Oracle 2014 Annual Report Download - page 104

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
Goodwill, Intangible Assets and Impairment Assessments
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired.
Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives, which generally range from one to
ten years. Each period we evaluate the estimated remaining useful lives of purchased intangible assets and whether events or changes in
circumstances warrant a revision to the remaining periods of amortization.
The carrying amounts of our goodwill and intangible assets are periodically reviewed for impairment (at least annually for goodwill and
indefinite lived intangible assets) and whenever events or changes in circumstances indicate that the carrying value of these assets may not be
recoverable. According to ASC 350, Intangibles—Goodwill and Other , we can opt to perform a qualitative assessment to test a reporting unit’s
goodwill for impairment or we can directly perform the two step impairment test. Based on our qualitative assessment, if we determine that the
fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the two step
impairment test will be performed. In the first step, we compare the fair value of each reporting unit to its carrying value. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to
perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we
must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying
value of a reporting unit’
s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. During fiscal
2015, we recognized a $186 million goodwill impairment loss (refer to Note 7 below for additional information). We did not recognize any
goodwill impairment charges in fiscal 2014 or 2013.
Recoverability of finite lived intangible assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash
flows the asset is expected to generate. Recoverability of indefinite lived intangible assets is measured by comparison of the carrying amount of
the asset to its fair value. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the
carrying value and the fair value of the impaired asset. We did not recognize any intangible asset impairment charges in fiscal 2015, 2014 or
2013.
Derivative Financial Instruments
During fiscal 2015, 2014 and 2013, we used derivative and non-derivative financial instruments to manage foreign currency and interest rate
risks (see Note 11 below for additional information). We account for these instruments in accordance with ASC 815, Derivatives and Hedging
(ASC 815), 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).
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 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 of 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.
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