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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Tax Update |
Income Taxes | 14. INCOME TAXES Provision (Benefit) The provision (benefit) for income taxes from continuing operations is as follows (in millions):
|  | Years Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | (2.4 | ) |  | $ | (20.1 | ) |  | $ | (27.8 | )
State and local |  |  | 2.2 |  |  |  | 0.6 |  |  |  | 2.9 |
Foreign |  |  | - |  |  |  | 0.1 |  |  |  | - |
|  |  | (0.2 | ) |  |  | (19.4 | ) |  |  | (24.9 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | - |  |  |  | 236.7 |  |  |  | 43.3 |
State and local |  |  | - |  |  |  | 15.3 |  |  |  | 1.0 |
Foreign |  |  | - |  |  |  | - |  |  |  | - |
|  |  | - |  |  |  | 252.0 |  |  |  | 44.3 |
|  | $ | (0.2 | ) |  | $ | 232.6 |  |  | $ | 19.4 |
The 2011 amounts previously reported have been revised. Refer to Note 1 under "Deferred Income Taxes" for a description of the impacts from the revision. In 2011, there was an insignificant amount of foreign income associated with the foreign income taxes of $0.1 million. 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, |
|  | 2012 |  |  | 2011 |
Deferred tax assets: |  |  |  |  |  |
Plant lease turnover and other exit costs |  | $ | 15.8 |  |  | $ | 15.6 |
Employee benefits costs |  |  | 215.0 |  |  |  | 191.7 |
Inventory |  |  | 15.9 |  |  |  | - |
Property, plant and equipment |  |  | 490.5 |  |  |  | 75.0 |
Tax intangibles |  |  | 0.3 |  |  |  | 0.9 |
Depleted uranium and stored wastes |  |  | 3.4 |  |  |  | 56.8 |
Net operating loss and credit carryforwards |  |  | 35.5 |  |  |  | 22.3 |
Accrued expenses |  |  | 7.1 |  |  |  | 7.7 |
Prepaid expenses |  |  | 2.4 |  |  |  | - |
Other |  |  | 8.0 |  |  |  | 7.0 |
|  |  | 793.9 |  |  |  | 377.0 |
Valuation allowance |  |  | (793.9 | ) |  |  | (370.6 | )
Deferred tax assets, net of valuation allowance |  |  | - |  |  |  | 6.4 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Inventory |  |  | - |  |  |  | 1.5 |
Prepaid expenses |  |  | - |  |  |  | 1.1 |
Dividends on preferred stock |  |  | - |  |  |  | 3.8 |
Deferred tax liabilities |  |  | - |  |  |  | 6.4 |
|  | $ | - |  |  | $ | - |
The net increase in the valuation allowance of $423.3 million in 2012 and $369.1 million in 2011 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 first 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. USEC has federal net operating losses of $76.2 million, federal tax credit carryforwards of $5.8 million that currently expire through 2032, and a minimum tax credit carryforward of $1.4 million which does not expire. 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. NAC has state net operating losses of $1.5 million that are available to offset future taxable income and currently expire through 2023. 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, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Federal statutory tax rate |  |  | 35 | % |  |  | 35 | % |  |  | 35 | %
State income taxes, net of federal |  |  | - |  |  |  | - |  |  |  | 9 |
Research and other tax credits |  |  | - |  |  |  | 1 |  |  |  | (16 | )
Other nondeductible expenses |  |  | - |  |  |  | (1 | ) |  |  | 8 |
Preferred stock issuance costs and dividends paid-in-kind |  |  | - |  |  |  | (1 | ) |  |  | 13 |
Valuation allowance against deferred tax assets |  |  | (35 | ) |  |  | (124 | ) |  |  | - |
Change in Medicare D Subsidy tax treatment |  |  | - |  |  |  | - |  |  |  | 24 |
Uncertain tax positions (see below) |  |  | - |  |  |  | - |  |  |  | (1 | )
|  |  | 0 | % |  |  | (90 | )% |  |  | 72 | %
Included in the effective tax rate are charges for $413.0 million in 2012 and $319.5 million in 2011 to increase the valuation allowance against net deferred tax assets. The 2012, 2011 and 2010 effective tax rates include 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 paid-in-kind dividends and issuance costs are permanent differences that are not deductible for tax purposes and are included in the effective tax rate calculation. The provision for income taxes for 2010 includes 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 ("FASB") 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. The American Taxpayer Relief Act of 2012 (the "ATRA") was signed into law and thus became effective on January 2, 2013. Under FASB 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. Therefore, any tax impacts resulting from the ATRA will be reflected in USEC's financial statements in the first quarter of 2013 which is the first period that includes the enactment date. Prior to enactment of the ATRA, the research credit expired on December 31, 2011. Among the changes made in the ATRA was the retroactive extension of the research credit until December 31, 2013. Due to the full valuation allowance against net deferred tax assets, USEC does not expect to record any net tax effect from the research credit extension or from any other provisions of the ATRA in 2013. 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 $3.0 million at December 31, 2012 and $3.7 million at December 31, 2011. If recognized, these tax benefits would impact the effective tax rate. As a result of changes to unrecognized tax benefits, the tax provision decreased $0.4 million during 2012, $0.3 million during 2011, and $0.1 million during 2010. 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, |
|  | 2012 |  |  | 2011 |
Balance at beginning of the year |  | $ | 3.7 |  |  | $ | 4.1 |
Reductions to tax positions of prior years |  |  | (0.8 | ) |  |  | (0.5 | )
Additions for tax positions of current year |  |  | 0.1 |  |  |  | 0.1 |
Balance at end of the year |  | $ | 3.0 |  |  | $ | 3.7 |
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 and started an examination of USEC's 2008 through 2011 federal income tax returns during 2012. As of December 31, 2012, the federal statute of limitations is closed with respect to all tax years through 2007. As of December 31, 2012, the Kentucky statute of limitations for calendar tax years 2008 forward had not yet expired. USEC recognizes accrued interest related to uncertain tax positions as a component of interest expense. Reversals of previously accrued income tax related interest is typically offset to interest expense, but if the amount is significant, it is reclassified to interest income in the consolidated statement of operations. USEC recognizes the increase or decrease of accrued penalties for income taxes as a component of selling, general and administrative expense in the consolidated statement of operations. The impact of accrued interest and penalties was a reduction of $0.3 million in 2012, a reduction of less than $0.1 million in 2011, and an increase of less than $0.1 million in 2010 to expenses in the consolidated statement of operations. Accrued interest and penalties, included as a component of accounts payable and accrued liabilities, totaled $0.8 million as of December 31, 2012 and $1.1 million as of December 31, 2011.

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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 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 2: 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 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: 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 5: 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 6: 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 7: 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 8: 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 + Details
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