Oracle 2012 Annual Report Download - page 125

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
The valuation allowance was $728 million at May 31, 2012 and $772 million at May 31, 2011. Substantially all of the
valuation allowances as of May 31, 2012 and 2011 relate to tax assets established in purchase accounting. Any subsequent
reduction of that portion of the valuation allowance and the recognition of the associated tax benefits associated with our
acquisitions will be recorded to our provision for income taxes subsequent to our final determination of the valuation
allowance or the conclusion of the measurement period (as defined above), whichever comes first.
At May 31, 2012, we had federal net operating loss carryforwards of approximately $726 million. These losses
expire in various years between fiscal 2016 and fiscal 2031, and are subject to limitations on their utilization. We
had state net operating loss carryforwards of approximately $2.9 billion, which expire between fiscal 2013 and
fiscal 2031, and are subject to limitations on their utilization. We had total foreign net operating loss
carryforwards of approximately $1.8 billion, which are subject to limitations on their utilization. Approximately
$1.5 billion of these net operating losses are not currently subject to expiration dates. The remainder,
approximately $302 million, expire between fiscal 2013 and fiscal 2032. We had tax credit carryforwards of
approximately $1.0 billion, which are subject to limitations on their utilization. Approximately $346 million of
these tax credit carryforwards are not currently subject to expiration dates. The remainder, approximately $691
million, expire in various years between fiscal 2013 and fiscal 2029.
We classify our unrecognized tax benefits as either current or non-current income taxes payable in the
accompanying consolidated balance sheets. The aggregate changes in the balance of our gross unrecognized tax
benefits, including acquisitions, were as follows:
Year Ended May 31,
(in millions) 2012 2011 2010
Gross unrecognized tax benefits as of June 1 ............................ $ 3,160 $ 2,527 $ 2,262
Increases related to tax positions from prior fiscal years ................... 99 128 94
Decreases related to tax positions from prior fiscal years .................. (169) (102) (491)
Increases related to tax positions taken during current fiscal year ............ 522 639 813
Settlements with tax authorities ...................................... (187) (23) (88)
Lapses of statutes of limitation ....................................... (84) (53) (48)
Other, net ........................................................ (65) 44 (15)
Total gross unrecognized tax benefits as of May 31 ................... $ 3,276 $ 3,160 $ 2,527
As of May 31, 2012, $3.3 billion of unrecognized benefits would affect our effective tax rate if recognized. We
recognized interest and penalties related to uncertain tax positions in our provision for income taxes line of our
consolidated statements of operations of $46 million, $22 million and $3 million during fiscal 2012, 2011 and
2010, respectively. Interest and penalties accrued as of May 31, 2012 and 2011 were $683 million and $669
million, respectively.
During fiscal 2010, the provision for income taxes was reduced due to judicial decisions, including the March
2010 U.S. Court of Appeals Ninth Circuit ruling in Xilinx v. Commissioner, and settlements with various
worldwide tax authorities.
Domestically, U.S. federal and state taxing authorities are currently examining income tax returns of Oracle and various
acquired entities for years through fiscal 2010. Many issues are at an advanced stage in the examination process, the most
significant of which include the deductibility of certain royalty payments, issues related to certain capital gains and losses,
extraterritorial income exemptions, domestic production activity deductions, stewardship deductions, stock-based
compensation and foreign tax credits taken. Other issues are related to years with expiring statutes of limitation. With all
of these domestic audit issues considered in the aggregate, we believe it was reasonably possible that, as of May 31, 2012,
the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination
of both) in the next 12 months by as much as $518 million ($423 million net of offsetting tax benefits). Our U.S. federal
and, with some exceptions, our state income tax returns have been examined for all years prior to fiscal 2000 and we are
no longer subject to audit for those periods.
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