PRE-TAX INCOME AND INCOME TAXES

12 Months Ended

May 26, 2024

PRE-TAX INCOME AND INCOME TAXES

PRE-TAX INCOME AND INCOME TAXES

14. PRE-TAX INCOME AND INCOME TAXES

Pre-tax income (including equity method investment earnings) consisted of the following:

	2024		2023		2022
United States	$	538.4	$	803.9	$	1,106.0
Foreign		71.8		98.0		72.7
	$	610.2	$	901.9	$	1,178.7

The provision for income taxes included the following:

	2024		2023		2022
Current
Federal	$	281.2	$	304.6	$	186.6
State		46.1		42.5		48.2
Foreign		28.3		25.7		18.4
		355.6		372.8		253.2
Deferred
Federal		(66.7)		(135.8)		34.7
State		(17.6)		(14.4)		3.9
Foreign		(8.8)		(3.9)		(1.3)
		(93.1)		(154.1)		37.3
	$	262.5	$	218.7	$	290.5

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:

	2024		2023		2022
Computed U.S. Federal income taxes	$	128.1	$	189.4	$	247.5
State income taxes, net of U.S. Federal tax impact		25.8		28.9		37.2
Goodwill and intangible impairments		107.6		27.5		6.1
Tax elections under review by the IRS on capital loss utilization		—		—		25.0
Change of valuation allowance due to certain tax elections		—		(28.1)		—
Incentive compensation		1.8		11.1		2.4
Tax Credits		(9.8)		(7.5)		(7.7)
Tax on unremitted foreign earnings		10.6		4.7		1.7
Other		(1.6)		(7.3)		(21.7)
	$	262.5	$	218.7	$	290.5

Income taxes paid, net of refunds, were $343.3 million, $407.1 million, and $299.1 million in fiscal 2024, 2023, and 2022, 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 26, 2024					May 28, 2023
	Assets		Liabilities		Assets		Liabilities
Property, plant and equipment	$	—	$	305.5	$	—	$	306.2
Inventory		20.8		—		20.1		—
Goodwill, trademarks and other intangible assets		436.2		842.7		437.3		941.1
Right-of-use assets		—		42.0		—		47.0
Accrued expenses		17.7		—		16.5		—
Compensation related liabilities		31.3		—		31.9		—
Pension and other postretirement benefits		—		28.5		—		23.7
Investment in unconsolidated subsidiaries		—		21.3		—		19.1
Lease liabilities		50.7		—		54.6		—
Other liabilities that will give rise to future tax deductions		67.4		—		59.6		—
Net capital and operating loss carryforwards		36.0		—		34.7		—
Research Expenditures		34.5		—		20.6		—
Federal credits		9.4		—		10.7		—
Other		30.1		49.5		34.9		32.8
		734.1		1,289.5		720.9		1,369.9
Less: Valuation allowance		(457.2)		—		(457.6)		—
Net deferred taxes	$	276.9	$	1,289.5	$	263.3	$	1,369.9

The liability for gross unrecognized tax benefits at May 26, 2024 was $21.7 million, excluding a related liability of $4.1 million for gross interest and penalties. As of May 28, 2023, our gross liability for unrecognized tax benefits was $23.7 million, excluding a related liability of $5.6 million for gross interest and penalties. Interest and penalties recognized in the Consolidated Statements of Earnings was a benefit of $1.4 million, $1.2 million, and $2.1 million in fiscal 2024, 2023, and 2022, respectively.

The net amount of unrecognized tax benefits at May 26, 2024 and May 28, 2023 that, if recognized, would favorably impact our effective tax rate was $19.5 million and $21.3 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 2004 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 $14.3 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 26, 2024 and May 28, 2023 was as follows:

	May 26, 2024		May 28, 2023
Beginning balance	$	23.7	$	62.9
Increases from positions established during prior periods		0.3		0.3
Decreases from positions established during prior periods		—		(32.3)
Increases from positions established during the current period		1.9		1.7
Reductions resulting from lapse of applicable statute of limitation		(4.3)		(8.9)
Decrease from audit settlements		—		(0.1)
Other adjustments to liability		0.1		0.1
Ending balance	$	21.7	$	23.7

We have approximately $22.8 million of foreign net operating loss carryforwards ($22.6 million will expire between fiscal 2029 and 2044 and $0.2 million have no expiration dates) and $51.3 million of federal net operating loss carryforwards which expire in fiscal 2027. Included in net deferred tax liabilities are $21.5 million of tax effected state net operating loss carryforwards which expire in various years ranging from fiscal 2025 to 2044 and $2.2 million of tax effected state capital loss balances that expire in fiscal year 2027 through 2037. Foreign tax credits of $7.8 million will expire between fiscal 2027 and 2034. State tax credits of approximately $3.4 million will expire in various years ranging from fiscal 2025 to 2031.

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 2024 was a decrease of $0.4 million, principally related to a decrease in valuation allowances related to state attributes. The net change in the valuation allowance for fiscal 2023 was an increase of $2.1 million.

We have previously 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 $16.8 million on approximately $335.8 million of earnings at May 26, 2024. 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 have determined that we are not subject to the corporate alternative minimum tax at this time.