Oracle 2005 Annual Report Download - page 95

Download and view the complete annual report

Please find page 95 of the 2005 Oracle annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2006
Net Investment Hedges
Periodically, we hedge the net assets of certain international subsidiaries (net investment hedges) using foreign currency forward contracts to offset the
translation and economic exposures related to our investments in these subsidiaries. We measure the effectiveness of net investment hedges by using the changes
in spot exchange rates because this method reflects our risk management strategies, the economics of those strategies in our financial statements and better
manages interest rate differentials between different countries. Under this method, the change in fair value of the forward contract attributable to the changes in
spot exchange rates (the effective portion) is reported in stockholders’ equity to offset the translation results on the net investments. The remaining change in fair
value of the forward contract (the ineffective portion) is recognized in non-operating income, net.
Net gains (losses) on investment hedges reported in stockholders’ equity were $23 million, $(23) million and $(38) million in fiscal 2006, 2005 and 2004,
respectively. The net gain on investment hedges reported in non-operating income, net were $24 million, $14 million and $8 million in fiscal 2006, 2005 and
2004, respectively.
At May 31, 2006, we had one net investment hedge in Japanese Yen. The Yen investment hedge minimizes currency risk arising from net assets held in Yen as a
result of equity capital raised during the initial public offering and secondary offering of Oracle Japan. The fair value of our Yen investment hedge was $0.2
million and $0.5 million as of May 31, 2006 and 2005. The Yen investment hedge has a notional amount of $595 million and an exchange rate of 111 Yen for
each United States dollar.
Foreign Currency Forward Contracts
We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to offset the risk
associated with the effects of certain foreign currency exposures. Under this program, increases or decreases in our foreign currency exposures are offset by gains
or losses on the forward contracts, to mitigate the possibility of foreign currency transaction gains or losses. These foreign currency exposures typically arise
from intercompany sublicense fees and other intercompany transactions. Our forward contracts generally have terms of 90 days or less. We do not use forward
contracts for trading purposes. All outstanding foreign currency forward contracts used in this program are marked to market at the end of the period with
unrealized gains and losses included in non-operating income, net. Our ultimate realized gain or loss with respect to currency fluctuations will depend on the
currency exchange rates and other factors in effect as the contracts mature. Net foreign exchange transaction gains (losses) included in non-operating income, net
in the accompanying consolidated statements of operations were $15 million, $(27) million and $(21) million in fiscal 2006, 2005 and 2004, respectively. The
fair values of foreign currency forward contracts were not individually significant and approximated $(0.3) million and $0.2 million as of May 31, 2006 and
2005.
Interest Rate Swap
We have $150 million in 6.91% senior notes due in February 2007. In February 2002, we entered into an interest-rate swap agreement that has the economic
effect of modifying the interest obligations associated with these senior notes so that the interest payable on the senior notes effectively becomes variable based
on the three month LIBOR set quarterly until maturity. The notional amount of the interest rate swap and the termination date match the principal amounts and
maturity date of the outstanding senior notes. Our interest rate swap increased the effective interest rate on our 6.91% senior notes to 7.30% as of May 31, 2006.
The fair value of the interest rate swap was $(0.7) million and $3.1 million at May 31, 2006 and May 31, 2005.
92
Source: ORACLE CORP, 10-K, July 21, 2006 Powered by Morningstar® Document Research℠