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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Tax Disclosure [Abstract] |
Income Tax Disclosure | Income Taxes The United States and foreign components of income (loss) before income taxes and noncontrolling interests were as follows:
| Years ended December 31,
Dollars in millions | 2015 |  | 2014 |  | 2013
United States | $ | (35 | ) |  | $ | (1,051 | ) |  | $ | (141 | )
Foreign: |  |  |  |  |
United Kingdom | 105 |  |  | 130 |  |  | 162 |
Australia | 32 |  |  | 180 |  |  | 280 |
Canada | 87 |  |  | (101 | ) |  | (117 | )
Other | 123 |  |  | 65 |  |  | 116 |
Subtotal | 347 |  |  | 274 |  |  | 441 |
Total | $ | 312 |  |  | $ | (777 | ) |  | $ | 300 |
The total income taxes included in the statements of operations and in shareholders' equity were as follows:
| Years ended December 31,
Dollars in millions | 2015 |  | 2014 |  | 2013
Provision for income taxes | $ | (86 | ) |  | $ | (421 | ) |  | $ | (129 | )
Shareholders' equity, foreign currency translation adjustment | (3 | ) |  | 4 |  |  | 27 |
Shareholders' equity, pension and post-retirement benefits | (22 | ) |  | 10 |  |  | 18 |
Shareholders' equity, compensation expense and other | — |  |  | — |  |  | — |
Total income taxes | $ | (111 | ) |  | $ | (407 | ) |  | $ | (84 | )
The components of the provision for income taxes were as follows:
Dollars in millions | Current |  | Deferred |  | Total
Balance as of December 31, 2015 |  |  |  |  |
Federal | $ | (17 | ) |  | $ | 8 |  |  | $ | (9 | )
Foreign | (55 | ) |  | (22 | ) |  | (77 | )
State and other | — |  |  | — |  |  | — |
Provision for income taxes | $ | (72 | ) |  | $ | (14 | ) |  | $ | (86 | )
Balance as of December 31, 2014 |  |  |  |  |
Federal | $ | 41 |  |  | $ | (333 | ) |  | $ | (292 | )
Foreign | (110 | ) |  | (11 | ) |  | (121 | )
State and other | 1 |  |  | (9 | ) |  | (8 | )
Provision for income taxes | $ | (68 | ) |  | $ | (353 | ) |  | $ | (421 | )
Balance as of December 31, 2013 |  |  |  |  |
Federal | $ | (6 | ) |  | $ | 17 |  |  | $ | 11 |
Foreign | (109 | ) |  | (31 | ) |  | (140 | )
State and other | 4 |  |  | (4 | ) |  | — |
Provision for income taxes | $ | (111 | ) |  | $ | (18 | ) |  | $ | (129 | )
The components of our total foreign income tax provision were as follows:
| Years ended December 31,
Dollars in millions | 2015 |  | 2014 |  | 2013
United Kingdom | $ | (15 | ) |  | $ | (22 | ) |  | $ | (34 | )
Australia | 16 |  |  | (24 | ) |  | (41 | )
Canada | 3 |  |  | 6 |  |  | (3 | )
Other | (81 | ) |  | (81 | ) |  | (62 | )
Foreign provision for income taxes | $ | (77 | ) |  | $ | (121 | ) |  | $ | (140 | )
The components of our deferred income tax provision were as follows:
| Years ended December 31,
Dollars in millions | 2015 |  | 2014 |  | 2013
Expected deferred benefit | $ | 14 |  |  | $ | 254 |  |  | $ | 48 |
Tax reserves and allowances on current year activity | (20 | ) |  | (210 | ) |  | (39 | )
Tax reserves and allowances on beginning of year deferred balances | — |  |  | (320 | ) |  | (9 | )
Unremitted foreign earnings | — |  |  | (77 | ) |  | (5 | )
U.K. statutory rate change | (8 | ) |  | — |  |  | (13 | )
Total deferred provision for income taxes | $ | (14 | ) |  | $ | (353 | ) |  | $ | (18 | )
Our effective tax rates on income from operations differed from the statutory U.S. federal income tax rate of 35% as a result of the following:
| Years ended December 31,
| 2015 |  | 2014 |  | 2013
U.S. statutory federal rate, expected (benefit) provision | 35 | % |  | (35 | )% |  | 35 | %
Increase (reduction) in tax rate from: |  |  |  |  |
Rate differentials on foreign earnings | (10 | ) |  | (5 | ) |  | (12 | )
Noncontrolling interests and equity earnings | (8 | ) |  | (4 | ) |  | (5 | )
State and local income taxes, net of federal benefit | 2 |  |  | (2 | ) |  | (1 | )
Other permanent differences, net | — |  |  | 2 |  |  | (2 | )
Contingent liability accrual | (1 | ) |  | 9 |  |  | 7 |
U.S. taxes on foreign unremitted earnings | 1 |  |  | 11 |  |  | 2 |
Non-deductible goodwill impairment | — |  |  | 20 |  |  | — |
Increase in valuation allowance | 6 |  |  | 58 |  |  | 15 |
U.K. statutory rate change | 3 |  |  | — |  |  | 4 |
Effective tax rate on income from operations | 28 | % |  | 54 | % |  | 43 | %
The primary components of our deferred tax assets and liabilities were as follows:
| Years ended December 31,
Dollars in millions | 2015 |  | 2014
Deferred tax assets: |  |  |
Employee compensation and benefits | $ | 140 |  |  | $ | 175 |
Foreign tax credit carryforwards | 282 |  |  | 233 |
Accrued foreign tax credit carryforwards | 97 |  |  | 89 |
Loss carryforwards | 65 |  |  | 133 |
Insurance accruals | 15 |  |  | 22 |
Allowance for bad debt | 10 |  |  | 10 |
Accrued liabilities | 45 |  |  | 51 |
Total gross deferred tax assets | 654 |  |  | 713 |
Valuation allowances | (542 | ) |  | (538 | )
Net deferred tax assets | 112 |  |  | 175 |
Deferred tax liabilities: |  |  |
Construction contract accounting | $ | (12 | ) |  | $ | (15 | )
Intangibles | (25 | ) |  | (35 | )
Depreciation and amortization | (2 | ) |  | (2 | )
Unremitted foreign earnings | (39 | ) |  | (98 | )
Other | (29 | ) |  | 23 |
Total gross deferred tax liabilities | (107 | ) |  | (127 | )
Deferred income tax assets, net | $ | 5 |  |  | $ | 48 |
The valuation allowance for deferred tax assets was $542 million and $538 million at December 31, 2015 and 2014, respectively. The net change in the total valuation allowance was an increase of $4 million in 2015 and $455 million in 2014. The valuation allowance at December 31, 2015 was primarily related to U.S. federal, foreign and state net operating loss carryforwards, foreign tax credit carryforwards and other deferred tax assets that, in the judgment of management, are not more-likely-than-not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment. Based upon the significant level of historical taxable U.S. losses, management believes that it was not more-likely-than-not that the Company would be able to realize the benefits of the deductible differences and accordingly recognized a valuation allowance for the year ended December 31, 2015 and 2014 for any deferred tax assets not more-likely-than-not to be realized. The net deferred tax balance by major jurisdiction after valuation allowance as of December 31, 2015 was as follows:
Dollars in millions | Net Gross Deferred Asset (Liability) |  | Valuation Allowance |  | Deferred Asset (Liability), net
United States | $ | 505 |  |  | $ | (503 | ) |  | $ | 2 |
United Kingdom | 80 |  |  | — |  |  | 80 |
Australia | 1 |  |  | (1 | ) |  | — |
Canada | 18 |  |  | (14 | ) |  | 4 |
Mexico | (91 | ) |  | (2 | ) |  | (93 | )
Other | 34 |  |  | (22 | ) |  | 12 |
Total | $ | 547 |  |  | $ | (542 | ) |  | $ | 5 |
At December 31, 2015, the amount of gross tax attributes available prior to the offset with related uncertain tax positions were as follows:
Dollars in millions | December 31, 2015 |  | Expiration
Foreign tax credit carryforwards | $ | 399 |  |  | 2019-2025
Foreign net operating loss carryforwards | $ | 122 |  |  | 2015-2035
Foreign net operating loss carryforwards | $ | 45 |  |  | Indefinite
State net operating loss carryforwards | $ | 580 |  |  | Various
In determining our foreign cash repatriation strategy and in determining whether earnings would continue to be considered permanently invested, we considered our future U.S. and non-U.S. cash needs such as 1) our anticipated foreign working capital requirements, including funding of our U.K. pension plan, 2) the expected growth opportunities across all geographical markets and 3) our plans to invest in strategic growth opportunities that may include acquisitions around the world. The remaining international cash balances associated with past foreign earnings which we currently intend to permanently reinvest in our foreign entities are not available for domestic use. The company has not recognized an estimated deferred tax liability of approximately $320 million for undistributed earnings of $1.1 billion that it continues to consider to be permanently reinvested in the foreseeable future. These undistributed earnings could be subject to additional tax if remitted, or deemed remitted, as a dividend. A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows:
Dollars in millions | 2015 |  | 2014 |  | 2013
Balance at January 1, | $ | 228 |  |  | $ | 68 |  |  | $ | 95 |
Increases related to current year tax positions | 18 |  |  | 13 |  |  | 3 |
Increases related to prior year tax positions | 35 |  |  | 168 |  |  | 15 |
Decreases related to prior year tax positions | (3 | ) |  | (13 | ) |  | (36 | )
Settlements | (2 | ) |  | (1 | ) |  | — |
Lapse of statute of limitations | (16 | ) |  | (5 | ) |  | (2 | )
Other, primarily due to exchange rate fluctuations affecting non-U.S. tax positions | (3 | ) |  | (2 | ) |  | (7 | )
Balance at December 31, | $ | 257 |  |  | $ | 228 |  |  | $ | 68 |
The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately $243 million as of December 31, 2015. The difference between this amount and the amounts reflected in the tabular reconciliation above relates primarily to deferred income tax benefits on uncertain tax positions related to income taxes. In the next twelve months, it is reasonably possible that our uncertain tax positions could change by approximately $5 million due to the expirations of the statute of limitations. We recognize accrued interest and penalties related to uncertain tax positions in income tax expense in our consolidated statements of operations. Our accrual for interest and penalties was $13 million for each of the years ended December 31, 2015 and 2014, respectively. During the years ended December 31, 2015, 2014 and 2013, we recognized net interest and penalties charges (benefits) of less than $1 million, $1 million and $(1) million, respectively related to uncertain tax positions. KBR is the parent of a group of domestic companies that are members of a U.S. consolidated federal income tax return. We also file income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to examination by tax authorities for U.S. federal or state and local income tax for years before 2007. KBR is subject to a tax sharing agreement primarily covering periods prior to the April 2007 separation from Halliburton. The tax sharing agreement provides, in part, that KBR will be responsible for any audit settlements directly attributable to its business activity for periods prior to its separation from our former parent. As of December 31, 2015 and 2014, we have recorded a $19 million and $56 million in "payable to our former parent" on our consolidated balance sheets, respectively, for tax related items under the tax sharing agreement. The remaining $19 million is not due until receipt by KBR of a future foreign tax credit refund claim filed with the IRS.

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