INCOME TAXES

12 Months Ended

May 28, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Total income tax expense (benefit) was allocated as follows:

	Fiscal Year Ended
(in millions)	May 28, 2023		May 29, 2022		May 30, 2021
Earnings from continuing operations	$	137.0	$	138.8	$	(55.9)
Loss from discontinued operations	(0.8)		(0.2)		(3.2)
Total consolidated income tax expense (benefit)	$	136.2	$	138.6	$	(59.1)

The components of earnings from continuing operations before income taxes and the provision for income taxes thereon are as follows:

	Fiscal Year Ended
(in millions)	May 28, 2023		May 29, 2022		May 30, 2021
Earnings from continuing operations before income taxes:
U.S.	$	1,117.3	$	1,089.5	$	575.1
Foreign	3.2		4.0		1.4
Earnings from continuing operations before income taxes	$	1,120.5	$	1,093.5	$	576.5
Income taxes:
Current:
Federal	$	165.9	$	90.7	$	(226.9)
State and local	25.6		72.7		5.3
Foreign	1.6		1.4		(0.2)
Total current	$	193.1	$	164.8	$	(221.8)
Deferred (principally U.S.):
Federal	$	(69.2)	$	10.3	$	151.9
State and local	13.1		(36.3)		14.0
Total deferred	$	(56.1)	$	(26.0)	$	165.9
Total income tax expense (benefit)	$	137.0	$	138.8	$	(55.9)

The effective income tax rates for fiscal 2023 and 2022 for continuing operations were 12.2 percent and 12.7 percent, respectively. During fiscal 2023, we had income tax expense of $137.0 million on earnings before income tax of $1.12 billion compared to income tax expense of $138.8 million on earnings before income taxes of $1.09 billion in fiscal 2022. This change was primarily driven by the impact of federal tax credits.

The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1 percent excise tax on share repurchases that occur after December 31, 2022 and introduces a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income. The IRA excise tax and the CAMT are immaterial to our financial statements.

The following table is a reconciliation of the U.S. statutory income tax rate to the effective income tax rate from continuing operations included in the accompanying consolidated statements of earnings:

	Fiscal Year Ended
	May 28, 2023		May 29, 2022		May 30, 2021
U.S. statutory rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net of federal tax benefits	3.1		2.5		2.7
Benefit of federal income tax credits	(10.4)		(9.8)		(11.1)
Stock-based compensation tax benefit	(0.9)		(0.9)		(1.9)
Federal net operating loss	—		—		(20.6)
Other, net	(0.6)		(0.1)		0.2
Effective income tax rate	12.2	%	12.7	%	(9.7)	%

As of May 28, 2023, we had estimated current prepaid state and federal income taxes of $12.8 million and $94.5 million, respectively, which is included on our accompanying consolidated balance sheets as prepaid income taxes and estimated current state and federal income taxes payable of $4.2 million and $3.6 million, respectively, which is included on our accompanying consolidated balance sheets as accrued income taxes.

As of May 28, 2023, we had unrecognized tax benefits of $23.0 million, which represents the aggregate tax effect of the differences between tax return positions and benefits recognized in our consolidated financial statements, all of which would favorably affect the effective tax rate if resolved in our favor. Included in the balance of unrecognized tax benefits at May 28, 2023, is $7.8 million related to tax positions for which it is reasonably possible that the total amounts could change during the next 12 months based on the outcome of examinations. Of the $7.8 million, $5.7 million relates to items that would impact our effective income tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

(in millions)
Balances at May 29, 2022	$	22.2
Additions related to current-year tax positions	5.2
Reductions related to prior-year tax positions	—
Net reductions due to settlements with taxing authorities	(1.9)
Reductions to tax positions due to statute expiration	(2.5)
Balances at May 28, 2023	$	23.0

Interest included in income tax expense in our consolidated statements of earnings is as follows:

	Fiscal Year Ended
(in millions)	May 28, 2023		May 29, 2022		May 30, 2021
Interest recorded on unrecognized tax benefits	$	2.2	$	1.3	$	0.7
Interest recorded on income tax receivables	$	(6.8)	$	(3.1)	$	—
Total (Benefit) Expense	$	(4.6)	$	(1.8)	$	0.7

At May 28, 2023, we had $2.7 million accrued for the payment of interest associated with unrecognized tax benefits.

For U.S. federal income tax purposes, we participate in the IRS’s Compliance Assurance Process (CAP), whereby our U.S. federal income tax returns are reviewed by the IRS both prior to and after their filing. Income tax returns are subject to audit by state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. The major jurisdictions in which the Company files income tax returns include the U.S. federal jurisdiction, Canada, and all states in the U.S. that have an income tax. With a few exceptions, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before fiscal 2022, and state and local, or non-U.S. income tax examinations by tax authorities for years before fiscal 2018.

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

(in millions)	May 28, 2023		May 29, 2022
Accrued liabilities	$	117.2	$	80.0
Compensation and employee benefits	122.8		123.6
Lease liabilities	1,248.5		1,227.3
Net operating loss, credit and charitable contribution carryforwards	77.5		121.0
Other	4.3		6.3
Gross deferred tax assets	$	1,570.3	$	1,558.2
Valuation allowance	(21.1)		(20.8)
Deferred tax assets, net of valuation allowance	$	1,549.2	$	1,537.4
Trademarks and other acquisition related intangibles	(184.2)		(178.7)
Buildings and equipment	(337.7)		(402.1)
Capitalized software and other assets	(26.0)		(23.5)
Lease assets	(1,129.5)		(1,120.4)
Other	(14.0)		(13.8)
Gross deferred tax liabilities	$	(1,691.4)	$	(1,738.5)
Net deferred tax liabilities	$	(142.2)	$	(201.1)

We have deferred tax assets of $33.2 million reflecting the benefit of state loss carryforwards, before federal benefit and valuation allowance, which expire at various dates between fiscal 2024 and fiscal 2042. We have deferred tax assets of $12.9 million of federal and $47.7 million state tax credits, before federal benefit and valuation allowance, which expire at various dates between fiscal 2024 and fiscal 2043.

We have taken current and potential future expirations into consideration when evaluating the need for valuation allowances against these deferred tax assets. A valuation allowance for deferred tax assets is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Realization is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which our deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowances at May 28, 2023.