Oracle 2015 Annual Report Download - page 119

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Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2016
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 in 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 2016, 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.
Neither do we 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 recorded 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. The balance sheet classification for the fair values of these forward contracts is prepaid expenses and
other current assets for forward contracts in an unrealized gain position and other current liabilities for forward contracts in an unrealized loss position. The
statement of operations classification for changes in fair values of these forward contracts is non-operating income (expense), net, for both realized and unrealized
gains and losses.
As of May 31, 2016 and 2015, respectively, the notional amounts of the forward contracts we held to purchase U.S. Dollars in exchange for other major
international currencies were $2.7 billion and $2.2 billion, respectively, and 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 $1.2 billion, respectively. The fair values of our outstanding foreign currency forward contracts were
nominal at May 31, 2016 and 2015.
Included in our non-operating income (expense), net were $97 million, $60 million and $(69) million of net gains (losses) related to these forward contracts for the
years ended May 31, 2016, 2015 and 2014, respectively. The cash flows related to these foreign currency contracts are classified as operating activities.
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