Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.7.0.1
Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
Historically, AFI was included with the AWI and affiliated entities in filing a consolidated U.S. federal income tax return, and as part of a unitary or combined group in some states. Income taxes are computed and reported herein under the separate return method as if AFI were a separate taxpayer for periods prior to and on March 31, 2016. Use of the separate return method requires significant judgment and may result in differences when the sum of the amounts allocated to stand-alone tax provisions are compared with amounts presented in Consolidated Financial Statements. In that event, the related deferred tax assets and liabilities could be significantly different from those presented herein.

The following table presents income (loss) from continuing operations before income taxes for U.S. and international operations based on the location of the entity to which such earnings are attributable:
 
Year Ended December 31,
 
2016
 
2015 As Adjusted (Note 2)
 
2014 As Adjusted (Note 2)
Domestic
$
14.3

 
$
(41.6
)
 
$
12.6

Foreign
(2.7
)
 
24.0

 
4.8

Total
$
11.6

 
$
(17.6
)
 
$
17.4



The following table presents the components of the income tax expense (benefit):
 
Year Ended December 31,
 
2016
 
2015 As Adjusted (Note 2)
 
2014 As Adjusted (Note 2)
Current:
 
 
 
 
 
Federal
$
6.2

 
$
5.0

 
$
5.1

Foreign
0.4

 
1.6

 
1.0

State and local
1.2

 
1.1

 
1.5

Total current
7.8

 
7.7

 
7.6

Deferred:
 
 
 
 
 
Federal
(3.8
)
 
(14.5
)
 
1.8

Foreign
0.5

 
0.6

 
(1.0
)
State and local
(0.4
)
 
(1.1
)
 
(0.5
)
Total deferred
(3.7
)
 
(15.0
)
 
0.3

Total income tax expense (benefit)
$
4.1

 
$
(7.3
)
 
$
7.9



As of December 31, 2016, we reviewed our position with regard to foreign unremitted earnings and determined that unremitted earnings would continue to be permanently reinvested. Accordingly, we have not recorded U.S. income or foreign withholding taxes on approximately $7.2 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because we currently plan to keep these amounts permanently invested overseas. It is not practicable to calculate the residual income tax which would result if these basis differences reversed due to the complexities of the tax law and the hypothetical nature of the calculations.





NOTE 12. INCOME TAXES (continued)
The following table presents the differences between AFI’s income tax expense at the U.S. federal statutory income tax rate and our effective income tax rate:
 
Year Ended December 31,
 
2016
 
2015 As Adjusted (Note 2)
 
2014 As Adjusted (Note 2)
Continuing operations tax at statutory rate
$
4.0

 
$
(6.2
)
 
$
6.1

Increase in valuation allowances on deferred foreign income tax assets
2.4

 
3.4

 
5.1

Tax on foreign and foreign-source income
(1.9
)
 
(3.6
)
 
(3.6
)
Research and development credits
(0.8
)
 
(0.9
)
 
(0.4
)
Permanent book/tax differences
0.5

 
0.9

 

State income tax expense (benefit), net of federal benefit
0.4

 
(0.9
)
 
0.7

Domestic production activities
(0.4
)
 

 

Other
(0.1
)
 

 

Total income tax expense (benefit)
$
4.1

 
$
(7.3
)
 
$
7.9
































NOTE 12. INCOME TAXES (continued)
The tax effects of principal temporary differences between the carrying amounts of assets and liabilities and their tax bases are summarized in the following table. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income in the appropriate jurisdiction and foreign source income to realize deferred tax assets, net of valuation allowances. In arriving at this conclusion, we considered the profit before tax generated for the years 2014 through 2016, as well as future reversals of existing taxable temporary differences and projections of future profit before tax and foreign source income.
 
December 31, 2016
 
December 31, 2015 As Adjusted (Note 2)
Deferred income tax assets (liabilities)
 
 
 
Postretirement benefits
$
33.0

 
$
2.2

Net operating losses
26.9

 
18.8

Accrued expenses
12.1

 
6.0

Deferred compensation
7.8

 
14.7

Customer claims reserves
5.0

 
5.0

Goodwill
2.7

 

Pension benefit liabilities
0.4

 
41.6

Foreign tax credit carryforwards

 
3.5

Other
3.0

 
14.5

Total deferred income tax assets
90.9

 
106.3

Valuation allowances
(28.2
)
 
(18.4
)
Net deferred income tax assets
62.7

 
87.9

Accumulated depreciation
(43.5
)
 
(36.5
)
Inventories
(12.2
)
 
(18.8
)
Intangibles
(10.2
)
 
(9.6
)
Other
(0.7
)
 
(3.0
)
Total deferred income tax liabilities
(66.6
)
 
(67.9
)
Net deferred income tax assets (liabilities)
$
(3.9
)
 
$
20.0

Deferred income taxes have been classified in the Consolidated Balance Sheet as:
 
 
 
Deferred income tax assets—noncurrent
$
4.5

 
$
23.5

Deferred income tax liabilities—current

 
(1.4
)
Deferred income tax liabilities—noncurrent
(8.4
)
 
(2.1
)
Net deferred income tax assets (liabilities)
$
(3.9
)
 
$
20.0



As of December 31, 2016 and 2015, we had valuation allowances of $28.2 million and $18.4 million, respectively. As of December 31, 2016, our valuation allowance consisted of $4.9 million and $23.3 million for state and foreign deferred tax assets, respectively. The valuation allowance primarily offsets state and foreign operating loss carryforwards.

As of December 31, 2016 and 2015, we had $152.0 million and $94.9 million, respectively, of state net operating loss (“NOL”) carryforwards expiring between 2017 and 2036. State NOL carryforwards as of December 31, 2015 were calculated under the separate return method. Compared to the amount transferred to AFI as of March 31, 2016 of $155.2 million, state NOL carryforwards at December 31, 2016 have decreased $3.2 million.
NOTE 12. INCOME TAXES (continued)
In addition, as of December 31, 2016 and 2015, we had $79.9 million and $74.2 million, respectively, of foreign NOL carryforwards expiring between 2017 and 2021. As of December 31, 2016, AFI has no foreign tax credit ("FTC") carryforwards. The domestic FTC carryforward deferred tax asset of $3.5 million at December 31, 2015, recorded under the separate return method, remained an attribute of AWI upon separation.

The valuation allowance for foreign deferred tax assets of $23.3 million as of December 31, 2016 increased $5.3 million in comparison to December 31, 2015. This increase was primarily a result of incurring additional foreign losses in 2016. The valuation allowance for state deferred tax assets of $4.9 million as of December 31, 2016 increased $4.5 million in comparison to December 31, 2015. The valuation allowance for state deferred tax assets as of December 31, 2015 was recorded under the separate return method.

We estimate we will need to generate future taxable income of approximately $177.0 million for state income tax purposes during the respective realization periods (ranging from 2017 to 2036) in order to fully realize the net deferred income tax assets discussed above.

We have $5.0 million of unrecognized tax benefits ("UTBs") as of December 31, 2016. Of this amount, $1.7 million ($1.6 million, net of federal benefit), if recognized in future periods, would impact the reported effective tax rate.

It is reasonably possible that certain UTBs may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities. Over the next twelve months we estimate no changes to UTBs.

The following table presents a reconciliation of the total amounts of UTBs, excluding interest and penalties:
 
2016
 
2015
 
2014
Unrecognized tax benefits as of January 1,
$
81.9

 
$
76.1

 
$
70.1

Gross change for current year positions
1.3

 
5.7

 
5.3

Increases (decreases) for prior period positions
(78.2
)
 
0.1

 
0.7

Unrecognized tax benefits balance as of December 31,
$
5.0

 
$
81.9

 
$
76.1



The $78.2 million decrease for prior period positions were UTBs, allocated to AFI as a result of the separate return method, which remained with AWI upon separation.

We conduct business globally, and as a result, we file income tax returns in the U.S., various states and international jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world in such major jurisdictions as Australia, Canada, China and the U.S. Generally, we have open tax years subject to tax audit on average of between three years and six years. With few exceptions, the statute of limitations is no longer open for state or non-U.S. income tax examinations for the years before 2010. We have not significantly extended any open statutes of limitation for any major jurisdiction and have reviewed and accrued for, where necessary, tax liabilities for open periods. The tax years 2010 through 2015 are subject to future potential tax adjustments.

The following table details amounts related to other taxes:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Payroll taxes
$
18.9

 
$
19.2

 
$
18.9

Property and franchise taxes
4.8

 
4.9

 
5.1