Income Taxes (Tables)

12 Months Ended

May 31, 2016

Schedule of Income before Income Tax, Domestic and Foreign

Income before income taxes is as follows:



	Year Ended May 31,
(In millions)	2016		2015		2014
Income before income taxes:
United States	$	956	$	1,967	$	3,066
Foreign	3,667		2,238		478
TOTAL INCOME BEFORE INCOME TAXES	$	4,623	$	4,205	$	3,544

Schedule of Components of Income Tax Expense (Benefit)

The provision for income taxes is as follows:



	Year Ended May 31,
(In millions)	2016			2015			2014
Current:
United States
Federal	$	304		$	596		$	259
State	71			80			104
Foreign	568			369			499
Total	943			1,045			862
Deferred:
United States
Federal	(57		)	(66		)	19
State	(16		)	(11		)	(3		)
Foreign	(7		)	(36		)	(27		)
Total	(80		)	(113		)	(11		)
TOTAL INCOME TAX EXPENSE	$	863		$	932		$	851

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,
	2016		2015		2014
Federal income tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	1.1	%	0.9	%	1.8	%
Foreign earnings	-18.6	%	-15.7	%	2.2	%
Deferred charge	0.4	%	0.9	%	-14.6	%
Other, net	0.8	%	1.1	%	-0.4	%
EFFECTIVE INCOME TAX RATE	18.7	%	22.2	%	24.0	%

Schedule of Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities comprise the following:



	As of May 31,
(In millions)	2016			2015
Deferred tax assets:
Allowance for doubtful accounts	$	5		$	11
Inventories	88			59
Sales return reserves	182			143
Deferred compensation	274			258
Stock-based compensation	206			179
Reserves and accrued liabilities	78			92
Net operating loss carry-forwards	44			10
Undistributed earnings of foreign subsidiaries	179			149
Other	72			76
Total deferred tax assets	1,128			977
Valuation allowance	(52		)	(9		)
Total deferred tax assets after valuation allowance	1,076			968
Deferred tax liabilities:
Property, plant and equipment	(268		)	(220		)
Intangibles	(92		)	(93		)
Other	(4		)	(38		)
Total deferred tax liability	(364		)	(351		)
NET DEFERRED TAX ASSET	$	712		$	617

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)	2016			2015			2014
Unrecognized tax benefits, beginning of the period	$	438		$	506		$	447
Gross increases related to prior period tax positions⁽¹⁾	49			32			814
Gross decreases related to prior period tax positions⁽¹⁾	(20		)	(123		)	(166		)
Gross increases related to current period tax positions	81			82			125
Gross decreases related to current period tax positions	—			(9		)	(30		)
Settlements⁽¹⁾	(13		)	(27		)	(676		)
Lapse of statute of limitations	(17		)	(10		)	(4		)
Changes due to currency translation	(12		)	(13		)	(4		)
UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD	$	506		$	438		$	506

(1)

During the fourth quarter of the fiscal year ended May 31, 2014, the Company reached a resolution with the IRS on a U.S. Unilateral Advanced Pricing Agreement that covers intercompany transfer pricing for fiscal years 2011 through 2020. As a result, the Company recorded a gross increase in unrecognized tax benefits related to prior period tax positions, a gross decrease in unrecognized tax benefits related to prior period tax positions and a settlement. The net impact of these items resulted in a decrease to unrecognized tax benefits.

Summary of Operating Loss Carryforwards

The Company has available domestic and foreign loss carry-forwards of $143 million at May 31, 2016. Such losses will expire as follows:



	Year Ending May 31,
(In millions)	2017		2018		2019		2020		2021-2035		Indefinite		Total
Net operating losses	$	1	$	4	$	1	$	1	$	35	$	101	$	143