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INCOME TAXES | 6 Months Ended
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Nov. 25, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The Tax Cuts and Jobs Act of 2017 ("Tax Act") was enacted into law on December 22, 2017. The changes to U.S. tax law include, but are not limited to, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and changing how foreign earnings are subject to U.S. tax. As a result of the Tax Act and in accordance with SEC Staff Accounting Bulletin 118 ("SAB 118"), we recorded provisional tax expense in the fourth quarter of fiscal 2018 related to the deemed repatriation tax and the revaluation of deferred tax assets and liabilities to reflect the new tax rate. We made the following adjustments to the provisional tax expense during the second quarter of fiscal 2019: (1) a $4.6 million reduction to the deemed repatriation tax liability and (2) an additional $0.6 million benefit from the revaluation of deferred tax assets and liabilities to reflect the new tax rate. The changes were a result of additional analysis, changes in interpretation and assumptions, as well as additional regulatory guidance that was issued. As of November 25, 2018, we have completed the accounting for the income tax effects of the Tax Act. Beginning in fiscal 2019, the Tax Act created a provision known as global intangible low-tax income ("GILTI") that imposes a tax on certain earnings of foreign subsidiaries. We have made an accounting policy election to treat GILTI taxes as a current period expense. Income tax expense from continuing operations for the second quarter of fiscal 2019 and 2018 was $22.4 million and $109.5 million, respectively. Income tax expense from continuing operations for the first half of fiscal 2019 and 2018 was $79.8 million and $229.5 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 14.3% and 32.8% for the second quarter of fiscal 2019 and 2018, respectively. The effective tax rate from continuing operations was 20.3% and 37.8% for the first half of fiscal 2019 and 2018, respectively. The effective tax rate in the second quarter of fiscal 2019 reflects the following:
• | the impact of the Tax Act, including a reduction in the statutory federal income tax rate to 21%, partially offset by the repeal of the deduction for domestic manufacturing activities, changes in deductibility of executive compensation and the effect of the GILTI inclusion,
• | a reduction to the deemed repatriation tax liability, and an additional benefit from the revaluation of deferred tax assets and liabilities under the Tax Act,
• | income tax expense related to a change in estimate of the income tax expense on undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made,
• | an adjustment of valuation allowance associated with the expected capital gains from the planned divestiture of the Wesson® oil business,
• | additional tax expense on non-deductible facilitative costs associated with the acquisition of Pinnacle, and
• | additional income tax expense related to state taxes.
The effective tax rate for the first half of fiscal 2019 reflects the above-cited items, as well as the impact of foreign restructuring resulting in a benefit related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made, and additional tax expense on the repatriation of foreign earnings. The effective tax rate in the second quarter of fiscal 2018 reflects the following:
• | 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 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 amount of gross unrecognized tax benefits for uncertain tax positions was $47.9 million as of November 25, 2018 and $32.5 million as of May 27, 2018. There were no balances included as of either November 25, 2018 or May 27, 2018, 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 $10.5 million and $7.7 million as of November 25, 2018 and May 27, 2018, respectively. The net amount of unrecognized tax benefits at November 25, 2018 and May 27, 2018 that, if recognized, would impact the Company's effective tax rate was $42.4 million and $27.8 million, respectively. Included in those amounts is $9.3 million and $6.7 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 $19.4 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 25, 2018 and May 27, 2018, we had a deferred tax asset of $721.9 million and $721.6 million, respectively, that was generated from the capital loss realized on the sale of the Private Brands operations with corresponding valuation allowances of $697.5 million and $721.6 million, respectively, to reflect the uncertainty regarding the ultimate realization of the tax asset. During the second quarter of fiscal 2019, the balance of the deferred tax asset was adjusted by $0.3 million for the impact of state law changes and the settlement of certain tax indemnity claims under the contract terms of the Private Brands sale. This adjustment is reflected in results of discontinued operations. Additionally, during the second quarter of fiscal 2019, the valuation allowance was adjusted by $24.3 million due to expected capital gains from the planned divestiture of the Wesson® oil business. Historically, we have not provided U.S. deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries. We have determined that previously undistributed earnings of certain foreign subsidiaries no longer meet the requirements for indefinite reinvestment under applicable accounting guidance and, therefore, recognized $1.0 million of income tax expense in the first half of fiscal 2018. We continue to believe the remaining undistributed earnings of our foreign subsidiaries are indefinitely reinvested and therefore have not provided any additional U.S. deferred taxes.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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