Oracle 2006 Annual Report Download - page 24

Table of Contents
2007 was $3.2 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 a
significant number of these provisions begin to expire. The last CAP obligation will expire on December 31,
2008. 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 product line will trigger an obligation to make any
payment pursuant to the CAP.
In addition, 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 Oracle under the CAP terms. While we have taken extensive
steps to assure customers that we intend to continue developing and supporting the PeopleSoft and JD
Edwards product lines and as of May 31, 2007 we have not received any claims for CAP payments,
PeopleSoft customers may assert claims for CAP payments.
We may have exposure to additional tax liabilities. As a multinational corporation, we are subject to income
taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions.
Significant judgment is required in determining our worldwide provision for income taxes and other tax
liabilities.
In the ordinary course of a global business, there are many intercompany transactions and calculations where
the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Our intercompany
transfer pricing is currently being reviewed by the IRS and by foreign tax jurisdictions and will likely be
subject to additional audits in the future. We previously negotiated three unilateral Advance Pricing
Agreements with the IRS that cover many of our intercompany transfer pricing issues and preclude the IRS
from making a transfer pricing adjustment within the scope of these agreements. However, these agreements,
which are effective for fiscal years through May 31, 2006, do not cover all elements of our transfer pricing
and do not bind tax authorities outside the United States. We have finalized one bilateral Advance Pricing
Agreement and currently are negotiating an additional bilateral agreement to cover the period from June 1,
2001 through May 31, 2008. There can be no guarantee that such negotiations will result in an agreement.
Although we believe that our tax estimates are reasonable, we cannot assure you 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.
We are also subject to non-income 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 taxes and may have exposure to additional
non-income tax liabilities. Our acquisition activities have increased our non-income tax exposures.
There are risks associated with our outstanding indebtedness. As of May 31, 2007, we had an aggregate of
$6.3 billion of outstanding indebtedness that will mature between 2009 and 2016 and we may incur additional
indebtedness in the future. Our ability to pay interest and repay the principal for our indebtedness is
dependent upon our ability to manage our business operations and the other factors discussed in this section.
There can be no assurance that we will be able to manage any of these risks successfully. In addition, changes
by any rating agency to our outlook or credit rating could negatively affect the value and liquidity of both our
debt and equity securities.
Our stock price could become more volatile and your investment could lose value. All of the factors
discussed in this section could affect our stock price. The timing of announcements in the public market
regarding new products, product enhancements or technological advances by our competitors or us, and any
announcements by us of acquisitions, major transactions, or management changes could also affect our stock
price. Our stock price is subject to speculation in the press and the analyst community, changes in
recommendations or earnings estimates by financial analysts, changes in investors’ or analysts’ valuation
measures for our stock, our credit ratings and market trends unrelated to our performance. A significant drop
in our stock price could also expose us to the risk of securities class actions lawsuits, which could result in
substantial costs and divert management’s attention and resources, which could adversely affect our business.
Item 1B. Unresolved Staff Comments
None.
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Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Research℠