Note 6 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 6: Income Taxes

Major components of our income tax (provision) benefit for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):

	2020			2019			2018
Current:
Domestic	$	(868	)	$	(701	)	$	(454	)
Foreign		(6,355	)		(7,289	)		(4,382	)
Total current income tax provision		(7,223	)		(7,990	)		(4,836	)
Deferred:
Domestic		4,392			15,243			7,147
Foreign		2,696			16,848			4,390
Total deferred income tax benefit		7,088			32,091			11,537
Total income tax (provision) benefit	$	(135	)	$	24,101		$	6,701

Domestic and foreign components of (loss) income before income taxes for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands): 

	2020			2019			2018
Domestic	$	(2,104	)	$	(49,874	)	$	(44,513	)
Foreign		(14,551	)		(73,784	)		11,249
Total	$	(16,655	)	$	(123,658	)	$	(33,264	)

The annual tax (provision) benefit 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): 

	2020					2019					2018
Computed “statutory” benefit (provision)	$	3,498		21	%	$	25,968		21	%	$	6,986		21	%
Percentage depletion		5,327		32			3,030		2			3,158		10
Change in valuation allowance		786		5			686		1			(2,304	)	(7	)
State taxes, net of federal tax benefit		(1,164	)	(7	)		2,648		2			(849	)	(3	)
Foreign currency remeasurement of monetary assets and liabilities		(4,824	)	(29	)		(8,629	)	(7	)		6,747		20
Rate differential on foreign earnings		991		6			3,947		3			(469	)	(1	)
Compensation		(458	)	(3	)		(1,056	)	(1	)		(970	)	(3	)
Foreign withholding taxes		—		—			—		—			278		1
Mining and other taxes		(3,572	)	(22	)		(1,242	)	(1	)		(3,501	)	(11	)
Other		(719	)	(4	)		(1,251	)	(1	)		(2,375	)	(7	)
Total (provision) benefit	$	(135	)	(1	)%	$	24,101		19	%	$	6,701		20	%

At December 31, 2020 and 2019, the net deferred tax liability was approximately $129.6 million and $134.7 million, respectively. The individual components of our net deferred tax assets and liabilities are reflected in the table below (in thousands).

	December 31,
	2020			2019
Deferred tax assets:
Accrued reclamation costs	$	32,938		$	30,038
Deferred exploration		11,623			13,762
Foreign net operating losses		13,303			12,013
Domestic net operating losses		198,438			175,024
Pension and benefit obligation		12,341			13,866
Foreign exchange loss		19,808			21,719
Foreign tax credit carryforward		3,358			4,149
Miscellaneous		18,385			30,871
Total deferred tax assets		310,194			301,442
Valuation allowance		(77,210	)		(86,634	)
Total deferred tax assets		232,984			214,808
Deferred tax liabilities:
Miscellaneous		(2,551	)		(904	)
Properties, plants and equipment		(359,996	)		(348,649	)
Total deferred tax liabilities		(362,547	)		(349,553	)
Net deferred tax liability	$	(129,563	)	$	(134,745	)

As discussed in Note 16, we acquired Klondex in July 2018. With this acquisition, we acquired a U.S. consolidated tax group (the "Nevada U.S. Group") that did not join the existing consolidated U.S. tax group of Hecla Mining Company and subsidiaries (“Hecla U.S.”). Under acquisition accounting, we recorded a net deferred tax liability of $59.5 million. In 2020, 2019 and 2018, we recorded deferred tax benefits of $4.4 million, $15.2 million and $6.3 million, respectively, in the Nevada U.S. Group. Net operating losses acquired as of the acquisition date are subject to limitation under Internal Revenue Code Section 382. However, the annual limitation is not expected to have a material impact on our ability to utilize the losses.

We evaluated the positive and negative evidence available to determine the amount of valuation allowance required on our deferred tax assets.  At December 31, 2020 and 2019, the balances of our valuation allowances were approximately $77 million and $87 million, respectively, primarily related to net operating losses. Due to the changes to tax laws under the Tax Cuts and Jobs Act enacted in December 2017 ("TCJ Act"), at December 31, 2017 we determined it is more likely than not that we will not realize our net deferred tax assets in our Hecla U.S. consolidated group. Accordingly, we applied a valuation allowance which remains in place on those net deferred tax assets at December 31, 2020. A portion of the valuation allowance relating to exploration and other deferred tax assets in Mexico 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, 2020, a $72.5 million valuation allowance remains in U.S. jurisdictions, $2.6 million in Canadian jurisdictions and $2.1 million in Mexican jurisdictions. The changes in the valuation allowance for the years ended December 31, 2020, 2019 and 2018, are as follows (in thousands): 

	2020			2019			2018
Balance at beginning of year	$	(86,634	)	$	(94,981	)	$	(78,684	)
Valuation allowance on deferred tax assets acquired with the Klondex acquisition		—			5,905			(11,470	)
Decrease related to non-recognition of deferred tax assets due to uncertainty of recovery and (increase) related to non-utilization of net operating loss carryforwards		786			686			(5,700	)
Decrease related to utilization and expiration of deferred tax assets, other		8,638			1,756			873
Balance at end of year	$	(77,210	)	$	(86,634	)	$	(94,981	)

As of December 31, 2020, for U.S. income tax purposes, we have federal and state net operating loss carryforwards of $788.2 million and $477.9 million, respectively.  U.S. net operating loss carryforwards for periods arising before December 31, 2017 have a 20-year expiration period, the earliest of which could expire in 2021.  U.S. net operating loss carryforwards of $292.9 million arising in 2018 and future periods have an indefinite carryforward period. We have foreign and provincial net operating loss carryforwards of approximately $53.5 million each, which expire between 2031 and 2040. 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.  As of December 31, 2020, no change in control has occurred in the Hecla U.S. group.  Net operating losses acquired with the Nevada U.S. Group are subject to limitation under Internal Revenue Code Section 382.  However, the annual limitation is not expected to have a material impact on our ability to utilize the losses.

We file income tax returns in the U.S. federal jurisdiction, and 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 2001, or examinations by foreign tax authorities for years prior to 2015. We are currently under examination in certain local tax jurisdictions. However, we do not anticipate any material adjustments.

We had no unrecognized tax benefits as of December 31, 2020 or 2019.  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 unrecognized tax benefits.  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.