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Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2014
loss carryforwards and tax credit carryforwards. The amount of net deferred tax assets considered realizable is subject to adjustment in future
periods if estimates of future taxable income change.
The valuation allowance was $1.1 billion and $999 million at May 31, 2014 and 2013, respectively. Substantially all of the valuation allowances
as of May 31, 2014 and 2013 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, 2014, we had federal net operating loss carryforwards of approximately $1.0 billion. These losses expire in various years between
fiscal 2016 and fiscal 2033, and are subject to limitations on their utilization. We had state net operating loss carryforwards of approximately
$2.8 billion at May 31, 2014, which expire between fiscal 2015 and fiscal 2033, and are subject to limitations on their utilization. We had total
foreign net operating loss carryforwards of approximately $1.8 billion at May 31, 2014, which are subject to limitations on their utilization.
Approximately $1.7 billion of these foreign net operating losses are not currently subject to expiration dates. The remainder of the foreign net
operating losses, approximately $143 million, expire between fiscal 2015 and fiscal 2034. We had tax credit carryforwards of approximately
$1.1 billion at May 31, 2014, which are subject to limitations on their utilization. Approximately $614 million of these tax credit carryforwards
are not currently subject to expiration dates. The remainder of the tax credit carryforwards, approximately $478 million, expire in various years
between fiscal 2015 and fiscal 2033.
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:
As of May 31, 2014, $2.6 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 $24 million, $31 million
and $46 million during fiscal 2014, 2013 and 2012, respectively. Interest and penalties accrued as of May 31, 2014 and 2013 were $693 million
and $666 million, respectively.
Domestically, U.S. federal and state taxing authorities are currently examining income tax returns of Oracle and various acquired entities for
years through fiscal 2013. Many issues are at an advanced stage in the examination process, the most significant of which include the
deductibility of certain royalty payments, transfer pricing, extraterritorial income exemptions, domestic production activity, foreign tax credits,
and research and development 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, 2014, the gross unrecognized tax benefits related to
these audits could decrease (whether by payment, release, or a
126
Year Ended May 31,
(in millions)
2014
2013
2012
Gross unrecognized tax benefits as of June 1
$
3,601
$
3,276
$
3,160
Increases related to tax positions from prior fiscal years
94
279
99
Decreases related to tax positions from prior fiscal years
(116
)
(125
)
(169
)
Increases related to tax positions taken during current fiscal year
307
312
522
Settlements with tax authorities
(2
)
(71
)
(187
)
Lapses of statutes of limitation
(53
)
(71
)
(84
)
Other, net
7
1
(65
)
Total gross unrecognized tax benefits as of May 31
$
3,838
$
3,601
$
3,276