FORM 10-K

65 Unrecognized Tax Benefits Our unrecognized tax benefits represent tax positions for which reserves have been established. Unrecognized state tax benefits and interest related to unrecognized tax benefits are reflected net of applicable tax benefits. A reconciliation of our unrecognized tax benefits is as follows: (In millions) December 30, 2017 December 31, 2016 January 2, 2016 Balance at beginning of year $ 186 $ 401 $ 385 Additions for tax positions related to current year 8 12 12 Additions for tax positions of prior years 16 — 6 Additions for acquisitions 4 — 1 Reductions for settlements and expiration of statute of limitations (17) (219) (2) Reductions for tax positions of prior years (15) (8) (1) Balance at end of year $ 182 $ 186 $ 401 At the end of 2017 and 2016, if these unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate. In the normal course of business, we are subject to examination by tax authorities throughout the world. We are no longer subject to U.S. federal tax examinations for years before 2012, U.S. state and local income tax examinations for years before 1997, and non- U.S. income tax examinations for years before 2011. Deferred Taxes The tax effects of temporary differences that give rise to significant portions of our net deferred tax assets and liabilities are provided below: (In millions) December 30, 2017 December 31, 2016 Deferred tax assets Obligation for pension and postretirement benefits $ 247 $ 529 Accrued expenses* 260 282 Deferred compensation 103 175 Loss carryforwards 214 158 Inventory 8 49 Allowance for credit losses 13 23 Other, net 32 67 Total deferred tax assets 877 1,283 Valuation allowance for deferred tax assets (148) (116) 729 1,167 Deferred tax liabilities Property, plant and equipment, principally depreciation (125) (168) Amortization of goodwill and other intangibles (154) (164) Leasing transactions (81) (147) Prepaid pension benefits (21) (19) Total deferred tax liabilities (381) (498) Net deferred tax asset $ 348 $ 669 * Accrued expenses included warranty reserves, self-insured liabilities and interest. 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. In 2017, we recorded $46 million in deferred tax assets, along with a $33 million valuation allowance, related to state loss carryforwards as the likelihood that we will be able to utilize these carryforwards is no longer deemed remote predominately due to a consolidated filing election made during the year.