INCOME TAXES (Tables)

12 Months Ended

May 28, 2017

Pre-tax income (loss) consisted of the following (dollars in millions):


	For the Fiscal Years Ended May
	2017		2016		2015
United States	$	467.5	$	384.7	$	382.7
Foreign		42.9		54.4		35.3
	$	510.4	$	439.1	$	418.0

Schedule of analysis of the components of the consolidated income tax provision

The provision for income taxes included the following (dollars in millions):


	For the Fiscal Years Ended May
	2017		2016		2015
Current
U.S. Federal	$	132.0	$	100.0	$	92.3
State and local		13.9		12.0		13.1
Foreign		9.5		11.8		11.3
Total current provision for taxes		155.4		123.8		116.7

Deferred
U.S. Federal		9.7		17.6		23.8
State and local		3.2		(1.3)		2.3
Foreign		1.9		4.4		(2.4)
Total deferred provision for taxes	$	14.8	$	20.7	$	23.7
Total provision for taxes	$	170.2	$	144.5	$	140.4

Schedule of reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision

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 Combined and Consolidated Statements of Earnings as follows (dollars in millions):


	For the Fiscal Years Ended May
	2017		2016		2015
Provision computed at U.S. Federal statutory rate of 35%	$	178.6	$	153.7	$	146.3
Increase (reduction) in rate resulting from:
State and local taxes, net of federal benefit		11.4		7.1		10.2
Tax credits and domestic manufacturers deduction		(11.0)		(9.5)		(9.2)
Effect of taxes on foreign operations		(7.8)		(2.8)		(3.0)
Other		(1.0)		(4.0)		(3.9)
	$	170.2	$	144.5	$	140.4
Effective income tax rate (a)		33%		33%		34%

(a)

The effective income tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings.

Schedule of deferred income tax assets and liabilities

Deferred income tax assets and liabilities at May 28, 2017 and May 29, 2016 are summarized as follows (dollars in millions):


	May 28, 2017				May 29, 2016
	Assets		Liabilities		Assets		Liabilities
Property, plant and equipment	$	—	$	159.8	$	—	$	155.5
Goodwill and other intangible assets (a)		125.0		—		—		23.0
Compensation and benefit related liabilities		20.3		—		11.7		—
Accrued expenses and other liabilities		22.5		—		23.4		—
Deferred revenue previously recognized for tax		8.2		—		7.2		—
Net operating loss carryforwards (b)		17.0		—		12.6		—
Debt issuance cost		—		8.3		—		—
Other		0.9		17.4		8.0		13.9
		193.9		185.5		62.9		192.4
Less: Valuation allowance (a) (c)		(98.4)		—		(12.3)		—
Net deferred taxes (d)	$	95.5	$	185.5	$	50.6	$	192.4

(a)

In connection with the Separation, Lamb Weston recognized a step-up in tax basis in certain assets, which resulted in a $75.0 million net decrease in deferred tax liabilities (a deferred tax asset of $155.0 million, offset by a valuation allowance of $80.0 million) and a corresponding increase in equity. The step-up in tax basis is related to a deferred intercompany transaction arising in 2008, which until the Separation Date, was eliminated within Conagra’s consolidated financial statements and federal tax filings.

(b)

Lamb Weston has approximately $46.9 million of gross ($11.1 million after-tax) foreign net operating loss carryforwards, of which the majority expire by fiscal 2021. Lamb Weston also has approximately $102.2 million of gross ($5.9 million after-tax) state capital loss carryovers which will expire in fiscal 2021.

(c)

The valuation allowance also includes the portion of the net operating loss carryforwards that we do not believe we are not more likely than not to realize. The net impact on income tax expense related to changes in the valuation allowance, including net operating loss carryforwards were charges of $2.8 million and $3.4 million in fiscal 2017 and 2016, respectively.

(d)

Deferred tax assets of $0.5 million and $2.2 million, as of May 28, 2017 and May 29, 2016, respectively, were presented in “Other assets”. Deferred tax liabilities of $90.5 million and $144.0 million, as of May 28, 2017 and May 29, 2016, respectively, were presented in “Deferred income taxes” as a long-term liability. The deferred tax asset and liability net position is determined by tax jurisdiction.

Schedule of change in the unrecognized tax benefits

The aggregate changes in the gross amount of unrecognized tax benefits, excluding interest and penalties consisted of the following (dollars in millions):


	For the Fiscal Years Ended May
	2017			2016
Beginning Balance	$	3.8	$	4.3
Decreases from positions established during prior fiscal years		—		(0.5)
Increases from positions established during current and prior fiscal years		2.2		0.6
Decreases relating to settlements with taxing authorities		—		(0.2)
Reductions resulting from lapse of applicable statute of limitations		(0.9)		(0.3)
Other adjustments to liability resulting from the Separation		1.8		(0.1)
Ending Balance (a)	$	6.9	$	3.8

(a)

If the $6.9 million and $3.8 million of unrecognized tax benefits as of May 28, 2017 and May 29, 2016, were recognized in a future period, it would result in a tax benefit of $6.2 million and $2.4 million, respectively, and a reduction in the effective tax rate. The ending balance excludes $2.8 million of gross interest and penalties at both May 28, 2017 and May 29, 2016. Lamb Weston accrues interest and penalties associated with uncertain tax positions as part of income tax expense.