Income Taxes

Income (loss) from continuing operations before income taxes consisted of the following:



(millions)	2014		2013		2012
U.S.	$	27	$	17	$	(198	)
Foreign	19		42		28
Total	$	46	$	59	$	(170	)

Income tax expense (benefit) on continuing operations consisted of the following:



(millions)	2014		2013			2012
Current:
Federal	$	—	$	—		$	—
Foreign	2		10			8
State	1		1			—
	3		11			8
Deferred:
Federal	—		(2		)	3
Foreign	4		2			1
State	—		—			—
	4		—			4
Total	$	7	$	11		$	12

For our continuing operations, differences between actual provisions for income taxes and provisions for income taxes at the U.S. federal statutory rate (35%) were as follows:



(millions)	2014			2013			2012
Taxes on income (loss) from continuing operations at U.S. federal statutory rate	$	16		$	21		$	(60	)
Foreign earnings subject to different tax rates ^(a)	16			(6		)	(5		)
State income tax, net of federal benefit	1			1			(6		)
Change in valuation allowance	(9		)	(8		)	76
Income from equity method investments	(12		)	—			—
Withholding taxes	2			6			—
Other, net	(1		)	(3		)	7
Tax release from AOCI	(2		)	—			—
Gain on deconsolidation	(7		)	—			—
Tax benefit not realized on pension loss	3			—			—
Provision for income tax expense	$	7		$	11		$	12
Effective income tax rate	15.3		%	18.6		%	(7.1		)%


(a)	Foreign earnings subject to different tax rates includes amounts related to impairments and other charges associated with our GTL business.

Significant components of deferred tax assets and liabilities as of December 31 were as follows:



(millions)	2014			2013
Deferred Tax Assets:
Net operating loss and tax credit carryforwards	$	944		$	1,043
Pension and postretirement benefits	196			110
Goodwill and other intangible assets	29			33
Reserves not deductible until paid	47			31
Self insurance	15			15
Capitalized interest	15			12
Inventories	8			8
Share-based compensation	37			35
Other	11			—
Deferred tax assets before valuation allowance	1,302			1,287
Valuation allowance	(1,023		)	(995		)
Total deferred tax assets	$	279		$	292
Deferred Tax Liabilities:
Property, plant and equipment	278			290
Other	—			(1		)
Total deferred tax liabilities	278			289
Net deferred tax assets	$	1		$	3

We have established a valuation allowance in the amount of $1.023 billion consisting of $773 million for federal deferred tax assets, $249 million for state deferred tax assets and $1 million for foreign deferred tax assets.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed periodically. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more-likely-than-not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused and tax planning alternatives. A history of cumulative losses for a certain threshold period is a significant form of negative evidence used in our assessment. Consistent with practices in the home building and related industries, we have a policy of four years as our threshold period for cumulative losses. If a cumulative loss threshold is met, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.

As of December 31, 2014, we had federal NOL carryforwards of approximately $1.898 billion that are available to offset future federal taxable income and will expire in the years 2026 through 2032. In addition, as of that date, we had federal alternative minimum tax credit carryforwards of approximately $46 million that are available to reduce future regular federal income taxes over an indefinite period. In order to fully realize the U.S. federal net deferred tax assets, taxable income of approximately $2.028 billion would need to be generated during the period before their expiration. In addition, we have federal foreign tax credit carryforwards of $8 million that will expire in 2015.

As of December 31, 2014, we had a gross deferred tax asset of $244 million related to state NOLs and tax credit carryforwards, of which $1 million will expire in 2015. The remainder will expire if unused in years 2016 through 2033. To the extent that we do not generate sufficient state taxable income within the statutory carryforward periods to utilize the NOL and tax credit carryforwards in these states, they will expire unused.

We also had NOL and tax credit carryforwards in various foreign jurisdictions in the amount of $1 million as of December 31, 2014, against a portion of which we have historically maintained a valuation allowance.

During periods prior to 2014, we established a valuation allowance against our deferred tax assets totaling $995 million. Based upon an evaluation of all available evidence, we recorded an increase in the valuation allowance against our deferred tax assets of $28 million in 2014. The increase in the valuation allowance of $112 million primarily related to the increase in deferred tax assets for pension and other post retirement benefits. This increase was offset by a decrease of $47 million related to current taxable earnings and $37 million in other discrete items. As a result, our deferred tax assets valuation allowance is $1.023 billion as of December 31, 2014. In future periods, the valuation allowance can be reversed based on sufficient evidence indicating that it is more likely than not that a portion of our deferred tax assets will be realized. Our net deferred tax assets were $1 million as of December 31, 2014 and $3 million as of December 31, 2013.

The Internal Revenue Code imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. If we were to experience an ownership change, utilization of our NOLs would be subject to an annual limitation determined by multiplying the market value of our outstanding shares of stock at the time of the ownership change by the applicable long-term tax-exempt rate, which was 2.80% for December 2014. Any unused annual limitation may be carried over to later years within the allowed NOL carryforward period. The amount of the limitation may, under certain circumstances, be increased or decreased by built-in gains or losses held by us at the time of the change that are recognized in the five-year period after the change. Many states have similar limitations. If an ownership change had occurred as of December 31, 2014, our annual U.S. federal NOL utilization would have been limited to approximately $113 million per year.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(millions)	2014			2013		2012
Balance as of January 1	$	22		$	16	$	12
Tax positions related to the current period:
Gross increase	2			4		2
Gross decrease	—			—		—
Tax positions related to prior periods:
Gross increase	—			2		5
Gross decrease	—			—		—
Settlements	(2		)	—		(3		)
Lapse of statutes of limitations	—			—		—
Balance as of December 31	$	22		$	22	$	16

We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income taxes (benefit). The total amounts of interest expense and penalties recognized on our consolidated balance sheets were $3 million and $2 million, respectively, as of December 31, 2014 and 2013. The total amounts of interest and penalties recognized in our consolidated statements of operations was zero in 2014, zero for 2013 and $1 million for 2012. The total amounts of unrecognized tax benefit that, if recognized, would affect our effective tax rate were $5 million for 2014, $7 million for 2013 and $7 million for 2012.

Our federal income tax returns for 2008 and prior years have been examined by the Internal Revenue Service. The U.S. federal statute of limitations remains open for the year 2006 and later years. We are under examination in various U.S. state and foreign jurisdictions. It is possible that these examinations may be resolved within the next 12 months. Due to the potential for resolution of the examinations and the expiration of various statutes of limitations, it is reasonably possible that our gross unrecognized tax benefit may change within the next 12 months by a range of $0 million to $6 million. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years.

We do not provide for U.S. income taxes on the portion of undistributed earnings of foreign subsidiaries that is intended to be permanently reinvested. The cumulative amount of such undistributed earnings totaled approximately $540 million as of December 31, 2014. These earnings would become taxable in the United States upon the sale or liquidation of these foreign subsidiaries or upon the remittance of dividends. The estimate of the amount of the deferred tax liability on such earnings is $12 million, consisting of foreign withholding taxes.