XML 28 R18.htm IDEA: XBRL DOCUMENT
v3.22.2.2

Income Taxes (Notes) | 9 Months Ended
--- | ---
Sep. 30, 2022
Income Tax Disclosure [Abstract] |
Income Tax Disclosure [Text Block] | 10. INCOME TAXES We adjust our effective tax rate each quarter based on our estimated annual effective tax rate. We also record the tax impact of certain discrete, unusual or infrequently occurring items, including changes in judgment about valuation allowances and the effects of changes in tax laws or rates on deferred tax balances, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections. Our income tax benefit and effective income tax rate for the three and nine months ended September 30, 2022 and 2021 are as follows:
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
|  | (in millions)
Income tax benefit |  | $ | (5.7) |  |  | $ | (13.6) |  |  | $ | (2.1) |  |  | $ | (2.4) |
Effective income tax rate |  | (27.4) | % |  | 85.0 | % |  | (4.3) | % |  | (4.8) | %
For the three and nine months ended September 30, 2022, we recognized a net income tax benefit of approximately $7.5 million related to the release of a valuation allowance in a foreign jurisdiction. During the three and nine months ended September 30, 2021, we recognized a net income tax benefit of approximately $5.2 million related to our ability to carry back prior year losses to tax years with the higher 35% corporate income tax rate under provisions of the CARES Act. Our effective income tax rate for the three months ended September 30, 2022 varies from our effective income tax rate for the three months ended September 30, 2021 primarily as a result of the release of the foreign valuation allowance during the three months ended September 30, 2022 as noted above, as well as the mix of earnings on a jurisdictional basis during these periods. Our effective income tax rate for the nine months ended September 30, 2022 varies from our effective income tax rate for the nine months ended September 30, 2021 primarily as a result of the $13.0 million gain on bargain purchase of business recognized in the nine months ended September 30, 2022, which was not subject to income tax, as well as the release of the foreign valuation allowance during the nine months ended September 30, 2022 and the mix of earnings on a jurisdictional basis during these periods. For the three and nine months ended September 30, 2022 and 2021, our effective income tax rates vary from the U.S. federal statutory rate primarily due to the discrete items noted above, the benefit from foreign derived intangible income deductions, the change in jurisdictional mix of earnings, and favorable foreign tax rates and the impact of tax credits. In addition, for the nine months ended September 30, 2022, our effective income tax rate varies from the U.S. federal statutory rate as a result of the gain on bargain purchase of business recognized during this period. In accordance with the guidance in ASC 740 - Income Taxes, we review the likelihood that we will realize the benefit of deferred tax assets and estimate whether recoverability of our deferred tax assets is "more likely than not" based on the available evidence. During the three months ended September 30, 2022, we released a valuation allowance against the net deferred tax assets in a foreign jurisdiction resulting in a net tax benefit of approximately $7.5 million. Due to the uncertainty associated with the extent and ultimate impact of the significant supply chain constraints affecting the automotive industry, including COVID-19, the semiconductor shortage and resulting impact on global automotive production volumes, and the conflict between Russia and Ukraine, we may experience lower than projected earnings in certain jurisdictions in future periods, and as a result, it is reasonably possible that changes in valuation allowances could be recognized in future periods and such changes could be material to our financial statements. Other Income Tax Matters We operate in multiple jurisdictions throughout the world and the income tax returns of several subsidiaries in various tax jurisdictions are currently under examination. During their examination of our 2015 U.S. federal income tax return, the Internal Revenue Service (IRS) asserted that income earned by a Luxembourg subsidiary from its Mexican branch operations should be categorized as foreign base company sales income (FBCSI) under Section 954(d) of the Internal Revenue Code and recognized currently as taxable income on our 2015 U.S. federal income tax return. As a result of this assertion, the IRS issued a Notice of Proposed Adjustment (NOPA). AAM disagreed with the NOPA, believes that the proposed adjustment is without merit and contested the matter through the IRS’s administrative appeals process. No resolution was reached in the appeals process and on September 15, 2022, the IRS issued a Notice of Deficiency with an asserted tax liability of approximately $7 million related to the 2015 tax year, as calculated by the IRS, after utilizing available net operating losses and income tax credits. We believe it is likely that we will be successful in ultimately defending our position. As such, we have not recorded any impact of the IRS’s proposed adjustment in our condensed consolidated financial statements. In the event AAM is not successful in defending its position, the potential additional income tax expense, including estimated interest charges, related to tax years 2015 through 2021, is estimated to be in the range of approximately $275 million to $325 million. We expect to pay the asserted tax liability of approximately $7 million related to 2015, plus related interest, during the first half of 2023. In a matter of related interest, in May 2020, the U.S Tax Court ruled against another U.S. corporation, finding that the income it earned through a Mexican branch of its Luxembourg subsidiary corporation was FBCSI. In that situation, the taxpayer appealed the U.S. Tax Court decision to the U.S. Court of Appeals for the Sixth Circuit. In December 2021, the U.S. Court of Appeals affirmed, in a split decision, the Tax Court decision in favor of the IRS. In January 2022, the taxpayer in the above referenced matter filed a petition for rehearing and this petition was denied by the U.S. Court of Appeals for the Sixth Circuit in March 2022. In June 2022, the taxpayer filed a petition with the United States Supreme Court to review the judgment of the U.S. Court of Appeals for the Sixth Circuit and this petition is pending. Notwithstanding the decisions rendered thus far in that case, and because our position is based upon different facts and circumstances, including but not limited to, differences in structure, and different income tax regulations in effect for our tax years under examination, we continue to believe, after consultation with tax and legal counsel that it is more likely than not that our structure does not give rise to FBCSI. We intend to continue to vigorously contest the conclusions reached in the Notice of Deficiency with the IRS and, if necessary, through litigation. Negative or unexpected outcomes of tax examinations and audits, and any related litigation, could have a material adverse impact on our results of operations, financial condition and cash flows. We will continue to monitor the progress and conclusions of all ongoing audits and other communications with tax authorities and will adjust our estimated liability as necessary. On June 1, 2022, our acquisition of Tekfor became effective and we recorded a liability for unrecognized income tax benefits of $12.6 million as of June 1, 2022 associated with the acquired entities. As of September 30, 2022 and December 31, 2021, we have recorded a liability for unrecognized income tax benefits and related interest and penalties of $35.5 million and $23.4 million, respectively.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration