Oracle 2012 Annual Report Download - page 116

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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
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 ASC 815. We
entered into these net investment hedges for the majority of fiscal 2010. We suspended this program during our
fourth quarter of fiscal 2010 and, as of May 31, 2012 and 2011, we have no contracts of this nature outstanding.
For fiscal 2010, a $37 million net loss was recognized to accumulated other comprehensive income for the
effective portion and a $1 million net gain was recognized to non-operating expense, net for the portion of the
hedges that was ineffective and excluded from effectiveness testing related to these contracts.
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 enter into foreign currency forward contracts so that increases or decreases
in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts in order
to mitigate the risks and volatility associated with our foreign currency transactions. We may suspend this
program from time to time. Our foreign currency exposures typically arise from intercompany sublicense fees,
intercompany loans and other intercompany transactions that are expected to be cash settled in the near term. Our
foreign currency forward contracts are generally short-term in duration. Our ultimate realized gain or loss with
respect to currency fluctuations will generally depend on the size and type of cross-currency exposures that we
enter into, the currency exchange rates associated with these exposures and changes in those rates, the net
realized and unrealized gains or losses on foreign currency forward contracts to offset these exposures and other
factors.
We neither use these foreign currency forward contracts for trading purposes nor do we designate these forward
contracts as hedging instruments pursuant to ASC 815. Accordingly, we recorded the fair values of these
contracts as of the end of our reporting period to our consolidated balance sheet with changes in fair values
recorded to our consolidated statement of operations. The balance sheet classification for the fair values of these
forward contracts is prepaid expenses and other current assets for a net unrealized gain position and other current
liabilities for a net unrealized loss position. The statement of operations classification for changes in fair values
of these forward contracts is non-operating income (expense), net, for both realized and unrealized gains and
losses.
As of May 31, 2012 and 2011, respectively, the notional amounts of the forward contracts we held to purchase
U.S. Dollars in exchange for other major international currencies were $3.0 billion and $2.5 billion, respectively,
and the notional amounts of forward contracts we held to sell U.S. Dollars in exchange for other major
international currencies were $873 million and $1.6 billion, respectively. The fair values of our outstanding
foreign currency forward contracts were nominal at May 31, 2012 and 2011.
Included in our non-operating income (expense), net were $43 million, $(39) million and $(35) million of net
gains (losses) related to these forward contracts for the years ended May 31, 2012, 2011 and 2010, respectively.
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