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Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Tax Update |
Income Tax Update | 12. INCOME TAXES Provision The provision for income taxes from continuing operations is as follows (in millions):
|  | Years Ended December 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | (20.1 | ) |  | $ | (27.8 | ) |  | $ | 30.4 |
State and local |  |  | 0.6 |  |  |  | 2.9 |  |  |  | 6.9 |
Foreign |  |  | 0.1 |  |  |  | - |  |  |  | - |
|  |  | (19.4 | ) |  |  | (24.9 | ) |  |  | 37.3 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 283.3 |  |  |  | 43.3 |  |  |  | (2.1 | )
State and local |  |  | 18.3 |  |  |  | 1.0 |  |  |  | 0.5 |
Foreign |  |  | - |  |  |  | - |  |  |  | - |
|  |  | 301.6 |  |  |  | 44.3 |  |  |  | (1.6 | )
|  | $ | 282.2 |  |  | $ | 19.4 |  |  | $ | 35.7 |
The majority of the income (loss) from continuing operations in 2011 is from domestic sources. Deferred Taxes Future tax consequences of temporary differences between the carrying amounts for financial reporting purposes and USEC's estimate of the tax bases of its assets and liabilities result in deferred tax assets and liabilities, as follows (in millions):
|  | December 31, |
|  | 2011 |  |  | 2010 |
Deferred tax assets: |  |  |  |  |  |
Plant lease turnover and other exit costs |  | $ | 15.6 |  |  | $ | 18.9 |
Employee benefits costs |  |  | 191.7 |  |  |  | 135.6 |
Inventory |  |  | - |  |  |  | 15.1 |
Property, plant and equipment |  |  | 75.0 |  |  |  | 18.9 |
Tax intangibles |  |  | 0.9 |  |  |  | 1.7 |
Deferred costs for depleted uranium |  |  | 56.8 |  |  |  | 49.4 |
Net operating loss and credit carryforwards |  |  | 22.3 |  |  |  | 1.6 |
Accrued expenses |  |  | 7.7 |  |  |  | 9.2 |
Other |  |  | 7.0 |  |  |  | 5.4 |
|  |  | 377.0 |  |  |  | 255.8 |
Valuation allowance |  |  | (370.6 | ) |  |  | (1.5 | )
Deferred tax assets, net of valuation allowance |  |  | 6.4 |  |  |  | 254.3 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Inventory |  |  | 1.5 |  |  |  | - |
Prepaid expenses |  |  | 1.1 |  |  |  | 1.2 |
Dividends on preferred stock |  |  | 3.8 |  |  |  | 1.1 |
Deferred tax liabilities |  |  | 6.4 |  |  |  | 2.3 |
|  | $ | - |  |  | $ | 252.0 |
The net increase of $369.1 million in 2011 in the valuation allowance reduces the net deferred tax assets to their net realizable value as of the end of the year. A full valuation allowance against net deferred taxes was recorded in 2011 due to cumulative losses incurred in recent years and due to substantial uncertainty to generate future taxable income that would lead to realization of the net deferred tax assets. The ultimate realization of the net deferred tax assets is dependent upon generating sufficient taxable income in future years when deferred tax assets are recoverable or are expected to reverse. The valuation allowance of $1.5 million as of December 31, 2010 reduces NAC's state net operating losses that were recorded as a result of the 2004 acquisition of NAC. NAC has state net operating losses of $1.5 million that are available to offset future taxable income and currently expire through 2023. USEC has federal net operating losses of $32.2 million and federal tax credit carryforwards of $9.5 million that currently expire through 2031. If certain substantial changes in USEC's ownership occur, there would be an annual limitation on the amount of the federal tax carryforwards that can be utilized. Effective Tax Rate A reconciliation of income taxes calculated based on the federal statutory income tax rate of 35% and the effective tax rate follows:
|  | Years Ended December 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Federal statutory tax rate |  |  | 35 | % |  |  | 35 | % |  |  | 35 | %
State income taxes, net of federal |  |  | - |  |  |  | 9 |  |  |  | 4 |
Research and other tax credits |  |  | 1 |  |  |  | (16 | ) |  |  | (4 | )
Other nondeductible expenses |  |  | (1 | ) |  |  | 8 |  |  |  | 2 |
Preferred stock issuance costs and dividends paid-in-kind |  |  | (1 | ) |  |  | 13 |  |  |  | - |
Valuation allowance against deferred tax assets |  |  | (143 | ) |  |  | - |  |  |  | - |
Change in Medicare D Subsidy tax treatment |  |  | - |  |  |  | 24 |  |  |  | - |
Uncertain tax positions (see below) |  |  | - |  |  |  | (1 | ) |  |  | 1 |
|  |  | (109 | )% |  |  | 72 | % |  |  | 38 | %
Included in the 2011 effective tax rate is a charge for the $369.1 million increase in the valuation allowance against net deferred tax assets. The provision for income taxes for 2010 included a charge of $6.5 million related to the change in tax treatment of Medicare Part D reimbursements as a result of the Patient Protection and Affordable Care Act as modified by the Reconciliation Act of 2010 (collectively referred to as "the Healthcare Act") signed into law at the end of March 2010. The charge was due to a reduction in USEC's deferred tax asset as a result of a change to the tax treatment of Medicare Part D reimbursements. Under the Healthcare Act, the tax-deductible prescription drug costs will be reduced by the amount of the federal subsidy. Under Financial Accounting Standards Board guidance, the effect of changes in tax laws or rates on deferred tax assets and liabilities is reflected in the period that includes the enactment date, even though the changes may not be effective until future periods. Included in the 2011 and 2010 overall effective tax rate is the impact related to the $75.0 million investment of Toshiba and B&W and the quarterly dividends on the preferred stock that were issued or accrued in additional shares of preferred stock (paid-in-kind). The preferred stock and warrants are considered equity instruments for income tax purposes. The 2011 and 2010 dividends paid-in-kind and issuance costs are permanent differences that are not deductible for tax purposes and are included in the effective tax rate calculation. Uncertain Tax Positions Accounting standards require that a tax position meet a minimum recognition threshold in order for the related tax benefit to be recognized in the financial statements. The liability for unrecognized tax benefits, included in other long-term liabilities, was $3.7 million at December 31, 2011 and $4.1 million at December 31, 2010. If recognized, these tax benefits would impact the effective tax rate. As a result of changes to unrecognized tax benefits, the tax provision decreased $0.3 million during 2011, decreased $0.1 million during 2010, and increased $0.4 million during 2009. USEC believes that the liability for unrecognized tax benefits will not materially change in the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (in millions):
|  | Years Ended December 31, |
|  | 2011 |  |  | 2010 |
Balance at beginning of the year |  | $ | 4.1 |  |  | $ | 4.4 |
Reductions to tax positions of prior years |  |  | (0.5 | ) |  |  | (0.5 | )
Additions for tax positions of current year |  |  | 0.1 |  |  |  | 0.2 |
Balance at end of the year |  | $ | 3.7 |  |  | $ | 4.1 |
USEC and its subsidiaries file income tax returns with the U.S. government and various states and foreign jurisdictions. The IRS completed an examination of USEC's 2004 through 2006 federal income tax returns in July 2008. As of December 31, 2011, the federal statute of limitations is closed with respect to all tax years through 2007. As of December 31, 2011, the applicable Kentucky and Ohio statutes of limitations for calendar tax years 2007 forward and 2008, respectively, had not yet expired. USEC recognizes accrued interest as a component of interest expense and accrued penalties as a component of selling, general and administrative expense in the consolidated statement of income. Expenses for accrued interest and penalties were less than $(0.1) million in 2011, were less than $0.1 million in 2010, and were $0.2 million in 2009. Accrued interest and penalties included as a component of accounts payable and accrued liabilities, totaled $1.1 million as of December 31, 2011 and 2010.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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