INCOME TAXES

6 Months Ended

Nov. 24, 2024

INCOME TAXES

INCOME TAXES

12. INCOME TAXES

In the second quarter of fiscal 2025 and 2024, we recognized income tax expense of $61.5 million and $102.9 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 17.8% and 26.5% for the second quarter of fiscal 2025 and 2024, respectively. In the first half of fiscal 2025 and 2024, we recognized an income tax benefit of $77.4 million and income tax expense of $201.2 million, respectively. The effective tax rate was (11.5)% and 24.9% for the first half of fiscal 2025 and 2024, respectively.

The effective tax rate in the second quarter of fiscal 2025 reflected a $10.4 million benefit related to the release of valuation allowances booked against certain deferred tax assets, and a $9.1 million benefit from the settlement of tax issues that were previously reserved.

The effective tax rate in the first half of fiscal 2025 reflected the above-cited items, as well as a $210.4 million deferred tax benefit related to the release of valuation allowances booked against certain deferred tax assets. Recent interactions with the U.S. Internal Revenue Service (IRS) regarding certain elections that had previously been under IRS review make the realization of certain deferred tax assets likely. The realization of these deferred tax assets allows for both current and future tax deductions through 2036.

The effective tax rate in the second quarter and first half of fiscal 2024 reflected the impact of an impairment of goodwill that is non-deductible for tax purposes, in addition to tax expense associated with no longer asserting permanent reinvestment of a foreign subsidiary when we reclassified certain assets and liabilities to held for sale. During the first half of fiscal 2024, goodwill impairment charges totaling $20.7 million were recognized with no associated tax benefit.

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 $1.7 million on approximately $33.3 million of cumulative earnings as of November 24, 2024. The deferred tax liability relates to local withholding taxes that will be owed when this cash is distributed. In the first quarter of fiscal 2025, we paid $16.9 million of withholding taxes previously accrued in connection with the restructuring of our ownership interest in Ardent Mills.