RISK MANAGEMENT AND DERIVATIVES

9 Months Ended

Feb. 29, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

RISK MANAGEMENT AND DERIVATIVES

NOTE 8 — 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 nine months ended February 29, 2024, 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 February 29, 2024, 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	FEBRUARY 29,		MAY 31,
(Dollars in millions)		2024		2023
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	$	312	$	480
Foreign exchange forwards and options	Deferred income taxes and other assets	66		64
Interest rate swap contracts	Deferred income taxes and other assets	2		—
Total derivatives formally designated as hedging instruments		380		544
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	12		13
Total derivatives not designated as hedging instruments		12		13
TOTAL DERIVATIVE ASSETS		$	392	$	557
	DERIVATIVE LIABILITIES
	BALANCE SHEET LOCATION	FEBRUARY 29,		MAY 31,
(Dollars in millions)		2024		2023
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Accrued liabilities	$	121	$	93
Foreign exchange forwards and options	Deferred income taxes and other liabilities	17		52
Interest rate swap contracts	Deferred income taxes and other liabilities	4		—
Total derivatives formally designated as hedging instruments		142		145
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Accrued liabilities	11		35
Total derivatives not designated as hedging instruments		11		35
TOTAL DERIVATIVE LIABILITIES		$	153	$	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				LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME	THREE MONTHS ENDED
	FEBRUARY 29, 2024		FEBRUARY 28, 2023			FEBRUARY 29, 2024		FEBRUARY 28, 2023
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options	$	(32)	$	30	Revenues	$	(10)	$	14
Foreign exchange forwards and options	135		(141)		Cost of sales	70		182
Foreign exchange forwards and options	—		1		Demand creation expense	1		(1)
Foreign exchange forwards and options	49		(65)		Other (income) expense, net	52		90
Interest rate swaps(2)	—		—		Interest expense (income), net	(2)		(2)
TOTAL DESIGNATED CASH FLOW HEDGES	$	152	$	(175)		$	111	$	283

(1)For the three months ended February 29, 2024 and February 28, 2023, 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)
	NINE MONTHS ENDED				LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME	NINE MONTHS ENDED
	FEBRUARY 29, 2024		FEBRUARY 28, 2023			FEBRUARY 29, 2024		FEBRUARY 28, 2023
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options	$	(55)	$	52	Revenues	$	(7)	$	9
Foreign exchange forwards and options	154		245		Cost of sales	221		464
Foreign exchange forwards and options	2		(2)		Demand creation expense	1		(4)
Foreign exchange forwards and options	78		181		Other (income) expense, net	138		297
Interest rate swaps(2)	—		—		Interest expense (income), net	(6)		(6)
TOTAL DESIGNATED CASH FLOW HEDGES	$	179	$	476		$	347	$	760

(1)For the nine months ended February 29, 2024 and February 28, 2023, 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.

	AMOUNT OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES								LOCATION OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
	THREE MONTHS ENDED				NINE MONTHS ENDED
(Dollars in millions)	FEBRUARY 29, 2024		FEBRUARY 28, 2023		FEBRUARY 29, 2024		FEBRUARY 28, 2023
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options and embedded derivatives	$	9	$	(26)	$	(1)	$	52	Other (income) expense, net

CASH FLOW HEDGES

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $17.6 billion as of February 29, 2024. Approximately $250 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of February 29, 2024, 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 February 29, 2024, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.

FAIR VALUE HEDGES

The total notional amount of outstanding interest rate swap contracts designated as fair value hedges was $901 million as of February 29, 2024.

UNDESIGNATED DERIVATIVE INSTRUMENTS

The total notional amount of outstanding undesignated derivative instruments was $3.9 billion as of February 29, 2024.

CREDIT RISK

As of February 29, 2024, 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 $239 million. Accordingly, the Company was not required to post cash collateral as a result of these contingent features. Further, $48 million of collateral was received on the Company's derivative asset balance as of February 29, 2024. 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