Three Months Ended

August 31,

(in millions)

2016

2015

Cloud software and on-premise software:

Revenues⁽¹⁾

$

1,845

$

1,603

Cloud software as a service and platform as a service expenses

308

268

Sales and distribution expenses

1,580

1,395

Margin⁽²⁾

$

(43

)

$

(60

)

Cloud infrastructure as a service:

Revenues

$

171

$

160

Cloud infrastructure as a service expenses

93

85

Sales and distribution expenses

16

22

Margin⁽²⁾

$

62

$

53

Software license updates and product support:

Revenues⁽¹⁾

$

4,793

$

4,697

Software license updates and product support expenses

257

271

Margin⁽²⁾

$

4,536

$

4,426

Total cloud and on-premise software business:

Revenues⁽¹⁾

$

6,809

$

6,460

Expenses

2,254

2,041

Margin⁽²⁾

$

4,555

$

4,419

Hardware products:

Revenues

$

462

$

570

Hardware products expenses

240

301

Sales and distribution expenses

203

204

Margin⁽²⁾

$

19

$

65

Hardware support:

Revenues⁽¹⁾

$

534

$

559

Hardware support expenses

141

172

Margin⁽²⁾

$

393

$

387

Total hardware business:

Revenues⁽¹⁾

$

996

$

1,129

Expenses

584

677

Margin⁽²⁾

$

412

$

452

Total services business:

Revenues

$

808

$

862

Services expenses

665

678

Margin⁽²⁾

$

143

$

184

Totals:

Revenues⁽¹⁾

$

8,613

$

8,451

Expenses

3,503

3,396

Margin⁽²⁾

$

5,110

$

5,055

⁽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 8 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 product development, 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 non-operating income, net.

Total margin for operating segments

$

5,110

$

5,055

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

(17

)

(1

)

Software license updates and product support revenues⁽¹⁾

(1

)

(1

)

Hardware support revenues⁽¹⁾

—

(1

)

Product development

(1,276

)

(1,188

)

Corporate, general and administrative and information technology expenses

(432

)

(394

)

Amortization of intangible assets

(311

)

(452

)

Acquisition related and other

(14

)

(31

)

Restructuring

(99

)

(83

)

Stock-based compensation

(319

)

(250

)

Interest expense

(416

)

(374

)

Non-operating income, net

148

30

Income before provision for income taxes

$

2,373

$

2,310

⁽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 condensed consolidated statements of operations for the periods presented due to business combination accounting requirements.