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PRE-TAX INCOME AND INCOME TAXES | 12 Months Ended
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May 29, 2016
Income Tax Disclosure [Abstract] |
PRE-TAX INCOME AND INCOME TAXES | PRE-TAX INCOME AND INCOME TAXES Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:
| 2016 |  | 2015 |  | 2014
United States | $ | 629.1 |  |  | $ | 1,015.7 |  |  | $ | 704.4 |
Canada | 20.3 |  |  | 36.6 |  |  | 42.9 |
Foreign - other | 72.0 |  |  | 70.1 |  |  | 56.2 |
| $ | 721.4 |  |  | $ | 1,122.4 |  |  | $ | 803.5 |
The provision for income taxes included the following:
| 2016 |  | 2015 |  | 2014
Current |  |  |  |  |
Federal | $ | 338.2 |  |  | $ | 284.6 |  |  | $ | 280.0 |
State | 39.4 |  |  | 26.4 |  |  | 26.0 |
Canada | 5.3 |  |  | 5.7 |  |  | 10.2 |
Foreign - other | 15.2 |  |  | 23.4 |  |  | 10.9 |
| 398.1 |  |  | 340.1 |  |  | 327.1 |
Deferred |  |  |  |  |
Federal | (139.7 | ) |  | 22.7 |  |  | (67.4 | )
State | (38.1 | ) |  | 6.1 |  |  | (67.0 | )
Canada | (0.8 | ) |  | 1.1 |  |  | 1.0 |
Foreign - other | 5.9 |  |  | (7.9 | ) |  | (15.4 | )
| (172.7 | ) |  | 22.0 |  |  | (148.8 | )
| $ | 225.4 |  |  | $ | 362.1 |  |  | $ | 178.3 |
Income taxes computed by applying the U.S. Federal statutory rates to income from continuing operations before income taxes are reconciled to the provision for income taxes set forth in the Consolidated Statements of Operations as follows:
| 2016 |  | 2015 |  | 2014
Computed U.S. Federal income taxes | $ | 252.5 |  |  | $ | 392.8 |  |  | $ | 281.2 |
State income taxes, net of U.S. Federal tax impact | 1.2 |  |  | 22.1 |  |  | 10.9 |
Tax credits and domestic manufacturing deduction | (29.3 | ) |  | (31.4 | ) |  | (27.9 | )
Audit adjustments and settlements | (2.3 | ) |  | — |  |  | (15.3 | )
Effect of taxes booked on foreign operations | (6.4 | ) |  | (11.7 | ) |  | (19.7 | )
Statute lapses on previously reserved items | (3.0 | ) |  | (5.2 | ) |  | (5.1 | )
Goodwill and intangible impairments | — |  |  | 6.6 |  |  | 4.1 |
Change in legal structure and other state elections | — |  |  | — |  |  | (23.5 | )
Change in estimate related to tax methods used for certain international sales, federal credits, and state credits | 6.0 |  |  | (2.4 | ) |  | (20.9 | )
Other | 6.7 |  |  | (8.7 | ) |  | (5.5 | )
| $ | 225.4 |  |  | $ | 362.1 |  |  | $ | 178.3 |
Income taxes paid, net of refunds, were $442.6 million, $283.7 million, and $223.9 million in fiscal 2016, 2015, and 2014, respectively. The tax effect of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
| May 29, 2016 |  | May 31, 2015
| Assets |  | Liabilities |  | Assets |  | Liabilities
Property, plant and equipment | $ | — |  |  | $ | 411.6 |  |  | $ | — |  |  | $ | 392.1 |
Goodwill, trademarks and other intangible assets | — |  |  | 698.8 |  |  | — |  |  | 699.0 |
Accrued expenses | 20.4 |  |  | — |  |  | 20.7 |  |  | — |
Compensation related liabilities | 88.7 |  |  | — |  |  | 78.1 |  |  | — |
Pension and other postretirement benefits | 437.6 |  |  | — |  |  | 290.9 |  |  | — |
Investment in unconsolidated subsidiaries | — |  |  | 256.8 |  |  | — |  |  | 211.6 |
Other liabilities that will give rise to future tax deductions | 147.5 |  |  | — |  |  | 109.0 |  |  | — |
Net capital and operating loss carryforwards | 1,595.7 |  |  | — |  |  | 34.1 |  |  | — |
Other | 78.3 |  |  | 10.0 |  |  | 71.0 |  |  | 63.1 |
| 2,368.2 |  |  | 1,377.2 |  |  | 603.8 |  |  | 1,365.8 |
Less: Valuation allowance | (1,448.0 | ) |  | — |  |  | (38.0 | ) |  | — |
Net deferred taxes | $ | 920.2 |  |  | $ | 1,377.2 |  |  | $ | 565.8 |  |  | $ | 1,365.8 |
The liability for gross unrecognized tax benefits at May 29, 2016 was $38.4 million, excluding a related liability of $9.3 million for gross interest and penalties. Included in the balance at May 29, 2016 are $1.1 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Any associated interest and penalties imposed would affect the tax rate. As of May 31, 2015, our gross liability for unrecognized tax benefits was $35.3 million, excluding a related liability of $9.5 million for gross interest and penalties. Included in the balance at May 31, 2015 are $1.7 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Interest and penalties recognized in the Consolidated Statement of Earnings was a benefit of $0.2 million in fiscal 2016, $0.4 million in fiscal 2015 and $1.3 million in fiscal 2014. The net amount of unrecognized tax benefits at May 29, 2016 and May 31, 2015 that, if recognized, would favorably impact our effective tax rate was $21.3 million and $23.1 million, respectively. We accrue interest and penalties associated with uncertain tax positions as part of income tax expense. We conduct business and file tax returns in numerous countries, states, and local jurisdictions. The U.S. Internal Revenue Service (“IRS”) has completed its audit for tax years through fiscal 2015 and all resulting significant items for fiscal 2015 and prior years have been settled with the IRS. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from 3 to 5 years. We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $9.0 million over the next twelve months due to various Federal, state, and foreign audit settlements and the expiration of statutes of limitations. The change in the unrecognized tax benefits for the year ended May 29, 2016 was:
Beginning balance on May 31, 2015 | $ | 35.3 |
Increases from positions established during prior periods | 1.9 |
Decreases from positions established during prior periods | (2.3 | )
Increases from positions established during the current period | 11.4 |
Decreases relating to settlements with taxing authorities | (4.0 | )
Reductions resulting from lapse of applicable statute of limitation | (3.5 | )
Other adjustments to liability | (0.4 | )
Ending balance on May 29, 2016 | $ | 38.4 |
We have approximately $87.0 million of foreign net operating loss carryforwards ($65.3 million will expire between fiscal 2017 and 2037 and $22.0 million have no expiration dates) and $13.3 million of Federal net operating loss carryforwards which expire between fiscal 2027 and 2031. Federal capital loss carryforwards related to the private brands divestiture of approximately $4.0 billion will expire in fiscal 2021. Included in net deferred tax liabilities are $43.9 million of tax effected state net operating loss carryforwards that expire in various years ranging from fiscal 2017 to 2036 and included in net deferred tax assets are $202.7 million of tax effected state capital loss carryforwards related to the divestiture of private brands, the vast majority of which expire in fiscal 2021. Substantially all of our foreign tax credits will expire in fiscal 2025. State tax credits of approximately $21.4 million will expire in various years ranging from fiscal 2017 to 2020. Preliminary estimates of the deferred tax asset associated with the capital loss carryforwards were reduced by $55.1 million for Federal and increased by $5.1 million for state as refinements were made to the detailed tax computations in the fourth quarter. Further adjustments may result from changes in tax attributes based upon contract terms of the private brands sale and review of this transaction by the tax authorities. Any such adjustments are expected to be immaterial. We have recognized a valuation allowance for the portion of the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net impact on income tax expense related to changes in the valuation allowance for fiscal 2016 was expense of $1.4 billion. For fiscal 2015 and 2014, changes in the valuation allowance were a benefit of $1.4 million and a benefit of $2.0 million, respectively. The fiscal 2016 change principally relates to a full valuation being set up on the capital gain generated from the private brands disposition, less $147.3 million that was released in the fourth quarter of fiscal 2016 due to the impending Spicetec and JM Swank dispositions. As of May 29, 2016, undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $540 million. Those earnings are considered to be indefinitely reinvested and accordingly, no U.S. federal income taxes have been provided thereon. We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that the Company considers to be reinvested indefinitely. It is not practicable to estimate the amount of U.S. income taxes that would be incurred in the event that we were to repatriate the cumulative earnings of non-U.S. affiliates and associated companies. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested.

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