SEGMENT INFORMATION

6 Months Ended

Nov. 30, 2014

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 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—software and cloud, hardware systems and services—which are further divided into certain operating segments. Our software and cloud business is comprised of three operating segments: (1) new software licenses and cloud software subscriptions, which includes our cloud SaaS and PaaS offerings, (2) cloud infrastructure-as-a-service and (3) 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 the licensing of our database and middleware software, as well as our application software, and providing access to a broad range of our software through Oracle Cloud SaaS and PaaS offerings on a subscription basis via a cloud-based IT environment that we manage, host and support.

The cloud infrastructure-as-a-service line of business provides 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; Oracle Engineered Systems hardware and related support that are deployed in our customers’ data centers for a monthly fee; and 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.

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, point-of-sale hardware, virtualization software, operating systems including the Oracle Solaris Operating System and management software to support diverse IT environments, including cloud computing environments. As a part of this line of business, we offer our Oracle Engineered Systems, including our Oracle Exadata Database Machine, among others.

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, 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 software and cloud and hardware systems businesses:

	Three Months Ended November 30,				Six Months Ended November 30,
(in millions)	2014		2013		2014		2013
New software licenses and cloud software subscriptions:
Revenues(1)	$	2,407	$	2,378	$	4,114	$	4,031
Cloud software-as-a-service and platform-as-a-service expenses		158		100		299		194
Sales and distribution expenses		1,433		1,390		2,717		2,569
Margin(2)	$	816	$	888	$	1,098	$	1,268
Cloud infrastructure-as-a-service:
Revenues	$	155	$	97	$	293	$	206
Cloud infrastructure-as-a-service expenses		83		71		158		140
Sales and distribution expenses		21		16		40		30
Margin(2)	$	51	$	10	$	95	$	36
Software license updates and product support:
Revenues(1)	$	4,773	$	4,517	$	9,505	$	8,949
Software license updates and product support expenses		280		273		538		548
Margin(2)	$	4,493	$	4,244	$	8,967	$	8,401
Total software and cloud business:
Revenues(1)	$	7,335	$	6,992	$	13,912	$	13,186
Expenses		1,975		1,850		3,752		3,481
Margin(2)	$	5,360	$	5,142	$	10,160	$	9,705
Hardware systems products:
Revenues	$	717	$	714	$	1,295	$	1,383
Hardware systems products expenses		368		369		664		697
Sales and distribution expenses		221		243		420		461
Margin(2)	$	128	$	102	$	211	$	225
Hardware systems support:
Revenues(1)	$	619	$	613	$	1,206	$	1,211
Hardware systems support expenses		210		205		393		407
Margin(2)	$	409	$	408	$	813	$	804
Total hardware systems business:
Revenues(1)	$	1,336	$	1,327	$	2,501	$	2,594
Expenses		799		817		1,477		1,565
Margin(2)	$	537	$	510	$	1,024	$	1,029
Total services business:
Revenues(1)	$	937	$	964	$	1,794	$	1,885
Services expenses		737		731		1,403		1,422
Margin(2)	$	200	$	233	$	391	$	463
Totals:
Revenues(1)	$	9,608	$	9,283	$	18,207	$	17,665
Expenses		3,511		3,398		6,632		6,468
Margin(2)	$	6,097	$	5,885	$	11,575	$	11,197

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(1)

New software licenses and cloud software subscriptions 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 amount of $3 million for each of the three months ended November 30, 2014 and 2013, and $5 million and $7 million for the six months ended November 30, 2014 and 2013, 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 $5 million and $1 million for the three months ended November 30, 2014 and 2013, respectively, and $6 million and $1 million for the six months ended November 30, 2014 and 2013, 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 $2 million and $4 million for the three months ended November 30, 2014 and 2013, respectively, and $2 million and $10 million for the six months ended November 30, 2014 and 2013, 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. 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 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 November 30,				Six Months Ended November 30,
(in millions)	2014		2013		2014		2013
Total revenues for operating segments	$	9,608	$	9,283	$	18,207	$	17,665
Cloud software-as-a-service and platform-as-a-service revenues(1)		(3)		(3)		(5)		(7)
Software license updates and product support revenues(1)		(5)		(1)		(6)		(1)
Hardware systems support revenues(1)		(2)		(4)		(2)		(10)
Total revenues	$	9,598	$	9,275	$	18,194	$	17,647

Total margin for operating segments	$	6,097	$	5,885	$	11,575	$	11,197
Cloud software-as-a-service and platform-as-a-service revenues(1)		(3)		(3)		(5)		(7)
Software license updates and product support revenues(1)		(5)		(1)		(6)		(1)
Hardware systems support revenues(1)		(2)		(4)		(2)		(10)
Product development		(1,209)		(1,139)		(2,382)		(2,235)
Marketing and partner program expenses		(135)		(146)		(254)		(277)
Corporate, general and administrative and information technology expenses		(362)		(354)		(729)		(699)
Amortization of intangible assets		(568)		(577)		(1,116)		(1,172)
Acquisition related and other		20		(17)		(4)		(27)
Restructuring		(51)		(52)		(120)		(108)
Stock-based compensation		(240)		(182)		(451)		(378)
Interest expense		(282)		(230)		(544)		(446)
Non-operating income, net		9		23		25		29
Income before provision for income taxes	$	3,269	$	3,203	$	5,987	$	5,866

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(1) New software licenses and cloud software subscriptions revenues, software license updates and product support revenues and hardware systems 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 (1) of our business and operating segments summary results table above in this Note 12 for additional information.