Oracle 2008 Annual Report Download - page 27

Table of Contents
amount of resources to our research and development efforts to maintain our competitive position. However,
we do not expect to receive significant revenues from these investments for several years, if at all.
Our sales to government clients subject us to risks including early termination, audits, investigations,
sanctions and penalties. We derive revenues from contracts with the United States government, state and
local governments and their respective agencies, which may terminate most of these contracts at any time,
without cause.
There is increased pressure for governments and their agencies, both domestically and internationally, to
reduce spending. Our federal government contracts are subject to the approval of appropriations being made
by the United States Congress to fund the expenditures under these contracts. Similarly, our contracts at the
state and local levels are subject to government funding authorizations.
Additionally, government contracts are generally subject to audits and investigations which could result in
various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of
a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment
from future government business.
Business disruptions could affect our operating results. A significant portion of our research and
development activities and certain other critical business operations is concentrated in a few geographic areas.
We are a highly automated business and a disruption or failure of our systems could cause delays in
completing sales and providing services, including some of our On Demand offerings. A major earthquake,
fire or other catastrophic event that results in the destruction or disruption of any of our critical business or
information technology systems could severely affect our ability to conduct normal business operations and,
as a result, our future operating results could be materially and adversely affected.
There are risks associated with our outstanding indebtedness. As of May 31, 2009, we had an aggregate of
$10.2 billion of outstanding indebtedness that will mature between 2010 and 2038, 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, generate sufficient cash flows to service such
debt 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.
We may also need to refinance a portion of our outstanding debt as it matures. There is a risk that we may not
be able to refinance existing debt or that the terms of any refinancing may not be as favorable as the terms of
our existing debt. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in
higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would
increase. Should we incur future increases in interest expense, our ability to utilize certain of our foreign tax
credits to reduce our U.S. federal income tax could be limited, which could unfavorably affect our provision
for income taxes and effective tax rate. In addition, changes by any rating agency to our outlook or credit
rating could negatively affect the value of both our debt and equity securities and increase the interest
amounts we pay on outstanding or future debt. These risks could adversely affect our financial condition and
results of operations.
Adverse litigation results could affect our business. We are subject to various legal proceedings. Litigation
can be lengthy, expensive and disruptive to our operations, and results cannot be predicted with certainty. An
adverse decision could result in monetary damages or injunctive relief that could affect our business,
operating results or financial condition. Additional information regarding certain of the lawsuits we are
involved in is discussed under Note 17 in Notes to Consolidated Financial Statements.
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.
Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. For
example, proposals for fundamental U.S. international tax reform, such as the recent proposal by President
Obama’s Administration, if enacted, could have a significant adverse impact on our effective tax rate.
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
22
Source: ORACLE CORP, 10-K, June 29, 2009 Powered by Morningstar® Document Research℠