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Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2006
16. PEOPLESOFT CUSTOMER ASSURANCE PROGRAM
In June 2003, in response to our tender offer, PeopleSoft implemented what it referred to as the “customer assurance program” or “CAP.” The CAP incorporated
a provision in PeopleSoft’s standard licensing arrangement that purports to contractually burden Oracle, as a result of our acquisition of PeopleSoft, with a
contingent obligation to make payments to PeopleSoft customers should we fail to take certain business actions for a fixed period. The payment obligation, which
typically expires four years from the date of the contract, is fixed at an amount generally between two and five times the license and first year support fees paid to
PeopleSoft in the applicable license transaction. PeopleSoft customers retain rights to the licensed products whether or not the CAP payments are triggered.
The maximum potential penalty under the CAP, by version, as of May 31, 2006 was as follows:
CAP Version
Dates Offered to Customers(1) Maximum
Potential Penalty
(in millions)
Start Date End Date
Version 1 June 2003 September 12, 2003 $ 76(2)
Version 2 September 12, 2003 September 30, 2003 170
Version 3 September 30, 2003 November 7, 2003 40
Version 4 November 18, 2003 June 30, 2004 1,352
Version 5 June 16, 2004 December 28, 2004 792
Version 6 October 12, 2004 December 28, 2004 1,105
$ 3,535
(1) Some contracts originally submitted to customers prior to these end dates were executed following such dates. The majority of the CAP provisions will expire
no later than four years after the contract date.
(2) As of May 31, 2006, all but two contracts containing Version One of the CAP have expired by their terms. $76 is the maximum potential payment under the
two remaining Version 1 CAP contracts.
This purported obligation was not reflected as a liability on PeopleSoft’s balance sheet as PeopleSoft concluded that it could be triggered only following the
consummation of an acquisition. We have concluded that, as of the date of the acquisition, the penalty provisions under the CAP represented a contingent
liability of Oracle. The aggregate potential CAP obligation as of May 31, 2006 was $3.5 billion. Unless the CAP provisions are removed from these licensing
arrangements, we do not expect the aggregate potential CAP obligation to decline substantially until fiscal year 2008 when these provisions begin to expire. We
have not recorded a liability related to the CAP, as we do not believe it is probable that our post-acquisition activities related to the PeopleSoft and JD Edwards
product lines will trigger an obligation to make any payment pursuant to the CAP. While no assurance can be given as to the ultimate outcome of litigation, we
believe we would also have substantial defenses with respect to the legality and enforceability of the CAP contract provisions in response to any claims seeking
payment from us under the CAP terms.
97
Source: ORACLE CORP, 10-K, July 21, 2006 Powered by Morningstar® Document Research℠