Income Taxes

12 Months Ended

Dec. 31, 2020

(8) Income Taxes

The components of (loss) income before income taxes were as follows:


	Year Ended December 31,
	2020		2019
Domestic	$	(42,878)	$	(49,024)
Foreign		(796)		5,610

The income taxes benefit consisted of the following components:


	Year Ended December 31,
	2020		2019
Federal
current	$	(1,134)	$	(99)
deferred		(2,008)		(4,834)
State
current		—		(116)
deferred		(561)		(1,189)
Foreign
current		802		1,307
deferred		(113)		32
	$	(3,014)	$	(4,899)

The items accounting for differences between the income tax benefit computed at the federal statutory rate and the provision for income taxes were as follows:


	Year Ended December 31,
	2020			2019
Federal income tax at statutory rates	$	(9,136)		$	(9,117)
State income taxes, net of federal income tax benefits		(2,125)			(2,249)
Permanent items:
Foreign inclusions		45			1,104
Other permanent differences		673			585
Rate differential on foreign income		(67)			262
Valuation allowance		5,960			3,667
Provision to return adjustments		2,005			182
Impact of CARES Act		(1,134)			—
Other		765			667
Income tax benefit	$	(3,014)		$	(4,899)
Effective income tax benefit rate		6.9	%		11.3	%

The Company’s U.S. federal corporate income tax statutory rate is 21%.

On March 27, 2020, the CARES Act was signed into law, which features several tax provisions and other measures that assist businesses impacted by the economic effects of the COVID-19 pandemic. The significant tax provisions include an increase in the limitation of the tax deduction for interest expense from 30% to 50% of adjusted earnings in 2019 and 2020, a five-year carryback allowance for net operating losses ("NOLs") generated in tax years 2018-2020, increased charitable contribution limitations to 25% of taxable income in 2020, and a retroactive technical correction to the 2017 Tax Cuts and Jobs Act that makes qualified improvement property placed in service after December 31, 2017 eligible for bonus depreciation. The Company has recorded a $1,134 million income tax benefit related to the NOL carryback provisions of the CARES Act for the year ended December 31, 2020.

As a U.S. shareholder, the Company is subject to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. For the year ended December 31, 2020, the Company had no tax expense related to GILTI.

A deferred tax asset of $281 at December 31, 2020 and $1,086 at December 31, 2019 associated with the temporary difference between the financial reporting basis and tax basis of the Convertible Notes’ conversion feature at each balance sheet date was reclassified from a liability to additional paid-in capital on December 31, 2020 and December 31, 2019, respectively (see Note 5 - Stockholders’ Equity).

Significant components of deferred tax assets and liabilities are as follows:


	December 31,
	2020		2019
Deferred tax assets:
Pension and postretirement benefits	$	855	$	1,208
Deferred compensation		446		973
Restructuring related and other reserves		—		6
Operating lease liabilities		7,706		10,314
Alternative minimum tax and net operating loss carryforward		27,458		19,529
Inventory		3,831		4,161
Intangible assets and goodwill		4,217		4,744
Other, net		2,764		1,741
Deferred tax assets before valuation allowance		47,277		42,676
Valuation allowance		(30,165)		(14,344)
Total deferred tax assets	$	17,112	$	28,332
Deferred tax liabilities:
Depreciation	$	3,674	$	4,394
Operating right-of-use asset		7,664		10,300
Excess of book basis over tax basis in investments		312		318
Convertible debt discount		4,604		15,140
Other, net		178		421
Total deferred tax liabilities		16,432		30,573
Net deferred tax liabilities	$	680	$	(2,241)

As of December 31, 2020, the Company had $24,306 of federal NOL carryforwards, of which $22,391 carry forward for an indefinite period. The remaining $1,915 of federal NOL carryforwards are limited by IRC Section 382 due to the ownership change in 2017 resulting from the Company’s restructuring through its chapter 11 cases. As of December 31, 2020, the Company had $47,174 of state NOL carryforwards which will begin expiring in 2022. As of December 31, 2020, the Company had $35,406 of foreign NOL carryforwards, of which a significant portion carry forward for an indefinite period.

The Company continues to maintain valuation allowances against substantially all U.S. and foreign deferred tax assets to reduce those deferred tax assets to amounts that are realizable either through future reversals of

existing taxable temporary differences or through taxable income in carryback years for the applicable jurisdictions.

Activity in the Company’s valuation allowances for the U.S. and non-U.S. operations were as follows:


	Year Ended December 31,
	2020		2019
Domestic
Balance, beginning of period	$	6,128	$	2,271
Provision charged to expense		5,177		3,949
Impact of reclassification of embedded conversion feature to additional paid-in capital		9,290		—
Provision adjusted through equity		6		(92)
Balance, end of period	$	20,601	$	6,128
Foreign
Balance, beginning of period	$	8,216	$	8,571
Impact of foreign exchange on beginning of period balance		1,348		240
Provision charged to expense		—		(595)
Balance, end of period	$	9,564	$	8,216

The Company is subject to taxation in the U.S, state jurisdictions and foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not criterion, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities, including the IRS. In general, the Company is no longer subject to audit by the IRS for tax years through 2012 and state, local or foreign taxing authorities for tax years through 2011.

Remittances from subsidiaries held by the Company made in 2020 and future years are generally not subject to U.S. federal income tax. These remittances are either excluded from taxable income in the United States as earnings that are already subject to taxation or are subject to a 100% dividends received deduction. There are no other differences which would require the Company to record a material deferred tax liability.

A. M. Castle & Co. 10-K