Oracle 2014 Annual Report Download - page 134

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
The valuation allowance was $1.0 billion and $1.1 billion at May 31, 2015 and 2014, respectively. Substantially all of the valuation allowances
as of May 31, 2015 and 2014 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, 2015, we had federal net operating loss carryforwards of approximately $958 million. These losses expire in various years between
fiscal 2016 and fiscal 2034, and are subject to limitations on their utilization. We had state net operating loss carryforwards of approximately
$2.9 billion at May 31, 2015, which expire between fiscal 2016 and fiscal 2034, and are subject to limitations on their utilization. We had total
foreign net operating loss carryforwards of approximately $1.6 billion at May 31, 2015, which are subject to limitations on their utilization.
Approximately $1.4 billion of these foreign net operating losses are not currently subject to expiration dates. The remainder of the foreign net
operating losses, approximately $216 million, expire between fiscal 2016 and fiscal 2035. We had tax credit carryforwards of approximately
$904 million at May 31, 2015, which are subject to limitations on their utilization. Approximately $573 million of these tax credit carryforwards
are not currently subject to expiration dates. The remainder of the tax credit carryforwards, approximately $331 million, expire in various years
between fiscal 2016 and fiscal 2034.
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, 2015, 2014 and 2013, $2.8 billion, $2.6 billion and $3.6 billion, respectively, 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 $102 million, $24 million and $31 million during fiscal 2015, 2014 and 2013, respectively. Interest and
penalties accrued as of May 31, 2015 and 2014 were $756 million and $693 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, 2015, 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 $426 million ($358
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 2003 and we are no longer subject to audit for those periods.
130
Year Ended May 31,
(in millions)
2015
2014
2013
Gross unrecognized tax benefits as of June 1
$
3,838
$
3,601
$
3,276
Increases related to tax positions from prior fiscal years
119
94
279
Decreases related to tax positions from prior fiscal years
(17
)
(116
)
(125
)
Increases related to tax positions taken during current fiscal year
316
307
312
Settlements with tax authorities
(30
)
(2
)
(71
)
Lapses of statutes of limitation
(54
)
(53
)
(71
)
Cumulative translation adjustments and other, net
(134
)
7
1
Total gross unrecognized tax benefits as of May 31
$
4,038
$
3,838
$
3,601