Income Taxes (Tables)

12 Months Ended

Jan. 02, 2021

Income Tax Disclosure [Abstract]

Income Before Income Taxes

Income before income taxes is as follows:

(In millions)	2020		2019		2018
U.S.	$	202	$	668	$	557
Non-U.S.	80		274		827
Income before income taxes	$	282	$	942	$	1,384

Income Tax Expense For Continuing Operations

Income tax expense (benefit) is summarized as follows:

(In millions)	2020		2019		2018
Current expense (benefit):
Federal	$	(1)	$	(48)	$	3
State	(76)		16		9
Non-U.S.	57		70		101
	(20)		38		113
Deferred expense (benefit):
Federal	3		112		60
State	5		(20)		(5)
Non-U.S.	(15)		(3)		(6)
	(7)		89		49
Income tax expense (benefit)	$	(27)	$	127	$	162

Federal Statutory Income Tax Rate To Effective Income Tax Rate For Continuing Operations

The following table reconciles the federal statutory income tax rate to our effective income tax rate:

	2020	2019	2018
U.S. Federal statutory income tax rate	21.0%	21.0%	21.0%
Increase (decrease) resulting from:
State income tax audit settlement (net of federal impact)	(18.6)	—	—
Research and development tax credits (a)	(18.2)	(7.6)	(2.9)
Outside basis difference in assets held for sale	(2.7)	—	—
State income taxes (net of federal impact)	(1.2)	0.3	(0.1)
Non-U.S. tax rate differential and foreign tax credits (b)	10.8	1.4	1.3
U.S. tax reform enactment impact	—	—	(1.0)
U.S. amended returns tax rate differential	—	(1.2)	—
Gain on business disposition, primarily in non-U.S. jurisdictions	—	—	(5.0)
Other, net	(0.7)	(0.4)	(1.6)
Effective income tax rate	(9.6)%	13.5%	11.7%

(a)In 2020, the benefit of research and development tax credits as a percentage of pre-tax income was higher than prior periods primarily due to lower pre-tax income. In 2019, $61 million in benefits were recognized for additional tax credits related to prior years as a result of the completion of a research and development tax analysis.

(b)In 2020, the effective tax rate was unfavorably impacted by a $55 million inventory charge and special charges in a non-U.S. jurisdiction where tax benefits cannot be realized, along with a $10 million tax expense related to a decision to dividend cash back from select non-U.S. jurisdictions to the U.S., partially offset by a $14 million valuation allowance release.

Reconciliation of Unrecognized Tax Benefits

A reconciliation of these unrecognized tax benefits is as follows:

(In millions)	2020		2019		2018
Balance at beginning of year	$	221	$	141	$	182
Additions for tax positions related to current year	11		9		5
Additions for tax positions of prior years	21		74		13
Reductions for settlements and expiration of statute of limitations	(69)		(1)		(22)
Reductions for tax positions of prior years	(1)		(2)		(37)
Balance at end of year	$	183	$	221	$	141

Deferred Tax Assets and Liabilities

The significant components of our net deferred tax assets/(liabilities) are provided below:

(In millions)	January 2, 2021		January 4, 2020
U.S. operating loss and tax credit carryforwards (a)	$	320	$	235
Obligation for pension and postretirement benefits	287		289
Accrued liabilities (b)	202		214
Deferred compensation	100		95
Operating lease liabilities	97		70
Non-U.S. operating loss and tax credit carryforwards (c)	65		52
Property, plant and equipment, principally depreciation	(199)		(153)
Amortization of goodwill and other intangibles	(171)		(160)
Valuation allowance on deferred tax assets	(157)		(145)
Operating lease right-of-use assets	(95)		(68)
Other leasing transactions, principally leveraged leases	(79)		(80)
Prepaid pension benefits	(44)		(29)
Other, net	16		(51)
Deferred taxes, net	$	342	$	269

(a)At January 2, 2021, U.S. operating loss and tax credit carryforward benefits of $283 million expire through 2040 if not utilized and $37 million may be carried forward indefinitely.

(b)Accrued liabilities include warranty reserves, self-insured liabilities and interest.

(c)At January 2, 2021, non-U.S. operating loss and tax credit carryforward benefits of $29 million expire through 2040 if not utilized and $36 million may be carried forward indefinitely.

The following table presents the breakdown of our deferred taxes:

(In millions)	January 2, 2021		January 4, 2020
Manufacturing group:
Deferred tax assets, net of valuation allowance	$	423	$	341
Deferred tax liabilities	(19)		(4)
Finance group – Deferred tax liabilities	(62)		(68)
Net deferred tax asset	$	342	$	269