CONAGRA BRANDS INC. Income Taxes Disclosure

14. PRE-TAX INCOME AND INCOME TAXES

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

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The provision for income taxes included the following:

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Income taxes computed by applying the U.S. Federal statutory rates to income (loss) before income taxes are reconciled to the provision for income taxes set forth in the Consolidated Statements of Operations as follows:

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In fiscal 2026, state and local income taxes in California, Florida, Pennsylvania, South Carolina, and Texas comprised the majority of the domestic state and local income taxes, net of federal effect category. In fiscal 2025, state and local income taxes in Florida, Louisianna, Pennsylvania, Tennessee, and Texas comprised the majority of the domestic state and local income taxes, net of federal effect category. In fiscal 2024, state and local income taxes in California, Florida, Minnesota, Pennsylvania, and Texas comprised the majority of the domestic state and local income taxes, net of federal effect category.

Income taxes paid, net of refunds, were:

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* The amount of income taxes paid in this jurisdiction during the year were less than 5% of the total income taxes paid during the year.

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The tax effect of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:

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The liability for gross unrecognized tax benefits at May 31, 2026 was $20.3 million, excluding a related liability of $5.2 million for gross interest and penalties. As of May 25, 2025, our gross liability for unrecognized tax benefits was $11.0 million, excluding a related liability of $3.6 million for gross interest and penalties. Interest and penalties recognized in the Consolidated Statements of Operations was expense of $1.6 million, a benefit of $0.5 million, and a benefit of $1.4 million in fiscal 2026, 2025, and 2024, respectively.

The net amount of unrecognized tax benefits at May 31, 2026 and May 25, 2025 that, if recognized, would favorably impact our effective tax rate was $18.4 million and $9.3 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 of the Company for tax years through fiscal 2025. All resulting significant items for fiscal 2025 and prior years have been settled with the IRS. Statutes of limitation for pre-acquisition tax years of Pinnacle generally remain open for calendar year 2005 and subsequent years principally related to net operating losses. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years.

The change in the unrecognized tax benefits for the fiscal years ended May 31, 2026 and May 25, 2025 was as follows:

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We have approximately $22.6 million in foreign net operating loss carryforwards which expire between fiscal 2044 and 2046 and $17.1 million of federal net operating loss carryforwards which expire in fiscal 2027. Included in net deferred tax liabilities are $15.9 million of tax effected state net operating loss carryforwards which expire in various years ranging from fiscal 2027 to 2046 and $1.8 million of tax effected state capital loss balances that expire between fiscal 2027 and 2037. Foreign tax credits of $22.4 million will expire between fiscal 2027 and 2036. State tax credits of approximately $2.0 million will expire in various years ranging from fiscal 2027 to 2031.

In fiscal 2022, we reflected additional tax expense of $25.0 million related to tax elections made in conjunction with filing our fiscal 2021 federal tax return. During fiscal 2025, interactions with the U.S. Internal Revenue Service (IRS) regarding these tax elections make the realization of certain deferred tax assets likely. The realization of these deferred tax assets allows for both current and future tax deductions through 2036 and resulted in an income tax benefit of approximately $225.8 million.

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 2026 was an increase of $4.1 million, principally related to certain tax assets being utilized in relation to the disposition of held for sale assets offset by impacts from tax law changes. The net change in the valuation allowance for fiscal 2025 was a decrease of $247.8 million, principally related to a federal audit settlement and future generation of income from the disposition of held for sale assets allowing certain tax attributes to be utilized.

We have previously made the assessment that the current earnings of certain foreign subsidiaries were not indefinitely reinvested or that we could not remit to the U.S. parent in a tax-neutral transaction. Accordingly, we have recorded a deferred tax liability of $2.2 million on approximately $43.8 million of earnings at May 31, 2026. The deferred tax liability relates to local withholding taxes that will be owed when this cash is distributed. In the first quarter of fiscal 2025, we paid $16.9 million of withholding taxes previously accrued in connection with the restructuring of our ownership interest in Ardent Mills. The undistributed historic earnings in our foreign subsidiaries through May 30, 2021 are considered to be indefinitely reinvested or can be remitted in a tax-neutral transaction. Accordingly, we have not recorded a deferred tax liability related to these undistributed historic earnings.

On July 4, 2025, the “One Big Beautiful Bill Act” (the “Act”) was enacted into law. The Act includes changes to U.S. tax law that were applicable to Conagra beginning in fiscal 2026.  These changes included provisions allowing accelerated tax deductions for qualified property and research expenditures as well as allocation assumptions impacting certain tax attributes.