Oracle 2015 Annual Report Download - page 129

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2016
Our net deferred tax assets were $1.1 billion and $993 million as of May 31, 2016 and 2015, respectively. We believe it is more likely than not that the net deferred
tax assets will be realized in the foreseeable future. Realization of our net deferred tax assets is dependent upon our generation of sufficient taxable income in future
years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating 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 $1.2 billion and $1.0 billion at May 31, 2016 and 2015, respectively. Substantially all of the valuation allowances as of May 31, 2016
and 2015 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, 2016, we had federal net operating loss carryforwards of approximately $758 million. These losses expire in various years between fiscal 2017 and
fiscal 2035 and are subject to limitations on their utilization. We had state net operating loss carryforwards of approximately $2.7 billion at May 31, 2016, which
expire between fiscal 2017 and fiscal 2035 and are subject to limitations on their utilization. We had total foreign net operating loss carryforwards of approximately
$1.6 billion at May 31, 2016, 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 $240 million, expire between fiscal 2017 and fiscal 2036. We had tax
credit carryforwards of approximately $1.2 billion at May 31, 2016, which are subject to limitations on their utilization. Approximately $652 million of these tax
credit carryforwards are not currently subject to expiration dates. The remainder of the tax credit carryforwards, approximately $541 million, expire in various
years between fiscal 2017 and fiscal 2035.
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) 2016 2015 2014
Gross unrecognized tax benefits as of June 1 $ 4,038 $ 3,838 $ 3,601
Increases related to tax positions from prior fiscal years 350 119 94
Decreases related to tax positions from prior fiscal years (111) (17) (116)
Increases related to tax positions taken during current fiscal year 461 316 307
Settlements with tax authorities (73) (30) (2)
Lapses of statutes of limitation (73) (54) (53)
Cumulative translation adjustments and other, net (31) (134) 7
Total gross unrecognized tax benefits as of May 31 $ 4,561 $ 4,038 $ 3,838
As of May 31, 2016, 2015 and 2014, $3.1 billion, $2.8 billion and $2.6 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 $26 million, $102 million and $24 million during fiscal 2016, 2015 and 2014, respectively. Interest and penalties accrued as of May 31, 2016 and
2015 were $765 million and $756 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
2015. 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
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