on PeopleSoft’s balance sheet as PeopleSoft concluded that it could be triggered only following the consummation of an acquisition. PeopleSoft used six different standard versions of the CAP over the 18-month period commencing June 2003. PeopleSoft ceased using the CAP on December 29, 2004, the date on which we acquired our controlling interest in PeopleSoft. We have concluded that, as of the date of the acquisition, the penalty provisions under the CAP represent a contingent liability of Oracle. The aggregate potential CAP obligation as of May 31, 2005 was $3.5 billion. 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 line of products, we cannot assure you that PeopleSoft customers will not assert claims for CAP payments.

 

Acquisitions present many risks, and we may not realize the financial and strategic goals that were contemplated at the time of any transaction.   An active acquisition program is an important element of our corporate strategy, and we expect to continue to acquire companies, products, services and technologies. Risks we may encounter in acquisitions include:

 

•	 	the acquisition may not further our business strategy, or we may pay more than it is worth;

•	 	we may have difficulty incorporating the acquired technologies or products with our existing product lines and maintaining uniform standards, controls, procedures and policies;

•	 	our relationship with current and new employees, customers and distributors could be impaired;

•	 	our due diligence process may fail to identify technical problems, such as issues with the company’s product quality or product architecture;

•	 	we may face contingencies related to product liability, intellectual property, financial disclosures and accounting practices or internal controls;

•	 	the acquisition may result in litigation from terminated employees or third parties;

•	 	our ongoing business may be disrupted and our management’s attention may be diverted by transition or integration issues; and

•	 	we may be unable to obtain timely approvals from governmental authorities under competition and antitrust laws.

 

These factors could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or number of acquisitions.

 

While we have generally paid for acquisitions in cash, to the extent that we issue equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.

 

We may need to change our pricing models to