SPX FLOW, Inc. - 10-Q filing on 2016-11-02

INCOME TAXES	9 Months Ended
INCOME TAXES	Oct. 01, 2016
Income Tax Disclosure [Abstract]
INCOME TAXES	INCOME TAXES Unrecognized Tax Benefits As of October 1, 2016, we had gross unrecognized tax benefits of $14.8 (net unrecognized tax benefits of $5.5), of which $5.5, if recognized, would impact our effective tax rate. We classify interest and penalties related to unrecognized tax benefits as a component of our income tax provision. As of October 1, 2016, gross accrued interest totaled $1.8 (net accrued interest of $1.8), and there was no accrual for penalties included in our unrecognized tax benefits. Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by $1.0 to $3.0. The previously unrecognized tax benefits relate to a variety of tax issues, including transfer pricing and non-U.S. income tax matters. The unrecognized tax benefits described above represent amounts that were included in tax returns filed by the Company. Historically, a portion of the Company's operations were included in tax returns filed by the former Parent or its subsidiaries that were not part of the Spin-Off. As a result, some uncertain tax positions related to the Company's operations resulted in unrecognized tax benefits that are now potential obligations of the former Parent or its subsidiaries due to the Spin-Off. Because activities that gave rise to these unrecognized tax benefits related to the Company's operations for the three and nine months ended September 26, 2015, the impact of these items was recorded to "Income tax provision" within our condensed combined statements of operations, with the offset recorded to "Former parent company investment" within our condensed combined balance sheets prior to the Spin-Off date, which have been reclassified to "Paid-in capital" in our condensed consolidated balance sheet as of December 31, 2015. In addition, some of the Company's tax returns previously included the operations of the former Parent's subsidiaries that were not part of the Spin-Off. In certain of these cases, the subsidiaries' activities gave rise to unrecognized tax benefits for which the Company could be potentially liable. When required under the Income Taxes Topic of the Codification, we recorded a liability for these uncertain tax positions within our condensed consolidated balance sheets. However, since the potential obligations were the result of activities associated with operations that were not part of the Spin-Off, we have not reflected any related amounts within our "Income tax provision" for the three and nine months ended September 26, 2015, but have instead recorded the amounts directly to "Former parent company investment" within our condensed combined balance sheets prior to the Spin-Off date, which have been reclassified to "Paid-in capital" in our condensed consolidated balance sheet as of December 31, 2015. Other Tax Matters During the three months ended October 1, 2016, we recorded an income tax benefit of $26.9 on $31.1 of pre-tax loss, resulting in an effective tax rate of 86.5%. This compares to an income tax provision for the three months ended September 26, 2015 of $15.7 on $11.5 of pre-tax income, resulting in an effective tax rate of 136.5%. The effective tax rate for the third quarter of 2016 was impacted by an income tax benefit of $23.8 resulting from a tax incentive realized in Poland related to the expansion of our manufacturing facility in that country. The effective tax rate for the third quarter of 2016 also reflects the dilutive effect that the large annual forecasted pre-tax loss has on forecasted annual tax expense, since a significant portion of the pre-tax loss relates to the goodwill and intangible assets impairment charge recorded by our Power and Energy reporting unit in the second quarter of which a majority of the goodwill had no basis for income tax purposes. The effective tax rate for the third quarter of 2015 was impacted by tax charges of (i) $7.4 related to dividends from foreign subsidiaries, (ii) $2.6 related to changes in the jurisdictional composition of expected annual pre-tax income, and (iii) $1.2 related to pre-tax losses generated during the period for which no tax benefit was recognized. During the nine months ended October 1, 2016, we recorded an income tax benefit of $89.8 on $478.4 of pre-tax loss, resulting in an effective tax rate of 18.8%. This compares to an income tax provision for the nine months ended September 26, 2015 of $38.3 on $103.9 of pre-tax income, resulting in an effective tax rate of 36.9%. The effective tax rate for the first nine months of 2016 was impacted by income tax benefits of (i) $47.1 resulting from the $426.4 goodwill and intangible assets impairment charge recorded by our Power and Energy reporting unit (an effective tax rate of 11.0%), as (a) the majority of the goodwill for the Power and Energy reporting unit had no basis for income tax purposes and (b) the impairment charge resulted in the addition of a valuation allowance for certain deferred income tax assets, and (ii) $23.8 resulting from a tax incentive realized in Poland related to the expansion of our manufacturing facility in that country, as previously discussed. The effective tax rate for the first nine months of 2016 also reflects the dilutive effect that the large annual forecasted pre-tax loss has on forecasted annual tax expense, as noted above. The effective tax rate for the first nine months of 2015 was impacted by tax charges of (i) $7.4 related to dividends from foreign subsidiaries, (ii) $2.6 related to changes in the jurisdictional composition of expected annual pre-tax income, and (iii) $1.2 related to pre-tax losses generated during the period for which no tax benefit was recognized, partially offset by tax benefits of $2.0 related to FX losses recognized for income tax purposes with respect to a foreign branch. We review our income tax positions on a continuous basis and record a provision for potential uncertain positions when we determine that an uncertain position meets the criteria of the Income Taxes Topic of the Codification. As events change and resolutions occur, adjustments are made to amounts previously provided, such as in the case of audit settlements with taxing authorities. In connection with the Spin-Off, we and the former Parent entered into a Tax Matters Agreement which, among other matters, addresses the allocation of certain tax adjustments that might arise upon examination of the 2013, 2014 and the pre-Spin-Off portion of the 2015 federal income tax returns of the former Parent. None of those returns is currently under examination, and we believe any contingencies have been adequately provided for. State income tax returns generally are subject to examination for a period of three to five years after filing the respective tax returns. The impact on such tax returns of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. We have various state income tax returns in the process of examination or administrative appeal. We believe any uncertain tax positions related to these examinations have been adequately provided for. We have various non-U.S. income tax returns under examination. The most significant of these is in Germany for the 2010 through 2014 tax years. We believe that any uncertain tax positions related to these examinations have been adequately provided for. An unfavorable resolution of one or more of the above matters could have a material adverse effect on our results of operations or cash flows in the quarter and year in which an adjustment is recorded or the tax is due or paid. As audits and examinations are still in process or we have not yet reached the final stages of the appeals process, the timing of the ultimate resolution and any payments that may be required for the above matters cannot be determined at this time.