Oracle 2013 Annual Report Download - page 80

Table of Contents
In July 2013, we also issued €
750 million of 3.125% notes due July 2025 (2025 Notes). We designated the 2025 Notes as a net investment hedge
of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in
stockholders’
equity caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar. As a result, the change
in the carrying value of the Euro denominated 2025 Notes due to fluctuations in foreign currency exchange rates on the effective portion is
recorded in accumulated other comprehensive loss on our consolidated balance sheet and is also presented as a line item in our consolidated
statements of comprehensive income included elsewhere in this Annual Report and totaled $34 million of net other comprehensive losses for
fiscal 2014. Any remaining change in the carrying value of the 2025 Notes representing the ineffective portion of the net investment hedge is
recognized in non-operating (expense) income, net. We did not record any ineffectiveness during fiscal 2014.
Fluctuations in the exchange rates between the Euro and the U.S. Dollar will impact the amount of U.S. Dollars that we will require to settle the
2025 Notes at maturity. If the U.S. Dollar weakened by 10% in comparison to the Euro as of May 31, 2014, our obligation to settle the 2025
Notes in U.S. Dollars would have increased by approximately $102 million.
Foreign Currency Transaction Risk — 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 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. Our foreign currency forward contracts are generally short-term in duration.
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 record 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. Given the short duration of the forward contracts, the
amount recorded is not significant. 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 (expense) income, net for both realized and unrealized gains
and losses.
We expect that we will continue to realize gains or losses with respect to our foreign currency exposures, net of gains or losses from our foreign
currency forward contracts. Our ultimate realized gain or loss with respect to foreign currency exposures will generally depend on the size and
type of cross-
currency transactions that we enter into, the currency exchange rates associated with these exposures and changes in those rates, the
net realized gain or loss on our foreign currency forward contracts and other factors. As of May 31, 2014 and 2013, the notional amounts of the
forward contracts we held to purchase U.S. Dollars in exchange for other major international currencies were $3.6 billion and $3.0 billion,
respectively. As of May 31, 2014 and 2013, the notional amounts of forward contracts we held to sell U.S. Dollars in exchange for other major
international currencies were $2.0 billion and $1.1 billion, respectively. The fair values of our outstanding foreign currency forward contracts
were nominal at May 31, 2014 and 2013. Net foreign exchange transaction losses included in non-operating (expense) income, net in the
accompanying consolidated statements of operations were $375 million, $162 million and $105 million in fiscal 2014, 2013 and 2012,
respectively. Included in the net foreign exchange transaction losses for fiscal 2014 and fiscal 2013 were foreign currency losses relating to our
Venezuelan subsidiary’s operations, which are more thoroughly described under “Non-Operating (Expense) Income, net” in Management’s
Discussion and Analysis of Financial Condition and Results of Operations above. As a large portion of our consolidated operations are
international, we could experience additional foreign currency volatility in the future, the amounts and timing of which are unknown.
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