Oracle 2007 Annual Report Download - page 87

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2008
on invested capital. The following table sets forth the preliminary components of intangible assets associated with the
BEA acquisition:
(Dollars in millions) Fair Value Useful Life
Software support agreements and related relationships $ 1,115 8 years
Developed technology 1,118 6 years
Core technology 518 7 years
Customer relationships 530 8 years
Trademarks and other 62 5 years
Total intangible assets $ 3,343
Customer relationships and software support agreements and related relationships represent the underlying
relationships and agreements with BEA’s customers. Developed technology is comprised of products that have
reached technological feasibility and are a part of BEA’s product lines. Core technology represents a combination of
BEA processes, patents and trade secrets related to the design and development of BEA’s software products. This
proprietary know-how can be leveraged to develop new technology and improve our existing software products.
Trademarks represent the fair value of brand and name recognition associated with the marketing of BEA’s products
and services.
In-Process Research and Development
We expense in-process research and development (IPR&D) upon acquisition as it represents incomplete BEA
research and development projects that had not reached technological feasibility and had no alternative future use as
of the date of our acquisition. Technological feasibility is established when an enterprise has completed all planning,
designing, coding, and testing activities that are necessary to establish that a product can be produced to meet its
design specifications including functions, features, and technical performance requirements. The value assigned to
IPR&D of $17 million was determined by considering the importance of each project to our overall development
plan, estimating costs to develop the purchased IPR&D into commercially viable products, estimating the resulting
net cash flows from the projects when completed and discounting the net cash flows to their present values based on
the percentage of completion of the IPR&D projects.
Deferred Revenues
In connection with the preliminary purchase price allocation, we have estimated the fair value of the support
obligations assumed from BEA in connection with the acquisition. The estimated fair value of the support obligations
was determined using a cost build-up approach. The cost build-up approach determines fair value by estimating the
costs relating to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating profit
approximates, in theory, the amount that we would be required to pay a third party to assume the support obligations.
The estimated costs to fulfill the support obligations were based on the historical direct costs related to providing the
support services and to correct any errors in BEA software products. We did not include any costs associated with
selling efforts or research and development or the related fulfillment margins on these costs. Profit associated with
selling efforts was excluded because BEA had concluded the selling efforts on the support contracts prior to the date
of our acquisition. The estimated research and development costs have not been included in the fair value
determination, as these costs were not deemed to represent a legal obligation at the time of acquisition. As a result, in
allocating the purchase price, we recorded an adjustment to reduce the carrying value of BEA’s April 29, 2008
deferred support revenue by $250 million to reflect our estimate of the fair value of BEA’s support obligations
assumed.
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Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Research℠