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INCOME TAXES | 6 Months Ended
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Nov. 26, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income tax expense from continuing operations for the second quarter of fiscal 2018 and 2017 was $109.5 million and $78.4 million, respectively. Income tax expense from continuing operations for the first half of fiscal 2018 and 2017 was $229.5 million and $247.6 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) from continuing operations was 32.8% and 40.7% for the second quarter of fiscal 2018 and 2017, respectively. The effective tax rate from continuing operations was 37.8% and 53.8% for the first half of fiscal 2018 and 2017, respectively. The effective tax rate in the second quarter of fiscal 2018 reflects the following:
• | an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant,
• | additional income tax expense related to state taxes, and
• | an income tax benefit related to a change in estimate of the income tax effect of undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made.
The effective tax rate for the first half of fiscal 2018 reflects the above-cited items, as well as additional expense related to the repatriation of cash from foreign subsidiaries and the tax expense related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made. The effective tax rate in the second quarter of fiscal 2017 reflects the following:
• | an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant,
• | additional tax expense associated with a change in estimate regarding the tax basis of the Spicetec business that was sold in the first quarter of fiscal 2017, and
• | additional tax expense associated with non-deductible goodwill in our Mexican business, for which an impairment charge was recognized.
The effective tax rate for the first half of fiscal 2017 reflects the above-cited items, as well as the following:
• | additional tax expense associated with non-deductible goodwill sold in connection with the dispositions of the Spicetec and JM Swank businesses,
• | additional tax expense associated with non-deductible goodwill in our Canadian business, for which an impairment charge was recognized,
• | an income tax benefit for excess tax benefits allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant, and
• | an income tax benefit associated with a tax planning strategy that allowed us to utilize certain state tax attributes.
The amount of gross unrecognized tax benefits for uncertain tax positions was $34.0 million as of November 26, 2017 and $39.3 million as of May 28, 2017. There were no balances included as of either November 26, 2017 or May 28, 2017, for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The gross unrecognized tax benefits excluded related liabilities for gross interest and penalties of $7.1 million and $6.0 million as of November 26, 2017 and May 28, 2017, respectively. The net amount of unrecognized tax benefits at November 26, 2017 and May 28, 2017 that, if recognized, would impact the Company's effective tax rate was $25.7 million and $31.6 million, respectively. Included in those amounts is $6.6 million and $15.6 million, respectively, that would be reported in discontinued operations. Recognition of these tax benefits would have a favorable impact on the Company's effective tax rate. We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $9.4 million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations. As of November 26, 2017 and May 28, 2017, we had a deferred tax asset of $1.09 billion and $1.08 billion, respectively, that was generated from the capital loss realized on the sale of the Private Brands operations with corresponding valuation allowances of $995.1 million and $990.9 million, respectively, to reflect the uncertainty regarding the ultimate realization of the tax asset. During the first half of fiscal 2018, the balance of the deferred tax asset was adjusted for the impact of state law changes, realization of certain tax attributes, and the settlement of certain tax indemnity claims under the contract terms of the Private Brands sale. Historically, we have not provided U.S. deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries. During the first quarter of fiscal 2018, we decided to repatriate certain cash balances then held in Italy, Canada, Mexico, the Netherlands, and Luxembourg due to the timing of cash flows in connection with certain business acquisition and divestiture activity, as well as forecasted levels of short-term borrowings. We repatriated $151.3 million during the second quarter of fiscal 2018. The cash repatriation resulted in the repatriation of $115.0 million in previously undistributed earnings of our foreign subsidiaries. As a result of the repatriation, we have recognized $11.8 million of income tax expense in the first half of fiscal 2018. In conjunction with this repatriation, we have determined that additional previously undistributed earnings of certain foreign subsidiaries no longer meet the requirements for indefinite reinvestment under applicable accounting guidance and, therefore, recognized an additional $6.8 million of income tax expense in the first half of fiscal 2018. An additional $2.5 million and $6.8 million of income tax expense was recognized in the second quarter and first half of fiscal 2018, respectively, primarily related to a valuation allowance on foreign tax credits generated in the current year and prior periods. We continue to believe the remaining undistributed earnings of our foreign subsidiaries, after taking into account the above transactions, are indefinitely reinvested and therefore have not provided any additional U.S. deferred taxes. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. We are in the process of evaluating the impact of the recently enacted law to our Condensed Consolidated Financial Statements. The impact is expected to be material to the Condensed Consolidated Financial Statements.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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