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SEGMENT INFORMATION
 12 Months Ended
May 31, 2011
Notes to Condensed Consolidated Financial Statements  
SEGMENT INFORMATION

16.

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. As a result of our acquisition of Sun in fiscal 2010, we entered into a new hardware systems business with two operating segments as described further below. We have three businesses—software, hardware systems and services—which are further divided into seven operating segments. Our software business is comprised of two operating segments: (1) new software licenses 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. Our services business is comprised of three operating segments: (1) consulting, (2) Cloud Services, which was formerly named On Demand, and (3) education.

The new software licenses line of business is engaged in the licensing of database and middleware software as well as our applications software. Database and middleware software generally includes database management software, application server software, Service-Oriented Architecture and business process management software, data integration software, business intelligence software, identity and access management software, content management software, portals and user interaction 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 generally provides enterprise information that enables companies to manage their business cycles and provides intelligence and includes enterprise resource planning software, customer relationship management software, enterprise performance management software, supply chain management software, business intelligence applications software, enterprise portfolio project management software, web commerce software and industry-specific applications software.

The software license updates and product support line of business provides customers with rights to unspecified software product upgrades and maintenance releases, 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 computer server and storage product offerings and hardware-related software, including the Oracle Solaris Operating System. Most of our computer servers are based on our SPARC family of microprocessors and on microprocessors from Intel Corporation. Our servers range from high performance computing servers to cost efficient, entry-level servers, and run with Oracle Solaris, Oracle Linux and certain other operating systems environments. Our storage products are designed to securely manage, protect, archive and restore customers’ data assets and consist of tape, disk and networking solutions for open systems and mainframe server environments. Customers that purchase our hardware systems products may also elect to purchase our hardware systems support offerings. Our hardware systems support offerings provide customers with software updates for the software components that are essential to the functionality of our hardware systems and storage products and can include product repairs, maintenance services, and technical support services.

The 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. Cloud Services include Oracle Cloud Services and Advanced Customer Services offerings. Oracle Cloud Services are designed to provide comprehensive software and hardware management and maintenance services for customers hosted at our Oracle data center facilities, select partner data centers or physically on-site at customer facilities. Advanced Customer Services provides support services, both on-site and remote, to customers to enable increased performance and higher availability of their products and services. The education line of business provides instructor-led, media-based and internet-based training in the use of our software and hardware products.

We do not track our assets by operating segments. Consequently, it is not practical to show assets by operating segments’ results.

 

The following table presents a summary of our businesses’ and operating segments’ results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Year Ended May 31,

 

(in millions)

  

2011

 

  

2010

 

  

2009

 

New software licenses:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

9,220

  

  

$

7,525

  

  

$

7,112

  

Sales and distribution expenses

  

 

4,692

  

  

 

3,980

  

  

 

4,006

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

4,528

  

  

$

3,545

  

  

$

3,106

  

Software license updates and product support:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

14,876

  

  

$

13,175

  

  

$

11,997

  

Software license update and product support expenses

  

 

1,144

  

  

 

958

  

  

 

1,012

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

13,732

  

  

$

12,217

  

  

$

10,985

  

Total software business:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

24,096

  

  

$

20,700

  

  

$

19,109

  

Expenses

  

 

5,836

  

  

 

4,938

  

  

 

5,018

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

18,260

  

  

$

15,762

  

  

$

14,091

  

Hardware systems products:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues

  

$

4,382

  

  

$

1,493

  

  

$

—

  

Hardware systems products expenses

  

 

2,061

  

  

 

850

  

  

 

—

  

Sales and distribution expenses

  

 

960

  

  

 

307

  

  

 

—

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

1,361

  

  

$

336

  

  

$

—

  

Hardware systems support:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

2,710

  

  

$

912

  

  

$

—

  

Hardware systems support expenses

  

 

1,221

  

  

 

408

  

  

 

—

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

1,489

  

  

$

504

  

  

$

—

  

Total hardware systems business:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1) 

  

$

7,092

  

  

$

2,405

  

  

$

—

  

Expenses

  

 

4,242

  

  

 

1,565

  

  

 

—

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

2,850

  

  

$

840

  

  

$

—

  

Consulting:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

2,901

  

  

$

2,705

  

  

$

3,221

  

Services expenses

  

 

2,331

  

  

 

2,319

  

  

 

2,686

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

570

  

  

$

386

  

  

$

535

  

Cloud Services:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

1,376

  

  

$

887

  

  

$

780

  

Services expenses

  

 

1,042

  

  

 

679

  

  

 

566

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

334

  

  

$

208

  

  

$

214

  

Education:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

385

  

  

$

337

  

  

$

385

  

Services expenses

  

 

270

  

  

 

247

  

  

 

282

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

115

  

  

$

90

  

  

$

103

  

Total services business:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

4,662

  

  

$

3,929

  

  

$

4,386

  

Services expenses

  

 

3,643

  

  

 

3,245

  

  

 

3,534

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

1,019

  

  

$

684

  

  

$

852

  

Totals:

  

 

 

 

  

 

 

 

  

 

 

 

Revenues(1)

  

$

35,850

  

  

$

27,034

  

  

$

23,495

  

Expenses

  

 

13,721

  

  

 

9,748

  

  

 

8,552

  

 

  

 

 

 

  

 

 

 

  

 

 

 

Margin(2)

  

$

22,129

  

  

$

17,286

  

  

$

14,943

  

 

  

 

 

 

  

 

 

 

  

 

 

 

  (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. Software license updates and product support revenues for management reporting included $80 million, $86 million and $243 million of revenues that we did not recognize in the accompanying consolidated statements of operations in fiscal 2011, 2010 and 2009, respectively. In addition, we did not recognize hardware systems support revenues related to hardware systems support contracts that would have otherwise been recorded by Sun as an independent entity, in the amount of $148 million and $128 million in fiscal 2011 and 2010, respectively. See Note 10 for an explanation of these adjustments and the following table for a reconciliation of operating segment revenues to 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, information technology, marketing and partner programs, and corporate and general and administrative expenses. Additionally, the margins do not reflect inventory fair value adjustments, amortization of intangible assets, acquisition related and other expenses, restructuring costs, or stock-based compensation.

The following table reconciles operating segment revenues to total revenues as well as operating segment margin to income before provision for income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Year Ended May 31,

 

(in millions)

  

2011

 

 

2010

 

 

2009

 

Total revenues for reportable segments

  

$

35,850

  

 

$

27,034

  

 

$

23,495

  

Software license updates and product support revenues(1)

  

 

(80

) 

 

 

(86

) 

 

 

(243

) 

Hardware systems support revenues(1)

  

 

(148

) 

 

 

(128

) 

 

 

—

  

 

  

 

 

 

 

 

 

 

 

 

 

 

Total revenues

  

$

35,622

  

 

$

26,820

  

 

$

23,252

  

 

  

 

 

 

 

 

 

 

 

 

 

 

Total margin for reportable segments

  

$

22,129

  

 

$

17,286

  

 

$

14,943

  

Software license updates and product support revenues(1)

  

 

(80

) 

 

 

(86

) 

 

 

(243

) 

Hardware systems support revenues(1)

  

 

(148

) 

 

 

(128

) 

 

 

—

  

Hardware systems products expenses(2)

  

 

—

  

 

 

(29

) 

 

 

—

  

Product development and information technology expenses

  

 

(4,778

) 

 

 

(3,479

) 

 

 

(2,984

) 

Marketing and partner program expenses

  

 

(601

) 

 

 

(503

) 

 

 

(439

) 

Corporate and general and administrative expenses

  

 

(800

) 

 

 

(755

) 

 

 

(634

) 

Amortization of intangible assets

  

 

(2,428

) 

 

 

(1,973

) 

 

 

(1,713

) 

Acquisition related and other

  

 

(208

) 

 

 

(154

) 

 

 

(117

) 

Restructuring

  

 

(487

) 

 

 

(622

) 

 

 

(117

) 

Stock-based compensation

  

 

(500

) 

 

 

(421

) 

 

 

(340

) 

Interest expense

  

 

(808

) 

 

 

(754

) 

 

 

(630

) 

Non-operating income (expense), net

  

 

120

  

 

 

(139

) 

 

 

108

  

 

  

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

  

$

11,411

  

 

$

8,243

  

 

$

7,834

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Software license updates and product support revenues for management reporting include $80 million, $86 million and $243 million of revenues that we did not recognize in the accompanying consolidated statements of operations for fiscal 2011, 2010 and 2009, respectively. In addition, we did not recognize hardware systems support revenues related to hardware systems support contracts that would have otherwise been recorded by Sun as an independent entity, in the amounts of $148 million and $128 million for fiscal 2011 and 2010, respectively. See Note 10 for an explanation of these adjustments and this table for a reconciliation of operating segment revenues to total revenues.

 

(2) 

Represents the effects of fair value adjustments to our inventories acquired from Sun that were sold to customers in the periods presented. Business combination accounting rules require us to account for inventories assumed from our acquisitions at their fair values. The amount included in hardware systems products expenses above is intended to adjust these expenses to the hardware systems products expenses that would have been otherwise recorded by Sun as an independent entity upon the sale of these inventories. If we assume inventories in future acquisitions, we will be required to assess their fair values, which may result in fair value adjustments to those inventories.

 

Geographic Information

Disclosed in the table below is geographic information for each country that comprised greater than three percent of our total revenues for fiscal 2011, 2010 or 2009.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

As of and for the Year Ended May 31,

 

 

  

2011

 

  

2010

 

  

2009

 

(in millions)

  

Revenues

 

  

Long  Lived
Assets(1)

 

  

Revenues

 

  

Long  Lived
Assets(1)

 

  

Revenues

 

  

Long Lived
Assets(1)

 

United States

  

$

15,274

  

  

$

2,359

  

  

$

11,472

  

  

$

2,141

  

  

$

10,190

  

  

$

1,466

  

United Kingdom

  

 

2,200

  

  

 

168

  

  

 

1,685

  

  

 

136

  

  

 

1,587

  

  

 

89

  

Japan

  

 

1,731

  

  

 

551

  

  

 

1,349

  

  

 

505

  

  

 

1,189

  

  

 

485

  

Germany

  

 

1,475

  

  

 

29

  

  

 

1,112

  

  

 

20

  

  

 

956

  

  

 

5

  

Canada

  

 

1,174

  

  

 

16

  

  

 

888

  

  

 

10

  

  

 

737

  

  

 

13

  

France

  

 

1,145

  

  

 

15

  

  

 

965

  

  

 

24

  

  

 

856

  

  

 

8

  

Australia

  

 

1,041

  

  

 

34

  

  

 

687

  

  

 

28

  

  

 

517

  

  

 

26

  

Other countries

  

 

11,582

  

  

 

661

  

  

 

8,662

  

  

 

632

  

  

 

7,220

  

  

 

436

  

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

  

$

35,622

  

  

$

3,833

  

  

$

26,820

  

  

$

3,496

  

  

$

23,252

  

  

$

2,528

  

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

(1) 

Long-lived assets exclude goodwill, intangible assets, equity investments and deferred taxes, which are not allocated to specific geographic locations as it is impracticable to do so.