SEGMENT INFORMATION

6 Months Ended

Nov. 30, 2011

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 (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 including human capital management, 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; Cloud Services, which include certain of our Oracle Cloud Services offerings and 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 November 30,			Six Months Ended November 30,
(in millions)		2011		2010	2011		2010
New software licenses:
Revenues(1)	$	2,044	$	1,991	$	3,537	$	3,272
Sales and distribution expenses		1,174		1,068		2,318		1,958
Margin(2)	$	870	$	923	$	1,219	$	1,314
Software license updates and product support:
Revenues(1)	$	3,996	$	3,667	$	8,032	$	7,143
Software license update and product support expenses		268		282		542		555
Margin(2)	$	3,728	$	3,385	$	7,490	$	6,588
Total software business:
Revenues(1)	$	6,040	$	5,658	$	11,569	$	10,415
Expenses		1,442		1,350		2,860		2,513
Margin(2)	$	4,598	$	4,308	$	8,709	$	7,902
Hardware systems products:
Revenues	$	953	$	1,112	$	1,981	$	2,190
Hardware systems products expenses		468		523		941		1,076
Sales and distribution expenses		271		232		537		462
Margin(2)	$	214	$	357	$	503	$	652
Hardware systems support:
Revenues(1)	$	634	$	686	$	1,290	$	1,367
Hardware systems support expenses		248		345		520		638
Margin(2)	$	386	$	341	$	770	$	729
Total hardware systems business:
Revenues(1)	$	1,587	$	1,798	$	3,271	$	3,557
Expenses		987		1,100		1,998		2,176
Margin(2)	$	600	$	698	$	1,273	$	1,381
Total services business:
Revenues(1)	$	1,184	$	1,193	$	2,369	$	2,265
Services expenses		911		927		1,824		1,781
Margin(2)	$	273	$	266	$	545	$	484
Totals:
Revenues(1)	$	8,811	$	8,649	$	17,209	$	16,237
Expenses		3,340		3,377		6,682		6,470
Margin(2)	$	5,471	$	5,272	$	10,527	$	9,767

____________

(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 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 $10 million and $22 million for the three months ended November 30, 2011 and 2010, respectively, and $24 million and $47 million for the six months ended November 30, 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 the acquired businesses as independent entities in the amounts of $9 million and $45 million for the three months ended November 30, 2011 and 2010, respectively, and $19 million and $106 million for the six months ended November 30, 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 Ended November 30,				Six Months Ended November 30,
(in millions)		2011		2010		2011		2010
Total revenues for operating segments	$	8,811	$	8,649	$	17,209	$	16,237
Software license updates and product support revenues(1)		(10)		(22)		(24)		(47)
Hardware systems support revenues(1)		(9)		(45)		(19)		(106)
Total revenues	$	8,792	$	8,582	$	17,166	$	16,084

Total margin for operating segments	$	5,471	$	5,272	$	10,527	$	9,767
Software license updates and product support revenues(1)		(10)		(22)		(24)		(47)
Hardware systems support revenues(1)		(9)		(45)		(19)		(106)
Product development and information technology expenses		(1,134)		(1,184)		(2,210)		(2,343)
Marketing and partner program expenses		(156)		(159)		(288)		(292)
Corporate and general and administrative expenses		(230)		(113)		(499)		(346)
Amortization of intangible assets		(592)		(614)		(1,184)		(1,217)
Acquisition related and other		(5)		(47)		(25)		(130)
Restructuring		(52)		(189)		(154)		(318)
Stock-based compensation		(150)		(119)		(295)		(248)
Interest expense		(192)		(214)		(384)		(410)
Other, net		19		80		(14)		132
Income before provision for income taxes	$	2,960	$	2,646	$	5,431	$	4,442

(1) 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 $10 million and $22 million for the three months ended November 30, 2011 and 2010, respectively, and $24 million and $47 million for the six months ended November 30, 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 the acquired businesses as independent entities in the amounts of $9 million and $45 million for the three months ended November 30, 2011 and 2010, respectively, and $19 million and $106 million for the six months ended November 30, 2011 and 2010, respectively.