Baker Hughes 2015 Annual Report Download - page 75

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
66
The tax effects of our temporary differences and carryforwards are as follows at December 31:
2015 2014
Deferred tax assets:
Receivables $ 84 $ 65
Inventory 253 376
Employee benefits 143 106
Other accrued expenses 141 173
Operating loss carryforwards 1,153 493
Tax credit carryforwards 458 481
Other 112 104
Subtotal 2,344 1,798
Valuation allowances (1,210) (1,051)
Total 1,134 747
Deferred tax liabilities:
Goodwill and other intangibles 272 334
Property 47 459
Undistributed earnings of foreign subsidiaries 21 26
Other 35 16
Total 375 835
Net deferred tax asset (liability) $ 759 $ (88)
We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate
sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. At
December 31, 2015, valuation allowances totaled $1,210 million consisting of $672 million for operating loss
carryforwards, $425 million for foreign tax credit carryforwards, and $113 million for other deferred tax assets in
various jurisdictions. There are $481 million of deferred tax assets related to operating loss carryforwards without a
valuation allowance as we expect that the deferred tax assets will be realized within the carryforward period. The
majority of these deferred tax assets will expire in varying amounts over the next twenty years.
We have provided relevant U.S. and foreign taxes for the anticipated repatriation of certain earnings of our
foreign subsidiaries. We consider the undistributed earnings of our foreign subsidiaries above the amount for which
taxes have already been provided to be indefinitely reinvested, as we have no current intention to repatriate these
earnings. As of December 31, 2015, the cumulative amount of earnings upon which the U.S. income taxes have
not been provided is approximately $5.6 billion. These additional foreign earnings could become subject to
additional tax, if remitted, or deemed remitted, as a dividend. Computation of the potential deferred tax liability
associated with these undistributed earnings and any other basis differences, is not practicable.
At December 31, 2015, we had approximately $126 million of foreign tax credits which may be carried forward
indefinitely under applicable foreign law, and $310 million of foreign tax credits and $22 million of other credits which
expire in 2016 through 2035 under U.S. tax law.
At December 31, 2015, we had $312 million of tax liabilities for total gross unrecognized tax benefits related to
uncertain tax positions, which includes liabilities for interest and penalties of $30 million and $21 million,
respectively. If we were to prevail on all uncertain tax positions, the net effect would be an increase to our income
tax benefit of approximately $289 million. The remaining approximately $23 million is offset by deferred tax assets
that represent tax benefits that would be received in different taxing jurisdictions in the event that we did not prevail
on all uncertain tax positions.