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Note 13 - Pre-tax Income and Income Taxes | 12 Months Ended
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May 28, 2023
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 13. PRE-TAX INCOME AND INCOME TAXES Pre-tax income (including equity method investment earnings) consisted of the following:
|  | 2023 |  |  | 2022 |  |  | 2021 |
United States |  | $ | 803.9 |  |  | $ | 1,106.0 |  |  | $ | 1,426.5 |
Foreign |  |  | 98.0 |  |  |  | 72.7 |  |  |  | 68.2 |
|  | $ | 901.9 |  |  | $ | 1,178.7 |  |  | $ | 1,494.7 |
The provision for income taxes included the following:
|  | 2023 |  |  | 2022 |  |  | 2021 |
Current |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 304.6 |  |  | $ | 186.6 |  |  | $ | 232.6 |
State |  |  | 42.5 |  |  |  | 48.2 |  |  |  | 31.8 |
Foreign |  |  | 25.7 |  |  |  | 18.4 |  |  |  | 15.3 |
|  |  | 372.8 |  |  |  | 253.2 |  |  |  | 279.7 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (135.8 | ) |  |  | 34.7 |  |  |  | (63.5 | )
State |  |  | (14.4 | ) |  |  | 3.9 |  |  |  | (26.1 | )
Foreign |  |  | (3.9 | ) |  |  | (1.3 | ) |  |  | 3.7 |
|  |  | (154.1 | ) |  |  | 37.3 |  |  |  | (85.9 | )
|  | $ | 218.7 |  |  | $ | 290.5 |  |  | $ | 193.8 |
Income taxes computed by applying the U.S. Federal statutory rates to income before income taxes are reconciled to the provision for income taxes set forth in the Consolidated Statements of Earnings as follows:
|  | 2023 |  |  | 2022 |  |  | 2021 |
Computed U.S. Federal income taxes |  | $ | 189.4 |  |  | $ | 247.5 |  |  | $ | 313.9 |
State income taxes, net of U.S. Federal tax impact |  |  | 28.9 |  |  |  | 37.2 |  |  |  | 37.4 |
Goodwill and intangible impairments |  |  | 27.5 |  |  |  | 6.1 |  |  |  | 13.6 |
Remeasurement of deferred taxes due to legal entity reorganization |  |  | — |  |  |  | — |  |  |  | 35.8 |
Tax elections under review by the IRS on capital loss utilization |  |  | — |  |  |  | 25.0 |  |  |  | — |
Change of valuation allowance on capital loss carryforward |  |  | — |  |  |  | — |  |  |  | (188.5 | )
Change of valuation allowance due to certain tax elections |  |  | (28.1 | ) |  |  | — |  |  |  | — |
Incentive compensation |  |  | 11.1 |  |  |  | 2.4 |  |  |  | 6.1 |
Other |  |  | (10.1 | ) |  |  | (27.7 | ) |  |  | (24.5 | )
|  | $ | 218.7 |  |  | $ | 290.5 |  |  | $ | 193.8 |
Income taxes paid, net of refunds, were $407.1 million, $299.1 million, and $286.3 million in fiscal 2023, 2022, and 2021, 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 28, 2023 |  |  | May 29, 2022 |
|  | Assets |  |  | Liabilities |  |  | Assets |  |  | Liabilities |
Property, plant and equipment |  | $ | — |  |  | $ | 306.2 |  |  | $ | — |  |  | $ | 327.2 |
Inventory |  | 20.1 |  |  |  | — |  |  |  | 30.5 |  |  |  | — |
Goodwill, trademarks and other intangible assets |  |  | 437.3 |  |  |  | 941.1 |  |  |  | 405.8 |  |  |  | 1,066.6 |
Right-of-use assets |  |  | — |  |  |  | 47.0 |  |  |  | — |  |  |  | 47.9 |
Accrued expenses |  |  | 16.5 |  |  |  | — |  |  |  | 12.7 |  |  |  | — |
Compensation related liabilities |  |  | 31.9 |  |  |  | — |  |  |  | 29.3 |  |  |  | — |
Pension and other postretirement benefits |  |  | — |  |  |  | 23.7 |  |  |  | — |  |  |  | 25.1 |
Investment in unconsolidated subsidiaries |  |  | — |  |  |  | 19.1 |  |  |  | — |  |  |  | 9.4 |
Lease liabilities |  |  | 54.6 |  |  |  | — |  |  |  | 56.1 |  |  |  | — |
Other liabilities that will give rise to future tax deductions |  |  | 59.6 |  |  |  | — |  |  |  | 73.2 |  |  |  | — |
Net capital and operating loss carryforwards |  |  | 34.7 |  |  |  | — |  |  |  | 46.4 |  |  |  | — |
Research Expenditures |  |  | 20.6 |  |  |  | — |  |  |  | — |  |  |  | — |
Federal credits |  |  | 10.7 |  |  |  | — |  |  |  | 12.0 |  |  |  | — |
Other |  |  | 34.9 |  |  |  | 32.8 |  |  |  | 32.0 |  |  |  | 38.6 |
|  |  | 720.9 |  |  |  | 1,369.9 |  |  |  | 698.0 |  |  |  | 1,514.8 |
Less: Valuation allowance |  |  | (457.6 | ) |  |  | — |  |  |  | (455.5 | ) |  |  | — |
Net deferred taxes |  | $ | 263.3 |  |  | $ | 1,369.9 |  |  | $ | 242.5 |  |  | $ | 1,514.8 |
The liability for gross unrecognized tax benefits at May 28, 2023 was $23.7 million, excluding a related liability of $5.6 million for gross interest and penalties. As of May 29, 2022, our gross liability for unrecognized tax benefits was $62.9 million, excluding a related liability of $6.7 million for gross interest and penalties. Interest and penalties recognized in the Consolidated Statements of Earnings was a benefit of $1.2 million and $2.1 million in fiscal 2023 and 2022, respectively, and an expense of $1.4 million in fiscal 2021. The net amount of unrecognized tax benefits at May 28, 2023 and May 29, 2022 that, if recognized, would favorably impact our effective tax rate was $21.3 million and $58.0 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 of the Company for tax years through fiscal 2020. All resulting significant items for fiscal 2020 and prior years have been settled with the IRS. Tax elections made in conjunction with filing our fiscal 2021 federal tax return are still under review with the IRS. Statutes of limitation for pre-acquisition tax years of Pinnacle generally remain open for calendar year 2003 and subsequent years principally related to net operating losses. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years. We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $4.0 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 fiscal years ended May 28, 2023 and May 29, 2022 was as follows:
|  |  | May 28, 2023 |  |  |  | May 29, 2022 |
Beginning balance |  | $ | 62.9 |  |  | $ | 33.0 |
Increases from positions established during prior periods |  |  | 0.3 |  |  |  | 13.2 |
Decreases from positions established during prior periods |  |  | (32.3 | ) |  |  | (3.2 | )
Increases from positions established during the current period |  |  | 1.7 |  |  |  | 31.7 |
Reductions resulting from lapse of applicable statute of limitation |  |  | (8.9 | ) |  |  | (3.1 | )
Decrease from audit settlements |  |  | (0.1 | ) |  |  | (8.5 | )
Other adjustments to liability |  |  | 0.1 |  |  |  | (0.2 | )
Ending balance |  | $ | 23.7 |  |  | $ | 62.9 |
We have approximately $11.8 million of foreign net operating loss carryforwards ($11.5 million will expire between fiscal 2028 and 2043 and $0.3 million have no expiration dates) and $69.2 million of federal net operating loss carryforwards which expire between fiscal 2024 and 2027. Included in net deferred tax liabilities are $18.3 million of tax effected state net operating loss carryforwards which expire in various years ranging from fiscal 2024 to 2043 and $2.1 million of tax effected state capital loss balances that expire in fiscal year 2027 through 2037. Foreign tax credits of $9.1 million will expire between fiscal 2025 and 2033. State tax credits of approximately $4.0 million will expire in various years ranging from fiscal 2024 to 2030. In fiscal 2022, we reflected additional tax expense of $25.0 million related to tax elections made in conjunction with filing our fiscal 2021 federal tax return. These elections are still under review with the IRS. These elections may result in increases to the tax basis in those assets and if successful would result in tax benefits being realized in future periods. We have recognized a valuation allowance for the portion of the net operating loss carryforwards, capital loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net change in the valuation allowance for fiscal 2023 was an increase of $2.1 million. During fiscal 2023, we concluded that certain tax elections made by a subsidiary had a confidence level of more-likely-than-not which allowed us to release a valuation allowance of $28.1 million. Additionally, a valuation allowance increased by $30.1 million for an item that was previously reserved as an uncertain tax position. For fiscal 2022, the change in the valuation allowance was an increase of $388.0 million, which principally relates to valuation allowances on increases in tax basis from tax elections made on our fiscal 2021 federal tax return that are still under review with the IRS. In the prior year, we made the assessment that the current earnings of certain foreign subsidiaries were not indefinitely reinvested or that we could not remit to the U.S. parent in a tax-neutral transaction. Accordingly, we have recorded a deferred tax liability of $6.2 million on approximately $123.4 million of earnings at May 28, 2023. The deferred tax liability relates to local withholding taxes that will be owed when this cash is distributed. The undistributed historic earnings in our foreign subsidiaries through May 30, 2021 are considered to be indefinitely reinvested or can be remitted in a tax-neutral transaction. Accordingly, we have not recorded a deferred tax liability related to these undistributed historic earnings. On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law. We continue to evaluate the impact of the recently enacted law, including whether we are subject to the corporate alternative minimum tax. However, we do not expect the impact to be material to our Consolidated Financial Statements.

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