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PRE-TAX INCOME AND INCOME TAXES
12 Months Ended
May 25, 2014
Income Tax Disclosure [Abstract]  
PRE-TAX INCOME AND INCOME TAXES
PRE-TAX INCOME AND INCOME TAXES
 Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:
 
2014
 
2013
 
2012
United States
$
475.3

 
$
1,071.7

 
$
482.1

Canada
57.2

 
49.2

 
38.4

Foreign - other
76.7

 
66.6

 
139.1

 
$
609.2

 
$
1,187.5

 
$
659.6


The provision for income taxes included the following:
 
2014
 
2013
 
2012
Current
 
 
 
 
 
Federal
$
376.1

 
$
184.7

 
$
160.2

State
38.8

 
29.0

 
23.3

Canada
11.4

 
11.4

 
10.7

Foreign - other
14.4

 
13.0

 
16.8

 
440.7

 
238.1

 
211.0

Deferred
 
 
 
 
 
Federal
(75.4
)
 
158.4

 
(13.4
)
State
(56.5
)
 
3.9

 
(5.2
)
Canada
3.3

 
1.6

 
0.1

Foreign - other
(13.9
)
 
(1.3
)
 
(0.8
)
 
(142.5
)
 
162.6

 
(19.3
)
 
$
298.2

 
$
400.7

 
$
191.7


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 Consolidated Statements of Earnings as follows:
 
2014
 
2013
 
2012
Computed U.S. Federal income taxes
$
213.2

 
$
415.6

 
$
230.9

State income taxes, net of U.S. Federal tax impact
25.6

 
20.1

 
11.5

Tax credits and domestic manufacturing deduction
(28.9
)
 
(23.9
)
 
(21.1
)
Audit adjustments and settlements
(19.1
)
 
0.5

 
0.8

Effect of taxes booked on foreign operations
(23.0
)
 
(17.1
)
 
(15.7
)
Non-taxable gain from investment in ATFL

 

 
(20.5
)
Goodwill and intangible impairments
185.2

 

 

Change in legal structure and other state elections
(23.5
)
 

 

Change in estimate related to tax methods used for certain international sales
(20.9
)
 

 

Other
(10.4
)
 
5.5

 
5.8

 
$
298.2

 
$
400.7

 
$
191.7


Income taxes paid, net of refunds, were $253.6 million, $249.0 million, and $191.5 million in fiscal 2014, 2013, and 2012, 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 25, 2014
 
May 26, 2013
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Property, plant and equipment
$

 
$
585.9

 
$

 
$
672.5

Goodwill, trademarks and other intangible assets

 
1,348.4

 

 
1,403.6

Accrued expenses
34.8

 

 
42.3

 

Compensation related liabilities
70.2

 

 
108.2

 

Pension and other postretirement benefits
279.2

 

 
291.4

 

Derivative cash flow hedge

 
0.8

 
38.0

 

Other liabilities that will give rise to future tax deductions
150.7

 

 
140.2

 

Net operating loss carryforwards
56.0

 

 
92.9

 

Other
86.7

 
27.3

 
72.6

 
27.9

 
677.6

 
1,962.4

 
785.6

 
2,104.0

Less: Valuation allowance
(43.3
)
 

 
(44.8
)
 

Net deferred taxes
$
634.3

 
$
1,962.4

 
$
740.8

 
$
2,104.0


At May 25, 2014 and May 26, 2013, net deferred tax assets of $109.2 million and $177.0 million, respectively, were included in prepaid expenses and other current assets. At May 25, 2014 and May 26, 2013, net deferred tax liabilities of $1.44 billion and $1.54 billion, respectively, were included in other noncurrent liabilities.
The liability for gross unrecognized tax benefits at May 25, 2014 was $84.9 million, excluding a related liability of $29.6 million for gross interest and penalties. Included in the balance at May 25, 2014 are $8.2 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Any associated interest and penalties imposed would affect the tax rate. As of May 26, 2013, our gross liability for unrecognized tax benefits was $100.0 million, excluding a related liability of $30.4 million for gross interest and penalties. Included in the balance at May 26, 2013 are $8.0 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Interest and penalties recognized in the Consolidated Statement of Earnings was a benefit of $1.3 million in fiscal 2014, $1.2 million in fiscal 2013 and $0.6 million in fiscal 2012.
The net amount of unrecognized tax benefits at May 25, 2014 and May 26, 2013 that, if recognized, would favorably impact our effective tax rate was $50.8 million and $61.8 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 for tax years through fiscal 2013 and all resulting significant items for fiscal 2013 and prior years have been settled with the IRS. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from 3 to 5 years.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $7 million over the next twelve months due to various state and foreign audit settlements and the expiration of statutes of limitations.
The change in the unrecognized tax benefits for the year ended May 25, 2014 was:
Beginning balance on May 26, 2013
$
100.0

Increases from positions established during prior periods
15.4

Decreases from positions established during prior periods
(17.0
)
Increases from positions established during the current period
5.8

Decreases relating to settlements with taxing authorities
(11.3
)
Reductions resulting from lapse of applicable statute of limitation
(7.6
)
Other adjustments to liability
(0.4
)
Ending balance on May 25, 2014
$
84.9


We have approximately $74.6 million of foreign net operating loss carryforwards ($50.8 million will expire between fiscal 2015 and 2035 and $23.8 million have no expiration dates) and $22.1 million of Federal net operating loss carryforwards which expire between fiscal 2015 and 2024. Included in net deferred tax liabilities are $46.5 million of tax effected state net operating loss carryforwards which expire in various years ranging from fiscal 2015 to 2034. Substantially all of our foreign tax credits will expire in fiscal 2018. State tax credits of approximately $30.1 million will expire in various years ranging from fiscal 2015 to 2019.
We have recognized a valuation allowance for the portion of the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net impact on income tax expense related to changes in the valuation allowance for fiscal 2014 was a benefit of $1.5 million. For fiscal 2013 and 2012, changes in the valuation allowance were a charge of $1.1 million and a benefit of $7.1 million, respectively. The current year change principally relates to decreases to the valuation allowances for state and foreign net operating losses and credits.
As of May 25, 2014, undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $560 million. Those earnings are considered to be indefinitely reinvested and accordingly, no U.S. federal income taxes have been provided thereon. We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that the Company considers to be reinvested indefinitely. It is not practicable to estimate the amount of U.S. income taxes that would be incurred in the event that we were to repatriate the cumulative earnings of non-U.S. affiliates and associated companies. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested.