Oracle 2010 Annual Report Download - page 209

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Policy)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(Policy) (USD $)
12 Months Ended
05/31/2011
Nature Of Operations We develop, manufacture, market, distribute and service database and middleware software;
applications software; and hardware systems, consisting primarily of computer server and
storage products. Our products are built on industry standards and are engineered to work
together or independently within existing customer information technology (IT), including
private and public cloud computing, environments.
Database and middleware software is generally used for the secure storage, retrieval and
manipulation of all forms of software-based data, and for developing and deploying
applications on the internet and on corporate intranets. Applications software is generally
used to automate business processes and to provide business intelligence. We also offer
software license updates and product support contracts that provide our customers with rights
to unspecified product upgrades and maintenance releases issued during the support period, as
well as technical support assistance.
On January 26, 2010, we completed our acquisition of Sun Microsystems, Inc. (Sun), a
provider of hardware systems, software and services, by means of a merger of one of our
wholly owned subsidiaries with and into Sun such that Sun became a wholly owned
subsidiary of Oracle. As a result of our acquisition of Sun, we entered into a new hardware
systems business. Our hardware systems business consists of two operating segments:
(1) hardware systems products, which consists primarily of computer server and storage
product offerings, and (2) hardware systems support, which provides customers with
unspecified software updates for the software components that are essential to the
functionality of our hardware systems and storage products and can include product repairs,
maintenance services and technical support services. In addition, we enhanced our existing
software and services businesses with additional offerings from Sun. Our acquisition of Sun
has added a significant amount of revenues and expenses to our results of operations in
comparison to our historical operating results.
Basis of Financial Statements The consolidated financial statements include our accounts and the accounts of our wholly-
and majority-owned subsidiaries. Noncontrolling interest positions of certain of our
consolidated entities are reported as a separate component of consolidated equity from the
equity attributable to Oracle’s stockholders for all periods presented. The noncontrolling
interests in our net income were not significant to our consolidated results for the periods
presented and therefore have been included as a component of non-operating income
(expense), net in our consolidated statements of operations. Intercompany transactions and
balances have been eliminated. Certain other prior year balances have been reclassified to
conform to the current year presentation. Such reclassifications did not affect total revenues,
operating income or net income. General and administrative expenses as presented in our
consolidated statements of operations for fiscal 2011 included a benefit of $120 million
related to the recovery of legal costs that reduced our expenses in this period.
Use of Estimates Our consolidated financial statements are prepared in accordance with U.S. generally
accepted accounting principles (GAAP) as set forth in the Financial Accounting Standards
Board’s (FASB) Accounting Standards Codification (ASC) and consider the various staff
accounting bulletins and other applicable guidance issued by the U.S. Securities and
Exchange Commission (SEC). These accounting principles require us to make certain
estimates, judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information available to us at the
time that these estimates, judgments and assumptions are made. These estimates, judgments
and assumptions can affect the reported amounts of assets and liabilities as of the date of the
financial statements as well as the reported amounts of revenues and expenses during the
periods presented. To the extent there are material differences between these estimates,
judgments or assumptions and actual results, our consolidated financial statements will be
affected. In many cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management’s judgment in its application. There are
also areas in which management’s judgment in selecting among available alternatives would
not produce a materially different result.
Revenue Recognition Our sources of revenues include: (1) software, which includes new software license revenues
and software license updates and product support revenues; (2) hardware systems, which
includes the sale of hardware systems products including computer servers and storage
products, and hardware systems support revenues; and (3) services, which include software
and hardware related services including consulting, Cloud Services and education revenues.
Revenue Recognition for Software Products and Software Related Services (Software
Elements)
New software license revenues represent fees earned from granting customers licenses to use
our database, middleware and applications software, and exclude revenues derived from
software license updates, which are included in software license updates and product support
revenues. While the basis for software license revenue recognition is substantially governed
by the accounting guidance contained in ASC 985-605, Software-Revenue Recognition, we
exercise judgment and use estimates in connection with the determination of the amount of
software and services revenues to be recognized in each accounting period.
For software license arrangements that do not require significant modification or
customization of the underlying software, we recognize new software license revenues when:
(1) we enter into a legally binding arrangement with a customer for the license of software;
Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠