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Income Taxes (Tables)

12 Months Ended

May 31, 2020

Schedule of Income before Income Tax, Domestic and Foreign

Income before income taxes is as follows:



	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019		2018
Income before income taxes:
United States	$	2,954		$	593	$	744
Foreign	(67		)	4,208		3,581
TOTAL INCOME BEFORE INCOME TAXES	$	2,887		$	4,801	$	4,325

Schedule of Components of Income Tax Expense (Benefit)

The provision for income taxes is as follows:



	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019			2018
Current:
United States
Federal	$	(109	)	$	74		$	1,167
State	81			56			45
Foreign	756			608			533
Total Current	728			738			1,745
Deferred:
United States
Federal	(231		)	(33		)	595
State	(47		)	(9		)	25
Foreign	(102		)	76			27
Total Deferred	(380		)	34			647
TOTAL INCOME TAX EXPENSE	$	348		$	772		$	2,392

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,
	2020		2019		2018
Federal income tax rate	21.0	%	21.0	%	29.2	%
State taxes, net of federal benefit	0.8	%	1.0	%	0.8	%
Foreign earnings	5.9	%	-1.1	%	-19.2	%
Foreign-derived intangible income benefit related to the Tax Act	-8.1	%	—	%	—	%
Transition tax related to the Tax Act	—	%	—	%	43.3	%
Remeasurement of deferred tax assets and liabilities related to the Tax Act	—	%	—	%	3.7	%
Excess tax benefits from share-based compensation	-7.2	%	-3.6	%	-5.3	%
Income tax audits and contingency reserves	-1.4	%	1.3	%	2.9	%
U.S. research and development tax credit	-1.8	%	-1.0	%	-0.6	%
Other, net	2.9	%	-1.5	%	0.5	%
EFFECTIVE INCOME TAX RATE	12.1	%	16.1	%	55.3	%

Schedule of Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities comprise the following as of:



	MAY 31,
(Dollars in millions)	2020			2019
Deferred tax assets:
Inventories	$	84		$	66
Sales return reserves	115			128
Deferred compensation	295			271
Stock-based compensation	168			156
Reserves and accrued liabilities	120			101
Operating lease liabilities	491			—
Capitalized research and development expenditures	189			—
Net operating loss carry-forwards	21			81
Other	127			125
Total deferred tax assets	1,610			928
Valuation allowance	(26		)	(88		)
Total deferred tax assets after valuation allowance	1,584			840
Deferred tax liabilities:
Foreign withholding tax on undistributed earnings of foreign subsidiaries	(165		)	(235		)
Property, plant and equipment	(232		)	(188		)
Right-of-use assets	(423		)	—
Other	(32		)	(41		)
Total deferred tax liabilities	(852		)	(464		)
NET DEFERRED TAX ASSET	$	732		$	376

Unrecognized Tax Benefits Reconciliation

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



	MAY 31,
(Dollars in millions)	2020			2019			2018
Unrecognized tax benefits, beginning of the period	$	808		$	698		$	461
Gross increases related to prior period tax positions	181			85			19
Gross decreases related to prior period tax positions	(171		)	(32		)	(12		)
Gross increases related to current period tax positions	50			81			249
Settlements	(58		)	—			—
Lapse of statute of limitations	(28		)	(35		)	(20		)
Changes due to currency translation	(11		)	11			1
UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD	$	771		$	808		$	698

Summary of Operating Loss Carryforwards

The Company has available domestic and foreign loss carry-forwards of $83 million at May 31, 2020. If not utilized, such losses will expire as follows:



	YEAR ENDING MAY 31,
(Dollars in millions)	2021		2022		2023		2024		2025-2040		INDEFINITE		TOTAL
Net operating losses	$	—	$	3	$	2	$	2	$	59	$	17	$	83