Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income (loss) before income taxes for the Company’s U.S. and non-U.S. operations was as follows:

	Fiscal Year
(In millions)	2023		2022 Revised		2021 Revised
U.S.	$	258.2	$	394.3	$	168.7
Non-U.S.	37.0		(39.7)		64.7
Income before income taxes	$	295.2	$	354.6	$	233.4

The income tax provision (benefit) was as follows:

	Fiscal Year
(In millions)	2023		2022		2021
Current:
Federal	$	3.0	$	5.0	$	0.7
State	0.5		3.7		(0.3)
Foreign	7.8		10.0		9.4
Total	11.3		18.7		9.8
Deferred:
Federal	(96.1)		(3.3)		18.6
State	(42.5)		0.2		(0.9)
Foreign	(0.9)		(0.1)		(0.7)
Total	(139.5)		(3.2)		17.0
Income tax provision (benefit)	$	(128.2)	$	15.5	$	26.8

The following is a reconciliation of income taxes computed at the statutory U.S. Federal income tax rate to the actual effective income tax provision (benefit):

	Fiscal Year
(In millions)	2023		2022 Revised		2021 Revised
Taxes computed at the federal rate	$	62.0	$	74.5	$	49.0
Goodwill	—		—		2.6
State and local income taxes, net of federal tax benefit	1.2		2.9		0.4
Valuation allowance	(198.8)		(84.4)		(29.2)
Repatriation of foreign earnings (GILTI )	5.0		—		2.0
Divestiture	—		23.0		—
Recognition of stranded deferred tax balance	—		—		3.9
Foreign earnings taxed at different rate	2.7		3.2		3.0
Withholding taxes	4.8		2.6		3.4
Preferential tax rate	(3.6)		(4.9)		(6.2)
Other	(1.5)		(1.4)		(2.1)
Income tax provision (benefit)	$	(128.2)	$	15.5	$	26.8

The Company’s income tax expense has been impacted by the effects of valuation allowances on federal and state deferred tax assets for fiscal years 2021 through 2023. The Company recognizes deferred tax assets to the extent it believes these deferred tax assets are more likely than not to be realized. Valuation allowances are established when it is estimated that it is more likely than not the tax benefit of the deferred tax asset will not be realized. In making such determination, the Company considers all available evidence, both positive and negative, regarding the estimated future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, historical taxable income in prior carryback periods if carryback is permitted, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. The verifiable evidence such as future reversals of existing temporary differences and the ability to carryback are considered before the subjective sources such as estimated future taxable income exclusive of temporary differences and tax planning strategies. In situations where a three-year cumulative loss position exists, the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets is subjective. If the Company determines that it would not be able to realize its deferred tax assets in the future in excess of their recorded net amount, an adjustment to the deferred tax asset valuation allowance would result.

Since fiscal year 2020, ATI’s U.S. operations were in a three-year cumulative loss position, limiting the ability to utilize future projections as verifiable sources of income when analyzing the need for a valuation allowance. This cumulative loss continued until fiscal year 2023 when ATI exited the three-year cumulative loss position and the Company concluded it was appropriate to consider future projections as a source of income when analyzing the need for a valuation allowance.

In fiscal year 2023, ATI recorded a tax benefit associated with the valuation allowance due to the current year income for the U.S. operations and a $140.3 million additional benefit was recorded related to the valuation allowance release associated with ATI’s ability to utilize projections for future income.

Revised fiscal years 2022 and 2021 results reflect the voluntary change, as discussed in Note 1, in the method of accounting for recognizing actuarial gains and losses for defined benefit pension plans whereby gains or losses from the remeasurement of the projected benefit obligation and plan assets for these pension plans are immediately recognized in earnings. These gains and losses were historically recognized in AOCI which included a full valuation allowance offset in AOCI. Overall, the underlying liability associated with pension did not change with this accounting policy change, therefore the deferred tax asset did not change for each year, only the reclassification of taxes recorded changed from AOCI on the consolidated balance sheet to the consolidated statement of operations. Given the full valuation allowance offset, there was no impact to earnings from this reclassification in prior years.

In fiscal year 2022, ATI recorded a tax benefit associated with the valuation allowance due to the current year income for the U.S. operations. As a result of the current year income, ATI utilized net operating loss carryovers which in turn resulted in a release of the corresponding valuation allowance on the operating loss deferred tax assets.

The provision for income taxes for the fiscal year ended January 1, 2023, is mainly attributable to the Company’s foreign operations and state income tax expense associated with states that limit net operating loss utilization. On May 12, 2022, the Company sold its Sheffield, UK operations which resulted in a pre-tax loss of $112.2 million (see Note 6 for further explanation) for which the benefit was disallowed for tax purposes, resulting in a $23.0 million tax expense impact as shown in the effective tax rate reconciliation table above.

In fiscal year 2021, ATI incurred tax expense associated with the valuation allowance due to the postretirement medical benefit settlement gain along with the U.S. operations plus permanent adjustments (goodwill and Global Intangible Low-Taxed Income (GILTI)) being a loss.

The provision for income taxes for the fiscal year ended January 2, 2022 is mainly attributable to the $15.5 million in discrete tax effects related to the postretirement medical benefits settlement gain discussed in Note 14, in accordance with ATI’s accounting policy for recognizing deferred tax amounts stranded in AOCI. This $15.5 million is presented within two lines in the above table, $11.6 million within valuation allowance and $3.9 million on the recognition of stranded deferred tax balance line which represents the difference between current and historical tax rates in AOCI. The $11.6 million has two components: $5.2 million of additional required valuation allowance on ATI’s net deferred tax assets following the reduction of deferred tax liabilities in AOCI associated with the recognition of the AOCI portion of the retirement benefit settlement gain of $21.9 million, and $6.4 million of “trapped” valuation allowances remaining in AOCI from prior periods that are now recognized upon extinguishment of the retirement benefit plan (see Notes 14 and 15).

In fiscal year 2021, the Company allocated $12.2 million of the goodwill from ATI’s Forged Products reporting unit to the sale of Flowform Products (see Note 6 for further explanation) which was non-deductible for tax purposes, resulting in a $2.6 million expense included as a reconciling item in the table above.

The Company also maintained valuation allowances on deferred tax amounts recorded in AOCI in fiscal years 2023, 2022 and 2021 of $24.1 million, $23.9 million, and $5.1 million, respectively, which are not reflected in the preceding table reconciling amounts recognized in the income tax provision (benefit) recorded in the statement of operations (see Note 15).

Additionally, the Tax Cuts and Jobs Act (Tax Act) requires a current year inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations, commonly referred to as GILTI. In fiscal years 2023 and 2021, the amount of GILTI represents a full inclusion due to ATI’s net operating loss utilization and inability to utilize GILTI credits when taxable income is zero. In fiscal year 2022, due to the loss on the sale of the Sheffield operations, there is no current year inclusion. The Company has elected to recognize GILTI liabilities as an element of income tax expense in the period incurred.

In the fourth quarter of fiscal year 2021, the Company was granted a preferential tax rate related to the PRS joint venture operations in China for tax years 2021 through 2023. The preferential tax rate is 15%, compared to the statutory rate of 25%. As of December 31, 2023, the preferential tax rate has expired, and the Company will prospectively utilize the 25% statutory tax rate pending a ruling by the Chinese government on a new preferential rate tax application which will be filed in 2024.

Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be recognized when those temporary differences reverse. The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and expense at December 31, 2023 and January 1, 2023 were as follows:

	Fiscal Year
(In millions)	2023		2022
Deferred income tax assets
Net operating loss tax carryovers	$	133.0	$	184.1
Pensions	2.2		51.7
Postretirement benefits other than pensions	48.5		51.5
Tax credits	43.5		42.0
Research and development	20.7		7.4
Inventory valuation	1.1		—
Other items	107.5		95.6
Gross deferred income tax assets	356.5		432.3
Valuation allowance for deferred tax assets	(60.3)		(266.9)
Total deferred income tax assets	296.2		165.4
Deferred income tax liabilities
Basis of property, plant and equipment	124.8		122.2
Inventory valuation	—		17.1
Basis of amortizable intangible assets	14.9		16.4
Other items	25.5		23.0
Total deferred tax liabilities	165.2		178.7
Net deferred tax asset (liability)	$	131.0	$	(13.3)

Changes in the valuation allowance for deferred tax assets in fiscal year 2023 in the above table compared to fiscal year 2022 include the following:

•$198.8 million of valuation allowance recorded as income tax benefit and included in the reconciliation of the current year income tax provision and $7.8 million of a benefit related to current year activity is recorded on the state and local income tax line within the rate reconciliation above.

•Reductions in the valuation allowance related to the benefit in AOCI of $0.2 million (as discussed in Note 15).

In fiscal year 2023, the deferred tax liability related to inventory changed from a deferred tax liability to a deferred tax asset. This change is related to the recognition of the deferred tax liability associated with the accounting policy change from the LIFO inventory cost method adopted by the Company during the fourth quarter of fiscal year 2021, which for tax purposes is recognized over four years versus one year for book purposes.

The following summarizes the carryforward periods for the tax attributes related to NOLs and credits by jurisdiction.

($ in millions, U.S. and U.K. NOL amounts are pre-tax and all other items are after-tax)
Jurisdiction	Attribute	Amount	Expiration Period	Amount expiring within 5 years	Amount expiring in 5-20 years
U.S.	NOL	$213	20 years	$—	$213
U.S.	NOL	$129	Indefinite	$—	$—
U.S.	Foreign Tax Credit	$22	10 years	$22	$—
U.S.	Research and Development Credit	$11	20 years	$—	$11
State	NOL	$80	Various	$15	$65
State	NOL	$1	Indefinite	$—	$—
State	Credits	$9	Various	$4	$5
U.K.	NOL	$4	Indefinite	$—	$—
Poland	Economic Zone Credit	$4	7 years	$4	$—

Income taxes paid and amounts received as refunds were as follows:

	Fiscal Year
(In millions)	2023		2022		2021
Income taxes paid	$	16.7	$	18.9	$	14.2
Income tax refunds received	(0.9)		(0.4)		(0.6)
Income taxes paid, net	$	15.8	$	18.5	$	13.6

Deferred taxes of $7.7 million have been recorded for foreign withholding taxes on earnings expected to be repatriated to the U.S. The Company does not intend to distribute previously taxed earnings resulting from the one-time transition tax under the Tax Act, and has not recorded any deferred taxes related to such amounts. The remaining excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries is indefinitely reinvested, and the determination of any deferred tax liability on this amount is not practicable.

Uncertain tax positions are recorded using a two-step process based on (1) determining whether it is more-likely-than-not the tax positions will be sustained on the basis of the technical merits of the position and (2) for those positions that meet the more-likely-than-not recognition threshold, the Company records the largest amount of the tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The changes in the liability for unrecognized income tax benefits for the fiscal years ended December 31, 2023, January 1, 2023 and January 2, 2022 were as follows:

	Fiscal Year
(In millions)	2023		2022		2021
Balance at beginning of fiscal year	$	9.1	$	14.2	$	15.2
Increases in prior period tax positions	1.2		—		—
Decreases in prior period tax positions	—		(3.3)		—
Increases in current period tax positions	—		—		0.3
Expiration of the statute of limitations	(1.4)		(1.8)		(1.3)
Balance at end of fiscal year	$	8.9	$	9.1	$	14.2

For fiscal years ended December 31, 2023, January 1, 2023 and January 2, 2022, the liability includes $7.2 million, $7.8 million and $12.3 million, respectively, of unrecognized tax benefits that are classified within deferred income taxes as a reduction of NOL carryforwards and other tax attributes. The total estimated unrecognized tax benefit that, if recognized, would affect ATI’s effective tax rate is approximately $1.7 million. At this time, the Company believes that it is reasonably possible that approximately $0.5 million of the estimated unrecognized tax benefits as of December 31, 2023 will be recognized within the next twelve months based on the expiration of statutory review periods.

The Company recognizes accrued interest and penalties related to uncertain tax positions as income tax expense. The amounts accrued for interest and penalty charges for the fiscal years 2023, 2022 and 2021 were not significant. At December 31, 2023 and January 1, 2023, the accrued liabilities for interest and penalties related to unrecognized tax benefits were $1.3 million and $1.4 million, respectively.

The Company, and/or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. A summary of tax years that remain subject to examination, by major tax jurisdiction, is as follows:

Jurisdiction	Earliest Year Open to Examination
U.S. Federal	2020
States:
Pennsylvania	2020
Foreign:
China	2020
Poland	2017
United Kingdom	2021