Oracle 2011 Annual Report Download - page 32

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 18 of 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. We are
regularly under audit by tax authorities and those authorities very often do not agree with positions taken by us
on our tax returns.
Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. For
example, certain U.S. government proposals for fundamental U.S. international tax reform, if enacted, could have
a significant adverse impact on our effective tax rate. Further, in the ordinary course of a global business, there
are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Our
intercompany transfer pricing is currently being reviewed by the U.S. Internal Revenue Service (IRS) and by
foreign tax jurisdictions and will likely be subject to additional audits in the future. We have negotiated certain
unilateral Advance Pricing Agreements with the IRS and certain selected bilateral Advance Pricing Agreements
that cover many of our intercompany transfer pricing issues and preclude the relevant tax authorities from
making a transfer pricing adjustment within the scope of these agreements. However, these agreements do not
cover substantial elements of our transfer pricing.
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 2010 entry into a new hardware systems business resulting from our acquisition of Sun, 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.
Our Oracle Cloud Services offerings, including Oracle CRM On Demand, may not be successful. We offer
Oracle Cloud Services, which was formerly known as Oracle On Demand, and which include outsourcing
software and hardware management and maintenance services delivered at our data center facilities, select
partner data centers or customer facilities. Our Cloud Services also include certain subscription-based software
offerings such as Oracle CRM On Demand, which provides our customers with our CRM software functionality
delivered via a hosted solution that we manage, among others. These business models continue to evolve, and we
may not be able to compete effectively, generate significant revenues or maintain their profitability. We incur
expenses associated with the infrastructures and marketing of our Cloud Services in advance of our ability to
recognize the revenues associated with these offerings. Our Cloud Services offerings are subject to a variety of
additional risks, including:
• we manage critical customer applications, data and other confidential information through Oracle
Cloud Services; accordingly, we face increased exposure to significant damage claims and risk to
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