Oracle 2008 Annual Report Download - page 109

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Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2009
balance sheet. The periodic interest settlements, which occur at the same interval as the senior notes due in
May 2010, are recorded as interest expense.
Net Investment Hedges
Periodically, we hedge net assets of certain of our international subsidiaries using foreign currency forward
contracts to offset the translation and economic exposures related to our foreign currency-based investments
in these subsidiaries. These contracts have been designated as net investment hedges pursuant to Statement
133. We use the spot method to measure the effectiveness of our net investment hedges. Under this method
for each reporting period, the change in fair value of the forward contracts attributable to the changes in spot
exchange rates (the effective portion) is reported in accumulated other comprehensive income on our
consolidated balance sheet and the remaining change in fair value of the forward contract (the ineffective
portion, if any) is recognized in non-operating income, net, in our consolidated statement of operations. We
record settlements under these forward contracts in a similar manner. The fair value of both the effective and
ineffective portions is recorded to our consolidated balance sheet as prepaid expenses and other current assets
for amounts receivable from the counterparties or other current liabilities for amounts payable to the
counterparties.
As of May 31, 2009, 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 our majority owned subsidiary, Oracle Japan. As of May 31,
2009, the fair value of our net investment hedge in Japanese Yen was nominal and had a notional amount of
$694 million.
Foreign Currency Forward Contracts Not Designated as Hedges
We transact business in various foreign currencies and have established a program that primarily utilizes
foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency
exposures. Under this program, our strategy is to have increases or decreases in our foreign currency
exposures offset by gains or losses on the foreign currency forward contracts to mitigate the risks and
volatility associated with foreign currency transaction gains or losses. These foreign currency exposures
typically arise from intercompany sublicense fees and other intercompany transactions. Our foreign currency
forward contracts generally settle within 90 days. We do not use these forward contracts for trading purposes.
We do not designate these forward contracts as hedging instruments pursuant to Statement 133. Accordingly,
we record the fair value of these contracts as of the end of our reporting period to our consolidated balance
sheet with changes in fair value recorded in our consolidated statement of operations. The balance sheet
classification for the fair values of these forward contracts is to prepaid expenses and other current assets for
unrealized gains and to other current liabilities for unrealized losses. The statement of operations
classification for the fair values of these forward contracts is to non-operating income, net, for both realized
and unrealized gains and losses.
As of May 31, 2009, the notional amounts of the forward contracts we held to purchase and sell U.S. Dollars
in exchange for other major international currencies were $860 million and $1.1 billion, respectively, and the
notional amounts of the foreign currency forward contracts we held to purchase European Euros in exchange
for other major international currencies were €142 million ($198 million).
101
Source: ORACLE CORP, 10-K, June 29, 2009 Powered by Morningstar® Document Research℠