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INCOME TAXES | 12 Months Ended
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Dec. 30, 2023
Income Tax Disclosure [Abstract] |
Income Tax Disclosure [Text Block] | INCOME TAXES The components of income before income taxes and the provision for income taxes were as follows:
(millions) |  | 2023 |  | 2022 |  | 2021
Income before income taxes |  |  |  |  |  |
United States |  | $ | 577 |  |  | $ | 360 |  |  | $ | 693 |
Foreign |  | 463 |  |  | 542 |  |  | 759 |
|  | 1,040 |  |  | 902 |  |  | 1,452 |
Income taxes |  |  |  |  |  |
Currently payable |  |  |  |  |  |
Federal |  | 153 |  |  | 110 |  |  | 101 |
State |  | 29 |  |  | 19 |  |  | 27 |
Foreign |  | 114 |  |  | 101 |  |  | 106 |
|  | 296 |  |  | 230 |  |  | 234 |
Deferred |  |  |  |  |  |
Federal |  | (49) |  |  | (43) |  |  | 37 |
State |  | 23 |  |  | (6) |  |  | 1 |
Foreign |  | (12) |  |  | (1) |  |  | 81 |
|  | (38) |  |  | (50) |  |  | 119 |
Total income taxes |  | $ | 258 |  |  | $ | 180 |  |  | $ | 353 |
The difference between the U.S. federal statutory tax rate and the Company’s effective income tax rate was:
|  | 2023 |  | 2022 |  | 2021
U.S. statutory income tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Foreign rates varying from U.S. statutory rate |  | (2.9) |  |  | (3.6) |  |  | (2.3) |
State income taxes, net of federal benefit |  | 2.0 |  |  | 1.0 |  |  | 1.6 |
Cost (benefit) of remitted and unremitted foreign earnings |  | 1.7 |  |  | 2.0 |  |  | 0.8 |
Net change in valuation allowance |  | 3.0 |  |  | 4.6 |  |  | 3.6 |
Statutory rate changes, deferred tax impact |  | 0.1 |  |  | 0.3 |  |  | 1.0 |
Foreign derived intangible income |  | (1.3) |  |  | (1.6) |  |  | (0.9) |
Other |  | 1.2 |  |  | (3.7) |  |  | (0.5) |
Effective income tax rate |  | 24.8 | % |  | 20.0 | % |  | 24.3 | %
As presented in the preceding table, the Company’s 2023 consolidated effective tax rate was 24.8%, as compared to 20.0% in 2022 and 24.3% in 2021. The higher effective tax rate for the year ended December 30, 2023 as compared to prior year was due primarily to a valuation allowance recorded in the fourth quarter of 2023 in conjunction with the separation of our North America cereal business. For the year ended December 31, 2022 the effective tax rate was favorably impacted by mark-to-market loss items and the resulting impact on mix of earnings. The 2021 effective income tax rate was unfavorably impacted by the following items. During the second quarter of 2021, the Company recorded tax expense of $23 million as a result of tax legislation enacted in the UK in June 2021, which increased the statutory UK tax rate from 19 percent to 25 percent for tax periods after April 1, 2023. The Company revalued its net deferred tax balances related to the UK business to reflect the increased tax rate. During the third quarter, the Company determined that certain foreign deferred tax assets were no longer more likely than not to be realized in the future and a full valuation allowance totaling $20 million was recorded on a discrete period basis. As of December 30, 2023, approximately $800 million of unremitted earnings were considered indefinitely reinvested. The unrecognized deferred tax liability for these earnings is estimated at approximately $46 million. However, this estimate could change based on the manner in which the outside basis difference associated with these earnings reverses. Management monitors the Company’s ability to utilize certain future tax deductions, operating losses and tax credit carryforwards, prior to expiration. Changes resulting from management’s assessment will result in impacts to deferred tax assets and the corresponding impacts on the effective income tax rate. Valuation allowances were recorded to reduce deferred tax assets to an amount that will, more likely than not, be realized in the future. The total tax benefit of carryforwards at year-end 2023 and 2022 were $350 million and $363 million, respectively, with related valuation allowances at year-end 2023 and 2022 of $300 million and $263 million, respectively. Of the total carryforwards at year-end 2023, $20 million expire in 5 years or less, $61 million expire in 2027 and later, and $269 million do not expire. The following table provides an analysis of the Company’s deferred tax assets and liabilities as of year-end 2023 and 2022:
|  | Deferred tax assets |  | Deferred tax liabilities
(millions) |  | 2023 |  | 2022 |  | 2023 |  | 2022
U.S. state income taxes |  | $ | — |  |  | $ | — |  |  | $ | 9 |  |  | $ | 27 |
Advertising and promotion-related |  | 12 |  |  | 15 |  |  | — |  |  | — |
Wages and payroll taxes |  | 15 |  |  | 19 |  |  | — |  |  | — |
Inventory valuation |  | 12 |  |  | 19 |  |  | — |  |  | — |
Employee benefits |  | 99 |  |  | 64 |  |  | — |  |  | — |
Operating loss, credit and other carryforwards |  | 350 |  |  | 363 |  |  | — |  |  | — |
Research and development capitalization |  | 40 |  |  | 22 |  |  | — |  |  | — |
Hedging transactions |  | — |  |  | — |  |  | 8 |  |  | 37 |
Depreciation and asset disposals |  | — |  |  | — |  |  | 177 |  |  | 286 |
Operating lease right-of-use assets |  | — |  |  | — |  |  | 149 |  |  | 138 |
Operating lease liabilities |  | 147 |  |  | 139 |  |  | — |  |  | — |
Trademarks and other intangibles |  | — |  |  | — |  |  | 466 |  |  | 549 |
Deferred compensation |  | 13 |  |  | 27 |  |  | — |  |  | — |
Stock options |  | 43 |  |  | 28 |  |  | — |  |  | — |
Other |  | 64 |  |  | 34 |  |  | — |  |  | — |
|  | 795 |  |  | 730 |  |  | 809 |  |  | 1,037 |
Less valuation allowance |  | (300) |  |  | (263) |  |  | — |  |  | — |
Total deferred taxes |  | $ | 495 |  |  | $ | 467 |  |  | $ | 809 |  |  | $ | 1,037 |
Net deferred tax asset (liability) |  | $ | (314) |  |  | $ | (570) |  |  |  |  |
Classified in balance sheet as: |  |  |  |  |  |  |  |
Other assets |  | $ | 183 |  |  | $ | 190 |  |  |  |  |
Other liabilities |  | (497) |  |  | (760) |  | * |  |  |
Net deferred tax asset (liability) |  | $ | (314) |  |  | $ | (570) |  |  |  |  |
*Other liabilities include $53 million reclassified to discontinued operations on the consolidated balance sheet at December 31, 2022. The change in valuation allowance reducing deferred tax assets was:
(millions) |  | 2023 |  | 2022 |  | 2021
Balance at beginning of year |  | $ | 263 |  |  | $ | 248 |  |  | $ | 192 |
Additions charged to income tax expense (a) |  | 65 |  |  | 44 |  |  | 59 |
Reductions credited to income tax expense |  | (34) |  |  | (3) |  |  | (6) |
Acquisition of noncontrolling interest |  | — |  |  | — |  |  | 13 |
Currency translation adjustments |  | 6 |  |  | (26) |  |  | (10) |
Balance at end of year |  | $ | 300 |  |  | $ | 263 |  |  | $ | 248 |
(a) During 2021, the Company increased the valuation allowance $20 million to fully reserve for net deferred tax assets of a foreign subsidiary. During 2023, the Company established a state valuation allowance of $21 million due to projected, perpetual separate company losses for Kellanova post separation from the North America cereal business. Additionally, in 2023 the Company established a valuation allowance of $18 million related to the sale of a subsidiary. Uncertain tax positions The Company is subject to federal income taxes in the U.S. as well as various state, local, and foreign jurisdictions. The Company’s 2023 provision for U.S. federal income taxes represents approximately 50% of the Company’s consolidated income tax provision. The Company was chosen to participate in the Internal Revenue Service (IRS) Compliance Assurance Program (CAP) beginning with the 2008 tax year. As a result, with limited exceptions, the Company is no longer subject to U.S. federal examinations by the IRS for years prior to 2022. The Company is under examination for income and non-income tax filings in various state and foreign jurisdictions. As of December 30, 2023, the Company has classif ied $10 million of unrecognized tax benefits as a current tax liability. Managements estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability expected to be settled within one year, offset by approximately $3 million of projected additions during the next twelve months related primarily to ongoing intercompany transfer pricing activity. Management is currently unaware of any issues under review that could result in significant additional payments, accruals, or other material deviation in this estimate. Following is a reconciliation of the Company’s total gross unrecognized tax benefits as of the years ended December 30, 2023, December 31, 2022 and January 1, 2022. For the 2023 year, approximately $28 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.
(millions) |  | 2023 |  | 2022 |  | 2021
Balance at beginning of year |  | $ | 36 |  |  | $ | 50 |  |  | $ | 65 |
Tax positions related to current year: |  |  |  |  |  |
Additions |  | 6 |  |  | 6 |  |  | 5 |
Tax positions related to prior years: |  |  |  |  |  |
Additions |  | 3 |  |  | 1 |  |  | 5 |
Reductions |  | (10) |  |  | (18) |  |  | (13) |
Settlements |  | (1) |  |  | (1) |  |  | (9) |
Lapses in statutes of limitation |  | (2) |  |  | (2) |  |  | (3) |
Balance at end of year |  | $ | 32 |  |  | $ | 36 |  |  | $ | 50 |
During the year ended December 30, 2023, the Company recognized $2 million of tax related interest benefit and paid tax-related interest totaling $1 million, reducing the balance to $5 million at year-end. During the year ended December 31, 2022, the Company recognized $1 million of tax related interest, increasing the balance to $8 million at year-end. During the year ended January 1, 2022, the Company paid tax-related interest totaling $2 million and recognized $4 million of tax-related interest, increasing the balance to $7 million at year-end.

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