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INCOME TAXES | 12 Months Ended
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Jan. 01, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Significant components of the Company’s deferred tax assets and liabilities from continuing operations at the end of each fiscal year were as follows:
(Millions of Dollars) | 2021 |  | 2020
Deferred tax liabilities: |  |  |
Depreciation | $ | 132.2 |  |  | $ | 149.3 |
Intangible assets | 917.3 |  |  | 669.6 |
Liability on undistributed foreign earnings | 48.2 |  |  | 29.7 |
Lease right-of-use asset | 106.5 |  |  | 107.4 |
Inventory | 79.6 |  |  | 26.2 |
Other | 48.4 |  |  | 62.9 |
Total deferred tax liabilities | $ | 1,332.2 |  |  | $ | 1,045.1 |
Deferred tax assets: |  |  |
Employee benefit plans | $ | 204.2 |  |  | $ | 240.0 |
Basis differences in liabilities | 100.4 |  |  | 91.4 |
Operating loss, capital loss and tax credit carryforwards | 830.7 |  |  | 745.4 |
Lease liability | 109.7 |  |  | 110.5 |
Intangible assets | 417.7 |  |  | 301.3 |
Basis difference in debt obligations | 205.1 |  |  | 21.0 |
Capitalized research and development costs | 86.0 |  |  | 52.2 |
Other | 206.6 |  |  | 169.6 |
Total deferred tax assets | $ | 2,160.4 |  |  | $ | 1,731.4 |
Net Deferred Tax Asset before Valuation Allowance | $ | 828.2 |  |  | $ | 686.3 |
Valuation Allowance | $ | (1,067.2) |  |  | $ | (1,001.9) |
Net Deferred Tax Liability after Valuation Allowance | $ | (239.0) |  |  | $ | (315.6) |
The increase in intangible deferred tax assets relates to the intra-entity asset transfer of certain intangible assets between two of the Company's foreign subsidiaries. The recognized deferred tax benefit represents the difference between the basis of the intellectual property for financial statement purposes and the basis of the intellectual property for tax purposes. A valuation allowance is recorded on certain deferred tax assets if it has been determined it is more likely than not that all or a portion of these assets will not be realized. The Company recorded a valuation allowance of $1,067.2 million and $1,001.9 million on deferred tax assets existing as of January 1, 2022 and January 2, 2021, respectively. The valuation allowances in 2021 and 2020 are primarily attributable to foreign and state net operating loss carryforwards, intangible assets, foreign capital loss carryforwards, and state tax credits. Beginning in 2022, the Tax Cuts and Jobs Act ("Act") eliminates the option to deduct research and development expenditures and requires taxpayers to amortize domestic expenditures over five years and foreign expenditures over fifteen years. While it is possible that Congress may modify or repeal this provision, the Company has no assurance that these provisions will be modified or repealed. Therefore, based on current assumptions, this would decrease the Company's cash from operations beginning in 2022 and continue over the five year amortization period. On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted. The ARPA, among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations, provide a 100% COBRA subsidy, temporarily increase the income exclusion for dependent care assistance, and to extend and modify the employee retention credit and the Families First Coronavirus Response Act paid leave credit. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company completed its evaluation of the ARPA and CARES Act, and concluded that they did not have a material impact on the Company’s consolidated financial statements. As of January 1, 2022, the Company has approximately $4.7 billion of unremitted foreign earnings and profits. Of the total amount, the Company has provided for deferred taxes of $48.2 million on approximately $1.5 billion, which is not indefinitely reinvested primarily due to the changes brought about by the Act. The Company otherwise continues to consider the remaining undistributed earnings of its foreign subsidiaries to be permanently reinvested based on its current plans for use outside of the U.S. and accordingly no taxes have been provided on such earnings. The cash held by the Company’s non-U.S. subsidiaries for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. The income taxes applicable to such earnings are not readily determinable or practicable to calculate. Net operating loss carryforwards of $3.0 billion as of January 1, 2022 are available to reduce future tax obligations of certain U.S. and foreign companies. The net operating loss carryforwards have various expiration dates beginning in 2022 with certain jurisdictions having indefinite carryforward periods. The foreign capital loss carryforwards of $42.4 million as of January 1, 2022 have indefinite carryforward periods. U.S. foreign tax credit carryforward balance as of January 1, 2022 totaled $20.6 million with various expiration dates beginning in 2028. U.S. foreign tax credit carryforward of $12.9 million is included in unrecognized tax benefits and subject to an annual limitation, which constitutes a change of ownership as defined under the Internal Revenue Code Section 382. State tax credit carryforward balance as of January 1, 2022 totaled $18.7 million. The carryforward balance is made up of various credit types spanning multiple state taxing jurisdictions and various expiration dates beginning in 2022. The components of earnings before income taxes from continuing operations consisted of the following:
(Millions of Dollars) | 2021 |  | 2020 |  | 2019
United States | $ | (31.5) |  |  | $ | 174.7 |  |  | $ | 184.5 |
Foreign | 1,672.5 |  |  | 1,045.1 |  |  | 909.9 |
Earnings before income taxes and equity interest | $ | 1,641.0 |  |  | $ | 1,219.8 |  |  | $ | 1,094.4 |
Income tax expense (benefit) consisted of the following:
(Millions of Dollars) | 2021 |  | 2020 |  | 2019
Current: |  |  |  |  |
Federal | $ | 7.8 |  |  | $ | 61.2 |  |  | $ | (32.4) |
Foreign | 388.0 |  |  | 183.2 |  |  | 184.4 |
State | 32.1 |  |  | 20.3 |  |  | 5.5 |
Total current | $ | 427.9 |  |  | $ | 264.7 |  |  | $ | 157.5 |
Deferred: |  |  |  |  |
Federal | $ | (125.9) |  |  | $ | (26.2) |  |  | $ | (4.8) |
Foreign | (210.1) |  |  | (192.1) |  |  | (33.0) |
State | (30.5) |  |  | (3.4) |  |  | 7.1 |
Total deferred | (366.5) |  |  | (221.7) |  |  | (30.7) |
Income taxes | $ | 61.4 |  |  | $ | 43.0 |  |  | $ | 126.8 |
Net income taxes paid for continuing operations during 2021, 2020 and 2019 were $441.8 million, $241.6 million and $234.6 million, respectively. The 2021, 2020 and 2019 amounts include refunds of $50.1 million, $43.8 million and $65.3 million, respectively, primarily related to prior year overpayments and settlement of tax audits. The reconciliation of the U.S. federal statutory income tax provision to Income taxes in the Consolidated Statements of Operations from continuing operations is as follows:
(Millions of Dollars) | 2021 |  | 2020 |  | 2019
Tax at statutory rate | $ | 344.6 |  |  | $ | 256.2 |  |  | $ | 229.8 |
State income taxes, net of federal benefits | 1.9 |  |  | 12.8 |  |  | 19.6 |
Foreign tax rate differential | (63.1) |  |  | (58.3) |  |  | (56.9) |
Uncertain tax benefits | 49.6 |  |  | 17.7 |  |  | (68.2) |
Change in valuation allowance | (11.9) |  |  | (12.7) |  |  | 8.5 |
Change in deferred tax liabilities on undistributed foreign earnings | 23.1 |  |  | (118.8) |  |  | — |
Stock-based compensation | (6.3) |  |  | (9.2) |  |  | (23.7) |
Change in tax rates | (31.1) |  |  | (0.3) |  |  | 2.4 |
Capital loss | — |  |  | (40.4) |  |  | — |
U.S. federal tax (benefit) expense on foreign earnings | (123.9) |  |  | (1.1) |  |  | 13.7 |
Intra-entity asset transfer of intellectual property | (114.2) |  |  | (27.7) |  |  | — |
Other | (7.3) |  |  | 24.8 |  |  | 1.6 |
Income taxes | $ | 61.4 |  |  | $ | 43.0 |  |  | $ | 126.8 |
The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course, the Company is subject to examinations by taxing authorities throughout the world. The Internal Revenue Service is currently examining the Company's consolidated U.S. income tax returns for the 2015 through 2018 tax years. With few exceptions, as of January 1, 2022, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2012. The Company’s liabilities for unrecognized tax benefits relate to U.S. and various foreign jurisdictions. The following table summarizes the activity related to the unrecognized tax benefits from continuing operations:
(Millions of Dollars) | 2021 |  | 2020 |  | 2019
Balance at beginning of year | $ | 428.3 |  |  | $ | 392.0 |  |  | $ | 390.9 |
Additions based on tax positions related to current year | 33.6 |  |  | 27.8 |  |  | 47.2 |
Additions based on tax positions related to prior years | 53.5 |  |  | 34.4 |  |  | 79.5 |
Reductions based on tax positions related to prior years | (17.2) |  |  | (19.0) |  |  | (91.1) |
Settlements | (1.3) |  |  | (0.5) |  |  | (0.3) |
Statute of limitations expirations | (9.2) |  |  | (6.4) |  |  | (34.2) |
Balance at end of year | $ | 487.7 |  |  | $ | 428.3 |  |  | $ | 392.0 |
The gross unrecognized tax benefits from continuing operations at January 1, 2022 and January 2, 2021 include $478.4 million and $418.6 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The liability for potential penalties and interest related to unrecognized tax benefits from continuing operations increased by $9.6 million in 2021 and decreased by $3.4 million in 2020 and $4.3 million in 2019. The liability for potential penalties and interest totaled $60.0 million as of January 1, 2022, $49.2 million as of January 2, 2021, and $45.8 million as of December 28, 2019. The Company classifies all tax-related interest and penalties as income tax expense. The Company considers many factors when evaluating and estimating its tax positions and the impact on income tax expense, which may require periodic adjustments, and which may not accurately anticipate actual outcomes. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company's unrecognized tax positions will significantly increase or decrease within the next twelve months. However, based on the uncertainties associated with finalizing audits with the relevant tax authorities including formal legal proceedings, it is not possible to reasonably estimate the impact of any such change.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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