NOTE 6 — Income Taxes

The effective tax rate on continuing operations was 24.2% and 25.4% for the nine month periods ended February 28, 2014 and 2013, respectively. The decrease in the Company’s effective tax rate was due to an increase in the amount of earnings from lower tax rate jurisdictions.

As of February 28, 2014, total gross unrecognized tax benefits, excluding related interest and penalties, were $563 million, $353 million of which would affect the Company’s effective tax rate if recognized in future periods. As of May 31, 2013, total gross unrecognized tax benefits, excluding related interest and penalties, were $447 million. The liability for payment of interest and penalties increased $42 million during the nine months ended February 28, 2014. As of February 28, 2014 and May 31, 2013, accrued interest and penalties related to uncertain tax positions were $154 million and $112 million, respectively (excluding federal benefit).

The Company is subject to taxation primarily in the U.S., China, the Netherlands, and Brazil, as well as various state and other foreign jurisdictions. The Company has concluded substantially all U.S. federal income tax matters through fiscal 2010. The Company is currently under audit by the Internal Revenue Service for the 2011 through 2013 tax years, including the validation of foreign tax credits taken. Many issues are at an advanced stage in the examination process, the most significant of which includes the negotiation of a U.S. Unilateral Advanced Pricing Agreement that covers intercompany transfer pricing issues for fiscal years May 31, 2011 through May 31, 2015. The Company’s major foreign jurisdictions, China, the Netherlands and Brazil, have concluded substantially all income tax matters through calendar 2005, fiscal 2008 and calendar 2008, respectively. Although the timing of resolution of audits is not certain, the Company evaluates all domestic and foreign audit issues in the aggregate, along with the expiration of applicable statutes of limitations, and estimates that it is reasonably possible the total gross unrecognized tax benefits could decrease by up to $185 million within the next 12 months.