Oracle 2015 Annual Report Download - page 36

Table of Contents
substantial elements of our transfer pricing. In recent periods, transfer pricing audits in many foreign jurisdictions have become increasingly contentious. Similarly,
certain jurisdictions are increasingly raising concerns about certain withholding tax matters. In addition, our provision for income taxes could be adversely affected
by earnings being lower than anticipated in jurisdictions which we consider to be indefinitely reinvested outside the United States that have lower statutory tax rates
and earnings being higher than anticipated in jurisdictions that have higher statutory tax rates.
We are also subject to non-income based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States
and various foreign jurisdictions. We are regularly under audit by tax authorities with respect to these non-income based taxes and may have exposure to additional
non-income based tax liabilities. Our acquisition activities have increased our non-income based tax exposures, particularly with our entry into the hardware
business, which increased the volume and complexity of laws and regulations that we are subject to and with which we must comply.
Although we believe that our income and non-income based tax estimates are reasonable, there is no assurance that the final determination of tax audits or tax
disputes will not be different from what is reflected in our historical income tax provisions and accruals.
Charges to earnings resulting from acquisitions may adversely affect our operating results. Under business combination accounting standards pursuant to ASC
805, BusinessCombinations, we recognize the identifiable assets acquired, the liabilities assumed and any non-controlling interests in acquired companies
generally at their acquisition date fair values and, in each case, separately from goodwill. Goodwill as of the acquisition date is measured as the excess amount of
consideration transferred, which is also generally measured at fair value, and the net of the acquisition date amounts of the identifiable assets acquired and the
liabilities assumed. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an
acquisition, the following factors could result in material charges and adversely affect our operating results and may adversely affect our cash flows:
• costs incurred to combine the operations of companies we acquire, such as transitional employee expenses and employee retention, redeployment or
relocation expenses;
• impairment of goodwill, in particular within our consulting reporting unit, or impairment of intangible assets, both asset types of which have increased in
recent years due to our acquisitions and may continue to increase in the future;
• amortization of intangible assets acquired;
• a reduction in the useful lives of intangible assets acquired;
• identification of, or changes to, assumed contingent liabilities, both income tax and non-income tax related, after our final determination of the amounts
for these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever comes first;
• charges to our operating results to maintain certain duplicative pre-merger activities for an extended period of time or to maintain these activities for a
period of time that is longer than we had anticipated, charges to eliminate certain duplicative pre-merger activities, and charges to restructure our
operations or to reduce our cost structure;
• charges to our operating results due to expenses incurred to effect the acquisition; and
• charges to our operating results due to the expensing of certain stock awards assumed in an acquisition.
Substantially all of these costs will be accounted for as expenses that will decrease our net income and earnings per share for the periods in which those costs are
incurred. For example, we recognized a goodwill impairment loss in the fourth quarter of fiscal 2015 relating to our hardware reporting unit. Charges to our
operating results in any given period could differ substantially from other periods based on the timing and size of our future acquisitions and the extent of
integration activities. A more detailed discussion of our accounting for business combinations and other items is presented in the “Critical Accounting Policies and
Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7).
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