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Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2006
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill
amounts are not amortized, but rather are tested for impairment at least annually. Intangible assets that are not considered to have an indefinite useful life are
amortized over their useful lives, which range from three to ten years. The carrying amount of these assets is reviewed whenever events or changes in
circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying
amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any
impairment is measured as the difference between the carrying value and the fair value of the impaired asset. We did not recognize any goodwill or intangible
asset impairment charges in fiscal 2006, 2005 or 2004.
Fair Value of Financial Instruments
The carrying value of our cash and cash equivalents approximates fair value due to the short period of time to maturity. We record changes in fair value for our
marketable securities, publicly-traded equity securities, interest rate swap, foreign currency forward contracts and investment hedge based on quoted market
prices. Based on the trading prices of our $5.75 billion senior notes and the interest rates we could obtain for our other borrowings with similar terms, the
estimated fair value of our borrowings at May 31, 2006 and 2005 was $5,730 million and $2,852 million, respectively.
Legal Contingencies
We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant matter and assess our potential financial
exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the
estimated loss.
Foreign Currency Translation
We transact business in various foreign currencies. In general, the functional currency of a foreign operation is the local country’s currency. Consequently,
revenues and expenses of operations outside the United States are translated into United States dollars using weighted-average exchange rates while assets and
liabilities of operations outside the United States are translated into United States dollars using year-end exchange rates. The effects of foreign currency
translation adjustments not affecting retained earnings are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) in
the accompanying consolidated balance sheets. Foreign currency gains (losses) are included in non-operating income, net in our consolidated statements of
operations and were $39 million, $(14) million and $(13) million in fiscal 2006, 2005 and 2004, respectively.
Stock-Based Compensation
We issue stock options to our employees and outside directors under stockholder approved stock option programs and provide employees the right to purchase
our stock pursuant to employee stock purchase programs. We account for our stock-based compensation plans under the intrinsic value method of accounting as
defined by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. We apply the disclosure
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, as amended by FASB Statement No. 148, Accounting for Stock-Based
Compensation—Transition and Disclosure. For pro forma disclosures, the estimated fair value of the unvested options is amortized using the accelerated expense
attribution method over the vesting period, typically four years, and the estimated fair value of the stock purchases is amortized over the six-month purchase
period. The following table illustrates the effect
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Source: ORACLE CORP, 10-K, July 21, 2006 Powered by Morningstar® Document Research℠