Oracle 2010 Annual Report Download - page 52

Table of Contents
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 2011, 2010 or 2009.
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 historical income tax provisions and accruals. Such differences could have a material effect on our
income tax provision and net income in the period in which such determination is made.
Our effective tax rate includes the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned
to be indefinitely reinvested outside the United States. Remittances of foreign earnings to the U.S. are planned based on projected cash flow, working capital and
investment needs of our foreign and domestic operations. Based on these assumptions, we estimate the amount that will be distributed to the U.S. and provide
U.S. federal taxes on these amounts. Material changes in our estimates as to how much of our foreign earnings will be distributed to the U.S. or tax legislation
that limits or restricts the amount of undistributed foreign earnings that we consider indefinitely reinvested outside the United States could materially impact our
income tax provision and effective tax rate.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In order for us to realize our deferred
tax assets, we must be able to generate sufficient taxable income in those jurisdictions where the deferred tax assets are located. We consider future growth,
forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, taxable income in prior years, if
carryback is permitted under the law, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to
determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance
would be charged to earnings in the period in which we make such a determination, or goodwill would be adjusted at our final determination of the valuation
allowance related to an acquisition within the measurement period. If we later determine that it is more likely than not that the net deferred tax assets would be
realized, we would reverse the applicable portion of the previously provided valuation allowance as an adjustment to earnings at such time.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns
filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax
implications are known, which can materially impact our effective tax rate.
The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our
estimate of the potential outcome for any uncertain tax issue is highly 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
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Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠