Income Taxes

12 Months Ended

Dec. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We conduct business globally and, as a result, file numerous consolidated and separate income tax returns within and outside the U.S.  For all of our U.S. subsidiaries, we file a consolidated federal income tax return.  Income from continuing operations before income taxes is as follows:

(In millions)	2023		2022		2021
U.S.	$	905	$	810	$	699
Non-U.S.	182		206		174
Income from continuing operations before income taxes	$	1,087	$	1,016	$	873

Income tax expense is summarized as follows:

(In millions)	2023		2022		2021
Current expense:
Federal	$	267	$	272	$	41
State	18		33		15
Non-U.S.	72		69		47
	357		374		103
Deferred expense (benefit):
Federal	(181)		(182)		35
State	1		(29)		(10)
Non-U.S.	(12)		(9)		(2)
	(192)		(220)		23
Income tax expense	$	165	$	154	$	126

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

	2023	2022	2021
U.S. Federal statutory income tax rate	21.0%	21.0%	21.0%
Increase (decrease) resulting from:
Research and development tax credits	(4.7)	(5.0)	(7.0)
Foreign-derived intangible income deduction (a)	(3.2)	(2.5)	—
Non-U.S. tax rate differential and foreign tax credits	1.5	1.8	1.3
State income taxes (net of federal impact)	1.4	0.3	0.5
Other, net	(0.8)	(0.4)	(1.4)
Effective income tax rate	15.2%	15.2%	14.4%

(a)In 2023 and 2022, the foreign-derived intangible income deduction is primarily due to the impact of capitalizing research and development expenditures for tax-purposes effective on January 1, 2022 as part of the Tax Cuts and Jobs Act of 2017.

Unrecognized Tax Benefits

Our unrecognized tax benefits represent tax positions for which reserves have been established, with unrecognized state tax benefits reflected net of applicable federal tax benefits. At the end of 2023, 2022 and 2021, if our unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate. A reconciliation of these unrecognized tax benefits is as follows:

(In millions)	2023		2022		2021
Balance at beginning of year	$	231	$	207	$	183
Additions for tax positions related to current year	16		24		21
Additions for tax positions of prior years	3		—		10
Reductions for tax positions of prior years	(28)		—		(4)
Reductions for settlements and expiration of statute of limitations	—		—		(3)
Balance at end of year	$	222	$	231	$	207

In the normal course of business, we are subject to examination by tax authorities throughout the world. We are generally no longer subject to U.S. federal tax examinations for years before 2014, except for additional 2012 and 2013 research and

development tax credits generated through amended returns filed in 2019. We are generally no longer subject to state and local income tax examinations for years before 2018 and non-U.S. income tax examinations for years before 2011.

Deferred Taxes

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

(In millions)	December 30, 2023		December 31, 2022
Capitalized research and development expenditures	$	520	$	319
Accrued liabilities (a)	228		209
U.S. operating loss and tax credit carryforwards (b)	216		257
Obligation for pension and postretirement benefits	123		117
Deferred compensation	103		108
Operating lease liabilities	102		102
Non-U.S. operating loss and tax credit carryforwards (c)	73		53
Prepaid pension benefits	(387)		(348)
Property, plant and equipment, principally depreciation	(211)		(222)
Amortization of goodwill and other intangibles	(185)		(194)
Operating lease right-of-use assets	(99)		(99)
Valuation allowance on deferred tax assets	(82)		(99)
Other leasing transactions, principally leveraged leases	(47)		(53)
Other, net	(5)		(22)
Deferred taxes, net	$	349	$	128

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

(b)At December 30, 2023, U.S. operating loss and tax credit carryforward benefits of $179 million expire through 2043 if not utilized and $37 million may be carried forward indefinitely.

(c)At December 30, 2023, non-U.S. operating loss and tax credit carryforward benefits of $68 million may be carried forward indefinitely.

We believe earnings during the period when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not more than likely, a valuation allowance is provided.

The following table presents the breakdown of our deferred taxes:

(In millions)	December 30, 2023		December 31, 2022
Manufacturing group:
Deferred tax assets, net of valuation allowance	$	443	$	223
Deferred tax liabilities	(56)		(52)
Finance group – Deferred tax liabilities	(38)		(43)
Net deferred tax asset	$	349	$	128

Non-U.S. and U.S. state income taxes have not been provided for on basis differences in certain investments, primarily as a result of unremitted earnings in foreign subsidiaries that are indefinitely reinvested, totaling $1.6 billion at both December 30, 2023 and December 31, 2022. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding and local taxes to various non-U.S. jurisdictions and U.S. states. Determination of the deferred tax liability associated with indefinitely reinvested earnings is not practicable due to multiple factors, including the complexity of non-U.S. tax laws and tax treaty interpretations, exchange rate fluctuations, and the uncertainty of available credits or exemptions.