Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 10 — Income Taxes

The components of loss from continuing operations before income taxes were as follows:

	Years Ended December 31,
	2018			2017
	(In millions)
U.S.	$	(13.8	)	$	(8.0	)
International		5.0			—
Total	$	(8.8	)	$	(8.0	)

The components of the income tax (provision) benefit from continuing operations were as follows:

	Years Ended December 31,
	2018		2017
	(In millions)
Current
Federal	$	0.1	$	5.7
International		—		—
Deferred
International		—		—
Total	$	0.1	$	5.7

The income tax provision from continuing operations differs from the amount computed by applying the statutory United States income tax rate (21 percent) because of the following items:

	Years Ended December 31,
	2018			2017
	(In millions)
Tax at statutory U.S. tax rate	$	1.9		$	10.0
State income taxes, net of federal benefit		0.6			1.0
Net effect of international operations		(4.0	)		1.1
Federal rate reduction effect on deferred tax assets		—			(104.9	)
Valuation allowances		30.8			91.8
Tax on unremitted earnings of foreign subsidiaries		0.5			5.1
U.S. tax on foreign earnings		(0.2	)		(0.2	)
Stock-based compensation		(0.3	)		(0.9	)
Net effect of subsidiary sale		(29.2	)		—
Goodwill impairment		—			(1.4	)
Minimum tax credit refundable		0.1			2.1
Reclassification to discontinued operations and other		(0.1	)		2.0
Income tax (provision) benefit	$	0.1		$	5.7

Tax legislation from the Tax Cuts and Jobs Act (“Tax Reform Act”) passed on December 22, 2017 was incorporated into the tax provision. The Tax Reform Act made broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax, a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The tax law change that had a significant impact on the Company’s 2018 and 2017 tax provision is the ability to realize minimum tax credit carryovers as cash refunds, with the elimination of the corporate alternative minimum tax. A tax benefit of $2.1 million was recorded in continuing operations in 2017 and was increased by another $0.1 in 2018 when the IRS announced a sequestration reduction would not apply to the refund. The Company can expect the cash refunds to be received as follows after filing 2018 through 2021 corporate income tax returns: $1.1 million in 2019, $.5 million in 2020, and $.3 million in each of 2021 and 2022.

Tax reform changes related to international subsidiaries did not impact the tax provision. The Deemed Repatriation Transition Tax on previously untaxed accumulated and current earnings and profits of foreign subsidiaries, payable in installments, was zero for the Company. This is because the calculation allows deficits of controlled subsidiaries to offset earnings of other controlled subsidiaries, which resulted in a net deficit in unrepatriated earnings and therefore no tax. Any income inclusions in 2018 under the Subpart F, GILTI and other international provisions do not affect the tax rate due to net operating loss carryovers.

Other tax law changes affected financial statement presentation without a current tax impact. Tax laws require certain items to be included in our tax returns at different times than the items are reflected in our results of operations. Some of these items are temporary differences that will reverse over time. We record the tax effect of temporary differences as deferred tax assets and deferred tax liabilities in our Consolidated Balance Sheets.

In 2018 and 2017 the net cash paid for income taxes, relating to both continuing and discontinued operations, was $0.4 million and $0.0 million, respectively.

The components of net deferred tax assets and liabilities were as follows:

	As of December 31,
	2018			2017
	(In millions)
Accounts receivable allowances	$	—		$	—
Inventories		—			1.9
Compensation and employee benefits		0.3			1.5
Tax credit carryforwards		22.2			23.9
Net operating loss carryforwards		167.1			190.9
Accrued liabilities and other reserves		0.2			2.1
Pension		6.8			6.7
Property, plant and equipment		—			(0.1	)
Intangible assets, net		2.5			0.3
Capital losses		9.5			9.4
Other, net		44.4			1.3
Total deferred tax assets		253.0			237.9
Valuation allowance		(253.0	)		(237.9	)
Net deferred tax assets		—			—
Intangible assets, net		—			—
Unremitted earnings of foreign subsidiaries		(0.5	)		(1.0	)
Total deferred tax liabilities		(0.5	)		(1.0	)
Valuation allowance		—			—
Total deferred tax liabilities		(0.5	)		(1.0	)
Net deferred tax liabilities	$	(0.5	)	$	(1.0	)

We regularly assess the likelihood that our deferred tax assets will be recovered in the future. A valuation allowance is recorded to the extent we conclude a deferred tax asset is not considered more-likely-than-not to be realized. We consider all positive and negative evidence related to the realization of the deferred tax assets in assessing the need for a valuation allowance.

Our accounting for deferred tax consequences represents our best estimate of future events. A valuation allowance established or revised as a result of our assessment is recorded through income tax provision in our Consolidated Statements of Operations. Changes in our current estimates due to unanticipated events, or other factors, could have a material effect on our financial condition and results of operations.

We maintain a valuation allowance related to our U.S. deferred tax assets and the majority of our foreign deferred tax assets. The valuation allowance was $230.6 million and $237.9 million as of December 31, 2018 and 2017, respectively. The deferred tax asset changes and corresponding valuation allowance changes in 2018 compared to 2017 were due primarily to Nexsan adjustments.

The net deferred tax liability not offset by valuation allowance of $0.5 million relates to foreign tax withholding on unremitted foreign earnings.

In November 2015, the Financial Accounting Standards Board issued Accounting Standard Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which amends the guidance requiring companies to separate deferred income tax liabilities and assets into current and non-current amounts in a classified statement of financial position. This accounting guidance simplifies the presentation of deferred income taxes, such that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This determination is still required to be performed at a jurisdiction-by-jurisdiction basis. This accounting guidance is effective for the Company beginning in the first quarter of 2017, but we elected to adopt this guidance prospectively as of December 31, 2015. As a result, we classified all deferred tax liabilities and assets as non-current in the Consolidated Balance Sheet at December 31, 2015. The table below shows the components of our deferred tax balances as they are recorded on our Consolidated Balance Sheets:

	As of December 31
	2018			2017
	(In millions)
Deferred tax liability - non-current		(0.5	)		(1.0	)
Total	$	(0.5	)	$	(1.0	)

Federal net operating loss carryforwards totaling $611.6 million will begin expiring in 2029. The Company had analysis performed by outside consultants to confirm that none of the federal net operating loss carryovers should be limited by Section 382. This limitation could result if there is a more than 50 percent ownership shift in the GlassBridge shares within a three-year testing period. No such ownership shift has occurred through December 31, 2018.

The Company’s $609.0 million in federal net operating loss carryforwards generated through 2017 continue to be subject to the historical tax rules that allow carryforward for 20 years from origin, with the ability to offset 100 percent of future taxable income. The $2.6 million estimated net operating loss generated in 2018, and any future year tax losses, will be subject to the Tax Reform Act limitations which, while having indefinite life, can offset only 80 percent of future taxable income.

We have state income tax loss carryforwards of $323.6 million, which will expire at various dates up to 2037. We have U.S. and foreign tax credit carryforwards of $21.3 million, $17.7 million of which will expire between 2019 and 2021, and the remainder of which will expire between 2022 and 2032. Federal capital losses of $38.0 million will expire between 2019 and 2022. Of the aggregate foreign net operating loss carryforwards totaling $67.5 million, $1.6 million will expire between 2019 and 2021, $43.7 million will expire at various dates up to 2027 and $22.2 million may be carried forward indefinitely.

Our income tax returns are subject to review by various U.S. and foreign taxing authorities. As such, we record accruals for items that we believe may be challenged by these taxing authorities. The threshold for recognizing the benefit of a tax return position in the financial statements is that the position must be more-likely-than-not to be sustained by the taxing authorities based solely on the technical merits of the position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that, in our judgment, is greater than 50 percent likely to be realized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2018			2017
	(In Millions)
Beginning Balance	$	0.9		$	1.3
Additions:
Additions for tax positions of current years		—			—
Additions for tax positions of prior years		—			—
Reductions:
Reductions for tax positions of prior years		—			—
Settlements with taxing authorities		—			—
Reductions due to lapse of statute of limitations		(0.3	)		(0.4	)
Total		0.6			0.9

The total amount of unrecognized tax benefits as of December 31, 2018 was $0.6 million. If the unrecognized tax benefits remaining at December 31, 2018 were recognized in our consolidated financial statements, $0.6 million would ultimately affect income tax expense and our related effective tax rate.

It is reasonably possible that the amount of the unrecognized tax benefits could increase or decrease significantly during the next twelve months; however, it is not possible to reasonably estimate the effect on the unrecognized tax benefit at this time.

Our federal income tax returns for 2015 through 2018 are subject to examination by the Internal Revenue Service. We currently have foreign tax audits underway in various jurisdictions. Based on available information, the uncertain tax position associated with these foreign audits have been assessed and included in our income tax provision. For state and foreign tax purposes, the statutes of limitation vary by jurisdiction. With few exceptions, we are no longer subject to examination by foreign tax jurisdictions or state and local tax jurisdictions for years before 2012.