Oracle 2014 Annual Report Download - page 105

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
We perform the effectiveness testing of our aforementioned designated hedges on a quarterly basis and the changes in ineffective portions, if
any, are recognized immediately 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. A description of our accounting policies associated with contingencies assumed as a part of a business combination
is provided under “Business Combinations” above. For legal and other contingencies that are not a part of a business combination or related to
income taxes, we accrue a liability for an estimated loss if the potential loss from any claim or legal proceeding is considered probable and the
amount can be reasonably estimated. Note 18 below provides additional information regarding certain of our legal contingencies.
Shipping and Handling 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 loss in the accompanying consolidated balance sheets and related periodic movements are summarized as a line item in our
consolidated statements of comprehensive income. Net foreign exchange transaction losses included in non-operating income (expense), net in
the accompanying consolidated statements of operations were $157 million, $375 million and $162 million in fiscal 2015, 2014 and 2013,
respectively.
Stock-Based Compensation
We account for share-based payments to employees, including grants of service-based employee stock options, service-based restricted stock
awards, performance-based restricted stock awards (PSUs) 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. For our
service-based awards, we recognize stock-based compensation expense on a straight-line basis over the service period of the award, which is
generally four years. For our PSUs, we recognize stock-based compensation expense on a straight-line basis over the service period for each
separately vesting tranche, which is generally twelve months, as the performance conditions to evaluate attainment of each tranche for each
participant are independent of the performance conditions for the other tranches. We update the amount of stock-based compensation expense,
net of forfeitures, to record as of the end of each reporting period based on the expected attainment of performance targets, which is subject to
change until a final determination is known. Changes to the target estimates are reflected in the amount of stock-based compensation expense
that we recognize for each tranche on a cumulative basis during the reporting period in which the target estimates are altered and may cause the
amount of stock-based compensation expense that we record for such reporting period to vary.
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