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 (CODMs) are our Chief Executive Officers 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. In recent periods, customer demand has increased at a greater rate for cloud-based IT deployment models relative to on-premise IT deployment models. Our CODMs view the operating results of our three businesses and allocate resources in a manner that is consistent with the changing market dynamics that we have experienced. As a result, in the fourth quarter of fiscal 2017, we updated our operating segments. The footnote 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 on-premise software, hardware and services—each of which is comprised of a single operating segment.

Our cloud and on-premise software line of business markets, sells and delivers a broad spectrum of applications, platform and infrastructure technologies through our cloud offerings and on-premise software offerings. Our Oracle Cloud SaaS and Cloud PaaS and IaaS offerings deliver certain of our applications, platform and infrastructure technologies on a subscription basis via cloud-based deployment models that we host, manage and support. Our IaaS offerings also include Oracle Managed Cloud Services, which are designed to provide comprehensive software and hardware management, maintenance and security services for on-premise, cloud-based or hybrid IT infrastructures. Our cloud and on-premise software business also licenses our software products, generally on a perpetual basis, including Oracle Applications, Oracle Database, Oracle Fusion Middleware and Java, among others, for on-premise and other IT environments. Customers that license our software have the option to purchase software license updates and product support contracts, which provide customers with rights to unspecified software product upgrades and maintenance releases, patch releases, internet access to technical content, as well as internet and telephone access to technical support personnel during the support period.

Our hardware business provides Oracle Engineered Systems, servers, storage, industry-specific hardware, virtualization software, operating systems including the Oracle Solaris Operating System and management software to support diverse IT environments. Our hardware business also includes hardware support, which provides customers with software updates for the software components that are essential to the functionality of the hardware products, such as Oracle Solaris and certain other software, and can 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, platform 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 (fiscal 2017 results have been recast to conform to the current year’s presentation):

	Three Months Ended August 31,
(in millions)	2017		2016
Cloud and on-premise software:
Revenues⁽¹⁾	$	7,409	$	6,809
Cloud SaaS, PaaS and IaaS expenses		580		401
Software license updates and product support expenses		240		257
Sales and marketing expenses		1,684		1,596
Margin⁽²⁾	$	4,905	$	4,555
Hardware:
Revenues	$	943	$	996
Hardware products and support expenses		366		381
Sales and marketing expenses		170		203
Margin⁽²⁾	$	407	$	412
Services:
Revenues	$	860	$	808
Services expenses		665		665
Margin⁽²⁾	$	195	$	143
Totals:
Revenues⁽¹⁾	$	9,212	$	8,613
Expenses		3,705		3,503
Margin⁽²⁾	$	5,507	$	5,110

⁽¹⁾

Cloud and on-premise software revenues for management reporting included revenues related to cloud and on-premise software obligations 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 due to business combination accounting requirements. 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 consolidated revenues as reported in our 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, general and administrative and certain other allocable expenses. 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 August 31,
(in millions)	2017			2016
Total revenues for operating segments	$	9,212		$	8,613
Cloud and on-premise software revenues⁽¹⁾		(25	)		(18	)
Total revenues	$	9,187		$	8,595

Total margin for operating segments	$	5,507		$	5,110
Cloud and on-premise software revenues⁽¹⁾		(25	)		(18	)
Research and development		(1,574	)		(1,520	)
General and administrative		(320	)		(315	)
Amortization of intangible assets		(411	)		(311	)
Acquisition related and other		(12	)		(14	)
Restructuring		(124	)		(99	)
Stock-based compensation for operating segments		(124	)		(86	)
Expense allocations and other, net		(96	)		(106	)
Interest expense		(469	)		(416	)
Non-operating income, net		233			148
Income before provision for income taxes	$	2,585		$	2,373

⁽¹⁾

Cloud and on-premise software revenues for management reporting included revenues related to cloud and on-premise software obligations 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 due to business combination accounting requirements. See Note 7 for an explanation of these adjustments and this table for a reconciliation of our total operating segment revenues to our total consolidated revenues as reported in our consolidated statements of operations.