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Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2016
The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For a derivative instrument
designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change. The loss or gain attributable to the risk being hedged is
recognized in earnings with an offset recorded to the item for which the risk is being hedged. For a derivative instrument designated as a cash flow hedge, each
reporting period we record the change in fair value on the effective portion of the derivative to accumulated other comprehensive loss in our consolidated balance
sheets, and an amount is reclassified out of accumulated other comprehensive loss into earnings to offset the earnings impact that is attributable to the risk being
hedged. For the non-derivative financial instrument designated as a net investment hedge for our investments in certain of our international subsidiaries, the change
on account of remeasurement of the effective portion for each reporting period is recorded to accumulated other comprehensive loss in our consolidated balance
sheets.
We perform the effectiveness testing of our aforementioned designated hedges on a quarterly basis and the changes in ineffective portions of the derivatives, 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 products sales are included in hardware 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 $110 million, $157 million and $375 million in
fiscal 2016, 2015 and 2014, respectively.
Stock-Based Compensation
We account for share-based payments to employees, including grants of service-based restricted stock awards, performance-based restricted stock awards (PSUs),
service-based employee stock options, 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 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. The amount of stock-based compensation expense, net of forfeitures,
recorded as of the end of
101