v2.4.0.6
SEGMENT INFORMATION
 6 Months Ended
Nov. 30, 2012
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 cloud software subscriptions 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 and cloud software subscriptions line of business is engaged in licensing our database and middleware software and our applications software, and providing access to select Oracle software applications and software platforms on a subscription basis through a cloud-based computing environment. 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. Oracle Cloud, which is a family of our cloud-based software subscription offerings, provides our customers and partners subscription-based, self-service access to certain of our database and middleware, and applications software, and includes hosting, infrastructure management, the use of software updates, and support.

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:

 

 

 

 

Three Months Ended

November 30,

 

Six Months Ended

November 30,

(in millions)

 

 

2012

 

2011

 

2012

 

2011

New software licenses and cloud software subscriptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

 

$

2,398

 

$

2,044

 

$

3,987

 

$

3,537

Sales and distribution expenses

 

 

 

1,263

 

 

1,174

 

 

2,341

 

 

2,318

Margin(2)

 

 

$

1,135

 

$

870

 

$

1,646

 

$

1,219

Software license updates and product support:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

 

$

4,264

 

$

3,996

 

$

8,408

 

$

8,032

Software license updates and product support expenses

 

 

 

276

 

 

268

 

 

545

 

 

542

Margin(2)

 

 

$

3,988

 

$

3,728

 

$

7,863

 

$

7,490

Total software business:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

 

$

6,662

 

$

6,040

 

$

12,395

 

$

11,569

Expenses

 

 

 

1,539

 

 

1,442

 

 

2,886

 

 

2,860

Margin(2)

 

 

$

5,123

 

$

4,598

 

$

9,509

 

$

8,709

Hardware systems products:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

$

734

 

$

953

 

$

1,513

 

$

1,981

Hardware systems products expenses

 

 

 

366

 

 

468

 

 

750

 

 

941

Sales and distribution expenses

 

 

 

213

 

 

271

 

 

431

 

 

537

Margin(2)

 

 

$

155

 

$

214

 

$

332

 

$

503

Hardware systems support:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

 

$

590

 

$

634

 

$

1,169

 

$

1,290

Hardware systems support expenses

 

 

 

222

 

 

248

 

 

435

 

 

520

Margin(2)

 

 

$

368

 

$

386

 

$

734

 

$

770

Total hardware systems business:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

 

$

1,324

 

$

1,587

 

$

2,682

 

$

3,271

Expenses

 

 

 

801

 

 

987

 

 

1,616

 

 

1,998

Margin(2)

 

 

$

523

 

$

600

 

$

1,066

 

$

1,273

Total services business:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

 

$

1,127

 

$

1,184

 

$

2,245

 

$

2,369

Services expenses

 

 

 

910

 

 

911

 

 

1,772

 

 

1,824

Margin(2)

 

 

$

217

 

$

273

 

$

473

 

$

545

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues(1)

 

 

$

9,113

 

$

8,811

 

$

17,322

 

$

17,209

Expenses

 

 

 

3,250

 

 

3,340

 

 

6,274

 

 

6,682

Margin(2)

 

 

$

5,863

 

$

5,471

 

$

11,048

 

$

10,527

 

(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 and cloud software subscriptions revenues for management reporting included revenues related to cloud software subscriptions 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 $12 million and $31 million for the three and six months ended November 30, 2012, respectively. 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 $4 million and $10 million for the three months ended November 30, 2012 and 2011, respectively, and $8 million and $24 million for the six months ended November 30, 2012 and 2011, 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 $3 million and $9 million for the three months ended November 30, 2012 and 2011, respectively, and $8 million and $19 million for the six months ended November 30, 2012 and 2011, respectively. See Note 8 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 amortization of intangible assets, acquisition related and other expenses, restructuring expenses, stock-based compensation, interest expense or certain other expenses, 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

November 30,

 

Six Months Ended

November 30,

(in millions)

 

2012

 

2011

 

2012

 

2011

Total revenues for operating segments

 

$

9,113

 

$

     8,811

 

$

17,322

 

$

     17,209

New software licenses and cloud software subscriptions revenues(1)

 

 

(12)

 

 

—

 

 

(31)

 

 

—

Software license updates and product support revenues(1)

 

 

(4)

 

 

(10)

 

 

(8)

 

 

(24)

Hardware systems support revenues(1)

 

 

(3)

 

 

(9)

 

 

(8)

 

 

(19)

Total revenues

 

$

9,094

 

$

     8,792

 

$

17,275

 

$

     17,166

 

Total margin for operating segments

 

$

5,863

 

$

     5,471

 

$

11,048

 

$

     10,527

New software licenses and cloud software subscriptions revenues(1)

 

 

(12)

 

 

—

 

 

(31)

 

 

—

Software license updates and product support revenues(1)

 

 

(4)

 

 

(10)

 

 

(8)

 

 

(24)

Hardware systems support revenues(1)

 

 

(3)

 

 

(9)

 

 

(8)

 

 

(19)

Product development and information technology expenses

 

 

(1,228)

 

 

(1,134)

 

 

(2,459)

 

 

(2,210)

Marketing and partner program expenses

 

 

(162)

 

 

(156)

 

 

(290)

 

 

(288)

Corporate and general and administrative expenses

 

 

(216)

 

 

(230)

 

 

(442)

 

 

(499)

Amortization of intangible assets

 

 

(584)

 

 

(592)

 

 

(1,203)

 

 

(1,184)

Acquisition related and other

 

 

121

 

 

(5)

 

 

380

 

 

(25)

Restructuring

 

 

(131)

 

 

(52)

 

 

(276)

 

 

(154)

Stock-based compensation

 

 

(188)

 

 

(150)

 

 

(365)

 

 

(295)

Interest expense

 

 

(195)

 

 

(192)

 

 

(382)

 

 

(384)

Other, net

 

 

19

 

 

        19

 

 

18

 

 

        (14)

Income before provision for income taxes

 

$

3,280

 

$

     2,960

 

$

5,982

 

$

     5,431

 

(1)

New software licenses and cloud software subscriptions revenues for management reporting included revenues related to cloud software subscriptions 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 $12 million and $31 million for the three and six months ended November 30, 2012, respectively. 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 $4 million and $10 million for the three months ended November 30, 2012 and 2011, respectively, and $8 million and $24 million for the six months ended November 30, 2012 and 2011, 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 $3 million and $9 million for the three months ended November 30, 2012 and 2011, respectively, and $8 million and $19 million for the six months ended November 30, 2012 and 2011, respectively.