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Income Taxes (Tables) | 12 Months Ended
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May 31, 2020
Income Tax Disclosure [Abstract] |
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 |

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- Definition Tabular disclosure for tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities and other income tax contingencies. Includes, but is not limited to, interest and penalties, reconciliation of unrecognized tax benefits, unrecognized tax benefits that would affect the effective tax rate, tax years that remain subject to examination by tax jurisdictions, and information about positions for which it is reasonably possible that amounts unrecognized will significantly change within 12 months. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15A -URI http://asc.fasb.org/extlink&oid=84230637&loc=SL6600010-109319 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32718-109319 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 19 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32840-109319 + Details
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