BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Feb. 28, 2013

Basis of Presentation and Recent Accounting Pronouncements [Abstract]

BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

1. BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

Basis of Presentation

We have prepared the condensed consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures herein are adequate to ensure the information presented is not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2012.

We believe that all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying financial statements to present fairly the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for our fiscal year ending May 31, 2013.

Pursuant to our adoption of Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220)—Presentation of Comprehensive Income andAccounting Standards Update No. 2011-12, Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, we elected to present separate consolidated statements of comprehensive income. There have been no other significant changes in our reported financial position or results of operations and cash flows as a result of the adoption of new accounting pronouncements or to our significant accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2012 that have had a significant impact on our consolidated financial statements or notes thereto.

Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications did not affect our consolidated total revenues, consolidated operating income or consolidated net income.

New Software Licenses and Cloud Software Subscriptions Revenues

New software licenses revenues represent fees earned from granting customers licenses to use our database and middleware and our application software products. Cloud software subscriptions revenues represent fees earned from granting customers access to select Oracle software applications and software platforms on a subscription basis through a cloud-based computing environment. Our new software licenses and cloud software subscriptions revenues for the three and nine months ended February 28, 2013 and February 29, 2012 were as follows:

	Three Months Ended				Nine Months Ended
(in millions)	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
New software licenses	$	2,101	$	2,264	$	5,642	$	5,637
Cloud software subscriptions		231		110		653		284
Total new software licenses and cloud software subscriptions revenues	$	2,332	$	2,374	$	6,295	$	5,921

Acquisition Related and Other Expenses

Acquisition related and other expenses consist of personnel related costs for transitional and certain other employees, stock-based compensation expenses, integration related professional services, certain business combination adjustments including adjustments after the measurement period has ended and changes in fair value of contingent consideration payable (further discussed in Note 2 below) and certain other operating items, net. Stock-based compensation included in acquisition related and other expenses resulted from unvested options and restricted stock-based awards assumed from acquisitions whereby vesting was accelerated upon termination of the employees pursuant to the original terms of those options and restricted stock-based awards.

	Three Months Ended				Nine Months Ended
(in millions)	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Transitional and other employee related costs	$	7	$	6	$	24	$	18
Stock-based compensation		8		18		30		21
Professional fees and other, net		7		6		(282)		(1)
Business combination adjustments, net		10		8		(119)		25
Total acquisition related and other expenses	$	32	$	38	$	(347)	$	63

Included in acquisition related and other expenses for the nine months ended February 28, 2013 were changes in estimates for contingent consideration payable of $118 million, and a benefit related to certain litigation of $306 million (see Note 14 for additional information), both of which reduced acquisition related and other expenses during this period.

Non-Operating (Expense) Income, net

Non-operating (expense) income, net consists primarily of interest income, net foreign currency exchange gains (losses), the noncontrolling interests in the net profits of our majority-owned subsidiaries (Oracle Financial Services Software Limited and Oracle Japan) and net other income (losses) including net realized gains and losses related to all of our investments and net unrealized gains and losses related to the small portion of our investment portfolio that we classify as trading.

	Three Months Ended				Nine Months Ended
(in millions)	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Interest income	$	62	$	60	$	180	$	175
Foreign currency losses, net		(87)		(28)		(150)		(68	)
Noncontrolling interests in income		(29)		(35)		(93)		(88	)
Other income, net		15		24		39		23
Total non-operating (expense) income, net	$	(39)	$	21	$	(24)	$	42

Included in our non-operating (expense) income, net for the three and nine months ended February 28, 2013 was a foreign currency remeasurement loss of $64 million resulting from the recent devaluation of the Venezuelan currency by the Venezuelan government for our Venezuelan subsidiary that we had previously designated as “highly inflationary” in accordance with the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 830, Foreign Currency Matters. As a large portion of our consolidated operations are international, we could experience additional foreign currency volatility in the future including additional foreign currency losses related to our Venezuelan subsidiary if the Venezuelan government further devalues the Venezuelan currency, the amounts and timing of which are uncertain.

Sales of Financing Receivables

We offer certain of our customers the option to acquire our products and services offerings through separate long-term payment contracts. We generally sell these contracts that we have financed on a non-recourse basis to financial institutions within 90 days of the contracts’ dates of execution. We record the transfers of amounts due from customers to financial institutions as sales of financing receivables because we are considered to have surrendered control of these financing receivables. Financing receivables sold to financial institutions were $486 million and $1.7 billion for the three and nine months ended February 28, 2013, respectively, and $374 million and $1.3 billion for the three and nine months ended February 29, 2012, respectively.

Recent Accounting Pronouncements

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income:  In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), to improve the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for us in our first quarter of fiscal 2014 with earlier adoption permitted, which should be applied prospectively. We are currently evaluating the impact of our pending adoption of ASU 2013-02 on our consolidated financial statements.

Testing Indefinite-Lived Intangible Assets for Impairment: In July 2012, the FASB issued Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350)—Testing Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02), to allow entities to use a qualitative approach to test indefinite-lived intangible assets for impairment. ASU 2012-02 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed quantitative impairment test by comparing the fair value of the indefinite-lived intangible asset with its carrying value. Otherwise, the quantitative impairment test is not required. ASU 2012-02 is effective for us in our fiscal 2014 and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2012-02 on our consolidated financial statements.