SEGMENT INFORMATION

3 Months Ended

Aug. 31, 2011

Notes to Condensed Consolidated Financial Statements

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 (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 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 line of business offers customers contracts that provide software updates for the software components that are essential to the functionality of our hardware systems and storage products and may also include product repairs, maintenance services, and technical support services.

Our services business is comprised of the remainder of our operating segments and offers consulting services, certain of our Oracle Cloud Services offerings, Advanced Customer Services and education services. Our consulting line of business primarily provides services to customers in business and information technology strategy alignment, enterprise architecture planning and design, initial product implementation and integration, and ongoing product enhancements and upgrades. 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 provide support services, both on-site and remote, to 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 to further the adoption and usage of our software and hardware products by our customers and 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 hardware systems businesses:

		Three Months Ended August 31,
(in millions)		2011		2010
New software licenses:
Revenues(1)		$	1,493	$	1,282
Sales and distribution expenses			1,144		892
Margin(2)		$	349	$	390
Software license updates and product support:
Revenues(1)		$	4,035	$	3,475
Software license update and product support expenses			274		273
Margin(2)		$	3,761	$	3,202
Total software business:
Revenues(1)		$	5,528	$	4,757
Expenses			1,418		1,165
Margin(2)		$	4,110	$	3,592
Hardware systems products:
Revenues		$	1,029	$	1,079
Hardware systems products expenses			473		554
Sales and distribution expenses			266		230
Margin(2)		$	290	$	295
Hardware systems support:
Revenues(1)		$	656	$	680
Hardware systems support expenses			272		292
Margin(2)		$	384	$	388
Total hardware systems business:
Revenues(1)		$	1,685	$	1,759
Expenses			1,011		1,076
Margin(2)		$	674	$	683
Total services business:
Revenues(1)		$	1,185	$	1,072
Services expenses			914		852
Margin(2)		$	271	$	220
Totals:
Revenues(1)		$	8,398	$	7,588
Expenses			3,343		3,093
Margin(2)		$	5,055	$	4,495
(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 $13 million and $25 million of revenues that we did not recognize in the accompanying condensed consolidated statements of operations for the three months ended August 31, 2011 and 2010, respectively. In addition, we did not recognize hardware systems support revenues related to hardware systems support contracts that would have otherwise been recorded by certain acquired companies, in the amount of $11 million and $61 million for the three months ended August 31, 2011 and 2010, respectively. See Note 8 for an explanation of these adjustments and the table below for a reconciliation of total 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 amortization of intangible assets, acquisition related and other expenses, restructuring expenses, or stock-based compensation.

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 EndedAugust  31,
(in millions)		2011		2010
Total revenues for operating segments		$	8,398	$	7,588
Software license updates and product support revenues(1)			(13)		(25)
Hardware systems support revenues(1)			(11)		(61)
Total revenues		$	8,374	$	7,502
Total margin for operating segments		$	5,055	$	4,495
Software license updates and product support revenues(1)			(13)		(25)
Hardware systems support revenues(1)			(11)		(61)
Product development and information technology expenses			(1,076)		(1,159)
Marketing and partner program expenses			(132)		(134)
Corporate and general and administrative expenses			(268)		(233)
Amortization of intangible assets			(592)		(603)
Acquisition related and other			(19)		(83)
Restructuring			(101)		(129)
Stock-based compensation			(147)		(129)
Interest expense			(192)		(196)
Non-operating income (expense), net			(33)		52
Income before provision for income taxes		$	2,471	$	1,795
(1)	Software license updates and product support revenues for management reporting include $13 million and $25 million of revenues that we did not recognize in the accompanying condensed consolidated statements of operations for the three months ended August 31, 2011 and 2010, respectively. In addition, we did not recognize hardware systems support revenues related to hardware systems support contracts that would have otherwise been recorded by certain acquired companies as independent entities, in the amounts of $11 million and $61 million for the three months ended August 31, 2011 and 2010, respectively. See Note 8 for an explanation of these adjustments and this table for a reconciliation of total operating segment revenues to total revenues.