Major components of our income tax provision for the years ended
December
31,
2017,
2016
and
2015
are as follows (in thousands):
| | | | | | | | | | |
| Current: | | | | | | | | | | | | |
| Domestic | | $ | 22,171 | | | $ | (10,702 | ) | | $ | 3,892 | |
| Foreign | | | (22,526 | ) | | | (13,713 | ) | | | (5,376 | ) |
| Total current income tax provision | | | (355 | ) | | | (24,415 | ) | | | (1,484 | ) |
| Deferred: | | | | | | | | | | | | |
| Domestic | | | (30,766 | ) | | | 7,480 | | | | (75,456 | ) |
| Foreign | | | 11,242 | | | | (10,493 | ) | | | 20,630 | |
| Total deferred income tax provision | | | (19,524 | ) | | | (3,013 | ) | | | (54,826 | ) |
| Total income tax provision | | $ | (19,879 | ) | | $ | (27,428 | ) | | $ | (56,310 | ) |
Domestic and foreign components of (loss) income before income taxes for the years ended
December
31,
2017,
2016
and
2015
are as follows (in thousands):
| | | | | | | | | | |
| Domestic | | $ | (7,920 | ) | | $ | 41,014 | | | $ | (65,895 | ) |
| Foreign | | | 4,280 | | | | 55,961 | | | | 35,237 | |
| Total | | $ | (3,640 | ) | | $ | 96,975 | | | $ | (30,658 | ) |
The annual tax provision is different from the amount that would be provided by applying the statutory federal income tax rate to our pretax (loss) income. The reasons for the difference are (in thousands):
| | | | | | | | | | |
| Computed “statutory” benefit (provision) | | $ | 1,274 | | | | 35 | % | | $ | (33,941 | ) | | | 35 | % | | $ | 10,731 | | | | 35 | % |
| Percentage depletion | | | 5,174 | | | | 142 | | | | 8,114 | | | | (8 | ) | | | 2,432 | | | | 8 | |
| Change in valuation allowance | | | 24,464 | | | | 672 | | | | 11,336 | | | | (12 | ) | | | (84,951 | ) | | | (277 | ) |
| Federal rate change | | | (37,546 | ) | | | (1,031 | ) | | | — | | | | — | | | | — | | | | — | |
| State taxes, net of federal taxes | | | 1,112 | | | | 30 | | | | (565 | ) | | | 1 | | | | (3,639 | ) | | | (12 | ) |
| Foreign currency remeasurement of monetary assets and liabilities | | | (10,357 | ) | | | (284 | ) | | | (4,598 | ) | | | 5 | | | | 28,184 | | | | 92 | |
| Rate differential on foreign earnings | | | (1,438 | ) | | | (39 | ) | | | (6,853 | ) | | | 7 | | | | (4,746 | ) | | | (15 | ) |
| Compensation | | | (661 | ) | | | (18 | ) | | | (1,517 | ) | | | 1 | | | | (1,014 | ) | | | (3 | ) |
| Foreign withholding taxes | | | (278 | ) | | | (8 | ) | | | — | | | | — | | | | — | | | | — | |
| Expiration of U.S. foreign tax credits | | | (2,300 | ) | | | (63 | ) | | | — | | | | — | | | | — | | | | — | |
| Other | | | 677 | | | | 18 | | | | 596 | | | | (1 | ) | | | (3,307 | ) | | | (12 | ) |
| Total provision | | $ | (19,879 | ) | | | (546 | )% | | $ | (27,428 | ) | | | 28 | % | | $ | (56,310 | ) | | | (184 | )% |
On
January 1, 2017
we adopted ASU
No.
2015
-
17
Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic
740
).
Accordingly, all deferred income tax assets and liabilities are classified as non-current in the consolidated balance sheet. Upon adoption, we classified, as non-current, previously reported current deferred tax assets of
$12.3
million and current deferred tax liabilities of
$1.3
million.
We evaluated the positive and negative evidence available to determine the amount of valuation allowance required on our deferred tax assets.
At
December
31,
2017
and
2016,
the balances of our valuation allowances were approximately
$79
million and
$100
million, respectively, primarily related to net operating losses and tax credit carryforwards. Due to the changes to tax laws under the Tax Cuts and Jobs Act, we determined it is more likely than
not
that we will
not
realize our U.S. net deferred tax assets. Accordingly, we have applied a full valuation allowance.
At
December
31,
2017
and
2016,
the net deferred tax liability was approximately
$120
million and
$87
million, respectively. The individual components of our net deferred tax assets and liabilities are reflected in the table below (in thousands).
| | | | |
| | | | | | | |
| Deferred tax assets: | | | | | | | | |
| Accrued reclamation costs | | $ | 21,812 | | | $ | 30,188 | |
| Deferred exploration | | | 17,426 | | | | 26,785 | |
| Foreign net operating losses | | | 1,003 | | | | 1,058 | |
| Domestic net operating losses | | | 130,186 | | | | 82,359 | |
| AMT credit carryforwards | | | 584 | | | | 20,405 | |
| Pension and benefit obligation | | | 12,584 | | | | 18,115 | |
| Foreign exchange loss | | | 18,112 | | | | 34,977 | |
| Foreign tax credit carryforward | | | 4,983 | | | | 7,283 | |
| Miscellaneous | | | 25,411 | | | | 30,166 | |
| Total deferred tax assets | | | 232,101 | | | | 251,336 | |
| Valuation allowance | | | (78,684 | ) | | | (99,602 | ) |
| Total deferred tax assets | | | 153,417 | | | | 151,734 | |
| Deferred tax liabilities: | | | | | | | | |
| Miscellaneous | | | (4,978 | ) | | | (3,046 | ) |
| Properties, plants and equipment | | | (268,476 | ) | | | (235,700 | ) |
| Total deferred tax liabilities | | | (273,454 | ) | | | (238,746 | ) |
| Net deferred tax liability | | $ | (120,037 | ) | | $ | (87,012 | ) |
For the year
2017,
we recorded a liability of
$0.3
million related to withholding taxes on unremitted earnings at Minera Hecla S.A. de C.V., our wholly-owned subsidiary which owns our San Sebastian mine and other interests in Durango, Mexico. For the years
2016
and
2015,
we had
no
unremitted foreign earnings. Foreign net operating losses carried forward are shown above as a deferred tax asset, with a valuation allowance as discussed below.
We recorded a valuation allowance in the U.S. to reflect the estimated amount of deferred tax assets, which
may
not
be realized principally due to the more likely than
not
expiration of net operating losses and tax credit carryforwards. A portion of the valuation allowance relating to exploration and other deferred tax assets was released in
2017
as we determined that it was more likely than
not
that the benefit would be realized as a result of operating activities at San Sebastian. As of
December
31,
2017,
a
$76
million valuation allowance remains in U.S. jurisdictions,
$2
million in Hecla Canada Ltd. and
$1
million in Minera Hecla S.A. de C.V. There is
no
valuation allowance at Hecla Quebec, Inc. The changes in the valuation allowance for the years ended
December
31,
2017,
2016
and
2015,
are as follows (in thousands):
| | | | | | | | | | |
| Balance at beginning of year | | $ | (99,602 | ) | | $ | (115,806 | ) | | $ | (32,094 | ) |
| Increase related to non-utilization of net operating loss carryforwards and non-recognition of deferred tax assets due to uncertainty of recovery | | | (14,964 | ) | | | (2,868 | ) | | | (92,393 | ) |
| Decrease related to utilization and expiration of deferred tax assets, other | | | 35,882 | | | | 19,072 | | | | 8,681 | |
| Balance at end of year | | $ | (78,684 | ) | | $ | (99,602 | ) | | $ | (115,806 | ) |
As of
December
31,
2017,
for U.S. income tax purposes, we have federal and state net operating loss carryforwards of
$506
million and
$366
million, respectively. These net operating loss carryforwards have a
20
year expiration period, the earliest of which could expire in
2020.
We have foreign and provincial net operating loss carryforwards of approximately
$4
million each, which expire between
2018
and
2037.
Our utilization of U.S. net operating loss carryforwards
may
be subject to annual limitations if there is a change in control as defined under Internal Revenue Code Section
382.
At
December
31,
2017
and
2016
we had
$0
million and
$22
million, respectively, of federal net operating loss carryovers relating to excess tax benefits from the exercise of employee stock options and the vesting of restricted stock awards. In
2017,
we adopted ASU
2016
-
09
Stock Compensation: Improvements to Employee Share-Based Payment Accounting. As a result, the deferred tax asset related to our NOL increased by
$5
million due to the inclusion of additional NOLs related to excess tax benefits. The increase in the deferred tax asset was fully offset by a valuation allowance, resulting in
no
change to our recognized net deferred tax assets.
We file income tax returns in the U.S. federal jurisdiction, various state and foreign jurisdictions.
We are
no
longer subject to income tax examinations by U.S. federal and state tax authorities for years prior to
2000,
or examinations by foreign tax authorities for years prior to
2011.
We currently have
no
tax years under examination.
We had
unrecognized tax benefits as of
December
31,
2017
or
2016.
Due to the net operating loss carryover provision, coupled with the lack of any unrecognized tax benefits, we have
not
provided for any interest or penalties associated with any uncertain tax positions. If interest and penalties were to be assessed, our policy is to charge interest to interest expense, and penalties to other operating expense. It is
not
anticipated that there will be any significant changes to unrecognized tax benefits within the next
12
months.
On
December 22, 2017,
the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. We have completed the accounting for the effects of the Act during the quarter ended
December 31, 2017.
Our financial statements for the year ended
December 31, 2017,
reflect certain effects of the Act which includes a reduction in the corporate tax rate from
35%
to
21%
as well as other changes. As a result of the changes to tax laws and tax rates under the Act, we incurred incremental income tax expense of
$30
million during the year ended
December 31, 2017,
which consisted primarily of the remeasurement of deferred tax assets and liabilities from
35%
to
21%
and application of a full valuation allowance. We have
not
accrued a
one
-time transition tax on unrepatriated foreign earnings due to an estimated net deficit in foreign earnings from all foreign jurisdictions.
As discussed in
, we acquired Mines Management, Inc. in
September 2016.
In accounting for the acquisition, we adopted a policy to consider the recoverability of deferred tax assets acquired in the acquisition before considering the recoverability of the acquirer's existing deferred tax assets.