SEGMENT INFORMATION

3 Months Ended

Aug. 31, 2013

Segment Information [Abstract]

SEGMENT INFORMATION

12.    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 maker is our Chief Executive Officer. We are organized geographically and by line of business. While our Chief Executive Officer evaluates 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—software, hardware systems and services— which are further divided into certain operating segments. Our software business is comprised of two operating segments: (1) new software licenses and cloud software subscriptions and (2) software license updates and product support. Our hardware systems business is comprised of two operating segments: (1) hardware systems products and (2) hardware systems support. All other operating segments are combined under our services business.

The new software licenses and cloud software subscriptions line of business is engaged in licensing our database and middleware software and our applications software, and providing access to a broad range of our software offerings on a subscription basis through a cloud-based computing environment. Database and middleware software generally include database and database management software; application server and cloud application software; Service-Oriented Architecture and business process management software; business intelligence software; identity and access management software; data integration software; web experience management, portals, content management and social network software; and development tools. Our database and middleware software product offerings also include Java, which is a global software development platform used in a wide range of computers, networks and devices. Applications software provides enterprise information that enables companies to manage and automate core business functions. Oracle Applications address specific business and industry requirements including human capital and talent management; customer experience and customer relationship management; financial management and governance, risk and compliance; procurement; project portfolio management; supply chain management; business analytics and enterprise performance management; and industry-specific applications. Oracle Cloud is a comprehensive set of cloud service offerings that is designed to provide customers and partners with access to application services, social networking services, platform services and common infrastructure services on a subscription basis that we manage, host and support.

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 systems products line of business consists primarily of servers, storage, networking, virtualization software, operating systems including the Oracle Solaris Operating System and management software to support diverse information technology (IT) environments, including public and private cloud computing environments. As a part of this line of business, we offer our Oracle Engineered Systems, including Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine, Oracle SPARC SuperCluster, Oracle Database Appliance, and Oracle Big Data Appliance, which are the core building blocks for Oracle's data center and cloud computing products and services.

Our hardware systems support line of business provides customers with software updates for the software components that are essential to the functionality of our server and storage 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, managed cloud 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. Oracle managed cloud services provide comprehensive software and hardware management and maintenance services including deployment, management, monitoring, patching, security and upgrade services for customers hosted at our Oracle data center facilities, select partner data centers, or physically on-premise at customer facilities. Additionally, we provide 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.

Certain costs have been reclassified in the presentation of our segment reporting for the first quarter of fiscal 2013 to align with our current line of business management structure.

The following table presents summary results for each of our three businesses and for the operating segments of our software and hardware systems businesses:

	Three Months Ended August 31,
(in millions)	2013		2012
New software licenses and cloud software subscriptions:
Revenues(1)	$	1,653	$	1,589
Sales and distribution expenses		1,264		1,119
Margin(2)	$	389	$	470
Software license updates and product support:
Revenues(1)	$	4,432	$	4,145
Software license updates and product support expenses		257		265
Margin(2)	$	4,175	$	3,880
Total software business:
Revenues(1)	$	6,085	$	5,734
Expenses		1,521		1,384
Margin(2)	$	4,564	$	4,350
Hardware systems products:
Revenues	$	669	$	779
Hardware systems products expenses		329		384
Sales and distribution expenses		217		218
Margin(2)	$	123	$	177
Hardware systems support:
Revenues(1)	$	597	$	578
Hardware systems support expenses		201		213
Margin(2)	$	396	$	365
Total hardware systems business:
Revenues(1)	$	1,266	$	1,357
Expenses		747		815
Margin(2)	$	519	$	542
Total services business:
Revenues(1)	$	1,030	$	1,118
Services expenses		773		848
Margin(2)	$	257	$	270
Totals:
Revenues(1)	$	8,381	$	8,209
Expenses		3,041		3,047
Margin(2)	$	5,340	$	5,162

(1)

Operating segment revenues generally differ from the external reporting classifications due to certain software license products that are classified as service revenues for management reporting purposes. New software licenses and cloud software subscriptions revenues for management reporting included revenues related to cloud software subscriptions 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 $3 million and $19 million for the three months ended August 31, 2013 and 2012, 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 amounts of $1 million and $5 million for the three months ended August 31, 2013 and 2012, respectively. In addition, we did not recognize hardware systems support revenues related to hardware systems support contracts that would have otherwise been recorded by the acquired businesses as independent entities in the amounts of $5 million and $4 million for the three months ended August 31, 2013 and 2012, respectively. 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.

(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 do not reflect amortization of intangible assets, acquisition related and other expenses, restructuring expenses, stock-based compensation, interest expense or certain other expenses, 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)	2013		2012
Total revenues for operating segments	$	8,381	$	8,209
New software licenses and cloud software subscriptions revenues(1)		(3)		(19)
Software license updates and product support revenues(1)		(1)		(5)
Hardware systems support revenues(1)		(5)		(4)
Total revenues	$	8,372	$	8,181
Total margin for operating segments	$	5,340	$	5,162
New software licenses and cloud software subscriptions revenues(1)		(3)		(19)
Software license updates and product support revenues(1)		(1)		(5)
Hardware systems support revenues(1)		(5)		(4)
Product development		(1,094)		(1,074)
Marketing and partner program expenses		(131)		(128)
Corporate, general and administrative and information technology expenses		(345)		(360)
Amortization of intangible assets		(595)		(619)
Acquisition related and other		(10)		258
Restructuring		(56)		(145)
Stock-based compensation		(198)		(176)
Interest expense		(217)		(188)
Other, net		(22)		—
Income before provision for income taxes	$	2,663	$	2,702

(1) New software licenses and cloud software subscriptions revenues for management reporting included revenues related to cloud software subscriptions 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 $3 million and $19 million for the three months ended August 31, 2013 and 2012, 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 amounts of $1 million and $5 million for the three months ended August 31, 2013 and 2012, respectively. In addition, we did not recognize hardware systems support revenues related to hardware systems support contracts that would have otherwise been recorded by the acquired businesses as independent entities in the amounts of $5 million and $4 million for the three months ended August 31, 2013 and 2012, respectively. See Note 8 for an explanation of these adjustments.