Income Taxes

12 Months Ended

Dec. 31, 2020

INCOME TAXES

Income Tax Expense (Benefit)

The income tax expense (benefit) is as follows (in millions):


	Year Ended December 31,
	2020		2019
Current:
Federal	$	—	$	—
State and local	0.5		0.2
Foreign	—		0.1
	0.5		0.3
Deferred:
Federal	—		—
State and local	(1.9)		—
Foreign	—		—
	(1.9)		—
Income tax expense (benefit)	$	(1.4)	$	0.3

Deferred Taxes

Future tax consequences of temporary differences between the carrying amounts for financial reporting purposes and the Company’s estimate of the tax bases of its assets and liabilities result in deferred tax assets and liabilities, as follows (in millions):


	December 31,
	2020		2019
Deferred tax assets:
Employee benefits costs	$	61.8	$	65.3
Inventory	16.2		17.8
Property, plant and equipment	197.8		182.3
Net operating loss and credit carryforwards	211.1		190.9
Accrued expenses	2.1		4.2
Long-term debt and financing costs	12.6		13.2
Lease liability	1.5		2.0
Other	0.2		0.2
Deferred tax assets	503.3		475.9
Valuation allowance	(486.0)		(459.5)
Deferred tax assets, net of valuation allowance	$	17.3	$	16.4

Deferred tax liabilities:
Intangible assets	$	13.9	$	14.7
Lease asset	1.1		1.5
Prepaid expenses	0.4		0.2
Deferred tax liabilities	$	15.4	$	16.4
Net deferred tax asset	$	1.9	$	—

The valuation allowance reduces the net deferred tax assets to their net realizable value. 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 Company has maintained a full valuation allowance against federal and state net deferred tax assets since the fourth quarter of 2011. In the second quarter of 2020, we released the valuation allowance against the state net deferred tax assets for the LEU segment that most likely will be realized. However, we continue to maintain a full valuation allowance against our federal and state net deferred tax assets for the rest of our business due to cumulative three-year pre-tax losses and significant federal and state net operating losses. The net deferred tax assets and related valuation allowance have been increased as of December 31, 2020 by $39.5 million for previously unrecorded state deferred tax assets, net of federal benefit, in states where we have had historical losses and a remote likelihood of realizing a tax benefit. This increase to state deferred tax assets net of the full valuation allowance has no net impact on income tax expense for 2020. We will continue to monitor profitability to determine whether we release the valuation allowance against our federal and remaining state net deferred tax assets. Based upon current and forecasted pre-tax income, we believe it is reasonably possible that sufficient positive evidence may become available to allow us to conclude that some or a significant portion of the federal valuation allowance will no longer be needed within the next 12 months. The exact timing and amount of the valuation allowance release are dependent upon the actual level of profitability that is achieved as well as the analysis of other positive and negative evidence. When a change in tax rate or tax law has an impact on deferred taxes, we apply the change based on the years in which the deferred taxes are expected to reverse. The Company records the impact of the change in its consolidated financial statements in the period of enactment.

The Company has federal net operating losses of $749.2 million generated through December 31, 2017 that currently expire through 2037. In addition, the Company has federal net operating losses and business interest expense carry forwards of $131.4 million and $11.2 million, respectively, generated after December 31, 2017, that do not expire. The Company has concluded that a full valuation allowance is needed for all federal net operating losses. Centrus also has state net operating losses of $3.9 million, with no valuation allowance, that we expect will be used in the next 12 months and state net operating losses of $454.6 million, with a full valuation allowance, that currently expire through 2035.

Effective Tax Rate

A reconciliation of income taxes calculated based on the federal statutory income tax rate and the effective tax rate follows:


	Year Ended December 31,
	2020		2019
Federal statutory tax rate	21	%	21	%
Valuation allowance against net deferred tax assets	(26)		(18)
State rate changes	(1)		1
Executive compensation	2		(2)
State income tax expense, net of federal benefit	—		(1)
Uncertain tax positions	1		(1)
Other non-deductible expenses	—		(1)
Effective tax rate	(3)	%	(1)	%

The effective tax rate for the year ended December 31, 2020 includes a decrease to the valuation allowance against net deferred tax assets of $13.9 million, or a change to the effective tax rate of (26)%. Included in the valuation allowance decrease is the release of the valuation allowance against state net deferred taxes of $2.0 million, or a change to the effective tax rate of (4)%.

The effective tax rate for the year ended December 31, 2019 includes an increase to the valuation allowance against net deferred tax assets of $3.1 million, or a change to the effective tax rate of (18)%.

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 $0.8 million as of December 31, 2020 and $0.4 million as of December 31, 2019. If recognized, these tax benefits would impact the effective tax rate. As a result of changes to unrecognized tax benefits, the income tax provision (state tax, net of federal benefit) increased $0.4 million and $0.2 million during the years ended December 31, 2020 and December 31, 2019, respectively. The liability for unrecognized tax benefits in the table below relates to unrecognized state income tax benefits. Centrus believes that the liability for unrecognized tax benefits will not change significantly in the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (in millions):


	Year Ended December 31,
	2020		2019
Balance at beginning of the period	$	0.4	$	0.2
Additions to tax positions of current period	0.5		0.3
Reductions to tax positions of prior years	(0.1)		(0.1)
Balance at end of the period	$	0.8	$	0.4

Centrus and its subsidiaries file income tax returns with the U.S. government and various states and foreign jurisdictions. As of December 31, 2020, the federal, Maryland and Tennessee statutes of limitation are closed with respect to all tax years through 2016.

Centrus recognizes accrued interest related to uncertain tax positions as a component of Interest Expense. Reversals of previously accrued interest for income taxes is typically offset against interest expense, but if the amount is significant, it is reclassified to interest income in the consolidated statement of operations. Centrus recognizes the increase or decrease of accrued penalties for income taxes as a component of Selling, General and Administrative in the consolidated statement of operations.

The impact of accrued interest and penalties for income taxes in the consolidated statement of operations was an increase to expenses of less than $0.1 million for the year ended December 31, 2020, and a reduction to expenses of less than $0.1 million for the year ended December 31, 2019. Accrued interest and penalties for income taxes, included as a component of Other Long-Term Liabilities, totaled less than $0.1 million as of December 31, 2020 and 2019.