PRE-TAX INCOME AND INCOME TAXES

Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:



	2017			2016		2015
United States	$	883.5		$	136.9	$	592.6
Canada	(123.1		)	11.4		27.1
Foreign - other	40.3			26.6		44.3
	$	800.7		$	174.9	$	664.0

The provision for income taxes included the following:



	2017			2016			2015
Current
Federal	$	201.5		$	206.5		$	178.3
State	6.7			31.0			17.8
Canada	2.8			2.1			3.1
Foreign - other	3.7			6.5			15.8
	214.7			246.1			215.0
Deferred
Federal	62.1			(161.5		)	(1.7		)
State	(5.3		)	(38.9		)	3.8
Canada	(13.2		)	(0.8		)	1.8
Foreign - other	(3.6		)	1.5			(6.2		)
	40.0			(199.7		)	(2.3		)
	$	254.7		$	46.4		$	212.7

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 Operations as follows:



	2017			2016			2015
Computed U.S. Federal income taxes	$	280.2		$	61.2		$	232.4
State income taxes, net of U.S. Federal tax impact	22.4			(6.4		)	15.0
Tax credits and domestic manufacturing deduction	(19.8		)	(16.5		)	(21.0		)
Audit adjustments and settlements	(0.9		)	(2.1		)	—
Effect of taxes booked on foreign operations	(6.5		)	1.2			(8.2		)
Statute lapses on previously reserved items	(2.3		)	(2.3		)	(4.4		)
Goodwill and intangible impairments	104.7			—			6.6
Change in legal structure and other state elections	(7.5		)	—			—
Stock compensation	(18.8		)	—			—
Release of valuation allowance on capital loss carryforward	(84.1		)	—			—
Change in estimate related to tax methods used for certain international sales, federal credits, and state credits	(8.0		)	6.0			(2.4		)
Other	(4.7		)	5.3			(5.3		)
	$	254.7		$	46.4		$	212.7

Income taxes paid, net of refunds, were $213.0 million, $291.3 million, and $161.2 million in fiscal 2017, 2016, and 2015, 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 28, 2017					May 29, 2016
	Assets			Liabilities		Assets			Liabilities
Property, plant and equipment	$	—		$	216.6	$	—		$	251.9
Goodwill, trademarks and other intangible assets	—			623.4		—			675.8
Accrued expenses	20.2			—		17.1			—
Compensation related liabilities	63.9			—		78.4			—
Pension and other postretirement benefits	275.2			—		433.6			—
Investment in unconsolidated subsidiaries	—			237.8		—			246.7
Other liabilities that will give rise to future tax deductions	117.9			—		125.9			—
Net capital and operating loss carryforwards	1,112.5			—		1,586.0			—
Other	60.0			6.3		61.5			9.6
	1,649.7			1,084.1		2,302.5			1,184.0
Less: Valuation allowance	(1,013.4		)	—		(1,433.5		)	—
Net deferred taxes	$	636.3		$	1,084.1	$	869.0		$	1,184.0

The liability for gross unrecognized tax benefits at May 28, 2017 was $39.3 million, excluding a related liability of $6.0 million for gross interest and penalties. Any associated interest and penalties imposed would affect the tax rate. As of May 29, 2016, our gross liability for unrecognized tax benefits was $32.6 million, excluding a related liability of $6.4 million for gross interest and penalties. Interest and penalties recognized in the Consolidated Statements of Operations was a benefit of $0.3 million in fiscal 2017, $0.2 million in fiscal 2016 and $0.2 million in fiscal 2015.

The net amount of unrecognized tax benefits at May 28, 2017 and May 29, 2016 that, if recognized, would favorably impact our effective tax rate was $31.6 million and $17.6 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 2015 and all resulting significant items for fiscal 2015 and prior years have been settled with the IRS. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years.

We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $18.0 million over the next twelve months due to various Federal, state, and foreign audit settlements and the expiration of statutes of limitations. Of this amount, approximately $15.6 million would reverse through results of discontinued operations.

The change in the unrecognized tax benefits for the year ended May 28, 2017 was:



Beginning balance on May 29, 2016	$	32.6
Increases from positions established during prior periods	2.1
Decreases from positions established during prior periods	(3.9		)
Increases from positions established during the current period	13.4
Decreases relating to settlements with taxing authorities	(1.8		)
Reductions resulting from lapse of applicable statute of limitation	(2.9		)
Other adjustments to liability	(0.2		)
Ending balance on May 28, 2017	$	39.3

We have approximately $25.7 million of foreign net operating loss carryforwards ($10.1 million will expire between fiscal 2018 and 2038 and $15.6 million have no expiration dates) and $10.5 million of Federal net operating loss carryforwards which expire in fiscal 2027. Federal capital loss carryforwards related to the Private Brands divestiture of approximately $2.8 billion will expire in fiscal 2021. Included in net deferred tax liabilities are $41.7 million of tax effected state net operating loss carryforwards which expire in various years ranging from fiscal 2018 to 2037 and $167.6 million of tax effected state capital loss carryforwards related to the divestiture of Private Brands, the vast majority of which expire in fiscal 2021. Foreign tax credits of $4.0 million will expire between fiscal 2025 and fiscal 2027. State tax credits of approximately $9.7 million will expire in various years ranging from fiscal 2018 to 2027.

We have recognized a valuation allowance for the portion of the net operating loss carryforwards, capital loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net change in the valuation allowance for fiscal 2017 was a decrease of $420.1 million. For fiscal 2016 and 2015, changes in the valuation allowance were an increase of $1.4 billion and a decrease of $1.9 million, respectively. The current year change principally relates to reducing the valuation allowance on the capital loss carryforward generated from the sale of our Private Brands operations through revisions to the estimates of the capital gains realized on the sales of the Spicetec and JM Swank businesses, a tax planning strategy allowing additional utilization of the capital loss, the realization of certain tax attributes based upon the contract terms of the Private Brands sale and expected capital gains from the planned divestiture of the Wesson^® oil business, as well as utilization of the estimated tax asset to offset capital gains on previously deferred intercompany transactions that were triggered by the Spinoff. Of the total fiscal 2017 change, $150.4 million of the reduction in the valuation allowance was recorded in stockholders' equity as part of the Spinoff.

As of May 28, 2017, the cumulative undistributed earnings of the Company's foreign subsidiaries amounted to approximately $494 million. Those earnings are considered to be indefinitely reinvested and accordingly, no U.S. federal income taxes have been provided thereon. 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.