Oracle 2007 Annual Report Download - page 37

Table of Contents
determine the fair value of a pre-acquisition contingency, we will evaluate whether to include an amount in the
purchase price allocation based on whether it is probable a liability had been incurred and whether an amount can be
reasonably estimated. With the exception of unresolved income tax matters, after the end of the purchase price
allocation period, any adjustment to amounts recorded for a pre-acquisition contingency will be included in our
operating results in the period in which the adjustment is determined.
In fiscal 2010, we will adopt FASB Statement No. 141 (revised 2007), Business Combinations. Refer to Note 1 of
Notes to Consolidated Financial Statements for additional information.
Goodwill and Intangible Assets—Impairment Assessments
We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying
value may not be recoverable in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets.
The provisions of Statement 142 require that a two-step impairment test be performed on goodwill. In the first step,
we compare the fair value of each reporting unit to its carrying value. Our reporting units are consistent with the
reportable segments identified in Note 13 of Notes to Consolidated Financial Statements. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired
and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit
exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to
determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill
exceeds its implied fair value, then we would record an impairment loss equal to the difference.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These
estimates and assumptions include revenue growth rates and operating margins used to calculate projected future
cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate
market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are
unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make
certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each
of our reporting units. Our most recent annual goodwill impairment analysis, which was performed during the fourth
quarter of fiscal 2008, did not result in an impairment charge.
We make judgments about the recoverability of purchased intangible assets whenever events or changes in
circumstances indicate that an other than temporary impairment may exist. Each period we evaluate the estimated
remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a
revision to the remaining periods of amortization. In accordance with FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, recoverability of these assets is measured by comparison of the
carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is
considered to be impaired, the amount of any impairment is measured as the difference between the carrying value
and the fair value of the impaired asset.
Assumptions and estimates about future values and remaining useful lives of our intangible and other long-lived
assets are complex and subjective. They can be affected by a variety of factors, including external factors such as
industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.
Although we believe the historical assumptions and estimates we have made are reasonable and appropriate, different
assumptions and estimates could materially impact our reported financial results. We did not recognize any intangible
asset impairment charges in fiscal 2008, 2007 or 2006.
Accounting for Income Taxes
Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a
global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of
these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related
entities, the process of identifying items of revenues and expenses that qualify for preferential tax treatment, and
segregation of foreign and domestic earnings and expenses to avoid double taxation. Although we believe that our
estimates are reasonable, the final tax outcome of these matters could be different from that which is reflected in our
32
Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Research℠