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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Tax Disclosure [Text Block] | 9. INCOME TAXES The components of income (loss) before income taxes are as follows:
| 2023 |  | 2022 |  | 2021
| (in millions)
U.S. loss | $ | (212.5) |  |  | $ | (57.0) |  |  | $ | (186.8) |
Non - U.S. income | 188.0 |  |  | 123.3 |  |  | 188.0 |
Total income (loss) before income taxes | $ | (24.5) |  |  | $ | 66.3 |  |  | $ | 1.2 |
The following is a summary of the components of our provision for income taxes:
| 2023 |  | 2022 |  | 2021
| (in millions)
Current |  |  |  |  |
Federal | $ | 8.5 |  |  | $ | 11.7 |  |  | $ | 3.5 |
State and local | 0.9 |  |  | 1.3 |  |  | 0.3 |
Foreign | 38.0 |  |  | 21.8 |  |  | 34.0 |
Total current | $ | 47.4 |  |  | $ | 34.8 |  |  | $ | 37.8 |
Deferred |  |  |  |  |
Federal | $ | (38.5) |  |  | $ | (23.2) |  |  | $ | (40.7) |
State and local | (0.5) |  |  | 0.1 |  |  | (0.9) |
Foreign | 0.7 |  |  | (9.7) |  |  | (0.9) |
Total deferred | (38.3) |  |  | (32.8) |  |  | (42.5) |
Total income tax expense (benefit) | $ | 9.1 |  |  | $ | 2.0 |  |  | $ | (4.7) |
The following is a reconciliation of income taxes calculated at the U.S. federal statutory income tax rate of 21% in 2023, 2022 and 2021 to our provision for income taxes:
| 2023 |  | 2022 |  | 2021
| (in millions)
Federal statutory | $ | (5.1) |  |  | $ | 13.9 |  |  | $ | 0.3 |
Foreign income taxes | (14.9) |  |  | (14.7) |  |  | (14.0) |
Change in enacted tax rate | 0.2 |  |  | — |  |  | 0.1 |
State and local | (7.5) |  |  | 2.4 |  |  | 3.0 |
Tax credits | (14.2) |  |  | (9.6) |  |  | (11.0) |
Valuation allowance | 45.0 |  |  | 9.5 |  |  | 2.7 |
Withholding taxes | 7.3 |  |  | 4.4 |  |  | 3.2 |
U.S. tax on unremitted foreign earnings | 0.5 |  |  | 1.6 |  |  | 2.2 |
Tax benefit on loss carryback | — |  |  | — |  |  | (5.2) |
Global intangible low-taxed income (GILTI) | 15.3 |  |  | 6.4 |  |  | 6.5 |
Foreign derived intangible income deduction | (0.1) |  |  | (13.9) |  |  | — |
Uncertain tax positions | 1.3 |  |  | 3.8 |  |  | 1.2 |
Reorganization and restructuring actions | (26.1) |  |  | — |  |  | — |
Other | 7.4 |  |  | (1.8) |  |  | 6.3 |
Effective income tax expense (benefit) | $ | 9.1 |  |  | $ | 2.0 |  |  | $ | (4.7) |
In 2023, our effective income tax rate varied from the U.S. federal statutory rate primarily as a result of approximately $36.1 million attributable to both increased valuation allowances on disallowed interest expense in the United States, as well as net income tax expense resulting from various changes in determinations related to the potential realization of deferred tax assets and the resulting establishment of, and release of, valuation allowances in certain foreign jurisdictions. These income tax expenses were partially offset by a net income tax benefit of approximately $26.1 million resulting from various internal reorganization and restructuring actions during the year, which in turn was partially offset by the associated impact on our foreign derived intangible income and disallowed interest deductions in the U.S., as well as the impact of favorable foreign tax rates and tax credits. In 2022, our effective income tax rate varied from the U.S. federal statutory rate primarily as a result of recognizing a net income tax benefit of approximately $7.5 million due to changes in our determination related to the potential realization of deferred tax assets and the resulting release of a valuation allowance in a foreign jurisdiction, as well as the benefit from foreign derived intangible income deductions in the U.S. In addition, our effective tax rate varies from the U.S. federal statutory rate as a result of the $13.6 million gain on bargain purchase of Tekfor, which was not subject to income tax. In 2021, our effective income tax rate varied from the U.S. federal statutory rate primarily as a result of recognizing 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. As of December 31, 2023, we have refundable income taxes of approximately $31.8 million, $20.0 million of which is classified as Prepaid expenses and other and $11.8 million classified as Other assets and deferred charges on our Consolidated Balance Sheet, as compared to approximately $17.1 million classified as Prepaid expenses and other and $1.7 million classified as Other assets and deferred charges as of December 31, 2022. We also have income taxes payable of approximately $10.6 million and $7.5 million classified as Accrued expenses and other on our Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively. The approximate tax effect of each significant type of temporary difference and carryforward that results in a deferred tax asset or liability is as follows:
| December 31,
| 2023 |  | 2022
| (in millions)
Deferred tax assets |  |  |
Employee benefits | $ | 112.1 |  |  | $ | 109.0 |
Inventory | 39.3 |  |  | 38.9 |
Net operating loss (NOL) carryforwards | 173.1 |  |  | 203.7 |
Tax credit carryforwards | 36.6 |  |  | 64.5 |
Capital allowance carryforwards | 12.9 |  |  | 11.5 |
Capitalized expenditures | 86.1 |  |  | 63.1 |
Interest carryforward | 87.0 |  |  | 42.4 |
Operating lease liabilities | 27.5 |  |  | 24.4 |
Other | 71.3 |  |  | 33.3 |
Valuation allowances | (267.1) |  |  | (217.5) |
Deferred tax assets | $ | 378.8 |  |  | $ | 373.3 |
Deferred tax liabilities |  |  |
Other intangible assets | $ | (127.4) |  |  | $ | (136.8) |
Fixed assets | (48.1) |  |  | (88.7) |
Operating lease right-of-use assets | (27.1) |  |  | (24.2) |
Other | (23.3) |  |  | (15.3) |
Deferred tax liabilities | $ | (225.9) |  |  | $ | (265.0) |
Deferred tax assets, net | $ | 152.9 |  |  | $ | 108.3 |
Deferred tax assets and liabilities recognized in our Consolidated Balance Sheets are as follows:
| December 31,
| 2023 |  | 2022
| (in millions)
U.S. federal and state deferred tax asset, net | $ | 88.2 |  |  | $ | 47.6 |
Other foreign deferred tax asset, net | 64.7 |  |  | 60.7 |
Deferred tax asset, net | $ | 152.9 |  |  | $ | 108.3 |
DEFERRED INCOME TAX ASSETS AND LIABILITIES AND VALUATION ALLOWANCES The deferred income tax assets and liabilities summarized above reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities for income tax purposes. ASC 740 - Income Taxes states that companies must measure deferred tax amounts at the rate at which they are expected to be realized. As of December 31, 2023 and December 31, 2022, we had deferred tax assets from domestic and foreign net operating loss and tax credit carryforwards of $222.6 million and $279.7 million, respectively. Approximately $110.8 million of the deferred tax assets at December 31, 2023 relate to NOL and tax credits that can be carried forward indefinitely with the remainder expiring between 2024 and 2043. Accounting guidance for income taxes requires a deferred tax liability to be established for the U.S. tax impact of undistributed earnings of foreign subsidiaries unless it can be shown that these earnings will be permanently reinvested outside the U.S. The undistributed earnings of our foreign subsidiaries will generally not be taxed upon repatriation to the U.S. as these earnings will be treated as previously taxed income from either the one-time transition tax or GILTI, or they will be offset with a full dividends received deduction. We have provided deferred income taxes for the estimated foreign income tax and applicable withholding taxes on earnings of subsidiaries expected to be distributed. In accordance with the accounting guidance for 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 forecasts of taxable income in the related tax jurisdictions. In determining the requirement for a valuation allowance, the historical results, projected future operating results based upon approved business plans, eligible carry forward periods, and tax planning opportunities are considered, along with other relevant positive and negative evidence. If, based upon available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. During 2021, we increased the valuation allowance related to certain U.S. federal income tax attributes to approximately $7.0 million. During 2022 and 2023, we recorded a full valuation allowance against the deferred tax asset established for the current year estimated increase in disallowed interest expense deductions in the U.S., resulting in an increase in tax expense of approximately $15.7 million and $31.0 million, respectively. Further, due to the uncertainty associated with the extent and ultimate impact of the significant supply chain constraints affecting the automotive industry, as well as the potential impact of geopolitical conflicts or events and macroeconomic factors, including sustained or increased inflation, 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. During 2023, 2022 and 2021, we recorded a net tax expense of $8.9 million, $0.6 million and $0.8 million, respectively, resulting from net losses in certain jurisdictions with no corresponding tax benefit due to increases in our valuation allowance. These income tax expenses were increased in 2023, 2022 and 2021 by a net tax expense of $36.1 million, $8.9 million, and $1.9 million, respectively, resulting from changes in determinations relating to the potential realization of deferred tax assets and the resulting establishment of, or release of, valuation allowances, as well as the increase in valuation allowances related to the disallowed U.S. interest expense deductions. On June 1, 2022, our acquisition of Tekfor became effective and we recorded a valuation allowance against certain U.S. and foreign deferred tax assets of $7.8 million as of June 1, 2022 associated with the acquired entities. As of December 31, 2023 and December 31, 2022, we have a valuation allowance of $267.1 million and $217.5 million, respectively, related to net deferred tax assets in several foreign jurisdictions and U.S. federal, state and local jurisdictions. UNRECOGNIZED INCOME TAX BENEFITS To the extent that we have uncertain tax positions, a determination is made as to whether such positions meet the “more likely than not” threshold. This threshold must be met in order to record any tax benefit and, to the extent that an uncertain tax position meets the "more likely than not" threshold, we have measured and recorded the highest probable benefit, and have established appropriate reserves for benefits that exceed the amount likely to be sustained upon examination. A reconciliation of the beginning and ending amounts of unrecognized income tax benefits is as follows:
| Unrecognized Income Tax |  | Interest and
| Benefits |  | Penalties
| (in millions)
Balance at January 1, 2021 | $ | 20.2 |  |  | $ | 2.0 |
Increase in prior year tax positions | — |  |  | — |
Decrease in prior year tax positions | (1.0) |  |  | (0.1) |
Increase in current year tax positions | 2.0 |  |  | 0.3 |
Foreign currency remeasurement adjustment | — |  |  | — |
Balance at December 31, 2021 | $ | 21.2 |  |  | $ | 2.2 |
Increase in prior year tax positions | 3.6 |  |  | 1.1 |
Decrease in prior year tax positions | (0.8) |  |  | — |
Increase in current year tax positions | 0.5 |  |  | — |
Tekfor acquisition | 12.6 |  |  | — |
Foreign currency remeasurement adjustment | 0.1 |  |  | — |
Balance at December 31, 2022 | $ | 37.2 |  |  | $ | 3.3 |
Increase in prior year tax positions | 1.7 |  |  | 0.5 |
Decrease in prior year tax positions | (9.3) |  |  | (0.6) |
Increase in current year tax positions | 11.8 |  |  | — |
Settlement | (6.9) |  |  | (0.3) |
Foreign currency remeasurement adjustment | 0.7 |  |  | — |
Balance at December 31, 2023 | $ | 35.2 |  |  | $ | 2.9 |
At December 31, 2023 and December 31, 2022, we had $35.2 million and $37.2 million of gross unrecognized income tax benefits, respectively. In 2023, we reduced our liability for unrecognized income tax benefits and related interest and penalties as a result of a change in estimate on previously recorded unrecognized tax benefits in certain jurisdictions. 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. In 2023, 2022, and 2021, we recognized a tax expense/(benefit) of $(0.1) million, $1.1 million and $0.2 million, respectively, related to interest and penalties in Income tax expense (benefit) on our Consolidated Statements of Operations. We have a liability of $2.9 million and $3.3 million related to the estimated future payment of interest and penalties at December 31, 2023 and 2022, respectively. The amount of the unrecognized income tax benefits, including interest and penalties, as of December 31, 2023 that, if recognized, would affect the effective tax rate is $33.8 million. We operate in multiple jurisdictions throughout the world and the income tax returns of several subsidiaries in various tax jurisdictions are currently under examination. We are currently under a U.S. federal income tax examination for years 2015 through 2020. Generally, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities prior to 2015. Based on the status of ongoing tax audits and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. 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. Other Income Tax Matters Pending Tax Litigation 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, in September 2022, the IRS issued a Notice of Deficiency. The IRS subsequently issued a Notice of Tax Due in December 2022 and AAM paid the assessed tax and interest of $10.1 million in January 2023. We filed a claim for refund for the amount of tax and interest paid related to this matter for the 2015 tax year and, in December 2023, we filed suit in the U.S. Court of Federal Claims. We believe, after consultation with tax and legal counsel, that it is more likely than not that our structure did not give rise to FBCSI, and it's 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 consolidated financial statements as of, and for the year ended, December 31, 2023, with the exception of the cash payment and associated income tax receivable of $10.1 million paid by AAM to the IRS in 2023. As of December 31, 2023, 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 2023, is estimated to be in the range of approximately $300 million to $350 million. Reorganization of Global Operating Structure As a result of changes to non-U.S. corporate tax laws, we performed a review, in consultation with our tax and legal advisors, of AAM’s global operating structure in 2023. This involved a detailed analysis of the impact of legislation enacted or proposed by non-U.S. members of the OECD and G20 to implement pillar two of the Framework, as well as other recent global tax law developments, and the expected interaction of these developments with U.S. tax law. Based upon this analysis, AAM implemented certain actions to reorganize our global operating structure effective as of December 31, 2023. The review of our global operating structure was not related to the FBCSI income tax matter described above, however, this reorganization has also eliminated the FBCSI U.S. issue for tax years after 2023.

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