Oracle 2011 Annual Report Download - page 99

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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2011
price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our
estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which
may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities
assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final
determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to our consolidated statements of operations.
As a result of adopting the revised accounting guidance provided for by ASC 805 as of the beginning of fiscal
2010, certain of our policies differ when accounting for acquisitions in fiscal 2010 and prospective periods in
comparison to the accounting for acquisitions in fiscal 2009 and prior periods, including:
• the fair value of in-process research and development is recorded as an indefinite-lived intangible asset
until the underlying project is completed, at which time the intangible asset is amortized over its
estimated useful life, or abandoned, at which time the intangible asset is expensed (prior to fiscal 2010,
in-process research and development was expensed at the acquisition date);
• the direct transaction costs associated with the business combination are expensed as incurred (prior to
fiscal 2010, direct transaction costs were included as a part of the purchase price);
• the costs to exit or restructure certain activities of an acquired company are accounted for separately
from the business combination (prior to fiscal 2010, these restructuring and exist costs were included as
a part of the assumed obligations in deriving the purchase price allocation); and
• any changes in estimates associated with income tax valuation allowances or uncertain tax positions
after the measurement period are generally recognized as income tax expense with application of this
policy also applied prospectively to all of our business combinations regardless of the acquisition date
(prior to fiscal 2010, any such changes were generally included as a part of the purchase price
allocation indefinitely).
Costs to exit or restructure certain activities of an acquired company or our internal operations are accounted for
as one-time termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations, and, as noted
above, are accounted for separately from the business combination. A liability for a cost associated with an exit
or disposal activity is recognized and measured at its fair value in our consolidated statement of operations in the
period in which the liability is incurred. When estimating the fair value of facility restructuring activities,
assumptions are applied regarding estimated sub-lease payments to be received, which can differ materially from
actual results. This may require us to revise our initial estimates which may materially affect our results of
operations and financial position in the period the revision is made.
For a given acquisition, we generally identify certain pre-acquisition contingencies as of the acquisition date and
may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period
in order to obtain sufficient information to assess whether we include these contingencies as a part of the
purchase price allocation and, if so, to determine the estimated amounts.
If we determine that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable
as of the acquisition date, we record our best estimate for such a contingency as a part of the preliminary
purchase price allocation. We often continue to gather information for and evaluate our pre-acquisition
contingencies throughout the measurement period and if we make changes to the amounts recorded or if we
identify additional pre-acquisition contingencies during the measurement period, such amounts will be included
in the purchase price allocation during the measurement period and, subsequently, in our results of operations.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business
combination are initially estimated as of the acquisition date. We reevaluate these items quarterly with any
adjustments to our preliminary estimates being recorded to goodwill provided that we are within the
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