

	Years ended December 31,
Dollars in millions	2019		2018			2017
United States	$	2	$	44		$	84
Foreign:
United Kingdom	105		203			40
Australia	15		7			(30		)
Canada	3		(2		)	15
Middle East	87		61			42
Africa	5		13			20
Other	51		70			76
Subtotal	266		352			163
Total	$	268	$	396		$	247



	Years ended December 31,
Dollars in millions	2019			2018			2017
(Provision) Benefit for income taxes	$	(59	)	$	(86	)	$	193
Shareholders' equity, foreign currency translation adjustment	1			(2		)	6
Shareholders' equity, pension and post-retirement benefits	11			(14		)	(27		)
Shareholders' equity, changes in fair value of derivatives	2			3			—
Total income taxes	$	(45	)	$	(99	)	$	172



Dollars in millions	Current			Deferred			Total
Year-ended December 31, 2019
Federal	$	(4	)	$	15		$	11
Foreign	(67		)	1			(66		)
State and other	(2		)	(2		)	(4		)
(Provision) benefit for income taxes	$	(73	)	$	14		$	(59	)

Year-ended December 31, 2018
Federal	$	(1	)	$	(6	)	$	(7	)
Foreign	(56		)	(20		)	(76		)
State and other	(2		)	(1		)	(3		)
Provision for income taxes	$	(59	)	$	(27	)	$	(86	)

Year-ended December 31, 2017
Federal	$	(6	)	$	230		$	224
Foreign	(122		)	92			(30		)
State and other	(2		)	1			(1		)
(Provision) benefit for income taxes	$	(130	)	$	323		$	193



	Years ended December 31,
Dollars in millions	2019			2018			2017
United Kingdom	$	(19	)	$	(32	)	$	(7	)
Australia	(6		)	(8		)	6
Canada	(1		)	(6		)	—
Middle East	(20		)	(16		)	(10		)
Africa	(1		)	(1		)	1
Other	(19		)	(13		)	(20		)
Foreign provision for income taxes	$	(66	)	$	(76	)	$	(30	)



	Years ended December 31,
	2019		2018		2017
U.S. statutory federal rate, expected (benefit) provision	21	%	21	%	35	%
Increase (reduction) in tax rate from:
Tax impact from foreign operations	7		—		(5	)
Noncontrolling interests and equity earnings	—		(1	)	(2	)
State and local income taxes, net of federal benefit	2		1		1
Other permanent differences, net	3		—		(8	)
Contingent liability accrual	1		3		(2	)
U.S. taxes on foreign unremitted earnings	3		—		—
Change in valuation allowance	(10	)	(2	)	(90	)
Research and development credits, net of provision	(5	)	—		—
U.S. tax reform	—		—		(7	)
Effective tax rate on income from operations	22	%	22	%	(78	)%



	Years ended December 31,
Dollars in millions	2019			2018
Deferred tax assets:
Employee compensation and benefits	$	103		$	95
Foreign tax credit carryforwards	257			267
Loss carryforwards	96			103
Insurance accruals	7			9
Allowance for bad debt	2			2
Accrued liabilities	63			23
Construction contract accounting	—			—
Other	4			3
Total gross deferred tax assets	532			502
Valuation allowances	(200		)	(207		)
Net deferred tax assets	332			295
Deferred tax liabilities:
Construction contract accounting	(6		)	(1		)
Intangible amortization	(56		)	(57		)
Indefinite-lived intangible amortization	(49		)	(41		)
Fixed asset depreciation	2			1
Accrued foreign tax credit carryforwards	(3		)	(2		)
Total gross deferred tax liabilities	(112		)	(100		)
Deferred income tax (liabilities) assets, net	$	220		$	195

The valuation allowance for deferred tax assets was $200 million and $207 million at December 31, 2019 and 2018, respectively. The net change in the total valuation allowance was a decrease of $7 million in 2019 and a decrease of $10 million in 2018. Both years saw the benefit of a decrease in our valuation allowance associated with the ability to utilize foreign tax credits partially offset by an increase in the valuation allowance associated with our state net operating losses. The valuation allowance at December 31, 2019 was primarily related to foreign tax credit carryforwards and foreign and state net operating loss carryforwards 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.

In the fourth quarter of 2017, we achieved twelve quarters of cumulative U.S. taxable income which is inclusive of income generated in various countries within branches of our U.S. subsidiaries. Income (loss) related to the U.S. branches totaled $90 million, $96 million and $163 million for the fiscal years 2019, 2018, and 2017, respectively, and is included in the foreign component of income in the notes to the financial statements in our Form 10-K. We weighted this positive evidence heavily in our analysis to overcome the previously existing negative evidence of our twelve quarter cumulative loss position.

We concluded that future taxable income and the reversal of deferred tax liabilities, excluding those associated with indefinite-lived intangible assets, were the only sources of taxable income available in determining the amount of valuation allowance to be recorded against our deferred tax assets. The deferred tax liabilities we relied on are projected to reverse in the same jurisdiction and are of the same character as the temporary differences that gave rise to the deferred tax assets. The deferred tax liabilities are projected to reverse in the same periods as the deferred tax assets and are projected to reverse beginning in fiscal year 2020 through fiscal year 2029. We estimated future taxable income by jurisdiction exclusive of reversing temporary differences and carryforwards and applied our foreign tax credit carryforwards based on the sourcing and character of those estimates and considered any limitations.

As a result of these analyses and considerations, we reversed approximately $223 million of our valuation allowance on U.S. deferred tax assets as of December 31, 2017, $152 million of which related to foreign tax credit carryforwards, and $71 million of which related to other net deferred tax assets. We did not release all of the valuation allowance as of December 31, 2017 because certain foreign tax credit carry forwards are projected to expire unused. During the year ended December 31, 2018, we further refined our provisional estimates related to the Deemed Repatriation Transition Tax, as well as the impact of additional guidance related to the Tax Act and our estimates of future taxable income. As a result, we further reduced our valuation allowance for U.S. deferred tax assets by $17 million primarily related to foreign tax credit carryforwards.

Our ability to utilize the unreserved foreign tax credit carryforwards is based on our ability to generate income from foreign sources of at least $824 million prior to their expiration whereas our ability to utilize other net deferred tax assets exclusive of those associated with indefinite-lived intangible assets is based on our ability to generate U.S. forecasted taxable income of at least $432 million. While our current projections of taxable income exceed these amounts, changes in our forecasted taxable income in the applicable taxing jurisdictions within the carryforward periods could affect the ultimate realization of deferred tax assets and our valuation allowance.



Dollars in millions	Net Gross Deferred Asset (Liability)			Valuation Allowance			Deferred Asset (Liability), net
United States	$	370		$	(156	)	$	214
United Kingdom	(6		)	—			(6		)
Australia	12			—			12
Canada	23			(22		)	1
Other	21			(22		)	(1		)
Total	$	420		$	(200	)	$	220




Dollars in millions	December 31, 2019		Expiration
Foreign tax credit carryforwards	$	257	2020-2029
Foreign net operating loss carryforwards	$	150	2020-2039
Foreign net operating loss carryforwards	$	34	Indefinite
State net operating loss carryforwards	$	1,024	Various

As a result of the enactment of the U.S. Tax Act, substantially all of our previously untaxed accumulated and current E&P of certain of our foreign subsidiaries were subject to U.S. tax. Repatriations of these foreign earnings will not be subject to additional U.S. tax but may incur withholding and/or state taxes. Although we have provided for taxes on our previously untaxed accumulated and current E&P of certain of our foreign subsidiaries pursuant to the Tax Act, we consider 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. As of December 31, 2019, the cumulative amount of permanently reinvested foreign earnings is $2.3 billion. With the enactment of the Tax Act, these previously unremitted earnings have now been subject to U.S. tax. However, these undistributed earnings could be subject to additional taxes (withholding and/or state taxes) if remitted, or deemed remitted, as a dividend.



Dollars in millions	2019			2018			2017
Balance at January 1,	$	90		$	184		$	261
Increases related to current year tax positions	2			1			2
Increases related to prior year tax positions	7			18			1
Decreases related to prior year tax positions	—			(45		)	(1		)
Settlements	—			(62		)	(80		)
Lapse of statute of limitations	(1		)	(2		)	(1		)
Other, primarily due to exchange rate fluctuations affecting non-U.S. tax positions	(1		)	(4		)	2
Balance at December 31,	$	97		$	90		$	184

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately $83 million as of December 31, 2019. 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. In the next twelve months, it is reasonably possible that our uncertain tax positions could change by approximately $35 million due to settlements with tax authorities and the expirations of statutes 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 $23 million and $19 million as of December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2017, we recognized net interest and penalty charges of $3 million, and $5 million, respectively, while for the year ended December 31, 2018, we recognized a net interest and penalty benefit of $1 million 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 our business activity for periods prior to our separation from our former parent. As of December 31, 2019 and 2018, we have recorded $5 million in "Other liabilities" on our consolidated balance sheets, respectively, for tax related items under the tax sharing agreement. The balance is not due until receipt by KBR of a future foreign tax credit refund claim filed with the IRS.