Income Taxes

12 Months Ended

Dec. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income before income taxes are as follows:

	2023		2022		2021
United States	$	4,120	$	7,305	$	3,740
Foreign	7,297		3,400		6,081
	$	11,417	$	10,705	$	9,821

The provision for income taxes consisted of the following:

	2023		2022		2021
Current:
U.S. Federal	$	1,133	$	1,137	$	702
Foreign	1,201		1,027		955
State	309		246		44
	2,643		2,410		1,701
Deferred:
U.S. Federal	(109)		22		375
Foreign	(212)		(709)		(14)
State	(60)		4		80
	(381)		(683)		441
	$	2,262	$	1,727	$	2,142

A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:

	2023		2022		2021
U.S. Federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income tax, net of U.S. Federal tax benefit	1.8		1.8		1.0
Lower taxes on foreign results	(2.5)		(1.5)		(1.6)
One-time mandatory transition tax - TCJ Act	—		0.8		1.9
Juice Transaction	(0.1)		(2.4)		—
Tax settlements	—		(3.0)		—
Other, net	(0.4)		(0.6)		(0.5)
Annual tax rate	19.8	%	16.1	%	21.8	%

Tax Cuts and Jobs Act

In 2022, we recorded $86 million ($0.06 per share) of net tax expense related to the TCJ Act as a result of correlating adjustments related to a partial audit settlement with the IRS for tax years 2014 through 2019. In 2021, we recorded $190 million ($0.14 per share) of net tax expense related to the TCJ Act as a result of adjustments related to the final assessment of the 2014 through 2016 IRS audit.

As of December 30, 2023, our mandatory transition tax liability was $2.3 billion, which must be paid through 2026 under the provisions of the TCJ Act. We reduced our liability through cash payments and application of tax overpayments by $309 million in each of 2023, 2022 and 2021. We currently expect to pay approximately $579 million of this liability in 2024.

The TCJ Act also created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (GILTI), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. We elected to treat the tax effect of GILTI as a current-period expense when incurred.

Other Tax Matters

In 2021, we received a final assessment from the IRS audit for the tax years 2014 through 2016. The assessment included both agreed and unagreed issues. On October 29, 2021, we filed a formal written protest of the assessment and requested an appeals conference. As a result of the analysis of the 2014 through 2016 final assessment, we remeasured all applicable reserves for uncertain tax positions for all years open under the statute of limitations, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax expense of $112 million ($0.08 per share) in 2021.

In 2022, we came to an agreement with the IRS to settle one of the issues assessed in the 2014 through 2016 tax audit. The agreement covers tax years 2014 through 2019. As a result, we reduced our reserves for uncertain tax positions, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax benefit of $233 million ($0.17 per share) in 2022. Tax years 2014 through 2019 remain under audit for other issues.

Deferred tax liabilities and assets are comprised of the following:

	2023		2022
Deferred tax liabilities
Debt guarantee of wholly-owned subsidiary	$	578	$	578
Property, plant and equipment	1,978		2,126
Recapture of net operating losses	492		492
Pension liabilities	167		189
Right-of-use assets	660		534
Investment in TBG	93		186
Other	350		232
Gross deferred tax liabilities	4,318		4,337
Deferred tax assets
Net carryforwards	6,877		5,342
Intangible assets other than nondeductible goodwill	1,758		1,614
Share-based compensation	137		120
Retiree medical benefits	114		118
Other employee-related benefits	412		349
Deductible state tax and interest benefits	176		144
Lease liabilities	660		534
Capitalized research and development	210		150
Other	1,031		1,050
Gross deferred tax assets	11,375		9,421
Valuation allowances	(6,478)		(5,013)
Deferred tax assets, net	4,897		4,408
Net deferred tax (assets)/liabilities	$	(579)	$	(71)

A summary of our valuation allowance activity is as follows:

	2023		2022		2021
Balance, beginning of year	$	5,013	$	4,628	$	4,686
Provision	1,419		492		(9)
Other (deductions)/additions	46		(107)		(49)
Balance, end of year	$	6,478	$	5,013	$	4,628

Reserves

A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions and the related open tax audits are as follows:

Jurisdiction	Years Open to Audit	Years Currently Under Audit
United States	2014-2022	2014-2019
Mexico	2014-2022	2014-2019
United Kingdom	2021-2022	None
Canada (Domestic)	2018-2022	2019
Canada (International)	2012-2022	2012-2019
Russia	2020-2022	None

Our annual tax rate is based on our income, statutory tax rates and tax planning strategies and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are subject to challenge and that we likely will not succeed. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances, such as the progress of a tax audit, new tax laws, relevant court cases or tax authority settlements. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution.

As of December 30, 2023, the total gross amount of reserves for income taxes, reported in other liabilities, was $2.1 billion. We accrue interest related to reserves for income taxes in our provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses. The gross amount of interest accrued, reported in other liabilities, was $390 million as of December 30, 2023, of which $102 million of tax expense was recognized in 2023. The gross amount of interest accrued, reported in other liabilities, was $292 million as of December 31, 2022, of which $4 million of tax benefit was recognized in 2022.

A reconciliation of unrecognized tax benefits is as follows:

	2023		2022
Balance, beginning of year	$	1,867	$	1,900
Additions for tax positions related to the current year	225		228
Additions for tax positions from prior years	123		206
Reductions for tax positions from prior years	(51)		(357)
Settlement payments	(16)		(53)
Statutes of limitations expiration	(33)		(36)
Translation and other	(22)		(21)
Balance, end of year	$	2,093	$	1,867

Carryforwards and Allowances

Operating loss carryforwards and income tax credits totaling $34.7 billion as of December 30, 2023 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses and income tax credits from prior periods to reduce future taxable income or income tax liabilities. These operating losses and income tax credits will expire as follows: $0.4 billion in 2024, $29.8

billion between 2025 and 2041 and $4.5 billion may be carried forward indefinitely. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is not more likely than not that some portion or all of the deferred tax assets will be realized.

Undistributed International Earnings

As of December 30, 2023, we had approximately $7 billion of undistributed international earnings. We intend to continue to reinvest $7 billion of earnings outside the United States for the foreseeable future and while future distribution of these earnings would not be subject to U.S. federal tax expense, no deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been recognized. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested international earnings.