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TAXES BASED ON INCOME | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
TAXES BASED ON INCOME | TAXES BASED ON INCOME Taxes based on income were as follows:
(In millions) |  | 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |  |
U.S. federal tax |  | $ | 29.4 |  |  | $ | 7.3 |  |  | $ | 1.1 |
State taxes |  | 8.8 |  |  | 5.3 |  |  | 1.9 |
International taxes |  | 177.7 |  |  | 229.9 |  |  | 168.5 |
|  | 215.9 |  |  | 242.5 |  |  | 171.5 |
Deferred: |  |  |  |  |  |
U.S. federal tax |  | 5.8 |  |  | (1.1) |  |  | 5.0 |
State taxes |  | .9 |  |  | (5.3) |  |  | 1.6 |
International taxes |  | 19.6 |  |  | 12.5 |  |  | (.4) |
|  | 26.3 |  |  | 6.1 |  |  | 6.2 |
Provision for income taxes |  | $ | 242.2 |  |  | $ | 248.6 |  |  | $ | 177.7 |
The principal items accounting for the difference between taxes computed at U.S. federal statutory rate and taxes recorded were as follows:
(In millions) |  | 2022 |  | 2021 |  | 2020
Tax provision computed at U.S. federal statutory rate(1) |  | $ | 209.9 |  |  | $ | 208.5 |  |  | $ | 154.8 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |
State taxes, net of federal tax benefit |  | 11.8 |  |  | 4.5 |  |  | 6.9 |
Foreign earnings taxed at different rates(1) |  | 55.3 |  |  | 75.4 |  |  | 51.4 |
GILTI high-tax exclusion election, net(2) |  | (11.9) |  |  | (22.8) |  |  | (12.5) |
Valuation allowance |  | (5.0) |  |  | (4.8) |  |  | (3.3) |
U.S. federal research and development tax credits |  | (6.5) |  |  | (6.2) |  |  | (6.2) |
Tax contingencies and audit settlements |  | (4.3) |  |  | 3.9 |  |  | (5.5) |
Other items, net |  | (7.1) |  |  | (9.9) |  |  | (7.9) |
Provision for income taxes |  | $ | 242.2 |  |  | $ | 248.6 |  |  | $ | 177.7 |
(1) | All years included certain U.S. international tax provisions and foreign earnings taxed in the U.S., net of credits.
(2) | In 2022, we recognized $11.9 million of benefit related to a GILTI exclusion election made on our 2021 U.S. federal tax return. In 2021, we recognized $14.1 million and $8.7 million of benefit related to GILTI exclusion elections made on our amended 2018 and originally filed 2020 U.S. federal tax returns, respectively. In 2020, we recognized $12.5 million of benefit related to a GILTI exclusion election we planned to make on our amended 2019 U.S. federal tax return.
Income before taxes from our U.S. and international operations was as follows:
(In millions) |  | 2022 |  | 2021 |  | 2020
U.S. |  | $ | 232.4 |  |  | $ | 88.0 |  |  | $ | 123.8 |
International |  | 766.9 |  |  | 904.6 |  |  | 613.5 |
Income before taxes |  | $ | 999.3 |  |  | $ | 992.6 |  |  | $ | 737.3 |
Our effective tax rate was 24.2%, 25.0% and 24.1% for fiscal years 2022, 2021 and 2020, respectively. Our 2022 provision for income taxes included (i) $18.8 million of net tax charge related to the tax on GILTI of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from foreign-derived intangible income (“FDII”); (ii) $17.3 million of return-to-provision benefit, including $11.9 million related to a GILTI exclusion election and a lower net tax charge from other international inclusion items upon completion of our 2021 U.S. federal tax return, (iii) $4.3 million of net tax benefit primarily from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years and the settlement of certain foreign tax audits; and (iv) a return-to-provision benefit from the interest portion of the Brazil indirect tax credit reclaimed in 2021 being adjudicated as non-taxable, pursuant to a Brazilian court decision. In 2020, the U.S. Department of Treasury issued final regulations that provide certain U.S. taxpayers with an annual election to exclude foreign income subject to a high effective tax rate from their GILTI inclusions. We have not yet determined whether to make the election for tax year 2022. We continue to evaluate the impact of the election and currently anticipate that the benefit from making this election on our 2022 U.S. federal tax return may be significant. Our 2021 provision for income taxes included (i) $28.5 million of net tax charge related to the tax on GILTI of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from FDII; (ii) $14.1 million of return-to-provision benefit related to a GILTI exclusion election made on our amended 2018 U.S. federal tax return; and (iii) $11.3 million of return-to-provision benefit, including $8.7 million related to a GILTI exclusion election and a higher FDII deduction reflected on our 2020 U.S. federal tax return. Our 2021 provision for income taxes also included (i) net tax benefit primarily from the release of valuation allowance against certain deferred tax assets in the U.S. and foreign jurisdictions; (ii) net tax benefit primarily from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years; and (iii) net tax charges related to the tax effects of outcomes of certain legal proceedings. Our 2020 provision for income taxes included (i) $22.1 million of net tax charge related to the tax on GILTI of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from FDII; (ii) a $12.5 million of return-to-provision benefit related to a GILTI exclusion election we planned to make on our 2019 amended U.S. federal tax return; and (iii) net tax benefit primarily from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years, partially offset by increases in reserves from changes in judgment and additional interest and penalty accruals. Deferred Taxes Deferred taxes reflect the temporary differences between the amounts at which assets and liabilities are recorded for financial reporting purposes and the amounts utilized for tax purposes. The primary components of the temporary differences that gave rise to our deferred tax assets and liabilities were as follows:
(In millions) |  | 2022 |  | 2021
Accrued expenses not currently deductible |  | $ | 32.3 |  |  | $ | 34.6 |
Net operating loss carryforwards |  | 137.2 |  |  | 154.4 |
Tax credit carryforwards |  | 9.7 |  |  | 34.6 |
Capitalized research expenses |  | 38.6 |  |  | 23.7 |
Stock-based compensation |  | 15.4 |  |  | 13.6 |
Pension and other postretirement benefits |  | 31.5 |  |  | 38.8 |
Inventory reserve |  | 15.6 |  |  | 14.7 |
Lease liabilities |  | 33.2 |  |  | 42.5 |
Other assets |  | 21.3 |  |  | 25.3 |
Valuation allowance |  | (59.4) |  |  | (70.1) |
Total deferred tax assets(1) |  | 275.4 |  |  | 312.1 |
Depreciation and amortization |  | (296.6) |  |  | (292.6) |
Repatriation accrual |  | (12.0) |  |  | (16.2) |
Foreign operating loss recapture |  | (3.2) |  |  | (3.4) |
Lease assets |  | (33.8) |  |  | (43.8) |
Total deferred tax liabilities(1) |  | (345.6) |  |  | (356.0) |
Total net deferred tax assets (liabilities) |  | $ | (70.2) |  |  | $ | (43.9) |
(1)Reflect gross amounts before jurisdictional netting of deferred tax assets and liabilities. We assess the available positive and negative evidence to estimate if sufficient future taxable income is expected to be generated to use existing deferred tax assets. On the basis of our assessment, we record valuation allowances only with respect to the portion of the deferred tax asset that is not more-likely-than-not to be realized. Our assessment of the future realizability of our deferred tax assets relies heavily on our forecasted earnings in certain jurisdictions determined by the manner in which we operate our business and the relevant carryforward periods. Any changes to our operations may affect our assessment of deferred tax assets considered realizable if the positive evidence no longer outweighs the negative evidence. Net operating loss carryforwards of foreign subsidiaries at December 31, 2022 and January 1, 2022 were $463 million and $508 million, respectively. Tax credit carryforwards of both domestic and foreign subsidiaries at December 31, 2022 and January 1, 2022 totaled $10 million and $35 million, respectively. If unused, foreign net operating losses and tax credit carryforwards will expire as follows:
(In millions) |  | Net Operating Losses(1) |  | Tax Credits
Year of Expiry |  |  |  |
2023 |  | $ | 4.5 |  |  | $ | .3 |
2024 |  | 2.6 |  |  | .2 |
2025 |  | 2.9 |  |  | .2 |
2026 |  | 7.2 |  |  | .3 |
2027 |  | 4.1 |  |  | .8 |
2028-2040 |  | 13.7 |  |  | 5.9 |
Indefinite life/no expiry |  | 427.7 |  |  | 2.0 |
Total |  | $ | 462.7 |  |  | $ | 9.7 |
(1)Net operating losses are presented before tax effects and valuation allowance. Certain indefinite-lived foreign net operating losses may require decades to be fully utilized under our current business model. At December 31, 2022, we had net operating loss carryforwards in certain states of $425 million before tax effects. Based on our estimates of future state taxable income, it is more-likely-than-not that the majority of these carryforwards will not be realized before they expire. Accordingly, a valuation allowance has been recorded on $380 million of these carryforwards. As of December 31, 2022, our provision for income taxes did not materially benefit from applicable tax holidays in foreign jurisdictions. Unrecognized Tax Benefits As of December 31, 2022, our unrecognized tax benefits totaled $70 million, $65 million of which, if recognized, would reduce our annual effective income tax rate. As of January 1, 2022, our unrecognized tax benefits totaled $74 million, $68 million of which, if recognized, would reduce our annual effective income tax rate. Where applicable, we accrue potential interest and penalties related to unrecognized tax benefits in income tax expense. The interest and penalties we recognized during fiscal years 2022, 2021 and 2020 were not material, individually or in aggregate, to the Consolidated Statements of Income. We have accrued balances of $16 million and $19 million for interest and penalties, net of tax benefit, in the Consolidated Balance Sheets at December 31, 2022 and January 1, 2022, respectively. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is set forth below.
(In millions) |  | 2022 |  | 2021
Balance at beginning of year |  | $ | 74.0 |  |  | $ | 72.0 |
Additions for tax positions of current year |  | 6.6 |  |  | 9.1 |
Additions (reductions) for tax positions of prior years, net |  | (2.2) |  |  | 1.2 |
Settlements with tax authorities |  | (1.1) |  |  | (1.1) |
Expirations of statutes of limitations |  | (4.8) |  |  | (5.2) |
Changes due to translation of foreign currencies |  | (3.0) |  |  | (2.0) |
Balance at end of year |  | $ | 69.5 |  |  | $ | 74.0 |
It is reasonably possible that, during the next 12 months, we may realize a decrease in our uncertain tax positions, including interest and penalties, of approximately $6 million, primarily as a result of closing tax years. The amount of income taxes we pay is subject to ongoing audits by taxing jurisdictions around the world. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. We believe we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. The final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in our tax provision for income taxes and the related liabilities. To date, we and our U.S. subsidiaries have completed the IRS’ Compliance Assurance Process through 2018. With limited exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2010.

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