v3.25.4

Income Taxes | 12 Months Ended
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Jan. 03, 2026
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) | 2025 | 2024 | 2023
U.S. | $ | 903 |  | $ | 739 |  | $ | 905 |
Non-U.S. | 234 |  | 204 |  | 182 |
Income from continuing operations before income taxes | $ | 1,137 |  | $ | 943 |  | $ | 1,087 |
Income tax expense is summarized as follows:
(In millions) | 2025 | 2024 | 2023
Current: |  |  |
Federal | $ | (7) |  | $ | 84 |  | $ | 267 |
State | 8 |  | 21 |  | 18 |
Non-U.S. | 58 |  | 61 |  | 72 |
Total current | 59 |  | 166 |  | 357 |
Deferred: |  |  |
Federal | 165 |  | (34) |  | (181) |
State | (6) |  | (24) |  | 1 |
Non-U.S. | (4) |  | 10 |  | (12) |
Total deferred | 155 |  | (48) |  | (192) |
Total income tax expense (benefit): |  |  |
Federal | 158 |  | 50 |  | 86 |
State | 2 |  | (3) |  | 19 |
Non-U.S. | 54 |  | 71 |  | 60 |
Total income tax expense | $ | 214 |  | $ | 118 |  | $ | 165 |
In 2025, we adopted Accounting Standards Update 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This standard has been adopted on a prospective basis and the new presentation of the U.S. Federal statutory income tax rate to our effective tax rate for 2025 is provided below.
| 2025 |  |
(Dollars in millions) | Amount | Percentage |  |
U.S. Federal statutory income tax rate | $ | 239 |  | 21.0 | % |  |
State and local income taxes, net of Federal income tax effects* | 2 |  | 0.2 | % |  |
Foreign tax effects | 6 |  | 0.5 | % |  |
Effect of cross-border tax laws | (2) |  | (0.2) | % |  |
Tax credits - research and development | (36) |  | (3.2) | % |  |
Non-taxable or nondeductible items: |  |  |  |
Share-based compensation | 29 |  | 2.6 | % |  |
Other | 6 |  | 0.5 | % |  |
Changes in unrecognized tax benefits: |  |  |  |
Audit settlement | (17) |  | (1.5) | % |  |
Other | 3 |  | 0.3 | % |  |
Other adjustments | (16) |  | (1.4) | % |  |
Effective income tax rate | $ | 214 |  | 18.8 | % |  |
* State income taxes for Kansas and Texas comprise the majority (greater than 50%) of this category. In 2025, an $18 million benefit was recognized related to the enactment of a single sales factor apportionment in Kansas. For 2025, income tax payments, net of refunds by jurisdiction totaled $19 million for the U.S. Federal jurisdiction, $13 million for the states and $72 million for non-U.S. jurisdictions, which included $23 million, $18 million, $8 million, $6 million and $(5) million in Canada, Mexico, China, Czech Republic and Spain, respectively. A reconciliation of the U.S. Federal statutory income tax rate to our effective income tax rate for prior years is provided below.
|  | 2024 | 2023
U.S. Federal statutory income tax rate |  | 21.0% | 21.0%
Increase (decrease) resulting from: |  |  |
State income taxes, net of Federal tax benefit |  | (0.2)% | 1.4%
Non-U.S. tax rate differential and foreign tax credits |  | 2.1% | 1.5%
Research and development tax credits |  | (5.4)% | (4.7)%
Uncertain tax positions release for 2012 to 2017 IRS audit |  | (2.9)% | —%
Foreign-derived intangible income deduction |  | (1.7)% | (3.2)%
Other, net |  | (0.4)% | (0.8)%
Effective income tax rate |  | 12.5% | 15.2%
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. 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) | 2025 | 2024 | 2023
Balance at beginning of year | $ | 215 |  | $ | 222 |  | $ | 231 |
Additions for tax positions related to current year | 19 |  | 17 |  | 16 |
Additions for tax positions of prior years | — |  | 4 |  | 3 |
Reductions for tax positions of prior years | (1) |  | — |  | (28) |
Reductions for settlements | (17) |  | (28) |  | — |
Balance at end of year | $ | 216 |  | $ | 215 |  | $ | 222 |
In November 2024, we received a Revenue Agent Report (RAR) from the Internal Revenue Service (IRS) for the tax years 2012 to 2017 that proposed adjustments related to research and development tax credits generated on amended returns filed in 2019 and 2021. We disagree with the proposed adjustments and are vigorously contesting them through the IRS’s Office of Appeals and, if necessary, will continue with legal proceedings. We believe it is more likely than not that we will prevail on our refund claim for these credits and that our allowance for uncertain tax positions related to this matter is adequate. In connection with the RAR for these years, other tax positions were effectively settled, resulting in a benefit upon the reversal of $27 million of uncertain tax positions in the fourth quarter of 2024. A tax benefit of $17 million was recorded in 2025 related to the effective settlement of other uncertain tax positions. We are currently under examination by the IRS for the tax years 2018 to 2021. In the normal course of business, we are subject to examination by tax authorities throughout the world. We are generally no longer subject to state and local income tax examinations for years before 2019 and non-U.S. income tax examinations for years before 2012. Deferred Taxes The significant components of our net deferred tax assets/(liabilities) are provided below:
(In millions) | January 3, 2026 | December 28, 2024
Capitalized research and development expenditures | $ | 459 |  | $ | 631 |
U.S. operating loss and tax credit carryforwards (a) | 232 |  | 212 |
Accrued liabilities (b) | 201 |  | 224 |
Obligation for pension and postretirement benefits | 130 |  | 109 |
Operating lease liabilities | 102 |  | 93 |
Non-U.S. operating loss and tax credit carryforwards (c) | 82 |  | 88 |
Deferred compensation | 70 |  | 94 |
Prepaid pension benefits | (721) |  | (562) |
Property, plant and equipment, principally depreciation | (186) |  | (198) |
Amortization of goodwill and other intangibles | (157) |  | (184) |
Operating lease right-of-use assets | (99) |  | (90) |
Valuation allowance on deferred tax assets | (76) |  | (82) |
Other, net | (25) |  | (74) |
Deferred taxes, net | $ | 12 |  | $ | 261 |
(a)At January 3, 2026, U.S. operating loss and tax credit carryforward benefits of $184 million expire through 2045 if not utilized and $48 million may be carried forward indefinitely. (b)Accrued liabilities include warranty reserves, self-insured liabilities and interest. (c)At January 3, 2026, non-U.S. operating loss and tax credit carryforward benefits of $73 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) | January 3, 2026 | December 28, 2024
Manufacturing group: |  |
Deferred tax assets, net of valuation allowance | $ | 145 |  | $ | 394 |
Deferred tax liabilities | (123) |  | (96) |
Finance group – Deferred tax liabilities | (10) |  | (37) |
Net deferred tax asset | $ | 12 |  | $ | 261 |
Non-U.S. 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. 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 the applicable non-U.S. jurisdictions.

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