KBR, INC.KBR
KBR, INC. Income Taxes Disclosure
Income Taxes
The components of income (loss) from continuing operations before income taxes and noncontrolling interests were as follows:
| Year ended | |||||||||||||||||
| Dollars in millions | January 2, 2026 | January 3, 2025 | December 29, 2023 | ||||||||||||||
| United States | $ | 270 | $ | 99 | $ | (464) | |||||||||||
| Foreign: | |||||||||||||||||
| United Kingdom | 150 | 161 | 133 | ||||||||||||||
| Australia | 30 | 45 | 49 | ||||||||||||||
| Middle East | 64 | 61 | 45 | ||||||||||||||
| Asia | 55 | 100 | 48 | ||||||||||||||
| Other | 45 | 42 | 24 | ||||||||||||||
| Subtotal | 344 | 409 | 299 | ||||||||||||||
| Total | $ | 614 | $ | 508 | $ | (165) | |||||||||||
The total income taxes included in the statements of operations and in shareholders' equity were as follows:
| Year ended | |||||||||||||||||
| Dollars in millions | January 2, 2026 | January 3, 2025 | December 29, 2023 | ||||||||||||||
| Provision for income taxes | $ | (156) | $ | (129) | $ | (95) | |||||||||||
| Shareholders' equity, pension and post-retirement benefits | 11 | 4 | 25 | ||||||||||||||
| Shareholders' equity, changes in fair value of derivatives | 5 | — | 3 | ||||||||||||||
| Total income taxes | $ | (140) | $ | (125) | $ | (67) | |||||||||||
The components of the provision for income taxes were as follows:
| Dollars in millions | Current | Deferred | Total | ||||||||||||||
| Year ended January 2, 2026 | |||||||||||||||||
| Federal | $ | (1) | $ | (55) | $ | (56) | |||||||||||
| Foreign | (69) | (14) | (83) | ||||||||||||||
| State and other | (26) | 9 | (17) | ||||||||||||||
| Provision for income taxes | $ | (96) | $ | (60) | $ | (156) | |||||||||||
| Year ended January 3, 2025 | |||||||||||||||||
| Federal | $ | (7) | $ | 6 | $ | (1) | |||||||||||
| Foreign | (95) | (10) | (105) | ||||||||||||||
| State and other | (25) | 2 | (23) | ||||||||||||||
| Provision for income taxes | $ | (127) | $ | (2) | $ | (129) | |||||||||||
| Year ended December 29, 2023 | |||||||||||||||||
| Federal | $ | — | $ | (3) | $ | (3) | |||||||||||
| Foreign | (65) | (14) | (79) | ||||||||||||||
| State and other | (17) | 4 | (13) | ||||||||||||||
| Provision for income taxes | $ | (82) | $ | (13) | $ | (95) | |||||||||||
The components of total foreign income tax provision were as follows:
| Year ended | |||||||||||||||||
| Dollars in millions | January 2, 2026 | January 3, 2025 | December 29, 2023 | ||||||||||||||
| United Kingdom | $ | (32) | $ | (37) | $ | (32) | |||||||||||
| Australia | (12) | (19) | (13) | ||||||||||||||
| Middle East | (17) | (18) | (12) | ||||||||||||||
| Asia | (13) | (18) | (8) | ||||||||||||||
| Other | (9) | (13) | (14) | ||||||||||||||
| Foreign provision for income taxes | $ | (83) | $ | (105) | $ | (79) | |||||||||||
The components of income taxes paid, net of refunds received, for the year ended January 2, 2026 were as follows:
| Year ended | |||||
| Dollars in millions | January 2, 2026 | ||||
| Federal | $ | 9 | |||
| Foreign | |||||
| Australia | 17 | ||||
| India | 8 | ||||
| Saudi Arabia | 5 | ||||
| Singapore | 10 | ||||
| United Kingdom | 5 | ||||
| Other | 9 | ||||
| State and other | |||||
| Louisiana | 5 | ||||
| Other | 15 | ||||
| Cash paid during the period for income taxes, net of refunds | $ | 83 | |||
Our effective tax rate on income from continuing operations for the year ended January 2, 2026 differed from the statutory U.S. federal income tax rate of 21%, presented after prospectively adopting ASU 2023-09, as a result of the following:
| Year ended | |||||||||||
| January 2, 2026 | |||||||||||
| Dollars in millions | $ | % | |||||||||
| U.S. statutory federal rate | $ | 129 | 21 | % | |||||||
| Domestic federal tax effects: | |||||||||||
| Tax credits | (8) | (1) | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Non-deductible charge-outs | 7 | 1 | % | ||||||||
| Other | 9 | 1 | % | ||||||||
| Effect of cross-border tax laws: | |||||||||||
| Global Intangible Low-Taxed Income | 11 | 2 | % | ||||||||
| Foreign-derived Intangible Income deduction | (10) | (2) | % | ||||||||
| Subpart F deemed dividend | 6 | 1 | % | ||||||||
| Other | (2) | — | % | ||||||||
| Changes in valuation allowances | (3) | — | % | ||||||||
State and local income taxes, net of federal benefit (a) | 14 | 2 | % | ||||||||
| Foreign tax effects: | |||||||||||
| Australia | |||||||||||
| Non-deductible charge-outs and release of refundable associated with a resolution | 18 | 3 | % | ||||||||
| Other | 6 | 1 | % | ||||||||
| Iraq | 6 | 1 | % | ||||||||
| Other | (7) | (1) | % | ||||||||
| Worldwide changes in unrecognized tax benefits | (20) | (4) | % | ||||||||
| Effective tax rate on income from continuing operations | $ | 156 | 25 | % | |||||||
(a)State taxes in Louisiana made up the majority (greater than 50%) of the tax effect in this category.
As previously disclosed for the years ended January 3, 2025 and December 29, 2023, prior to the adoption of ASU 2023-09, the effective tax rate on income from continuing operations differed from the statutory U.S. federal income tax rate of 21% as a result of the following:
| Year ended | |||||||||||
| January 3, | December 29, | ||||||||||
| 2025 | 2023 | ||||||||||
| U.S. statutory federal rate, expected (benefit) provision | 21 | % | 21 | % | |||||||
| Increase (reduction) in tax rate from: | |||||||||||
| Tax impact from foreign operations | 2 | % | 2 | % | |||||||
| Noncontrolling interests and equity earnings | (2) | % | (1) | % | |||||||
| State and local income taxes, net of federal benefit | 3 | % | 2 | % | |||||||
| Other permanent differences, net | 2 | % | 5 | % | |||||||
| Other non-deductible expenditures | 2 | % | — | % | |||||||
| Change in federal and foreign valuation allowance | (2) | % | (3) | % | |||||||
| Research and development credits, net of provision | (1) | % | — | % | |||||||
| Release of previously reserved position | — | % | (2) | % | |||||||
| Non-Deductible portion associated with legal settlement of legacy matter | — | % | (11) | % | |||||||
| Non-Deductible portion of Charges associated with Convertible Notes | — | % | (70) | % | |||||||
| Effective tax rate on income from continuing operations | 25 | % | (57) | % | |||||||
The primary components of our deferred tax assets and liabilities were as follows:
| Year ended | |||||||||||
| Dollars in millions | January 2, 2026 | January 3, 2025 | |||||||||
| Deferred tax assets: | |||||||||||
| Employee compensation and benefits | $ | 64 | $ | 63 | |||||||
| Foreign tax credit carryforwards | 60 | 98 | |||||||||
| Loss carryforwards | 70 | 69 | |||||||||
| Research and development and other credit carryforwards | 37 | 49 | |||||||||
| Insurance accruals | 8 | 8 | |||||||||
| Lease obligation and accrued liabilities | 84 | 93 | |||||||||
| Contract liabilities | 22 | 23 | |||||||||
| Capitalized research expenditures | 76 | 73 | |||||||||
| Other | 99 | 118 | |||||||||
| Total gross deferred tax assets | 520 | 594 | |||||||||
| Valuation allowances | (124) | (142) | |||||||||
| Net deferred tax assets | 396 | 452 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Right-of-use assets | (42) | (47) | |||||||||
| Intangible amortization | (127) | (131) | |||||||||
| Indefinite-lived intangible amortization | (107) | (98) | |||||||||
| Other | (53) | (50) | |||||||||
| Total gross deferred tax liabilities | (329) | (326) | |||||||||
| Deferred income tax assets, net | $ | 67 | $ | 126 | |||||||
The valuation allowance for deferred tax assets was $124 million and $142 million at January 2, 2026 and January 3, 2025, respectively. The net change in the total valuation allowance was a decrease of $18 million in fiscal 2025 and a decrease of $6 million in fiscal 2024. The change in fiscal 2025 was mainly driven by the reassessment of a tax benefit previously valued in the preliminary purchase price allocation associated with the LinQuest acquisition in fiscal 2024 and the release of previously valued foreign tax credits in the U.S. The change in fiscal 2024 was mainly driven by the additional utilization of previously valued foreign tax credits in the U.S.
The valuation allowance balance at January 2, 2026 is 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), income available from carryback years, projected future taxable income and tax-planning strategies in making this assessment.
Income related to the U.S. branches totaled $86 million, $147 million and $94 million for the fiscal years 2025, 2024 and 2023, respectively, and is included in the foreign component of income in the notes to our consolidated financial statements.
The total income (loss) related to the U.S., inclusive of branches and exclusive of charges associated with Convertible Notes and the legal settlement of a legacy matter in fiscal 2023, totaled $356 million, $249 million and $267 million for the fiscal years 2025, 2024 and 2023, respectively.
We concluded that future taxable income and the reversal of deferred tax liabilities 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 2026 through fiscal 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.
Our ability to utilize the unreserved foreign tax credit carryforwards is based on our ability to generate future taxable income of at least $286 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 future taxable income of at least $914 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.
The net deferred tax balance by major jurisdiction after valuation allowance as of January 2, 2026 was as follows:
| Dollars in millions | Gross Deferred Asset (Liability), net | Valuation Allowance | Deferred Asset (Liability), net | ||||||||||||||
| United States | $ | 224 | $ | (95) | $ | 129 | |||||||||||
| United Kingdom | (87) | — | (87) | ||||||||||||||
| Australia | 21 | — | 21 | ||||||||||||||
| Canada | 20 | (19) | 1 | ||||||||||||||
| Asia | 3 | (2) | 1 | ||||||||||||||
| Other | 10 | (8) | 2 | ||||||||||||||
| Total | $ | 191 | $ | (124) | $ | 67 | |||||||||||
At January 2, 2026, the amount of gross tax attributes available prior to the offset with related uncertain tax positions were as follows:
| Dollars in millions | January 2, 2026 | Expiration | |||||||||
| Foreign tax credit carryforwards | $ | 60 | 2025-2029 | ||||||||
| Foreign net operating loss carryforwards | $ | 98 | 2025-2045 | ||||||||
| Foreign net operating loss carryforwards | $ | 33 | Indefinite | ||||||||
| State net operating loss carryforwards | $ | 782 | Various | ||||||||
| Research and development and other credit carryforwards | $ | 37 | 2025-2045 | ||||||||
We provide for taxes on accumulated and current E&P on certain foreign subsidiaries. As of January 2, 2026, the cumulative amount of permanently reinvested foreign earnings is $2.7 billion. These previously unremitted earnings have 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. The tax effects of remitting earnings, if any, are recognized when we plan on remitting these earnings. 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.
The OECD has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2). While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. On January 5, 2026 the OECD issued new administrative guidance with respect to Pillar 2 which modifies key aspects of the framework for countries to enact in their own laws. We do not expect Pillar 2 to have a material impact on our effective tax rate or our consolidated results of operations, financial position, and cash flows.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows:
| Dollars in millions | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | ||||||||||||||
| Balance at beginning of fiscal year | $ | 85 | $ | 74 | $ | 92 | |||||||||||
| Increases related to current year tax positions | 2 | 3 | 2 | ||||||||||||||
| Increases related to prior year tax positions | 20 | — | — | ||||||||||||||
| Decreases related to prior year tax positions | (28) | (4) | (2) | ||||||||||||||
| Increases related to tax positions from an acquisition | — | 15 | — | ||||||||||||||
| Settlements | — | — | (16) | ||||||||||||||
| Lapse of statute of limitations | (5) | (1) | (2) | ||||||||||||||
| Other, primarily due to exchange rate fluctuations affecting non-U.S. tax positions | 2 | (2) | — | ||||||||||||||
| Balance at end of fiscal year | $ | 76 | $ | 85 | $ | 74 | |||||||||||
The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately $62 million as of January 2, 2026. 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. The increases and decreases related to prior year tax positions in fiscal 2025 are primarily due to a resolution reached with tax authorities. The settlements of $16 million in fiscal 2023 are related to the release of a previously reserved IRS audit position based on developments associated with the ongoing IRS examination and appeals process for certain years.
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 $31 million and $46 million as of January 2, 2026 and January 3, 2025, respectively. During fiscal 2025, fiscal 2024 and fiscal 2023, we recognized net interest and penalty charges of $(7) million, $4 million and $3 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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Feb 26, 2026 | Showing above |
| 2025 | Feb 25, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Feb 17, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 24, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 26, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.