Nike 2014 Annual Report Download - page 61

PART II
The provision for income taxes is as follows:
Year Ended May 31,
(In millions) 2014 2013 2012
Current:
United States
Federal $ 371 $ 432 $ 286
State 93 69 51
Foreign 398 398 488
Total 862 899 825
Deferred:
United States
Federal 8 — (47)
State (3) (4) 5
Foreign (16) (90) (29)
Total (11) (94) (71)
TOTAL INCOME TAX EXPENSE $ 851 $ 805 $ 754
A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows:
Year Ended May 31,
2014 2013 2012
Federal income tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 1.8% 1.4% 1.3%
Foreign earnings 2.2% -11.8% -11.9%
Deferred charge -14.6% 0.0% 0.0%
Other, net -0.4% 0.1% 0.6%
EFFECTIVE INCOME TAX RATE 24.0% 24.7% 25.0%
The effective tax rate from continuing operations for the year ended May 31,
2014 was 70 basis points lower than the effective tax rate from continuing
operations for the year ended May 31, 2013 primarily due to an increase in the
amount of earnings from lower tax rate jurisdictions.
During the fourth quarter of the fiscal year ended May 31, 2014, the Company
reached a resolution with the IRS on a U.S. Unilateral Advanced Pricing
Agreement that covers intercompany transfer pricing for fiscal years 2011
through 2020. This agreement resulted in a reduction in the Company’s
permanently reinvested foreign earnings, which increased the effective
income tax rate and Income taxes payable. The agreement also resulted in a
reduction of previously unrecognized tax benefits and the creation of a
deferred tax charge, both of which reduced the effective income tax rate. The
net result of the agreement did not have a material impact on the Company’s
effective income tax rate in fiscal 2014.
The effective tax rate from continuing operations for the year ended May 31,
2013 was 30 basis points lower than the effective tax rate from continuing
operations for the year ended May 31, 2012 primarily due to tax benefits
received from the intercompany sale of intellectual property rights outside of
the U.S., the retroactive reinstatement of the research and development credit
and the intra-period allocation of tax expense between continuing operations,
discontinued operations and Other comprehensive income. The decrease in
the effective rate was partially offset by a higher effective tax rate on
operations as a result of an increase in earnings in higher tax jurisdictions.
Deferred tax assets and (liabilities) comprise the following:
As of May 31,
(In millions) 2014 2013
Deferred tax assets:
Allowance for doubtful accounts $11$20
Inventories 49 40
Sales return reserves 113 101
Deferred compensation 211 197
Stock-based compensation 162 140
Reserves and accrued liabilities 95 66
Foreign loss carry-forwards 16 19
Foreign tax credit carry-forwards — 106
Undistributed earnings of foreign subsidiaries 194 147
Other 51 47
Total deferred tax assets 902 883
Valuation allowance (9) (5)
Total deferred tax assets after valuation allowance 893 878
Deferred tax liabilities:
Property, plant and equipment (237) (241)
Intangibles (94) (78)
Other (2) (20)
Total deferred tax liability (333) (339)
NET DEFERRED TAX ASSET $ 560 $ 539
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