Oracle 2011 Annual Report Download - page 102

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2011
which requires that every derivative instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value as of the reporting date. ASC 815 also requires that changes in our derivatives’ fair
values be recognized in earnings, unless specific hedge accounting and documentation criteria are met (i.e. the
instruments are accounted for as hedges). We recorded the effective portions of the gain or loss on derivative
financial instruments that were designated as cash flow hedges or net investment hedges in accumulated other
comprehensive income in the accompanying consolidated balance sheets. The offset to gain or loss on derivative
financial instruments that were designated as fair value hedges were recorded to the item for which the risk is
being hedged. Any ineffective or excluded portion of a designated cash flow hedge or net investment hedge, and
gains or losses on our fair value hedges are recognized in earnings.
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. For legal and other contingencies that are not a part
of a business combination, 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. A description of our accounting
policies associated with contingencies assumed as a part of a business combination is provided under “Business
Combinations” above.
Shipping Costs
Our shipping and handling costs for hardware systems products sales are included in hardware systems products
expenses for all periods presented.
Foreign Currency
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 U.S. Dollars using weighted average exchange rates while assets and liabilities of operations
outside the United States are translated into U.S. Dollars using exchange rates at the balance sheet date. The
effects of foreign currency translation adjustments are included in stockholders’ equity as a component of
accumulated other comprehensive income in the accompanying consolidated balance sheets. Net foreign
exchange transaction gains (losses) included in non-operating income (expense), net in the accompanying
consolidated statements of operations were $11 million, $(149) million and $(65) million in fiscal 2011, 2010
and 2009, respectively.
Stock-Based Compensation
We account for share-based payments, including grants of employee stock options and restricted stock-based
awards and purchases under employee stock purchase plans, in accordance with ASC 718, Compensation-Stock
Compensation, which requires that share-based payments (to the extent they are compensatory) be recognized in
our consolidated statements of operations based on their fair values and the estimated number of shares we
ultimately expect will vest. We recognize stock-based compensation expense on a straight-line basis over the
service period of the award, which is generally four years.
We record deferred tax assets for stock-based compensation plan awards that result in deductions on our income
tax returns based on the amount of stock-based compensation recognized and the statutory tax rate in the
jurisdiction in which we will receive a tax deduction. We have adopted and apply the alternative transition
method as defined within ASC 718 to calculate the excess tax benefits available for use in offsetting future tax
shortfalls and to determine the excess tax benefits from stock-based compensation that we reclassify as cash
flows from financing activities.
100