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Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
principal amount of the January 2021 Notes at $1.6 billion with a fixed annual interest rate of 3.53%. We have designated these cross-currency
swap agreements as qualifying hedging instruments and are accounting for these as cash flow hedges pursuant to ASC 815. The critical terms of
the cross-currency swap agreements correspond to the January 2021 Notes, including the annual interest payments being hedged, and the cross-
currency swap agreements mature at the same time as the January 2021 Notes.
We used the hypothetical derivative method to measure the effectiveness of our cross-currency swap agreements. The fair values of these cross-
currency swap agreements are recognized as other assets or other non-current liabilities in our consolidated balance sheets. The effective
portions of the changes in fair values of these cross-currency swap agreements are reported in accumulated other comprehensive loss in our
consolidated balance sheets and an amount is reclassified out of accumulated other comprehensive loss into non-
operating income (expense), net
in the same period that the carrying value of the Euro denominated January 2021 Notes is remeasured and the interest expense is recognized. The
ineffective portion of the unrealized gains and losses on these cross-currency swaps, if any, is recorded immediately to non-operating income
(expense), net. We evaluate the effectiveness of our cross-currency swap agreements on a quarterly basis. We did not record any ineffectiveness
for fiscal 2015 or 2014. The cash flows related to the cross-currency swap agreements that pertain to the periodic interest settlements are
classified as operating activities and the cash flows that pertain to the principal balance are classified as financing activities.
We do not use any cross-currency swap agreements for trading purposes.
Net Investment Hedge — Foreign Currency Borrowings
In July 2013, we designated our July 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.
We used the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the change in
the carrying value of the Euro denominated July 2025 Notes due to remeasurement of the effective portion is reported in accumulated other
comprehensive loss on our consolidated balance sheet and the remaining change in the carrying value of the ineffective portion, if any, is
recognized in non-operating income (expense), net in our consolidated statements of operations. We evaluate the effectiveness of our net
investment hedge at the beginning of every quarter. We did not record any ineffectiveness for fiscal 2015 or 2014.
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 generally 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.
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