The components of the provision for income taxes for the years ended May 31 were as follows (in millions):

			2011		2010		2009
Current provision (benefit)
	Domestic:
		Federal	$	79	$	36	$	(35)
		State and local		48		54		18
	Foreign			198		207		214
				325		297		197
Deferred provision (benefit)
	Domestic:
		Federal		485		408		327
		State and local		12		15		48
	Foreign			(9)		(10)		7
				488		413		382
			$	813	$	710	$	579

Our current federal income tax expenses in 2011, 2010, and 2009 were significantly reduced by accelerated depreciation deductions we claimed under provisions of the Tax Relief and the Small Business Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act of 2009, and the Economic Stimulus Act of 2008. Those acts, designed to stimulate new business investment in the U.S., accelerated our depreciation deductions for new qualifying investments, such as our new Boeing 777 freighter (“B777F”) aircraft. These are timing benefits only, in that the depreciation would have otherwise been recognized in later years.

Pre-tax earnings of foreign operations for 2011, 2010 and 2009 were $472 million, $555 million and $106 million, respectively, which represent only a portion of total results associated with international shipments.

A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended May 31 was as follows:

			2011		2010		2009
Statutory U.S. income tax rate			35.0	%	35.0	%	35.0	%
Increase resulting from:
	Goodwill impairment		-		-		48.0
	State and local income taxes,
		net of federal benefit	1.7		2.4		1.9
	Other, net		(0.8)		0.1		0.7
Effective tax rate			35.9	%	37.5	%	85.6	%

Our 2011 rate was lower than our 2010 rate primarily due to increased permanently reinvested foreign earnings and a lower state tax rate driven principally by favorable audit and legislative developments. Our 2009 rate was significantly impacted by goodwill impairment charges that are not deductible for income tax purposes.

The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):

		2011				2010
		Deferred Tax Assets		Deferred Tax Liabilities		Deferred Tax Assets		Deferred Tax Liabilities
Property, equipment,
	leases and intangibles	$	274	$	2,675	$	377	$	2,157
Employee benefits			1,016		34		783		36
Self-insurance accruals			519		-		416		-
Other			422		269		490		238
Net operating loss/credit
	carryforwards		172		-		142		-
Valuation allowances			(151)		-		(139)		-
		$	2,252	$	2,978	$	2,069	$	2,431

The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):

	2011		2010
Current deferred tax asset	$	610	$	529
Noncurrent deferred tax liability		(1,336)		(891)
	$	(726)	$	(362)

We have $484 million of net operating loss carryovers in various foreign jurisdictions and $524 million of state operating loss carryovers. The valuation allowances primarily represent amounts reserved for operating loss and tax credit carryforwards, which expire over varying periods starting in 2012. As a result of this and other factors, we believe that a substantial portion of these deferred tax assets may not be realized.

Unremitted earnings of our foreign subsidiaries amounted to $640 million at the end of 2011 and $325 million at the end of 2010. We have not recognized deferred taxes for U.S. federal income tax purposes on the unremitted earnings of our foreign subsidiaries that are permanently reinvested. In 2011, our permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries provided a 1.3% benefit to our effective tax rate. Were the earnings to be distributed, in the form of dividends or otherwise, these unremitted earnings would be subject to U.S. federal income tax and non-U.S. withholding taxes. Unrecognized foreign tax credits potentially would be available to reduce a portion of the U.S. tax liability. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due to uncertainties related to the timing and source of any potential distribution of such funds, along with other important factors such as the amount of associated foreign tax credits. As of May 31, 2011, we had $300 million of cash in offshore jurisdictions associated with our permanent reinvestment strategy.

We file income tax returns in the U.S., various U.S. state and local jurisdictions, and various foreign jurisdictions. The Internal Revenue Service is currently auditing our consolidated U.S. income tax returns for the 2007 through 2009 tax years. We are no longer subject to U.S. federal income tax examination for years through 2006 except for specific U.S. federal income tax positions that are in various stages of appeal and/or litigation. No resolution date can be reasonably estimated at this time for these appeals and litigation, but their resolution is not expected to have a material effect on our consolidated financial statements. We are also subject to ongoing audits in state, local and foreign tax jurisdictions throughout the world.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):

		2011		2010		2009

Balance at beginning of year		$	82	$	72	$	88
	Increases for tax positions taken in the current year		2		3		7
	Increases for tax positions taken in prior years		6		14		10
	Decreases for tax positions taken in prior years		(10)		(4)		(30)
	Settlements		(11)		(3)		(3)

Balance at end of year		$	69	$	82	$	72

Our liabilities recorded for uncertain tax positions include $56 million at May 31, 2011 and $67 million at May 31, 2010 associated with positions that if favorably resolved would provide a benefit to our effective tax rate. We classify interest related to income tax liabilities as interest expense, and if applicable, penalties are recognized as a component of income tax expense. The balance of accrued interest and penalties was $18 million on May 31, 2011 and $20 million on May 31, 2010. Total interest and penalties included in our consolidated statements of income are immaterial. Included in the 2011 and 2010 balances are $9 million of tax positions for which the ultimate deductibility or income inclusion is certain but for which there may be uncertainty about the timing of such deductibility or income inclusion.

It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing audits, appeals or litigation in state, local, federal and foreign tax jurisdictions, or from the resolution of various proceedings between the U.S. and foreign tax authorities. Our liability for uncertain tax positions includes no matters that are individually or collectively material to us. It is reasonably possible that the amount of the benefit with respect to certain of our unrecognized tax positions will increase or decrease within the next 12 months, but an estimate of the range of the reasonably possible changes cannot be made. However, we do not expect that the resolution of any of our uncertain tax positions will be material.