INCOME TAXES

The Tax Cuts and Jobs Act of 2017 ("Tax Act") was enacted into law on December 22, 2017. The changes to U.S. tax law include, but are not limited to, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and changing how foreign earnings are subject to U.S. tax. The Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property.

As a result of the Tax Act and in accordance with SEC Staff Accounting Bulletin 118 ("SAB 118"), we recorded provisional tax expense in the fourth quarter of fiscal 2018 related to the deemed repatriation tax and the revaluation of deferred tax assets and liabilities to reflect the new tax rate. We have not made any measurement period adjustments related to these items during the first quarter of fiscal 2019. We continue to gather and analyze additional information needed to complete our accounting for these items and expect to complete our accounting within the one-year measurement period provided by SAB 118. Any adjustment to these amounts during the measurement period will be recorded in income tax expense in the period in which the analysis is complete. The ultimate effect of the Tax Act may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, as well as any additional regulatory guidance that may be issued.

Beginning in fiscal 2019, the Tax Act created a provision known as global intangible low-tax income ("GILTI") that imposes a tax on certain earnings of foreign subsidiaries. Due to the complexity of the new GILTI tax rules, we are not yet able to reasonably determine the complete effects of the provision. Therefore, we have not yet elected a policy as to whether we will recognize deferred taxes for basis differences expected to reverse or record GILTI as a current period costs when incurred. We have, however, included an estimate of the current GILTI impact in our effective tax rate for fiscal 2019.

Income tax expense from continuing operations for the first quarter of fiscal 2019 and 2018 was $57.4 million and $120.0 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) from continuing operations was 24.4% and 43.9% for the first quarter of fiscal 2019 and 2018, respectively.

The effective tax rate in the first quarter of fiscal 2019 reflects the following:


•	the impact of the Tax Act, including a reduction in the statutory federal income tax rate to 21%, partially offset by the repeal of the deduction for domestic manufacturing activities, changes in deductibility of executive compensation and the effect of the GILTI inclusion,


•	the impact of foreign restructuring resulting in a benefit related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made,


•	additional tax expense on the repatriation of certain foreign earnings,


•	additional tax expense on non-deductible facilitative costs associated with the planned acquisition of Pinnacle, and


•	an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant.

The effective tax rate in the first quarter of fiscal 2018 reflects the following:


•	additional tax expense related to the repatriation of cash from foreign subsidiaries,


•	additional tax expense related to undistributed foreign earnings for which the indefinite reinvestment assertion was no longer made, and


•	an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant.

The amount of gross unrecognized tax benefits for uncertain tax positions was $33.0 million as of August 26, 2018 and $32.5 million as of May 27, 2018. There were no balances included as of either August 26, 2018 or May 27, 2018, for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The gross unrecognized tax benefits excluded related liabilities for gross interest and penalties of $7.9 million and $7.7 million as of August 26, 2018 and May 27, 2018, respectively.

The net amount of unrecognized tax benefits at August 26, 2018 and May 27, 2018 that, if recognized, would impact the Company's effective tax rate was $28.2 million and $27.8 million, respectively. Included in those amounts is $6.7 million that would be reported in discontinued operations. Recognition of these tax benefits would have a favorable impact on the Company's effective tax rate.

We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $15.3 million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations.

As of August 26, 2018 and May 27, 2018, we had a deferred tax asset of $721.6 million that was generated from the capital loss realized on the sale of the Private Brands operations with corresponding valuation allowances of $721.6 million to reflect the uncertainty regarding the ultimate realization of the tax asset.

We have not provided any deferred taxes on undistributed earnings of our foreign subsidiaries. Deferred taxes will be provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested and will result in a tax liability upon distribution.