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Income Taxes (Tables)

12 Months Ended

May 31, 2014

Schedule of Income before Income Tax, Domestic and Foreign

Income before income taxes is as follows:



	Year Ended May 31,
(In millions)	2014		2013		2012
Income before income taxes:
United States	$	3,066	$	1,231	$	799
Foreign	478		2,025		2,212
TOTAL INCOME BEFORE INCOME TAXES	$	3,544	$	3,256	$	3,011

Schedule of Components of Income Tax Expense (Benefit)

The provision for income taxes is as follows:



	Year Ended May 31,
(In millions)	2014			2013			2012
Current:
United States
Federal	$	371		$	432		$	286
State	93			69			51
Foreign	398			398			488
Total	862			899			825
Deferred:
United States
Federal	8			—			(47		)
State	(3		)	(4		)	5
Foreign	(16		)	(90		)	(29		)
Total	(11		)	(94		)	(71		)
TOTAL INCOME TAX EXPENSE	$	851		$	805		$	754

Schedule of Effective Income Tax Rate Reconciliation

A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows:



	Year Ended May 31,
	2014		2013		2012
Federal income tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	1.8	%	1.4	%	1.3	%
Foreign earnings	2.2	%	-11.8	%	-11.9	%
Deferred charge	-14.6	%	0.0	%	0.0	%
Other, net	-0.4	%	0.1	%	0.6	%
EFFECTIVE INCOME TAX RATE	24.0	%	24.7	%	25.0	%

Schedule of Deferred Tax Assets and Liabilities

Deferred tax assets and (liabilities) comprise the following:



	As of May 31,
(In millions)	2014			2013
Deferred tax assets:
Allowance for doubtful accounts	$	11		$	20
Inventories	49			40
Sales return reserves	113			101
Deferred compensation	211			197
Stock-based compensation	162			140
Reserves and accrued liabilities	95			66
Foreign loss carry-forwards	16			19
Foreign tax credit carry-forwards	—			106
Undistributed earnings of foreign subsidiaries	194			147
Other	51			47
Total deferred tax assets	902			883
Valuation allowance	(9		)	(5		)
Total deferred tax assets after valuation allowance	893			878
Deferred tax liabilities:
Property, plant and equipment	(237		)	(241		)
Intangibles	(94		)	(78		)
Other	(2		)	(20		)
Total deferred tax liability	(333		)	(339		)
NET DEFERRED TAX ASSET	$	560		$	539

Unrecognized Tax Benefits Reconciliation

The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits:



	As of May 31,
(In millions)	2014			2013			2012
Unrecognized tax benefits, as of the beginning of the period	$	447		$	285		$	212
Gross increases related to prior period tax positions⁽¹⁾	814			77			48
Gross decreases related to prior period tax positions⁽¹⁾	(166		)	(3		)	(25		)
Gross increases related to current period tax positions	125			130			91
Gross decreases related to current period tax positions	(30		)	(9		)	(1		)
Settlements⁽¹⁾	(676		)	—			(20		)
Lapse of statute of limitations	(4		)	(21		)	(9		)
Changes due to currency translation	(4		)	(12		)	(11		)
UNRECOGNIZED TAX BENEFITS, AS OF THE END OF THE PERIOD	$	506		$	447		$	285

Summary of Operating Loss Carryforwards

The Company has available domestic and foreign loss carry-forwards of $55 million at May 31, 2014. Such losses will expire as follows:



	Year Ending May 31,
(In millions)	2015		2016		2017		2018		2019-2034		Indefinite		Total
Net operating losses	$	—	$	—	$	—	$	6	$	37	$	12	$	55

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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