Oracle 2009 Annual Report Download - page 190

and we classify the proceeds from these sales as cash flows from operating activities in
our consolidated statements of cash flows. We account for the sales of these receivables
as “true sales” as defined in ASC 860, Transfers and Servicing.
In addition, we sell hardware products to leasing companies that, in turn, lease these
products to end-users. In transactions where the leasing companies have no recourse to us
in the event of default by the end-user, we recognize revenue at point of shipment or
point of delivery, depending on the shipping terms and if all the other revenue recognition
criteria have been met. In arrangements where the leasing companies have more than
insignificant recourse to us in the event of default by the end-user (defined as recourse
leasing), we recognize both the product revenue and the related cost of the product as the
payments are made to the leasing company by the end-user, generally ratably over the
lease term.
Our customers include several of our suppliers and on rare occasion, we have purchased
goods or services for our operations from these vendors at or about the same time that we
have sold our products to these same companies (Concurrent Transactions). Software
license agreements or sales of hardware systems that occur within a three-month time
period from the date we have purchased goods or services from that same customer are
reviewed for appropriate accounting treatment and disclosure. When we acquire goods or
services from a customer, we negotiate the purchase separately from any sales
transaction, at terms we consider to be at arm's length, and settle the purchase in cash. We
recognize new software license revenues or hardware systems product revenues from
Concurrent Transactions if all of our revenue recognition criteria are met and the goods
and services acquired are necessary for our current operations.
Business Combinations
In fiscal 2010, we adopted ASC 805, Business Combinations, which revised the
accounting guidance that we were required to apply for our acquisitions in comparison to
prior fiscal years. The underlying principles are similar to the previous guidance and
require that we recognize separately from goodwill the assets acquired and the liabilities
assumed, generally at their acquisition date fair values. Goodwill as of the acquisition
date is measured as the excess of consideration transferred and the net of the acquisition
date fair values of the assets acquired and the liabilities assumed. While we use our best
estimates and assumptions as a part of the purchase price allocation process to accurately
value assets acquired and liabilities assumed at the acquisition date, our estimates are
inherently uncertain and subject to refinement. As a result, during the measurement
period, which may be up to one year from the acquisition date, we record adjustments to
the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Upon the conclusion of the measurement period or final determination of the values of
assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments
are recorded to our consolidated statements of operations.
As a result of adopting the revised accounting guidance provided for by ASC 805 as of
the beginning of fiscal 2010, certain of our policies differ when accounting for
acquisitions in fiscal 2010 and prospective periods in comparison to the accounting for
acquisitions in fiscal 2009 and prior periods, including:
- the fair value of in-process research and development is recorded as an indefinite-lived
intangible asset until the underlying project is completed, at which time the intangible
asset is amortized over its estimated useful life, or abandoned, at which time the
intangible asset is expensed (prior to fiscal 2010, in-process research and development
was expensed at the acquisition date);
- the direct transaction costs associated with the business combination are expensed as
incurred (prior to fiscal 2010, direct transaction costs were included as a part of the
purchase price);- the costs to exit or restructure certain activities of an acquired company
are accounted for separately from the business combination (prior to fiscal 2010, these
restructuring and exist costs were included as a part of the assumed obligations in
deriving the purchase price allocation); and
- any changes in estimates associated with income tax valuation allowances or uncertain
tax positions after the measurement period are generally recognized as income tax
expense with application of this policy also applied prospectively to all of our business
combinations regardless of the acquisition date (prior to fiscal 2010, any such changes
were generally included as a part of the purchase price allocation indefinitely). Costs to
exit or restructure certain activities of an acquired company or our internal operations are
accounted for as one-time termination and exit costs pursuant to ASC 420, Exit or
Disposal Cost Obligations, and, as noted above, are accounted for separately from the
business combination. A liability for a cost associated with an exit or disposal activity is
recognized and measured at its fair value in our consolidated statement of operations in
the period in which the liability is incurred. When estimating the fair value of facility
restructuring activities, assumptions are applied regarding estimated sub-lease payments
to be received, which can differ materially from actual results. This may require us to
revise our initial estimates which may materially affect our results of operations and
financial position in the period the revision is made.
For a given acquisition, we generally identify certain pre-acquisition contingencies as of
the acquisition date and may extend our review and evaluation of these pre-acquisition
contingencies throughout the measurement period (up to one year from the acquisition
date) in order to obtain sufficient information to assess whether we include these
contingencies as a part of the purchase price allocation and, if so, to determine the
estimated amounts.
If we determine that a pre-acquisition contingency (non-income tax related) is probable in
nature and estimable as of the acquisition date, we record our best estimate for such a
contingency as a part of the preliminary purchase price allocation. We often continue to
gather information for and evaluate our pre-acquisition contingencies throughout the
measurement period and if we make changes to the amounts recorded or if we identify
Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠