Income Taxes

12 Months Ended

May 30, 2021

Income Taxes [Abstract]

Income Taxes

NOTE 15. INCOME TAXES

The components of earnings before income taxes and after-tax earnings from joint ventures and the corresponding income taxes thereon are as follows:

		Fiscal Year
In Millions		2021		2020		2019
Earnings before income taxes and after-tax earnings from joint ventures:
United States	$	2,567.1	$	2,402.1	$	1,788.2
Foreign		290.3		198.1		293.8
Total earnings before income taxes and after-tax earnings from joint ventures	$	2,857.4	$	2,600.2	$	2,082.0
Income taxes:
Currently payable:
Federal	$	369.8	$	381.0	$	151.9
State and local		47.5		55.3		35.3
Foreign		93.0		73.8		84.6
Total current		510.3		510.1		271.8
Deferred:
Federal		117.9		67.8		86.7
State and local		13.6		(56.6)		21.6
Foreign		(12.7)		(40.8)		(12.3)
Total deferred		118.8		(29.6)		96.0
Total income taxes	$	629.1	$	480.5	$	367.8

The following table reconciles the United States statutory income tax rate with our effective income tax rate:

	Fiscal Year
	2021		2020		2019
United States statutory rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net of federal tax benefits	1.7		2.0		2.5
Foreign rate differences	0.3		(0.8)		-
Provisional net tax benefit	-		-		(0.4)
Stock based compensation	(0.4)		(1.1)		(1.2)
Subsidiary reorganization (a)	-		(2.0)		-
Capital loss (b)	-		-		(3.7)
Other, net	(0.6)		(0.6)		(0.5)
Effective income tax rate	22.0	%	18.5	%	17.7	%

(a)During fiscal 2020, we recorded a $53.1 million decrease to our deferred income tax liabilities associated with the reorganization of certain wholly owned subsidiaries.

(b)During fiscal 2019, we recorded a discrete benefit related to a capital loss carryback of $72.9 million.

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:

In Millions		May 30, 2021		May 31, 2020
Accrued liabilities	$	58.5	$	61.8
Compensation and employee benefits		198.7		171.4
Unrealized hedges		16.3		-
Pension		61.4		148.2
Tax credit carryforwards		22.7		12.5
Stock, partnership, and miscellaneous investments		46.3		80.2
Capital losses		67.3		65.9
Net operating losses		160.5		146.6
Other		93.4		87.0
Gross deferred tax assets		725.1		773.6
Valuation allowance		229.2		214.2
Net deferred tax assets		495.9		559.4
Brands		1,413.8		1,415.0
Fixed assets		412.7		378.3
Intangible assets		256.2		246.8
Tax lease transactions		18.8		21.5
Inventories		36.2		33.0
Stock, partnership, and miscellaneous investments		364.0		338.1
Unrealized hedges		-		22.4
Other		112.6		51.4
Gross deferred tax liabilities		2,614.3		2,506.5
Net deferred tax liability	$	2,118.4	$	1,947.1

We have established a valuation allowance against certain of the categories of deferred tax assets described above as current evidence does not suggest we will realize sufficient taxable income of the appropriate character (e.g., ordinary income versus capital gain income) within the carryforward period to allow us to realize these deferred tax benefits.

Information about our valuation allowance follows:

In Millions		May 30, 2021
Pillsbury acquisition losses	$	107.9
State and foreign loss carryforwards		29.1
Capital loss carryforwards		67.3
Other		24.9
Total	$	229.2

As of May 30, 2021, we believe it is more-likely-than-not that the remainder of our deferred tax assets are realizable.

Information about our tax loss carryforwards follows

In Millions		May 30, 2021
Foreign loss carryforwards	$	162.9
State operating loss carryforwards		8.2
Total tax loss carryforwards	$	171.1

Our foreign loss carryforwards expire as follows:

In Millions		May 30, 2021
Expire in fiscal 2022 and 2023	$	2.2
Expire in fiscal 2024 and beyond		20.7
Do not expire		140.0
Total foreign loss carryforwards	$	162.9

On March 11, 2021, the American Rescue Plan Act (ARPA) was signed into law. The ARPA includes a provision expanding the limitations on the deductibility of certain executive employee compensation beginning in our fiscal 2028. We do not currently expect the ARPA to have a material impact on our financial results, including our annual estimated effective tax rate, or on our liquidity. We will continue to monitor and assess the impact the ARPA may have on our business and financial results.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act and related notices included several significant provisions, including delaying certain payroll tax payments into fiscal 2022 and fiscal 2023.

As of May 30, 2021, we have not recognized a deferred tax liability for unremitted earnings of approximately $2.3 billion from our foreign operations because we currently believe our subsidiaries have invested the undistributed earnings indefinitely or the earnings will be remitted in a tax-neutral transaction. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested earnings. Deferred taxes are recorded for earnings of our foreign operations when we determine that such earnings are no longer indefinitely reinvested. All earnings prior to fiscal 2018 remain permanently reinvested. Earnings from fiscal 2018 and later are not permanently reinvested and local country withholding taxes are recorded on earnings each year.

We are subject to federal income taxes in the United States as well as various state, local, and foreign jurisdictions. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our liabilities for income taxes reflect the most likely outcome. We adjust these liabilities, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position would usually require the use of cash.

The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdiction is the United States (federal and state). Various tax examinations by United States state taxing authorities could be conducted for any open tax year, which vary by jurisdiction, but are generally from 3 to 5 years.

The Internal Revenue Service (IRS) is currently auditing our federal tax returns for fiscal 2016, 2018, and 2019. Several state and foreign examinations are currently in progress. We do not expect these examinations to result in a material impact on our results of operations or financial position. We have effectively settled all issues with the IRS for fiscal years 2015 and prior.

During fiscal 2017, the Brazilian tax authority, Secretaria da Receita Federal do Brasil (RFB), concluded audits of our 2012 and 2013 tax return years. These audits included a review of our determinations of amortization of certain goodwill arising from the acquisition of Yoki Alimentos S.A. The RFB has proposed adjustments that effectively eliminate the goodwill amortization benefits related to this transaction. During fiscal 2020, we received proposed adjustments related to the goodwill amortization benefits for our 2014 and 2015 tax return years. We believe we have meritorious defenses and intend to contest the disallowance.

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the period of such change.

The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for fiscal 2021 and fiscal 2020. Approximately $75.6 million of this total in fiscal 2021 represents the amount that, if recognized, would affect our effective income tax rate in future periods. This amount differs from the gross unrecognized tax benefits presented in the table because certain of the liabilities below would impact deferred taxes if recognized. We also would record a decrease in U.S. federal income taxes upon recognition of the state tax benefits included therein.

	Fiscal Year
In Millions		2021		2020
Balance, beginning of year	$	147.9	$	139.1
Tax positions related to current year:
Additions		20.1		18.7
Tax positions related to prior years:
Additions		6.3		2.3
Reductions		(7.2)		(6.0)
Settlements		(2.1)		(2.9)
Lapses in statutes of limitations		(19.7)		(3.3)
Balance, end of year	$	145.3	$	147.9

As of May 30, 2021, we expect to pay approximately $1.1 million of unrecognized tax benefit liabilities and accrued interest within the next 12 months. We are not able to reasonably estimate the timing of future cash flows beyond 12 months due to uncertainties in the timing of tax audit outcomes. The remaining amount of our unrecognized tax liability was classified in other liabilities.

We report accrued interest and penalties related to unrecognized tax benefit liabilities in income tax expense. For fiscal 2021, we recognized $2.9 million of tax-related net interest and penalties, and had $24.9 million of accrued interest and penalties as of May 30, 2021. For fiscal 2020, we recognized $3.2 million of tax-related net interest and penalties, and had $27.9 million of accrued interest and penalties as of May 31, 2020.