Income Taxes (Tables)

12 Months Ended

Jan. 01, 2022

Income Tax Disclosure [Abstract]

Income Before Income Taxes

Income from continuing operations before income taxes is as follows:

(In millions)	2021		2020		2019
U.S.	$	699	$	202	$	668
Non-U.S.	174		80		274
Income from continuing operations before income taxes	$	873	$	282	$	942

Income Tax Expense For Continuing Operations

Income tax expense (benefit) is summarized as follows:

(In millions)	2021		2020		2019
Current expense (benefit):
Federal	$	41	$	(1)	$	(48)
State	15		(76)		16
Non-U.S.	47		57		70
	103		(20)		38
Deferred expense (benefit):
Federal	35		3		112
State	(10)		5		(20)
Non-U.S.	(2)		(15)		(3)
	23		(7)		89
Income tax expense (benefit)	$	126	$	(27)	$	127

Federal Statutory Income Tax Rate To Effective Income Tax Rate

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

	2021	2020	2019
U.S. Federal statutory income tax rate	21.0%	21.0%	21.0%
Increase (decrease) resulting from:
Research and development tax credits (a)	(7.0)	(18.2)	(7.6)
State income taxes (net of federal impact)	0.5	(1.2)	0.3
Non-U.S. tax rate differential and foreign tax credits (b)	1.3	10.8	1.4
State income tax audit settlement (net of federal impact)	—	(18.6)	—
Outside basis difference in assets held for sale	—	(2.7)	—
U.S. amended returns tax rate differential	—	—	(1.2)
Other, net	(1.4)	(0.7)	(0.4)
Effective income tax rate	14.4%	(9.6)%	13.5%

(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)	2021		2020		2019
Balance at beginning of year	$	183	$	221	$	141
Additions for tax positions related to current year	21		11		9
Additions for tax positions of prior years	10		21		74
Reductions for settlements and expiration of statute of limitations	(3)		(69)		(1)
Reductions for tax positions of prior years	(4)		(1)		(2)
Balance at end of year	$	207	$	183	$	221

Deferred Tax Assets and Liabilities

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

(In millions)	January 1, 2022		January 2, 2021
U.S. operating loss and tax credit carryforwards (a)	$	313	$	320
Accrued liabilities (b)	191		202
Obligation for pension and postretirement benefits	175		287
Deferred compensation	108		100
Operating lease liabilities	103		97
Non-U.S. operating loss and tax credit carryforwards (c)	48		65
Prepaid pension benefits (d)	(269)		(44)
Property, plant and equipment, principally depreciation	(204)		(199)
Amortization of goodwill and other intangibles	(183)		(171)
Valuation allowance on deferred tax assets (e)	(109)		(157)
Operating lease right-of-use assets	(101)		(95)
Other leasing transactions, principally leveraged leases	(73)		(79)
Other, net	20		16
Deferred taxes, net	$	19	$	342

(a)At January 1, 2022, U.S. operating loss and tax credit carryforward benefits of $274 million expire through 2041 if not utilized and $39 million may be carried forward indefinitely.

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

(c)At January 1, 2022, non-U.S. operating loss and tax credit carryforward benefits of $45 million may be carried forward indefinitely.

(d)Prepaid pension benefits increased due to the annual valuation adjustment.

(e)Valuation allowance decreased primarily due to the disposition of TRU Canada.

The following table presents the breakdown of our deferred taxes:

(In millions)	January 1, 2022		January 2, 2021
Manufacturing group:
Deferred tax assets, net of valuation allowance	$	129	$	423
Deferred tax liabilities	(49)		(19)
Finance group – Deferred tax liabilities	(61)		(62)
Net deferred tax asset	$	19	$	342