Income Taxes
 12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
Prior to September 27, 2014, our operating results were included in the consolidated U.S. Federal and state income tax returns of Exelis as well as in certain tax filings of Exelis for non-U.S. jurisdictions. Amounts presented in these Consolidated and Combined Financial Statements related to income taxes have been determined on a separate return basis. Prior to September 27, 2014, our contribution to the tax position of Exelis on a separate return basis has been included in these financial statements. Our separate return basis tax losses and tax credits may not reflect the tax positions taken or to be taken by Exelis. In many cases the tax losses and tax credits we generated have been available for use by Exelis and may remain with Exelis after the separation from Exelis.
The source of pre-tax income and the components of income tax expense at December 31, 2014, 2013 and 2012, respectively, are as follows:
(In thousands)
 
2014
 
2013
 
2012
Total income components
 
 
 
 
 
 
United States
 
$
36,377

 
$
132,655

 
$
107,787

Foreign
 
514

 
(1,222
)
 
2,609

Total
 
$
36,891

 
$
131,433

 
$
110,396

Income tax expense components
 
 
 
 
 
 
Current income tax provision
 
 
 
 
 
 
United States - Federal
 
$
2,385

 
$
62,102

 
$
42,093

United States - state and local
 
29

 
1,190

 
611

Foreign
 
382

 
457

 
839

Total current income tax provision
 
2,796

 
63,749

 
43,543

Deferred income tax provision
 
 
 
 
 
 
United States - Federal
 
10,385

 
(16,450
)
 
(2,211
)
United States - state and local
 
898

 
(258
)
 
(5,601
)
Total deferred income tax provision
 
11,283

 
(16,708
)
 
(7,812
)
Total income tax expense
 
$
14,079

 
$
47,041

 
$
35,731

Effective tax rate
 
38.2
%
 
35.9
%
 
31.8
%

A reconciliation of the income tax provision at the U.S. statutory rate to the effective income tax rate as reported is as follows:
 
 
2014
 
2013
 
2012
Tax provision at U.S. statutory rate
 
35.0
%
 
35.0
%
 
35.0
 %
State and local income tax, net of Federal benefit
 
1.6
%
 
0.5
%
 
(2.9
)%
Other
 
1.6
%
 
0.4
%
 
(0.3
)%
Effective income tax rate
 
38.2
%
 
35.9
%
 
31.8
 %

Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates in effect for the year in which we expect the differences will reverse. Deferred tax assets and liabilities include the following:
(In thousands)

2014

2013
Deferred Tax Assets:




Costs incurred in excess of billings

$
1,867

 
$
4,067

Compensation and benefits

11,100

 
1,633

Contingency reserves

1,995

 
1,834

Other

1,931

 
3,324

Net operating losses
 
224

 
—

Total deferred tax assets

$
17,117

 
$
10,858

Deferred Tax Liabilities:

 
 
 
Goodwill

$
(77,142
)
 
$
(74,629
)
Property, Plant and Equipment

(2,047
)
 
(2,577
)
Unbilled receivables

(38,679
)
 
(32,854
)
Total deferred tax liabilities

$
(117,868
)
 
$
(110,060
)
 
 
 
 
 
Deferred taxes are classified in the Consolidated and Combined Balance Sheets as follows:
(In thousands)

2014

2013
Current liabilities

$
25,414

 
$
24,667

Non-current liabilities

75,337

 
74,535

Net deferred tax liabilities

$
100,751

 
$
99,202


Uncertain Tax Position
A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 31, 2014, 2013 and 2012 is as follows:
(In thousands)

2014

2013

2012
Unrecognized tax benefits - January 1

$
8,541

 
$
12,682

 
$
1,361

Additions for:

 
 
 
 
 
Current year tax positions

—

 
1,573

 
11,321

Prior year tax positions
 
6,954

 
—

 
—

Reductions for:

 
 
 
 
 
Prior year tax positions

(7,891
)
 
(5,714
)
 
—

Unrecognized tax benefits - December 31

$
7,604

 
$
8,541

 
$
12,682


As of December 31, 2014, we anticipate that approximately $6.9 million of the unrecognized tax benefits would, if recognized, affect our effective tax rate. We believe the majority of our uncertain tax positions at December 31, 2014 will significantly decrease within twelve months of the reporting date due to the resolution of examinations. The IRS is currently conducting an examination for tax years 2009 - 2012.
In many cases, unrecognized tax benefits are related to tax years that remain subject to examination by the relevant taxing authorities. The following table summarizes the earliest open tax years by major jurisdiction:
Jurisdiction
 
Earliest Open Year
United States
 
2009

We classify interest relating to tax matters as a component of interest expense and tax penalties as a component of income tax expense in our Consolidated and Combined Statement of Income. During 2014, 2013 and 2012, we did not recognize any expense related to tax matters. As of December 31, 2014, 2013, and 2012, we had interest accrued for tax matters of $0.6 million, $0.3 million and less than $0.1 million, respectively.