Oracle 2009 Annual Report Download - page 50

Table of Contents
judgmental. A description of our accounting policies associated with tax related contingencies assumed as a part of a business combination is provided under
“Business Combinations” above. For those tax related contingencies that are not a part of a business combination, we account for these uncertain tax issues
pursuant to ASC 740, Income Taxes, which contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a
tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit,
including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely
to be realized upon ultimate settlement. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given with respect
to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax
audit, judicial rulings, refinement of estimates or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these
matters is different than the amounts recorded, such differences generally will impact our provision for income taxes in the period in which such a determination
is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the
related interest and penalties.
In addition, as a part of our accounting for business combinations, some of the purchase price is allocated to goodwill and intangible assets. Impairment charges
associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the period that any impairment is recorded.
Amortization expenses associated with acquired intangible assets are generally not tax deductible pursuant to our existing tax structure; however, deferred taxes
have been recorded for non-deductible amortization expenses as a part of the purchase price allocation process. We have taken into account the allocation of
these identified intangibles among different taxing jurisdictions, including those with nominal or zero percent tax rates, in establishing the related deferred tax
liabilities.
Legal and Other Contingencies
We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant matter and assess our potential financial
exposure. A description of our accounting policies associated with contingencies assumed as a part of a business combination is provided under “Business
Combinations” above. For legal and other contingencies that are not a part of a business combination, we accrue a liability for an estimated loss if the potential
loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the
determination of probability and the determination as to whether the amount of an exposure is reasonably estimable. Because of uncertainties related to these
matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability
related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact
on our results of operations and financial position.
Stock-Based Compensation
We account for share-based payments to employees, including grants of employee stock awards and purchases under employee stock purchase plans in
accordance with ASC 718, Compensation—Stock Compensation, which requires that share-based payments (to the extent they are compensatory) be recognized
in our consolidated statements of operations based on their fair values. In addition, we have applied certain of the provisions of the SEC’s guidance contained in
ASC 718, in our accounting for stock-based compensation awards.
We are required to estimate the stock awards that we ultimately expect to vest and to reduce stock-based compensation expense for the effects of estimated
forfeitures of awards over the expense recognition period. Although we estimate the rate of future forfeitures upon historical experience, actual forfeitures in the
future may differ. In addition, to the extent our actual forfeitures are different than our estimates, we record a true-up for the difference in the period that the
awards vest, and such true-ups could materially affect our operating results.
As required by ASC 718, we recognize stock-based compensation expense for share-based payments that are expected to vest. In determining whether an award
is expected to vest, we use an estimated, forward-looking forfeiture rate based upon our historical forfeiture rates. Stock-based compensation expense recorded
using an
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Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠