$

                   5,479

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

 

 

          (1)

 

 

          (2)

Software license updates and product support revenues(1)

 

 

          (1)

 

 

—

Hardware support revenues(1)

 

 

          (1)

 

 

(1)

Product development

 

 

          (1,188)

 

 

(1,174)

Marketing and partner program expenses

 

 

          (109)

 

 

(119)

Corporate, general and administrative and information technology expenses

 

 

          (394)

 

 

(367)

Amortization of intangible assets

 

 

          (452)

 

 

(547)

Acquisition related and other

 

 

          (31)

 

 

(25)

Restructuring

 

 

          (83)

 

 

(69)

Stock-based compensation

 

 

          (250)

 

 

(212)

Interest expense

 

 

          (374)

 

 

(261)

Non-operating income, net

 

 

30

 

 

                         16

Income before provision for income taxes

 

$

2,310

 

$

           2,718

 

 

 

 

 

 

 

__________

 

(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 the accompanying condensed consolidated statements of operations for the periods presented due to business combination accounting requirements. Refer to footnote one to our business and operating segments summary results table above in this Note 11 for additional information.