RISK MANAGEMENT AND DERIVATIVES

6 Months Ended

Nov. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]


NOTE 7 — RISK MANAGEMENT AND DERIVATIVES

The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. As of and for the six months ended November 30, 2023, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report. For additional information about the Company's derivatives and hedging policies, refer to Note 1 — Summary of Significant Accounting Policies and Note 12 — Risk Management and Derivatives within the Annual Report.

The majority of derivatives outstanding as of November 30, 2023, are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro, Chinese Yuan/U.S. Dollar and Japanese Yen/U.S. Dollar currency pairs. All derivatives are recognized on the Unaudited Condensed Consolidated Balance Sheets at fair value and classified based on the instrument's maturity date.

The following tables present the fair values of derivative instruments included within the Unaudited Condensed Consolidated Balance Sheets:


	DERIVATIVE ASSETS
	BALANCE SHEET LOCATION	NOVEMBER 30,		MAY 31,
(Dollars in millions)		2023		2023
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	$	309	$	480
Foreign exchange forwards and options	Deferred income taxes and other assets	49		64
Total derivatives formally designated as hedging instruments		358		544
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	13		13



Total derivatives not designated as hedging instruments		13		13
TOTAL DERIVATIVE ASSETS		$	371	$	557

	DERIVATIVE LIABILITIES
	BALANCE SHEET LOCATION	NOVEMBER 30,		MAY 31,
(Dollars in millions)		2023		2023
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Accrued liabilities	$	138	$	93
Foreign exchange forwards and options	Deferred income taxes and other liabilities	40		52
Total derivatives formally designated as hedging instruments		178		145
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Accrued liabilities	24		35



Total derivatives not designated as hedging instruments		24		35
TOTAL DERIVATIVE LIABILITIES		$	202	$	180

The following tables present the amounts affecting the Unaudited Condensed Consolidated Statements of Income:


(Dollars in millions)	AMOUNT OF GAIN (LOSS) RECOGNIZED IN OTHER COMPREHENSIVE INCOME (LOSS) ON DERIVATIVES(1)				AMOUNT OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME(1)
	THREE MONTHS ENDED NOVEMBER 30,				LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME	THREE MONTHS ENDED NOVEMBER 30,
	2023		2022			2023		2022
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options	$	(5)	$	(3)	Revenues	$	2	$	4
Foreign exchange forwards and options	21		(101)		Cost of sales	65		173
Foreign exchange forwards and options	2		2		Demand creation expense	—		(2)
Foreign exchange forwards and options	39		(47)		Other (income) expense, net	51		125
Interest rate swaps(2)	—		—		Interest expense (income), net	(2)		(2)
TOTAL DESIGNATED CASH FLOW HEDGES	$	57	$	(149)		$	116	$	298

(1)For the three months ended November 30, 2023 and 2022, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

(2)Gains and losses associated with terminated interest rate swaps, which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income (loss), will be released through Interest expense (income), net over the term of the issued debt.


(Dollars in millions)	AMOUNT OF GAIN (LOSS) RECOGNIZED IN OTHER COMPREHENSIVE INCOME (LOSS) ON DERIVATIVES(1)				AMOUNT OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME(1)
	SIX MONTHS ENDED NOVEMBER 30,				LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME	SIX MONTHS ENDED NOVEMBER 30,
	2023		2022			2023		2022
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options	$	(23)	$	22	Revenues	$	3	$	(5)
Foreign exchange forwards and options	19		386		Cost of sales	151		282
Foreign exchange forwards and options	2		(3)		Demand creation expense	—		(3)
Foreign exchange forwards and options	29		246		Other (income) expense, net	86		207
Interest rate swaps(2)	—		—		Interest expense (income), net	(4)		(4)
TOTAL DESIGNATED CASH FLOW HEDGES	$	27	$	651		$	236	$	477

(1)For the six months ended November 30, 2023 and 2022, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.


	AMOUNT OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES								LOCATION OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
	THREE MONTHS ENDED NOVEMBER 30,				SIX MONTHS ENDED NOVEMBER 30,
(Dollars in millions)	2023		2022		2023		2022


Derivatives not designated as hedging instruments:
Foreign exchange forwards and options and embedded derivatives	$	17	$	17	$	(10)	$	78	Other (income) expense, net

CASH FLOW HEDGES

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $17.7 billion as of November 30, 2023. Approximately $252 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of November 30, 2023, are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income. Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature. As of November 30, 2023, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.

UNDESIGNATED DERIVATIVE INSTRUMENTS

The total notional amount of outstanding undesignated derivative instruments was $4.6 billion as of November 30, 2023.

CREDIT RISK

As of November 30, 2023, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net asset position of approximately $169 million. Accordingly, the Company was not required to post cash collateral as a result of these contingent features. Further, no collateral was received on the Company's derivative asset balance as of November 30, 2023. The Company considers the impact of the risk of counterparty default to be immaterial.

For additional information related to the Company's derivative financial instruments and collateral, refer to Note 3 — Fair Value Measurements