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SEGMENT INFORMATION
 12 Months Ended
May 31, 2012
Segment Information [Abstract]  
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. 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 our database and middleware software and our applications software and our cloud software subscription offerings. Database and middleware software generally includes database and database management software; application server and cloud application software; Service-Oriented Architecture and business process management software; business intelligence software; identity and access management software; data integration software; web experience management, portals, content management and social network 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; financials; governance, risk and compliance; procurement; supply chain management; enterprise portfolio project management; enterprise performance management; business intelligence analytic applications; web commerce and industry-specific applications. Our cloud software subscription offerings include Oracle Cloud, which is a family of our cloud-based software subscription offerings that provides our customers and partners subscription-based, self-service access to certain of our database and middleware, and applications software. Our cloud software subscription offerings also include Oracle RightNow Customer Experience and Oracle Taleo Talent Management Cloud Service, among others.

 

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, storage and networking product offerings and hardware-related software, including the Oracle Solaris Operating System. As a part of this line of business, we offer our Oracle Engineered Systems, including Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine, SPARC SuperCluster, Oracle Database Appliance, and Oracle Big Data Appliance, which are engineered to run certain of our hardware and software offerings to create performance and operational cost advantages for customers. 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. 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, managed cloud 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. Oracle managed cloud services 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-premise at customer facilities. Additionally, we provide support services, both on-premise and remote, to Oracle 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 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 hardware systems businesses:

 

 

                                 Year Ended May 31,

(in millions)

 

                2012

 

                2011

 

                     2010

New software licenses:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

9,910

 

$

         9,220

 

$

         7,525

Sales and distribution expenses

 

 

5,107

 

 

         4,692

 

 

         3,980

Margin(2)

 

$

4,803

 

$

         4,528

 

$

         3,545

Software license updates and product support:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

16,258

 

$

       14,876

 

$

       13,175

Software license updates and product support expenses

 

 

1,116

 

 

         1,144

 

 

            958

Margin(2)

 

$

15,142

 

$

       13,732

 

$

       12,217

Total software business:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

26,168

 

$

       24,096

 

$

       20,700

Expenses

 

 

6,223

 

 

         5,836

 

 

         4,938

Margin(2)

 

$

19,945

 

$

       18,260

 

$

       15,762

Hardware systems products:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

3,827

 

$

         4,382

 

$

         1,493

Hardware systems products expenses

 

 

1,841

 

 

         2,061

 

 

            850

Sales and distribution expenses

 

 

1,050

 

 

            960

 

 

            307

Margin(2)

 

$

936

 

$

         1,361

 

$

            336

Hardware systems support:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

2,505

 

$

         2,710

 

$

            912

Hardware systems support expenses

 

 

1,006

 

 

         1,221

 

 

            408

Margin(2)

 

$

1,499

 

$

         1,489

 

$

            504

Total hardware systems business:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

6,332

 

$

         7,092

 

$

         2,405

Expenses

 

 

3,897

 

 

         4,242

 

 

         1,565

Margin(2)

 

$

2,435

 

$

         2,850

 

$

            840

Total services business:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

4,721

 

$

         4,662

 

$

         3,929

Services expenses

 

 

3,662

 

 

         3,643

 

 

         3,245

Margin(2)

 

$

1,059

 

$

         1,019

 

$

            684

Totals:

 

 

 

 

 

 

 

 

 

Revenues(1)

 

$

37,221

 

$

       35,850

 

$

       27,034

Expenses

 

 

13,782

 

 

       13,721

 

 

         9,748

Margin(2)

 

$

23,439

 

$

       22,129

 

$

       17,286

 

(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. New software licenses revenues for management reporting included revenues related to cloud software subscription contracts that would have otherwise been recorded by the acquired businesses as independent entities but were not recognized in the accompanying consolidated statements of operations in the amount of $22 million for fiscal 2012. 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 consolidated statements of operations in the amounts of $48 million, $80 million and $86 million for fiscal 2012, 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 $30 million, $148 million and $128 million for fiscal 2012, 2011 and 2010, respectively. See Note 10 for an explanation of these adjustments and the table below for a reconciliation of our total operating segment revenues to our 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 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:

 

 

                                        Year Ended May 31,

(in millions)

 

              2012

 

                   2011

 

                   2010

Total revenues for operating segments

 

 $

37,221

 

 $

             35,850

 

 $

       27,034

New software licenses revenues (1)

 

 

(22)

 

 

—

 

 

—

Software license updates and product support revenues(1)

 

 

(48)

 

 

                  (80)

 

 

             (86)

Hardware systems support revenues(1)

 

 

(30)

 

 

                (148)

 

 

           (128)

Total revenues

 

 $

37,121

 

 $

             35,622

 

 $

       26,820

 

Total margin for operating segments

 

 $

23,439

 

 $

             22,129

 

 $

       17,286

New software licenses revenues (1)

 

 

(22)

 

 

—

 

 

—

Software license updates and product support revenues(1)

 

 

(48)

 

 

                  (80)

 

 

             (86)

Hardware systems support revenues(1)

 

 

(30)

 

 

                (148)

 

 

           (128)

Hardware systems products expenses(2)

 

 

—

 

 

—

 

 

             (29)

Product development and information technology expenses

 

 

(4,630)

 

 

             (4,778)

 

 

        (3,479)

Marketing and partner program expenses

 

 

(581)

 

 

                (601)

 

 

           (503)

Corporate and general and administrative expenses

 

 

(945)

 

 

                (800)

 

 

           (755)

Amortization of intangible assets

 

 

(2,430)

 

 

             (2,428)

 

 

        (1,973)

Acquisition related and other

 

 

(56)

 

 

                (208)

 

 

           (154)

Restructuring

 

 

(295)

 

 

                (487)

 

 

           (622)

Stock-based compensation

 

 

(626)

 

 

                (500)

 

 

           (421)

Interest expense

 

 

(766)

 

 

                (808)

 

 

           (754)

Other, net

 

 

(48)

 

 

                  120

 

 

           (139)

Income before provision for income taxes

 

 $

12,962

 

 $

             11,411

 

 $

         8,243

 

 

 

 

 

 

 

 

 

 

(1)

New software licenses revenues for management reporting included revenues related to cloud software subscription contracts that would have otherwise been recorded by the acquired businesses as independent entities but were not recognized in the accompanying consolidated statements of operations in the amount of $22 million for fiscal 2012. 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 consolidated statements of operations in the amounts of $48 million, $80 million and $86 million for fiscal 2012, 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 $30 million, $148 million and $128 million for fiscal 2012, 2011 and 2010, respectively.

(2)

Represents the effects of fair value adjustments to our inventories acquired from Sun that were sold to customers in fiscal 2010. 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 2012, 2011 or 2010.

 

 

                                                            As of and for the Year Ended May 31,

 

 

                     2012

                2011

                     2010

(in millions)

 

      Revenues

 

Long Lived Assets(1)

          Revenues

 

Long Lived Assets(1)

 Revenues

 

Long Lived Assets(1)

United States

 

$

15,767

 

 

$

2,468

 

 

$

  15,274

 

$

    2,359

 

$

  11,472

 

$

    2,141

United Kingdom

 

 

2,302

 

 

 

171

 

 

 

    2,200

 

 

       168

 

 

    1,685

 

 

       136

Japan

 

 

1,865

 

 

 

550

 

 

 

    1,731

 

 

       551

 

 

    1,349

 

 

       505

Germany

 

 

1,484

 

 

 

47

 

 

 

    1,475

 

 

         29

 

 

    1,112

 

 

         20

Canada

 

 

1,234

 

 

 

37

 

 

 

    1,174

 

 

         16

 

 

       888

 

 

         10

Australia

 

 

1,163

 

 

 

38

 

 

 

    1,041

 

 

         34

 

 

       687

 

 

         28

France

 

 

1,162

 

 

 

16

 

 

 

    1,145

 

 

         15

 

 

       965

 

 

         24

Other countries

 

 

12,144

 

 

 

741

 

 

 

  11,582

 

 

       661

 

 

    8,662

 

 

       632

Total

 

$

37,121

 

 

$

4,068

 

 

$

  35,622

 

$

    3,833

 

$

  26,820

 

$

    3,496

 

(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.