UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20192021
Commission file number 1-14287
Centrus Energy Corp.
| Delaware | 52-2107911 | ||||
| (State of incorporation) | (IRS Employer Identification No.) | ||||
6901 Rockledge Drive, Suite 800, Bethesda, Maryland 20817
(301) 564-3200
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Class A Common Stock, par value $0.10 per share | LEU | NYSE American | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o☐. No ý☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐. No ý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Smaller reporting company | |||||||||||||
| Accelerated filer | Emerging growth company | |||||||||||||
| Non-accelerated filer | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No ý☒
The aggregate market value of Common Stock held by non-affiliates computed by reference to the price at which the Common Stock was last sold as reported on the New York Stock Exchange as of June 28, 2019,30, 2021, was $16.8$257.9 million. As of March 2, 2020,1, 2022, there were 8,673,97613,673,933 shares of the registrant’s Class A Common Stock, par value $0.10 per share, and 798,413719,200 shares of the registrant’s Class B Common Stock, par value $0.10 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 20202022 annual meeting of shareholders to be filed with the Securities and Exchange commission within 120 days after the end of fiscal year 20192021 are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
| Page | |||||||||
| PART I | |||||||||
| Items 1. | Business | ||||||||
| Risk Factors | |||||||||
| Properties | |||||||||
| Legal Proceedings | |||||||||
| PART II | |||||||||
| Item 9A. | Controls and Procedures | ||||||||
| Item 9B. | Other Information | ||||||||
| PART III | |||||||||
| Executive Compensation | |||||||||
| PART IV | |||||||||
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7, contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. In this context, forward-looking statements mean statements related to future events,
may address our expected future business and financial performance, and often contain words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “will”, “should”, “could”, “would” or “may” and other words of similar meaning. Forward-looking statements by their nature address matters that are, to different degrees, uncertain.
For Centrus Energy Corp., particular risks and uncertainties that could cause our actual future results to differ materially from those expressed in our forward-looking statements include:include but are not limited to the following which are, and will be, exacerbated by the novel coronavirus (“COVID-19”) pandemic and any worsening of the global business and economic environment as a result; risks related to the war in Ukraine and geopolitical conflicts and the imposition of sanctions or other measures that could impact our ability to obtain or sell low enriched uranium (LEU) under our existing supply contract with the Russian government-owned entity TENEX, Joint-Stock Company (“TENEX”); risks related to natural and other disasters, including the continued impact of the March 2011 earthquake and tsunami in Japan on the nuclear industry and on our business, results of operations and prospects; risks related to financial difficulties experienced by customers or suppliers, including possible bankruptcies, insolvencies or any other inability to pay for our products or services or delays in making timely payment; risks related to pandemics and other health crises, such as the global COVID-19 pandemic and subsequent variants; the impact and potential extended duration of the current supply/demand imbalance in the market for low-enriched uranium (“LEU”); risks related to our ability to sell the LEU we procure pursuant to our purchase obligations under our supply agreementsincluding those imposed under the 1992 Russian Suspension Agreement as amended (“RSA”), international trade legislation and other international trade restrictions; risks related to existing or new trade barriers and contract terms that limit our ability to procure LEU for, or deliver LEU to customers; pricing trends and demand in the uranium and enrichment markets and their impact on our profitability; risks related to the movement and timing of customer orders; risks related to our dependence on others for deliveries of LEU including deliveries from TENEX, under a commercial supply agreement with TENEX and deliveries under a long-term commercial supply agreement with Orano Cycle (“Orano”); risks associated with our reliance on third-party suppliers to provide essential products and services to us; risks related to the fact that we face significant competition from major producers who may be less cost sensitive or are wholly or partially government owned; risks that our ability to compete in foreign markets may be limited for various reasons; risks related to the fact that our revenue is largely dependent on our largest customers; risks related to our sales order book, including uncertainty concerning customer actions under current contracts and in future contracting due to market conditions and our lack of current production capability; risks related to whether or when government funding or demand for high-assay low-enriched uranium (“HALEU”) for government or commercial uses will materialize; risks and uncertainties regarding funding for continuation and deployment of the American Centrifuge technology; risks related to our ability to perform and absorb costs under our agreement with the U.S. Department of Energy (“DOE”) to deploy a cascade of centrifuges to demonstrate production of HALEU for advanced reactors (the “HALEU Contract”) or to obtain contracts and funding to be able to continue operations and our ability to obtain and/or perform under other agreements; risks that we may not obtain the full benefit of the HALEU Contract and may not be able to operate the HALEU enrichment facility to produce HALEU after the completion of the existing HALEU Contract or that the HALEU enrichment facility may not be available to us as a future source of supply; risks related to uncertainty regarding our ability to commercially deploy competitive enrichment technology; risks related to the potential for further demobilization or termination of our American Centrifuge work; risks that we will not be able to timely complete the work that we are obligated to perform; risks related to our ability to perform fixed-price and cost-share contracts such as the HALEU Contract, including the risk that costs could be higher than expected; risks related to our significant long-term liabilities, including material unfunded defined benefit pension plan obligations and postretirement health and life benefit obligations; risks relating to our 8.25% notes (the “8.25% Notes”) maturing in February 20272027; the risks of revenue and operating results fluctuating significantly from quarter to quarter, and in some cases, year to year; risks related to the impact of financial market conditions on our Seriesbusiness, liquidity, prospects, pension assets and insurance facilities; risks related to the Company’s capital concentration; risks related to the value of our intangible assets related to the sales order book and customer relationships; risks related to the limited trading markets in our securities; risks related to decisions made by our Class B Senior Preferred Stock;stockholders regarding their investment in the Company based upon factors that are unrelated to the Company’s performance; risks that a small number of holders of our Class A Common Stock, par value $0.10 per share (“Class A Common Stock”), (whose interests may not be aligned with other holders of our Class A Common Stock), may exert significant influence over the direction of the Company; risks related to the use of our net operating losslosses (“NOLs”) carryforwards and net unrealized built-in losses (“NUBILs”) to offset future taxable income and the use of the Rights Agreement (as defined herein) to prevent an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) and our ability to generate taxable income to utilize all or a portion of the NOLs and NUBILs prior to the expiration thereof; risks related to the limited
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remedies under its agreements with the continued impact of the March 2011 earthquake and tsunami in Japan on the nuclear industry and on our business, results of operations and prospects; the impact and potential extended duration of the current supply/demand imbalance in the market for low-enriched uranium (“LEU”); our dependence on others for deliveries of LEU including deliveries from the Russian government-owned entity TENEX, Joint-Stock Company (“TENEX”), under a commercial supply agreement with TENEX and deliveries under a long-term supply agreement with Orano Cycle (“Orano”); risks related to existing or new trade barriers and contract terms that limit our ability to deliver LEU to customers;Company; risks related to actions, including government reviews, that may be taken by the United States government, the Russian government or other governments that could affect our ability to perform under our contract obligations or the ability of our sources of supply to perform under their contract obligations to us, including the imposition of sanctions, restrictions or other requirements, including risks relating to the potential expiration of the 1992 Russian Suspension Agreement (“RSA”) and/or a renewal of the RSA on terms not favorable to us; risks related to our ability to sell the LEU we procure pursuant to our purchase obligations under our supply agreements; risks relating to our sales order book, including uncertainty concerning customer actions under current contracts and in future contracting due to market conditions and lack of current production capability; risks related to financial difficulties experienced by customers, including possible bankruptcies, insolvencies or any other inability to pay for our products or services; pricing trends and demand in the uranium and enrichment markets and their impact on our profitability; movement and timing of customer orders; risks related to the value of our intangible assets related to the sales order book and customer relationships; risks associated with our reliance on third-party suppliers to provide essential products and services to us; the impact of government regulation including by the U.S. Department of Energy (“DOE”) and the U.S. Nuclear Regulatory Commission; uncertainty regarding our ability to commercially deploy competitive enrichment technology; risks and uncertainties regarding funding for deployment of the American Centrifuge technology and our ability to perform and absorb costs under our agreement with DOE to demonstrate the capability to produce high assay low enriched uranium (“HALEU”) and our ability to obtain and/or perform under other agreements; risks relating to whether or when government or commercial demand for HALEU will materialize; the potential for further demobilization or termination of our American Centrifuge work; risks related to our ability to perform and receive timely payment under agreements with the DOE or other government agencies, including riskrisks and uncertainties related to the ongoing funding ofby the government and potential audits; risks related to changes or termination of agreements with the U.S. government or other counterparties; risks related to the competitive environment for our products and services; risks related to changes in the nuclear energy industry; risks related to the competitive bidding process associated with obtaining a federal contract; risks related to our ability to perform fixed-price and cost-share contracts, including the risk that costs could be higher than expected;government contracts; risks that we will be unable to obtain new business opportunities or achieve market acceptance of our products and services or that products or services provided by others will render our products or services obsolete or noncompetitive; risks that we will not be able to timely complete the work that we are obligated to perform; failures or security breaches of our information technology systems; risks related to pandemics and other health crises, such as the global novel coronavirus (COVID-19) outbreak; potential strategic transactions whichthat could be difficult to implement, disrupt our business or change our business profile significantly; risks related to the outcome of legal proceedings and other contingencies (including lawsuits and government investigations or audits); the competitive environment for our products and services; changes in the nuclear energy industry;risks related to the impact of financial market conditions on our business, liquidity, prospects, pension assetsgovernment regulation and insurance facilities;policies including by the DOE and the U.S. Nuclear Regulatory Commission; risks of revenueaccidents during the transportation, handling or processing of hazardous or radioactive material that may pose a health risk to humans or animals, cause property or environmental damage, or result in precautionary evacuations; risks associated with claims and operating results fluctuating significantlylitigation arising from quarter to quarter,past activities at sites we currently operate or past activities at sites that we no longer operate, including the Paducah, Kentucky, and in some cases, year to year;Portsmouth, Ohio, gaseous diffusion plants; and other risks and uncertainties discussed in this and our other filings with the Securities and Exchange Commission.Commission (“SEC”).
For a discussion of these risks and uncertainties and other factors that may affect our future results, please see Part I, Item 1A, Risk Factors, and the other sections of this Annual Report on Form 10-K.10-K and our subsequently filed documents. These factors may not constitute all factors that could cause actual results to differ from those discussed in any forward-looking statement. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results. Readers are urged to carefully review and consider the various disclosures made in this report and in our other filings with the Securities and Exchange CommissionSEC that attempt to advise interested parties of the risks and factors that may affect our business. We do not undertake to update our forward-looking statements to reflect events or circumstances that may arise after the date of this Annual Report on Form 10-K, except as required by law.
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PART I
Item 1.Business
Overview
Centrus Energy Corp., a Delaware corporation, (“Centrus” or the “Company”), is a trusted supplier of enriched uranium for nuclear fuel and services for the nuclear power industry.industry, which provides a reliable source of carbon-free energy. References to “Centrus”, the “Company”, “our”, or “we” include Centrus Energy Corp. and its wholly ownedwholly-owned subsidiaries as well as the predecessor to Centrus, unless the context otherwise indicates. We were incorporated in 1998 as part of the privatization of the United States Enrichment Corporation.
Centrus operates two business segments: (a) low-enriched uranium (“LEU”), which supplies various components of nuclear fuel to utilities,commercial customers from our global network of suppliers, and (b) technical solutions, which provides advanced engineering, design, and manufacturing services to government and private sector customers. The technical solutions segment was formerly our contract services segment. The segment was renamed the technical solutions segment on December 31, 2019, to better reflect the nature of work performedcustomers and is consistent with our marketingdeploying uranium enrichment and other capabilities necessary for production of service offerings as Centrus Technical Solutions. There was no changeadvanced nuclear fuel to power existing and next-generation reactors around the composition of the segment as a result of the re-naming.world.
Our LEU segment provides most of the Company’s revenue and involves the sale of LEU, its components, and naturalenriched uranium for nuclear fuel to customers that are primarily utilities operatingwhich operate commercial nuclear power plants. The majority of these sales are for the enrichment component of LEU, which is measured in separative work units (“SWU”). Centrus also sells natural uranium (the raw material needed to produce LEU) and occasionally sells LEU with the natural uranium, uranium conversion, and SWU components combined into one sale.
LEU is a critical component in the production of nuclear fuel for reactors that produce electricity. We supply LEU and its components to both domestic and international utilities for use in nuclear reactors worldwide. We provide LEU from multiple sources, including our inventory, medium-medium and long- termlong-term supply contracts, and spot purchases. As a long-term supplier of LEU to our customers, our objective is to provide value through the reliability and diversity of our supply sources. Our long-term goal is to resume commercial enrichment production, and we are exploring approaches to that end.
Our global order book includes long-term sales contracts with major utilities to 2029. We have secured cost-competitive supplies of SWU under long-term contracts through the end of this decade to allow us to fill our existing customer orders and make new sales. A market-related price reset provision in our largest supply contract took effect at the beginning of 2019 – when market prices for SWU were near historic lows – which has significantly lowered our cost of sales and contributed to improved margins.
In October 2020, the U.S. Department of Commerce (“DOC”) reached agreement with the Russian Federation on an extension of the 1992 Russian Suspension Agreement, a trade agreement which allows for Russian-origin nuclear fuel to be exported to the United States in limited quantities, with an import quantity in each year. The two parties agreed to extend the agreement through 2040 and to set aside a significant portion of the quota for Centrus’ shipments to the United States through 2028 to execute our long-term supply (purchase) agreement (the “TENEX Supply Contract”) with the Russian government entity, TENEX, Joint-Stock Company (“TENEX”). This outcome also allows sufficient quota for Centrus to continue serving its utility customers. Refer to Item 1A Risk Factors - Operational Risks for further discussion.
Under a contract with the U.S. Department of Energy (“DOE”), our technical solutions segment utilizesis deploying uranium enrichment and other capabilities necessary for production of advanced nuclear fuel to meet the evolving needs of the global nuclear industry and the U.S. government. We also are leveraging our unique technical expertise, operational experience, and specialized facilities that we developed over nearly two decades as part of our uranium enrichment technology program. We are leveraging these capabilities to expand and diversify our business beyond uranium enrichment, offering new services to existing and new customers in complementary markets.
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Our technical engineering and manufacturing services for a range of commercial and government customers and activelysolutions segment is working to secure new customers. Our experience developing, licensing, manufacturing and operating advanced nuclear components and systems positions us to provide critical design, engineering, manufacturing and other services to a broad range of potential clients, including those involving sensitive or classified technologies. This work includes design, engineering, manufacturing and licensing services support for advanced reactor and fuel fabrication projects as well as decontamination and decommissioning (“D&D”) work.
The United States has not had domestic uranium enrichment capability suitable to meet U.S. national security requirements since the Paducah Gaseous Diffusion Plant (“Paducah GDP”) shut down in 2013. Longstanding U.S. policy and binding nonproliferation objectives.agreements prohibit the use of foreign-origin enrichment technology for U.S. national security missions. Our AC100M centrifuge currently is the only deployment-ready U.S. uranium enrichment technology that can meet these national security requirements, albeit requiring one minor change in sourcing of materials.
carbon-free power. HALEU is a high-performance nuclear fuel component of an advanced nuclear reactor fuel thatwhich is not commercially available today and mayexpected to be required forby a number of advanced reactor and fuel designs currentlythat are now under development in both thefor commercial and government sectors. Existinguses. While existing reactors typically operate on LEU with the uranium-235 isotope concentration below 5%., HALEU has ais further enriched so that the uranium-235 concentration rangingis between 5% and 20%. The higher U-235 concentration offers a number of potential advantages, which may include better fuel utilization, improved performance, fewer refueling outages, simpler reactor designs, reduced waste volumes, and greater nonproliferation resistance.
The lack of a domestic HALEU supply is widely viewed as a major obstacle to the successful commercialization of these new reactors. As the only company with a license from 5%the Nuclear Regulatory Commission (“NRC”) to enrich up to 20%, giving uranium-235 assay HALEU, Centrus is uniquely positioned to fill a critical gap in the supply chain and facilitate the deployment of these promising next-generation reactors.
The DOE has experienced a COVID-19 related supply chain delay in obtaining the HALEU storage cylinders. Since it several potential technicalis not possible to begin HALEU production without the storage cylinders, it would not be possible to complete the operational portion of the demonstration before the June 1, 2022 expiration date of the existing contract. As a result, the DOE elected to change the scope of the existing contract and economic advantages. For example,move the higher concentrationoperational portion of uranium-235 meansthe demonstration to a new, competitively-awarded, contract that fuel assemblieswould provide for operations beyond the term of the existing contract. On February 7, 2022, the DOE issued a pre-solicitation notice for a request for proposal to complete the HALEU demonstration facility and reactors can be smallerto produce HALEU, noting that the “the Administration supports longer-term demonstration of production capability.” The pre-solicitation notice outlines a two-phase approach. Phase 1 consists of completing installation of the centrifuges – which DOE expects will take up to one year from contract signing – followed by one full year of cascade operations. Phase 2 consists of three optional, 3-year extensions to produce HALEU, so that the prospective contract could help support a total of one to ten years of cascade operations in addition to completing construction and reactorscentrifuge installation.
Centrus believes it is well-positioned to compete for a follow-on contract to operate the machines in our facility near Piketon but there is no assurance that DOE will require less frequent refueling. Reactors can also achieve higher “burnup” rates, meaningaward such a smaller volume of fuelcontract to the Company. Congress has not yet adopted a Fiscal Year 2022 appropriations bill for the DOE, and there is no assurance that the proposed program will be required overallapproved and less waste will be produced.funded.
The U.S. government has been operating under a series of continuing resolutions in Fiscal Year 2022. The DOE continues to support the HALEU may also be usedprogram during the continuing resolution period, and has incrementally increased the government’s cost share ceiling as funds have become available.
Additional COVID-19-related impacts, delays in the futureDOE furnishing equipment, or changes to fabricate next-generation fuel forms for the existing fleetscope of reactorsthe HALEU Contract could result in further material increases to our estimate of the United Statescosts required to complete the existing HALEU Contract, and arounddelay completion of the world. These new HALEU-based fuelscontract. The Company currently does not have a contractual obligation to perform work in excess of the funding provided by DOE and, therefore, no additional costs
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have been accrued as of December 31, 2021. If DOE does not commit to fully fund the additional costs, and the Company nevertheless commits to a plan to complete the remaining activities of the HALEU Contract, we may incur material additional costs or losses in future periods that could improve the economics of nuclear reactorshave an adverse impact on our financial condition and inherent safety features while increasing the amount of electricity that can be generated at existing reactors. HALEU fuel may also ultimately be used in new commercial and government applications in the future, such as reactors for the military.liquidity.
We believe our investment in the HALEU technology will position the Company to meet the needs of ourgovernment and commercial customers in the future as they deploy advanced reactors and next generation fuels. ByAt present, there are a number of advanced reactors under development. For example, nine of the ten advanced reactor designs selected by the DOE for its Advanced Reactor Demonstration Program will require HALEU.In addition, the first non-light water reactor to begin active NRC-license review requires HALEU.The U.S. Department of Defense also plans to construct a prototype HALEU-fueled mobile microreactor in the next three to four years as part of a program called “Project Pele.”The U.S. Air Force also announced plans to deploy a microreactor at Eielson Air Force Base in Alaska.While the use of HALEU is not an express requirement of the Air Force program, the vast majority of microreactor designs are expected to need HALEU. On December 14, 2021, DOE issued a request for information related to a potential program to fund the availability of HALEU.
Advanced nuclear reactors promise to provide an important source of reliable carbon-free power. While there is no commercial market for HALEU today, we believe that by investing in HALEU technology now, and as the only domestically-ownedAmerican-based company withcurrently pursuing HALEU enrichment capability we believeand possessing an NRC license for such production, the Company could be well positioned to capitalize on a potential new market as the demand for HALEU basedHALEU-based fuels increases in the mid to late-2020s with the development of advanced reactors. ThereHowever, there are no guarantees about whether or when government or commercial demand for HALEU will materialize, and there are a number of technical, regulatory, and economic hurdles that must be overcome for these fuels and reactors to come to the market.
For a discussion of the potential risks and uncertainties facing our business, see Part I, Item 1A, Risk Factors.
Low Enriched Uranium
LEU consists of two components: separative work units (“SWU”) and natural uranium. Revenue from our LEU segment is derived primarily from:
•sales of the SWU component of LEU,
•sales of both the SWU and natural uranium components of LEU, and
•sales of natural uranium.
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Uranium and Enrichment
Uranium is a naturally occurring element and is mined from deposits located in Kazakhstan, Canada, Australia, and several other countries, including the United States. According to the World Nuclear Association (“WNA”), there are adequate measured resources of natural uranium to fuel nuclear power at current usage rates for about 90 years. In its natural state, uranium is principally comprised of two isotopes: uranium-235 (“U235”) and uranium-238 (“U238”). The concentration of U235 in natural uranium is only 0.711% by weight. Uranium enrichment is the process by which the concentration of U235 is increased. Most commercial nuclear power reactors require LEU fuel with a U235 concentration greater than natural uranium andof up to 5% by weight. Future reactor designs currently under development will likely require higher U235 concentration levels of up to 20%. Uranium enrichment is the process by which the concentration of U235 is increased.
SWU is a standard unit of measurement that represents the effort required to transform a given amount ofsort natural uranium into two components:between enriched uranium having a higher percentage of U235 and depleted uranium having a lower percentage of U235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium deemed to be contained in LEU under this formula is referred to as its uranium or “feed” component.
While in some cases customers purchase both the SWU and uranium components of LEU from us, utility customers typically provide the natural uranium to us as part of their enrichment contracts and in exchange we deliver LEU to these customers and charge for the SWU component. Title to natural uranium provided by customers generally remains with the customer until delivery ofCentrus delivers the LEU, at which time title to LEU is transferred to the customer, and we takeCentrus takes title to the natural uranium.
The following outlines the steps for converting natural uranium into LEU fuel, commonly known as the nuclear fuel cycle:
Mining and Milling. Natural, or unenriched, uranium is removed from the earth in the form of ore and then crushed and concentrated.
Conversion. Uranium concentrates (“U3O8”) are combined with fluorine gas to produce uranium hexafluoride (“UF6”), a solid at room temperature and a gas when heated. UF6 is shipped to an enrichment plant.
Enrichment. UF6 is enriched in a process that increases the concentration of the U235 isotope in the UF6 from its natural state of 0.711% up to 5%, or LEU, which is usable as a fuel for current light water commercial nuclear power reactors. Future commercial reactor designs may use uranium enriched up to 20% U235, or HALEU.
Fuel Fabrication. LEU is then converted to uranium oxide and formed into small ceramic pellets by fabricators. The pellets are loaded into metal tubes that form fuel assemblies, which are shipped to nuclear power plants. As the advanced reactor market develops, HALEU may be converted to uranium oxide, metal, chloride or fluoride salts, or other forms and loaded into a variety of fuel assembly types optimized for the specific reactor design.
Nuclear Power Plant. The fuel assemblies are loaded into nuclear reactors to create energy from a controlled chain reaction. Nuclear power plants generate approximately 20% of U.S. electricity and 11%10% of the world’s electricity.
Used Fuel Storage. After the nuclear fuel has been in a reactor for several years its efficiency is reduced and the assembly is removed from the reactor’s core. The used fuel is warm and radioactive and is kept in a deep pool of water for several years. Many utilities have elected to then move the used fuel into steel or concrete and steel casks for interim storage.
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LEU Segment Order Book
Our order book of sales under contract in the LEU segment (“order book”) extends to 2030. As of2029. For the years ended December 31, 2019,2021 and 2020, our order book was $1.0 billion.approximately $986 million and $960 million, respectively. The order book is the estimated aggregate dollar amount of revenue for future SWU and uranium deliveries, and includes $0.3 billionapproximately $348.2 million of deferred revenue and advances from customers as of December 31, 2019,2021, whereby customers have made advance payments to be applied against future deliveries. We anticipate our SWU and uranium revenue from sales currently under contract inestimate that approximately 3% of our order book will be in a range of $110 millionis at risk related to $120 million during 2020. As of December 31, 2018, our order book was $1.0 billion. In 2019, new contracts signed offset the impact of completed deliveries.customer operations.
Most of our customer contracts provide for fixed purchases of SWU during a given year. Our estimate of the order book estimate is based partially based on customers’ estimates of the timing and size of their fuel requirements and other assumptions that are subject to change. For example, depending on the terms of specific contracts, the customer may be able to increase or decrease the quantity delivered within an agreed range. Our order book estimate is also based on our estimates of selling prices, which may be subject to change. For example, depending on the terms of specific contracts, prices may be adjusted based on escalation using a general inflation index, published SWU price indicators prevailing at the time of delivery, and other factors, all of which are variable. We use external composite forecasts of future market prices and inflation rates in our pricing estimates. Refer to Part I, Item 1A, Risk Factors, for a discussion of risks related to our order book.
Suppliers
We have a diverse base of supply that includes:
•existing inventory of LEU (refer to Note 4, Inventories),
•purchases and loans from secondary sources including fabricators and utility operators of nuclear power plants that have excess inventory, and
•spot purchases of SWU, uranium and uranium.LEU.
We have and will seekaim to continue to further diversify this base of supply and take advantage of the opportunities to obtain additional short and long-term supplies of LEU.
Currently, our largest suppliers of SWU are the Russian government entity TENEX Joint-Stock Company (“TENEX”) and the French government owned company Orano Cycle (“Orano”).
Under an agreement withthe TENEX (the “Russian Supply Agreement”),Contract, we purchase SWU contained in LEU, received from TENEX, and we deliver natural uranium to TENEX for the LEU’s uranium component. The RussianTENEX Supply Agreement was originally signed with commitmentsContract extends through 2022 but was modified in 2015 to give us the right to reschedule certain quantities of SWU of the original commitments into the period 2023 and beyond, in return for the purchase of additional SWU in those years.2028. We have exercised our right to reschedule deliveries through 2028 when the Russian Supply Agreement is scheduled to terminate.
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The amount of SWU we must purchase from TENEX under the RussianTENEX Supply AgreementContract exceeds our current sales order book and, therefore, we will need to make new sales to place all the Russian LEU we must order to meet our SWU purchase obligations to TENEX. In addition, dueAlthough the quotas cover most of the LEU that we must order to quotas and other limitations, not all offulfill our deliverypurchase obligations under our existing contracts canthe TENEX Supply Contract, we expect that a small portion of the Russian LEU that we order during the term of the TENEX Supply Contract will need to be met with Russian LEU.delivered to customers who will use it in non-U.S. reactors.
We also have an agreement with Orano (the “Orano Supply Agreement”) with Orano for the long-term supply of SWU contained in LEU, nominally commencing in 2023. Under the Orano Supply Agreement, we will purchase SWU contained in LEU received from Orano, and then deliver natural uranium to Orano for the natural uranium feed material component of LEU. We havehad the option to extend the six-year purchase period for an additional two years.years and have recently elected to take the additional supply in 2029. The Orano Supply Agreement provides significant flexibility to adjust purchase volumes, subject to annual minimums and maximums, in fixed amounts that vary year by year. The pricing for the SWU purchased by usSWU is determined by a formula that uses a combination of market-related price points and other factors, and is subject to certain floors and ceilings. Prices are payable in a combination of U.S. dollars and euros.
We procure LEU from other sources under short-term and long-term contracts and have inventories available that diversify our supply portfolio and provide flexibility to help us meet the needs of our customers. We also have agreements to borrow SWU which we can use to optimize our purchases and deliveries over time.
Market prices for SWU fell substantially in the aftermath of the nuclear incident at Fukushima, Japan in 2011.2011, bottoming out in August of 2018. While prices have been rising, they are still lower than market prices prior to Fukushima. Recent purchases of SWU and our long-term contract with Orano reflect this decline inthese lower market prices. We signed our large, long-term supply agreement with TENEX in 2011. PricesAdditionally, prices under the RussianTENEX Supply Agreement alsoContract have been adjusted to reflect lower market prices based on a one-time market related price reset that was agreed to when we signed the contract in 2011. The reset occurred in 2018, reducing the unit cost per SWU for our purchases we made infrom 2019 and will make for the duration of the contract.through 2028.
Technical Solutions
Our technical solutions segment reflects our technical, manufacturing, engineering, and operations services offered to public and private sector customers, including the American Centrifuge engineering and testing activities we have performed as a contractor for UT-Battelle LLC (“UT-Battelle”),the contractor operating the Oak Ridge National Laboratory, and the engineering, procurement, construction, manufacturing and operations services being performed under the HALEU Contract. With our private sector customers, we seek to leverage our domestic enrichment experience, engineering know-how and precision manufacturing facility to assist customers with a range of engineering, design and advanced manufacturing projects, including the production of fuel for next-generation nuclear reactors and the development of related facilities. Refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - COVID-19 Update.
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Government Contracting
On October 31, 2019, we signed the three-year cost-share HALEU Contract with DOE to deploy a cascade of centrifuges to demonstrate production of HALEU for advanced reactors. The three-year program has been under way since May 31, 2019, when the Company and DOE signed an interim HALEU letter agreement that allowed work to begin while the full contract was being finalized.
In 2019, under the HALEU Contract, DOE agreed to reimburse the Company for 80% of its costs incurred in performing the contract, up to a work authorizationmaximum of $115 million (which was recently increased to $126.7 million, as noted below). The Company’s cost share is the corresponding 20% and any costs the Company elects to incur above these amounts. Costs under our lease with DOE, we were required to removethe HALEU Contract include program costs, including internal labor, third-party services and dispose of government owned materials, and equipment in orderassociated indirect costs that are classified as Cost of Sales, and an allocation of corporate costs supporting the program that are classified as Selling, General and Administrative Expenses. Services to renderbe provided over the facility radiologically uncontaminatedthree-year contract include constructing and unclassified. The contract was a cost-plus fixed fee contract totaling approximately $15 million. The Company announced that it had successfully completed decontaminationassembling centrifuge machines and decommissioningrelated infrastructure, and training and qualifying the workforce for operation of the facilityfacility. When estimates of total costs for such an integrated, construction-type contract exceed estimates of total revenue to be earned, a provision for the remaining loss on October 9, 2019. In connection with the substantial completioncontract is recorded to Cost of Sales in the period the loss is determined. Our corporate costs supporting the program are recognized as expense, as incurred over the duration of the work,contract term. The accrued loss on the contract is being adjusted over the remaining contract term based on actual results, remaining program cost projections, and the Company’s anticipated cost-share.
Further, while we terminated our lease withstill anticipate completing construction of the cascade in 2022, due to a COVID-19 related supply chain delay in the DOE-supplied HALEU storage cylinders, production will commence under another contract that the DOE plans to compete later this year. The U.S. government has been operating under a series of continuing resolutions in Fiscal Year 2022. The DOE continues to support the HALEU program during the continuing resolution period, and has incrementally increased the government’s cost share ceiling as funds have become available. Currently, DOE has provided incremental funding, and increased the government’s cost share ceiling to $126.7 million. For further discussion, refer to Item 7, Management Discussion and Analysis, of this 10-K report.
Our HALEU Contract expires June 1, 2022, and although we believe demand for HALEU will emerge over the K-1600 facility on September 30, 2019.next several years, there are no guarantees about whether or when government or commercial demand for HALEU will materialize, and there are a number of technical, regulatory and economic hurdles that must be overcome for these fuels and reactors to come to the market.
Commercial Contracting
In March 2018, we entered into atwo services agreementagreements with X Energy, LLC (“X-energy”)X-energy to provide X-energy with (i) technical and resource support for criticality safety evaluation of processing equipment,the conceptual and preliminary design of freshits Tri-Structural Isotropic (“TRISO”) fuel transport packages, and conceptual mock-upmanufacturing process. Both of a nuclear fuel production facility and (ii) non-cash in-kind contributions subject to a cooperative agreement between X-energy and the United States government. The services were performed pursuant to separate task orders issued under the agreement. The initial task orders ran through December 31, 2018, and provided for time-and-materials based pricing with payments to be made to us totaling approximately $4.4 million.these contracts have been completed. In addition, we contributed non-cash in-kind contributions with a value of approximately $2.5 million. In January 2020, we extended the period of performance through June 30, 2020 which resulted in revised total payments to be made to us of approximately $4.6 million and non-cash in-kind contributions to be provided by us with a value of approximately $2.6 million.
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Competition and Foreign Trade
It is estimated that the enrichment industry market for commercial nuclear reactors powered by low enriched uranium (“LEU”) is currently about 50about 57.5 million SWU per year. Our global market share of enrichment for the LEU market is less than 5%. Global LEU suppliers in our highly competitive industry compete on the basis of price and reliability of supply. The four largest LEU suppliers comprise over 95% of market share combined:
•Urenco, a consortium of companies owned or controlled by the British and Dutch governments and two German utilities;
•Orano, a company largely owned by the French government that was formerly part of the French government owned company, AREVA;government; and
The production capacity for Rosatom/ROSATOM/TENEX is estimated by the World Nuclear Association to be approximately 2728.7 million SWU per year. Imports of LEU and other uranium products produced in the Russian Federation are subject to restrictions as described below under —Limitations on Imports of LEU from RussiaRussian Suspension Agreement.
Urenco reported installed capacity at its European and U.S. enrichment facilities of 18.619.6 million SWU per year at the end of 2018.2020.
Orano’s gas centrifuge enrichment plant in France began commercial operations in 2011 and the plant’s nominal capacity of 7.5 million SWU was reportedly in service at the end of 2016. Orano has reported that it has suspended planned capacity expansions beyond 7.5 million SWU.
CNEIC has emerged as a significant producer primarily focused on supplying domestic requirements in China. CNEIC’s commercial SWU production capacity is estimated to be approximately 6.810.7 million SWU per year in 2020.
All of our current competitors are owned or controlled, in whole or in part, by foreign governments, and operate enrichment technologies developed with the financial support of foreign governments. These competitors may make business decisions in both domestic and international markets that are influenced by political or economic policy considerations rather than exclusively by commercial considerations.
LEU also may also be produced by down-blending government stockpiles of highly-enriched uranium. Governments control the timing and availability of highly-enriched uranium released for this purpose, and the release of this material to the market could impact market conditions. Given the current oversupplied nuclear fuel market, any additional LEU from down-blended highly-enriched uranium released into the market would have a negative effect on prices for LEU.
Our LEU we supply to foreign customers is exported under the terms of international agreements governing nuclear cooperation between the United States and the government of the country of destination or other entities, such as the European Union or the International Atomic Energy Agency. The LEU supplied to us is subject to the terms of cooperation agreements between the country in which the material is produced and the country of destination or other entities.
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Russian Suspension Agreement
Imports into the United States of LEU and other uranium products produced in the Russian Federation, including LEU imported by Centrus underunder the RussianTENEX Supply Agreement,Contract, are subject, through December 31, 2020,2040, to quotas imposed under U.S. legislation enacted into law in September 2008 and December 2020, and under the 1992 Russian Suspension Agreement (“RSA”),RSA, as amended in 2008.2008 and 2020. These quotas limit the amount of Russian LEU that can be imported into the United States for U.S. consumption.consumption1.
The U.S. Department of Commerce (“DOC”)RSA is currently conducting an administrative review of the current status of, and compliance with, the RSA during the period October 2017 through September 2018 (the “Second Administrative Review”) and in December 2019, initiated another review of the period October 2018 through September 2019 (the “Third Administrative Review”). In an earlier review (the “First Administrative Review”), which covered the period October 2016 through September 2017 and was completed in December 2017,a trade agreement between the DOC found that TENEX, Centrus and others had complied with the terms of the RSA during the period of review, but deferred until the Second Administrative Review any decision on whether the RSA continues to meet the statutory requirements that the RSA (i) prevent the suppression or undercutting of price levels of domestic uranium products and (ii) continue to be in the public interest. In a preliminary determination in the Second Administrative Review, issued in December 2019, the DOC again found that Centrus and others had complied with the RSA, but again deferred making a determination on the statutory requirements, which it said would be addressed in a post-preliminary analysis, which has yet to be issued. A final determination in the Second Administrative Review is expected to be issued in June 2020.
Under this law and the RSA, imports of Russian uranium products will peak in 2023 at 24% of the forecasted U.S. demand for enrichment and then begin to decline, reaching 15% by 2028. Despite the fact that overall limits will ramp down, the RSA extension agreement explicitly sets aside sufficient quota in 2021-2028 for Centrus. The RSA and the legislation provide for a high-levelrevision of the quotas in 2023, 2029, and 2035 to take account of SWU demand forecasts that will be published by the WNA in the future. Any quota adjustment or other change to the RSA could affect our ability to implement the TENEX Supply Contract through sales to customers who take delivery in the United States, which is our most significant market.
The actual size of the annual quotas allocated to Centrus for the TENEX Supply Contract are confidential, but a public version of the quotas shows that they represent a significant portion of the total quotas provided under the RSA in 2021-2028. The quotas provided for the TENEX Supply Contract are expected to be adequate to support the Company’s long-term strategic goals and to permit enriched uranium procured from TENEX during the remaining term of the TENEX Supply Contract to be imported to supply U.S. governmentutilities, thereby securing a key part of the Company’s supply base for the benefit of its customers and providing the revenues needed by the Company to support its work on HALEU and other advanced technology projects in the United States.
For further details, refer to Part I, Item 1A, Risk Factors - Our future prospects are tied directly to the nuclear fuel working group be formed to develop recommendations for revivingenergy industry worldwide, and expanding domestic nuclear fuel production.the financial difficulties experienced by, and operating conditions of, our customers and suppliers could adversely affect our results of operations and financial condition.
Other Actions Adversely Affecting International Trade
In 2018, in connection with the withdrawal by the United States from a 2015 multilateral agreement known as the “JointJoint Comprehensive Plan of Action” or JCPOA, (“JCPOA”) the U.S. government re-imposed sanctions on Iran’s Atomic Energy Organization of Iran (AEOI)(“AEOI”) and a number of its subsidiaries. Waivers were granted to allow non-Iranian entities to continue to work on certain programs that, among other things, allowed affiliates of RosatomROSATOM to continue work at the Fordow enrichment planton nuclear projects in Iran. On October 29, 2019,These waivers have expired or been terminated and as a result, the U.S. government extended four of these waivers for 90 days, but in November 2019, the U.S. State Department announced that one of the four waivers that permitted Rosatom’s affiliates to continue work at the Fordow enrichment plant would terminate early, on December 15, 2019, in response to an announcement by Iran that it would enrich uranium at that facility. (The remaining three waivers were extended for an additional sixty days on January 31, 2020.) Termination of the waiver of sanctions that might have applied to Russian work at Fordow could have allowed the U.S. governmentdecide to impose sanctions on RosatomRussian entities that may be involved in nuclear work in Iran, including ROSATOM or its affiliates for conducting work at Fordow. In early December 2019, however, a Rosatom subsidiary announced that it was suspending work at the Fordow plant, thereby reducing the risk that Rosatom or its subsidiaries,subsidiaries. These sanctions could affect companies owned by ROSATOM, including TENEX, would be sanctioned.even if they are not doing work in Iran. To date, no sanctions have been imposed or announced on TENEX or its affiliate that producers LEU that would adversely affect our abilityany other ROSATOM subsidiary involved in the TENEX Supply Contract, in respect to implement the Russian Supply Agreement.
1 The term “quota” is used herein for simplicity. The amounts of Russian uranium products that produces LEU for delivery under the Russian Supply Agreement were sanctioned and if the sanctions ultimately preclude the Company from purchasing LEU from TENEX, the Company would seek a license, waiver or other approval from the U.S. government to ensure that the Company could continue to fulfill its purchase and sales obligations. There is no assurance that such a license, waiver or approval wouldcan be granted. If a license, waiver or approval were not granted, the Company would need to look to alternative sources of LEU to replace the LEU that it could not procure from TENEX, andshipped to the extent these sources were insufficient or more expensive, it would adversely impact our business, results of operations,United States are referred to as export limits in the RSA and competitive position.import limits in the legislation, but from a practical perspective have identical effect.
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DOE Facilities
We produced LEU through 2001 at the former Portsmouth Gaseous Diffusion Plant (“Portsmouth GDP”) in Piketon, Ohio and through 2013 at the former Paducah Gaseous Diffusion Plant (“Paducah GDP”)GDP in Paducah, Kentucky, which we had leased from DOE. We currently store our existing inventory at third partythird-party offsite licensed locations under agreements with the operators of those facilities. Our prior enrichment operations generated hazardous, low-level radioactive and mixed wastes. The storage, treatment, and disposal of wastes are regulated by federal and state laws. The treatment and disposal of wastes from our prior operations at the Paducah GDP were completed in 2016. Regarding our past operations at the former Portsmouth GDP DOE agreed in 2011 to accept ownership of all nuclear material at the site, some of which required processing for waste disposal. We agreed to pay DOE for costs for disposing of our share of such wastes. The treatment and disposal of wastes from our prior operations at the Portsmouth GDP were completed in 2017.
We lease facilities and related personal property innear Piketon, Ohio from DOE. In connection with a letter agreement that preceded the HALEU letter agreement,Contract, DOE and Centrus amended the lease agreement, which was scheduled to expire by its terms on June 30, 2019. The lease was renewed and extended until May 31, 2022. In September 2021, the Company and the DOE renewed and extended the lease until December 31, 2025. Any facilities or equipment constructed or installed under the HALEU Contract, or other contract with DOE will be owned by DOE and may be returned to DOE in an “as is” condition at the end of the lease term. DOE will be responsible for the D&D of any returned facilities or equipment. If we determine the equipment and facilities may benefit Centrus after completion of the HALEU program, we can extend the facility lease and ownership of the equipment will be transferred to us, subject to mutual agreement regarding D&D and other issues.
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Human Capital Management
Our employees in Maryland, Ohio, and Tennessee are dedicated to our leasecorporate philosophy based in honesty, trust, and with DOE,the highest levels of integrity, safety and security. Every day these values drive how we wereoperate our business; govern how we interact with each other and our customers, partners, and suppliers; guide the way that we treat our workforce; and determine how we connect with our communities. Our commitment to ethical business practices is outlined in our Code of Business Conduct. Each employee is required to removeacknowledge receipt, understanding of, and disposecompliance with our standards.
Due to the highly specialized nature of government owned materialsour business we need to hire and equipment in ordertrain skilled and qualified personnel to render the facility non-contaminateddesign, build, and unclassified. On October 9, 2019, we announced the successful completionoperate our state of the D&Dart equipment, and to perform a broad range of services to support our country and our customers. Our work requires that we attract people who are dedicated to consistently performing quality work and, for many of our positions, are able to obtain a security clearance. We recognize that our success as a company depends on our ability to attract, develop, and retain such a workforce. We are dedicated to promoting the health, welfare and safety of our employees. Part of our responsibility includes treating all employees with dignity and respect and providing them with fair, market-based, competitive, and equitable compensation. We recognize and reward the performance of our employees in line with our pay-for-performance philosophy and provide a comprehensive suite of benefit options that enables our employees and their dependents to live healthy and productive lives.
Safety in our workplaces is paramount. We take measures to prevent workplace hazards, encourage safe behaviors and enforce a culture of continuous improvement to ensure our processes help eliminate incidents and injuries and comply with governing health and safety laws.
We are committed to promoting diversity of thought, experience, perspectives, backgrounds, and capabilities to drive innovation and to strengthen the solutions we deliver to our customers because we believe this diversity leads to better outcomes. We proudly support a culture of inclusion and encourage a work environment that respects diverse opinions, values individual skills, and celebrates the unique experiences our employees possess. To ensure a diverse group of candidates is considered for each opening we enlist the services of a Human Resource Consulting firm that provides services and products related to Affirmative Action Programs (“AAPs”) and equal employment opportunity as required by the U.S. Department of Labor's Office of Federal Contract Compliance Programs (“OFCCP”).
Our values motivate us to promote strong workplace practices with opportunities for development and training. Our training and development efforts focus on ensuring that the workforce is appropriately trained on critical job skills as well as leadership attributes that are consistent with our philosophy. During the COVID-19 pandemic, we transitioned our headquarters staff to work from home. We have endeavored to maintain the highest levels of safety for our operations staff, who are in open offices, with enforcement of social distancing, face masks, and also 100% daily temperature screening. All non-bargaining unit employees of the facility. In connectionCompany, including those working from home, are either fully vaccinated (95%) against the COVID-19 virus or working with the substantial completion of the work, we terminated our lease with DOE for the K-1600 facility on September 30, 2019.accommodations (5%).
A summary of our employees by location is as follows:
No. of Employees at December 31, | No. of Employees at December 31, | |||||||||||||||||||
| Location | 2019 | 2018 | Location | 2021 | 2020 | |||||||||||||||
| Piketon, OH | Piketon, OH | 115 | 107 | |||||||||||||||||
| Oak Ridge, TN | 104 | 105 | Oak Ridge, TN | 101 | 105 | |||||||||||||||
| Piketon, OH | 69 | 65 | ||||||||||||||||||
| Bethesda, MD | 53 | 51 | Bethesda, MD | 50 | 53 | |||||||||||||||
| Other | 4 | 5 | Other | — | 2 | |||||||||||||||
| Total Employees | 230 | 226 | Total Employees | 266 | 267 | |||||||||||||||
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On January 16, 2020, members of the United Steelworkers (“USW”) Local 689-5 ratified a new collective bargaining agreement for the employees represented by the USW at the advanced technology facility innear Piketon, Ohio. The contract term is through October 1, 2022.
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Executive Officers
Executive officers are elected by and serve at the discretion of the Board of Directors. The Executive officers at March 26, 2020, follow:
as of December 31, 2021, are as follows:
| Name | Age | Position | ||||||
| Daniel B. Poneman | President and Chief Executive Officer | |||||||
| Larry B. Cutlip | Senior Vice President, Field Operations | |||||||
| Dennis J. Scott | Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary | |||||||
| Philip O. Strawbridge | Senior Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer | |||||||
| John M.A. Donelson | Senior Vice President | |||||||
Daniel B. Poneman has been President and Chief Executive Officer since April 2015 and was Chief Strategic Officer in March 2015. Prior to joining the Company, Mr. Poneman was Deputy Secretary of Energy from May 2009 to October 2014, in which capacity he also served as Chief Operating Officer of the U.S. Department of Energy.DOE.
Larry B. Cutlip has been Senior Vice President, Field Operations since January 2018, was Vice President, Field Operations from May 2016 through December 2017, was Deputy Director of the American Centrifuge Project from January 2015 to May 2016, was Director, Centrifuge Manufacturing from April 2008 to December 2014, was Director, Program Management and Strategic Planning from December 2005 to April 2008, was Manager, Engineering from May 1999 to December 2005, and held positions in operations management and engineering at the Company and its predecessors since 1981.
Dennis J. Scott has been Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary since January 2018 and was Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary from May 2016 through December 2017. Mr. Scott was Deputy General Counsel and Director, Corporate Compliance from April 2011 to May 2016, Acting Deputy General Counsel from August 2010 to April 2011, Assistant General Counsel and Director, Corporate Compliance from April 2005 to August 2010 and Assistant General Counsel from January 1994 to April 2005.
Philip O. Strawbridge has been Senior Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer since September 2019. Prior to joining the Company, Mr. Strawbridge served as an executive adviser at Court Square Capital from 2010 to 2013. Mr. Strawbridge served in various executive positions including Chief Financial Officer at EnergySolutions, a nuclear services and technology company, from 2006 to 2010. He was Chief Executive Officer and Chief Operating Officer of BNG America, which provided nuclear waste management services and technology to U.S. Government and commercial clients, from 1999 until BNG America was acquired by EnergySolutions in early 2006.
John M.A. Donelson has been Senior Vice President Sales and Chief Marketing Officer since October 2019 and was Vice President, Sales and Chief Marketing Officer from January 2018 through October 2019. Mr. Donelson was Vice President, Marketing, Sales and Power from April 2011 through December 2017, Vice President, Marketing and Sales from December 2005 to April 2011, Director, North American and European Sales from June 2004 to December 2005, Director, North American Sales from August 2000 to June 2004 and Senior Sales Executive from July 1999 to August 2000.
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Available Information
Our website is www.centrusenergy.com. We make available on our website, or upon request, without charge, access to our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with, or furnished to, the Securities and Exchange Commission, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.
Our code of business conduct (the “Code of Business Conduct”) provides a brief summary of the standards of conduct that are at the foundation of our business operations. The codeCode of business conductBusiness Conduct states that we conduct our business in strict compliance with all applicable laws. Each employee must read the codeCode of business conductBusiness Conduct and sign a form stating that he or she has read, understands and agrees to comply with the codeCode of business conduct.Business Conduct. A copy of the codeCode of business conductBusiness Conduct is available on our website or upon request without charge. We will disclose on the website any amendments to, or waivers from, the code of business conduct that are required to be publicly disclosed.
We also make available on our website or upon request, free of charge, our codeCode of business conduct,Business Conduct, Board of Directors Governance Guidelines, and our Board committee charters.
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Item 1A. Risk Factors
The following discussion sets forth the material risk factors that could affect our financial condition and operations. Readers should not consider any descriptions of such factors to be a complete set of all potential risks that could affect us. Below,
War in Ukraine
The current war in Ukraine has led to the U.S., Russia and other countries imposing sanctions and other measures that restrict international trade. The situation is rapidly changing, and it is not possible to predict future actions that could be taken. The Company has multiple sources of supply; however, the supply contract with Tenex remains our largest source. At present, sanctions have not impacted the ability of the Company or TENEX to perform under the TENEX supply contract. Recently sanctions have been imposed by the U.S. on exports of fossil fuels. Russia has imposed sanctions on the export of commodities but does not include the export of LEU. Additional sanctions or other measures by the U.S. or foreign governments (including the Russian government) could be imposed. Any sanctions or measures directed at trade in LEU from Russia or the parties involved in such trade or otherwise could interfere with, or prevent, implementation of the TENEX Supply Contract. While the initial sanctions announced do not affect the ability of the Company or TENEX to implement the TENEX Supply Contract, the situation at this time is unpredictable and therefore there is no assurance that future developments would not have a material adverse effect on the Company’s procurement, payment, delivery or sale of LEU under the TENEX Supply Contract.
If measures were taken to limit the supply of Russian LEU or to prohibit or limit dealings with Russian entities, including, but not limited to, TENEX or ROSATOM, the Company would seek a license, waiver or other approval from the government imposing such measures to ensure that the Company could continue to fulfill its purchase and sales obligations. There is no assurance that such a license, waiver, or approval would be granted. If a license, waiver or approval were not granted, the Company would need to look to alternative sources of LEU to replace the LEU that it could not procure from TENEX. The Company has contracts for alternative sources that could be used to mitigate a portion of the near term impacts. However, to the extent these sources were insufficient or more expensive or additional supply cannot be obtained, it could have a material adverse impact on our business, results of operations, and competitive position.
Economic and Industry Risks
Our future prospects are tied directly to the nuclear energy industry worldwide, and the financial difficulties experienced by, and operating conditions of, our customers and suppliers could adversely affect our results of operations and financial condition.
Potential events that could affect either our customers or suppliers under current or future contracts with us or the nuclear industry as a whole, include:
•pandemics, armed conflicts (including the war in Ukraine), government actions and other events that disrupt supply chains, production, transportation, payments and importation of nuclear materials or other critical supplies or services;
•natural or other disasters (such as the 2011 Fukushima disaster) impacting nuclear facilities or involving shipments of nuclear materials;
•changes in U.S. or foreign government policies and priorities;
•regulatory actions or changes in regulations by nuclear regulatory bodies applicable to us, our suppliers or our customers;
•decisions by agencies, courts or other bodies under applicable trade and other laws applicable to us, our suppliers or our customers;
•disruptions in other areas of the nuclear fuel cycle, such as uranium supplies or conversion;
•civic opposition to, or changes in government policies regarding, nuclear operations;
•business decisions concerning reactors or reactor operations;
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•the financial condition of reactor owners and operations;
•the need for generating capacity; or
•consolidation within the electric power industry.
These events could adversely affect us to the extent they result in a reduction or elimination of customers’ contractual requirements to purchase from us; the suspension or reduction of nuclear reactor operations; the reduction or blocking of supplies of raw materials, natural or enriched uranium or separative work units (SWU), lower demand, burdensome regulation, disruptions of shipments, production importation or payment (including the blocking or restriction of transportation services or hardware); increased competition from third parties; and increased costs or difficulties or increased liability for actual or threatened property damage or personal injury. Additionally, customers may face financial difficulties, including from factors unrelated to the nuclear industry, that could affect their willingness or ability to make purchases. We cannot provide any assurance that events will not preclude us from making deliveries to our customers, increase our costs or that our customers, suppliers, or contractors will not default on their obligations to us or file for bankruptcy protection. If a customer files for bankruptcy protection, for example, we describe certain important operational,likely would be unable to collect all, or even a significant portion, of amounts that are owed to us. A default and bankruptcy filing by one or more customers or suppliers, or events (such as government actions) which prevent or limit our ability to obtain or sell material or services, could have a material adverse effect on our business, financial position, results of operations, or cash flows.
Our business, financial and operating performance could be adversely affected by epidemics and other health related issues including but not limited to the coronavirus disease 2019 (“COVID-19”) pandemic.
The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government and has negatively affected the U.S. and global economies, disrupted supply chains, and has resulted in significant travel, transport, and other restrictions. The COVID-19 outbreak has disrupted the supply chains and day-to-day operations of the Company, our suppliers, our contractors, and our customers, which could materially adversely affect our operations. In this regard, global supply chains and the timely availability of products or product components sourced domestically or imported from other nations, including SWU contained in LEU we purchase, could be materially disrupted by quarantines, slowdowns or shutdowns, border closings, and travel restrictions resulting from the global COVID-19 pandemic or other global pandemic or health crises. Further, impacts of COVID-19 infections and other COVID-19 pandemic related impacts on our management and workforce, or our suppliers, contractors, or customers, could adversely impact our business. While we have taken steps to protect our workforce and carry on operations, we may not be able to mitigate all of the potential impacts. We anticipate increased costs related to, or resulting from, the COVID-19 pandemic, due to, among other things, delays in supplier deliveries, impacts of travel restrictions, site access and quarantine requirements, and the impacts of remote work and adjusted work schedules.
The impacts of the COVID-19 pandemic have been primarily affecting our technical solutions segment since much of the work required under the HALEU Contract must be performed on the Company’s sites and on our suppliers’ sites. As a result, our costs under the HALEU Contract have been impacted. Further, as a result of the U.S. Department of Energy (“DOE”) not supplying us cylinders as required under the HALEU Contract, operation of the cascade has been deferred and will be performed under a subsequent competitively bid contract that may or may not be awarded to us.
In the event that the COVID-19 pandemic prevents our employees or our contractors from working in-person at our site or, our suppliers are unable to provide goods and services on the schedule we anticipated, the impacts on our schedule and costs could be material. Again, while we have worked to mitigate the impact, we are experiencing increased costs as the result of the impact of the pandemic on their operations.
We continue to work with our customers, employees, contractors, suppliers and communities to address the impacts of the COVID-19 pandemic and to take actions in an effort to mitigate adverse consequences. However, the ultimate impact of the COVID-19 pandemic on our operations and financial performance in future periods,
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including our ability to execute our strategic plan and legalprograms in the expected timeframe, remains uncertain and compliance risks.will depend on future pandemic related developments, including the duration of the pandemic and any potential subsequent variants of COVID-19 and related government actions to prevent and manage disease spread, all of which are uncertain and cannot be predicted. The long-term impacts of the COVID-19 pandemic on us or on government budgets, our customers, contractors and suppliers that could impact our business are also difficult to predict but could adversely affect our business, results of operations, and prospects.
The continued excess supply of LEU in the market could adversely affect market prices and our business results.
Events related to the March 2011 earthquake and tsunami that caused irreparable damage to four reactors in Fukushima, Japan created an over-supply of nuclear fuel that continues to heavily influence market prices. In addition, reactor operators facing aggressive price competition from natural gas and subsidized renewable generation like wind and solar, have closed or are planning to close reactors, further reducing demand for our product and services. Despite the decrease in demand, some of our competitors supported by foreign governments continued to expand their capacity. Market uncertainty, and reduced demand, coupled with excess capacity and supply has adversely affected our ability to sell LEU and SWU and could adversely affect our business, results of operations, and prospects.
Our business is exposed to price volatility associated the procurement of SWU and uranium.
The Company is exposed to commodity price risk for purchases of SWU and uranium. Our earnings and cash flows are therefore exposed to variability of spot and forward market prices in the markets in which it operates. The supply markets for SWU and uranium are subject to price fluctuations and availability restrictions.
Operational Risks
Restrictions on imports or sales of LEUSWU or SWUuranium that we buy from our Russian supplier and our other sources of supply could adversely affect profitability and the viability of our business.
The majority of the SWU and LEU that we use to fill existing contracts with customers is sourced from outside the United States, including from Russia under the TENEX Supply Agreement, and we expect the arrangement to continue into the future. Our ability to place this SWU and LEU we purchase into existing and future contracts with customers is subject to trade restrictions, sanctions, and other limitations imposed by the United States and other governments and our customers. For example, our imports from Russia are subject to U.S. importquotas. Given the quotas, restrictions, and customer limitations that limit our ability to sell SWU and in some cases,LEU purchased under the terms of contracts with customers that preclude us from delivering SWU or LEU produced in specific countries. Further,TENEX Supply Agreement both in the case of Russian LEU,United States and globally, there is no guarantee that we can make sufficient sales of Russian LEUto meet our minimum purchase obligation under the TENEX Supply Agreement. (For further information refer to Part I, Item 1, Competition and Foreign Trade).
Further, currently evolving international events, including the war in Ukraine could result in new or SWU are more challenging than sales of non-Russianadditional sanctions or other U.S. or foreign government actions that could directly or indirectly limit or prevent our purchase, importation, or ability to sell material becauseunder our TENEX Supply Agreement. Even absent such restrictions, some of our U.S. and foreign customers are unable or unwilling to accept Russian LEU.SWU and uranium.
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We may be unable to sell all of the LEU we are required to purchase under supply agreements for prices that cover our costs, which could adversely affect profitability and the viability of our business.
We may not achieve the anticipated benefits from supply agreements we enter into. For example, the priceThe prices we are charged for the SWU component under some of our supply agreements isare determined by a formulaformulas that uses a combination of market-related price points and other factors at the time of delivery, which may result in prices that are not be aligned with the prevailing market prices at the time we enter into contracts with customers. Other existing or new supply agreements may have pricing mechanisms that may not be aligned with market prices. The pricing mechanisms of our supply agreements may not align with pricing providedAs a result, the sales prices in our new or existing sales contracts and could result in sales prices that domay not cover our purchase costs, andor those purchase costs may limit our ability to make new sales at prices that exceed the purchase price we pay for the LEU.secure profitable sales.
We are dependent on existing inventorypurchases from our suppliers and other sources to meet our obligations to customers.customers and rely on third parties to provide essential services.
We are currently dependent on existing inventory, purchases from TENEX, Orano and other sourcessuppliers to meet our obligations to customers. We are acquiring alternative sources of supply incustomers, including purchases from the market. The availability, cost and terms of additional alternative sources of supply are subject to variables that are difficult to predict.Russian government entity, TENEX. A significant delay in, or stoppage or termination of, deliveries of material to us under our supply agreements, could adversely affect our ability to make deliveries to customerscustomers. The recent action of Russian military forces in Ukraine has escalated tensions between Russia and wouldthe U.S. The U.S. has imposed, and is likely to impose additional, financial and economic sanctions and export controls against certain Russian organizations and/or individuals. Sanctions and export controls, as well as any actions by Russia, could adversely affect revenuesour supply and results of operations. A delay, stoppage or termination could occur due to a number of factors, including logistical problems with shipments, commercial or political disputes between the parties or their governments, imposition of quotas, duties, sanctions, or other restrictions or a failure or inability by either partyour ability to meet the terms of such agreements. An interruption of deliveries could adversely impact our business, results of operations, and prospects.obligations to customers.
We face risks associated with reliance on third-party suppliers to meet customer commitments.
We face significant competition from major producers who may not be readily availableless cost sensitive or may be more costly. As a resultfavored due to support from foreign governments.
We compete with major producers of such risks,LEU, all of which are wholly or substantially owned by governments: Orano (France), Rosatom/TENEX (Russia), Urenco (the Netherlands, the United Kingdom and two German utilities), and CNEIC (China). Our competitors have greater financial resources than we do. Foreign competitors enjoy financial and other support from their government owners, which may enable them to be less cost or profit-sensitive than we are. In addition, decisions by foreign competitors may be unableinfluenced by political and economic policy considerations rather than commercial considerations. For example, foreign competitors may elect to meetincrease their production or exports of LEU, SWU, or other uranium products, including HALEU, even when not justified by market conditions, thereby depressing prices and reducing demand for our customer commitments, our costs could be higher than planned, and/or our relationship with customers could be negatively affected, all of whichLEU, SWU, and other uranium products. This could adversely affect our business, results of operations, and prospects. Customers place great valueMoreover, our competitors may be better positioned to take advantage of improved market conditions and increase capacity to meet any future market expansion.
The ability to compete in certain foreign markets may be limited for legal, political, economic or other reasons.
Doing business in foreign markets poses additional risks and challenges. For example, agreements for cooperation between the reliabilityU.S. government and various foreign governments or governmental agencies control the export of theirnuclear materials from the United States. We are unable to supply of fuel for their reactors. Failureforeign reactors unless there is an agreement for cooperation in force. If an agreement with a country in which one or more of our customers is located were to make a deliverylapse, terminate, or be amended, our sales or deliveries could have an adverse effect on our ability to make new sales and could have an adverse effect onbe curtailed or terminated, adversely affecting our business, results of operations, and prospects. Moreover, the lack of such agreements for cooperation between the United States government and those governments or agencies in emerging markets may restrict our ability to sell into such markets. Additionally, countries may impose other restrictions on the import or export of material or services.
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Purchases of LEU and SWU by customers in the European Union are subject to a policy of the Euratom Supply Agency that may affect the performanceseeks to limit foreign enriched uranium to no more than 20% of European Union consumption per year. Similarly, China has a policy of using Chinese sources of LEU and SWU. Such policies limit our suppliers. There can be no assuranceability to sell in those countries.
Certain foreign markets lack a comprehensive nuclear liability law that the steps we may take to address these events or issues will be successful in minimizing potential impactsprotects suppliers by channeling liability for injury and property damage suffered by third persons from nuclear incidents at a nuclear facility to the Company and our customers. Unless adequately addressed, such events or issuesfacility’s operator. The lack of legal protection for suppliers could adversely affect our business, results of operations,ability to compete for sales to meet the growing demand for LEU or SWU in these markets and prospects.our prospects for future revenue from such sales.
Dependence on our largest customers could adversely affect us.
In 2019,2021, our ten largest nuclear fuel customerscustomers represented approximately 72%57% of total revenue and our threetwo largest customers represented approximately 56%24% of total revenue. Further, individual orders average roughly $10$7.4 million. A reduction in purchases from our customers, whether due to their decision not to purchase optional quantities or for other reasons, including a disruption or change in their operations or financial condition that reduces purchases of LEU, SWU, or other uranium products from us, could adversely affect our business, results of operations, and prospects.
The dollar amount of the sales order book, as stated at any given time, is not necessarily indicative of future sales revenues and is subject to uncertainty.
Our order book of sales is the estimated aggregate dollar amount of SWU and uranium sales that we expect to recognize as revenue in future periods under existing contracts with customers. It includes deferred revenue for sales in which we have been paid but still have a delivery obligation, which means we will not receive cash in the future from those deliveries. There is no assurance that the revenues projected will be realized, or, if realized, will result in profits. Most of our contracts provide for fixed purchases of SWU during a given year. Our estimate of the order book is partially based on a number of factors including customers’ estimates of the timing and size of their fuel requirements and other assumptions that may prove to be inaccurate. The order book is also based on estimates of future selling prices, which are subject to change.prices. For example, depending on the terms of specific contracts, prices may be adjusted based on escalation using a general inflation index, published SWU or uranium market price indicators prevailing at the time of delivery, and other factors, all of which are unpredictable, particularly in light of general uncertainty in the nuclear market. We use external composite forecasts of future market prices and inflation rates in our pricing estimates. These forecasts may not be accurate, and therefore estimates of future prices could be over or understated.unpredictable. Any inaccuracy in estimates of future prices would add to the imprecision of the order book estimate.
From time to time, we have worked with customers to modify contracts that have delivery, scheduling, origin or other terms that may require modifications to address our anticipated supply sources. If we were to initiate such discussions in the future, we have no assurance that our customers would agree to revise existing contracts or would not require concessions, which could adversely affect the value of our order book and our prospects.
Our ability to operate the HALEU enrichment facility we are deploying under the HALEU Contract after the completion of the deployment is dependent on our ability to secure additional contracts and funding from the U.S. government or other sources.
In 2019, Centrus began work on a three-year, cost-shared contract with the DOE to deploy a cascade of 16 of our AC100M centrifuges to demonstrate production of HALEU with domestic technology. As a result of the on-going supply chain disruptions due to the COVID-19 pandemic and other factors, DOE has been unable to provide the cylinders required to begin HALEU production under the current contract. Consequently, operation of the demonstration cascade will be performed pursuant to a separate subsequent, competitively-awarded contract which may not be awarded to us. Although we believe we are well positioned to compete for the subsequent contract to operate the cascade beginning in 2022, there is no assurance that we will be awarded such contract.
Our goal is to be in a position to begin production and scale up the facility in modular fashion as demand for HALEU grows in the commercial and/or government sectors. However, our right to operate the facility we are building depends on the award of one or more follow-on contracts by the U.S. government, as well as continued
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funding for operation from the U.S. government or other sources. There is no assurance that we will be awarded such contracts or that such funding will be available. Further, it is uncertain whether or when demand to support the scale up of the facility will materialize. If we do not secure the necessary contracts and funding and if sufficient demand does not emerge, we may not be able to continue or expand operations at that facility and may not be able to support providing HALEU fuel for the advanced reactors under development.
If we are required to delease the facility where we are deploying the HALEU cascade under the HALEU Contract and return it, along with the centrifuges and supporting equipment, to the DOE at the expirations of our contract, this would likely result in the termination of our NRC operating license and us laying off our Piketon workforce. However, if we are able to continue operating the facility, we would incur additional costs and liabilities associated with the facility.
If the Company’s operation of the Piketon facility were terminated, there can be no assurance that we could regain use of the Piketon facility or obtain a new NRC license in the future at the Piketon site or an alternative site, in which event we would be unable to begin commercial production of HALEU. We may also incur additional costs related to reducing our workforce or closing the Piketon facility. Failure to secure U.S. government or other funding to support the continued operation of the Piketon facility, and retain our NRC license, could have a material adverse effect on our business and financial condition along with our plans for future growth.
Our technical solutions segment conducts business under various types of contracts, including fixed-price and cost-share contracts, which subjects us to risks associated with cost over-runs.
The technical solutions segment conducts business under various types of contracts, including fixed-price contracts and cost-share contracts, where costs must be estimated in advance of our performance. These types of contracts are priced, in part, on cost and scheduling estimates that are based on assumptions including prices and availability of experienced labor, equipment and materials. If, for example, thesematerials, and estimates prove inaccurate, if there are errors or ambiguities asof the amount of other contract work we expect to contract specifications or if circumstances change due to, among other things, unanticipated technical problems, poor project execution, changes inperform. In the costs of equipment and materials or our suppliers’ or subcontractors’ inability to perform, thenevent we have cost overruns, may occur. Wewe may not be able to obtain compensation for additional work performed or expenses incurred. For example, the Company entered in a cost share agreement with the U.S. Department of Energy (“DOE”) for the licensing, construction, assembly and operation of our AC100M centrifuge machines and related infrastructure in a cascade formation to produce high assay low enriched uranium (“HALEU”). Under the Agreement, DOE will reimburse us for up to 80% of the total program costs up to a maximum amount of $115 million. Any costs incurred above these amounts would increase the Company’s cost share. Our failure to accurately estimate the resources and time required for fixed-price or cost-share contracts or our failure to complete our contractual obligations within the time frame and costs committed could result in reduced profits, greater costs, or a loss for that contract. If the cost overrun on a contract is
significant, or we encounter issues that affect multiple contracts, the cost overrun could have a material adverse effect on our business, financial condition, and results of operations.
Financial Risks
We have significant long-term liabilities.
We continue to have significant long-term liabilities, including the indebtedness under our 8.25% Notes, which mature in February 2027. We also still have substantial pension and postretirement health and life benefit obligations and other long-term liabilities. In addition, the terms of the indenture governing our 8.25% Notes will not restrict Centrus or any of its subsidiaries from incurring substantial additional indebtedness in the future.
Our significant long-term liabilities (and other third-party financial obligations) could have important consequences, including:
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•placing certain restrictions on the ability of our subsidiary, United States Enrichment Corporation (“Enrichment Corp.”), to transfer cash and other assets to us, which could constrain our ability to pay dividends on our Common Stock or to fund our commitments or the commitments of our other subsidiaries.subsidiaries, pursuant to the indenture governing our 8.25% Notes, subject to certain exceptions; and
•restricting our ability to engage in certain mergers or acquisitions pursuant to the indenture governing our 8.25% Notes also requires us to offer to repurchase all such outstanding notes at 101% of their outstanding principal amount in the event of certain change of control events.
The terms of the indenture governing our 8.25% Notes do not restrict Centrus or any of its subsidiaries from incurring substantial additional indebtedness in the future. If we incur substantial additional indebtedness the foregoing risks would intensify.intensify, however. Additional information concerning the 8.25% Notes including the terms and conditions of the 8.25% Notes are described in Note 9,8, Debt of the consolidated financial statements.
The Company has material unfunded defined benefit pension plans obligations and postretirement health and life benefit obligations. TheseLevels of returns on pension and postretirement benefit plan assets, changes in interest rates and other factors affecting the amounts to be contributed to fund future pension and postretirement benefit liabilities are anticipated to require material contributionscould adversely affect earnings and cash flows in future periods, which may divert funds from other uses and could adversely impact the Company’s liquidity and prospects.periods.
Centrus and its subsidiary, Enrichment Corp., maintain qualified defined benefit pension plans that are guaranteed by the Pension Benefit Guaranty Corporation (“PBGC”), a wholly ownedwholly-owned U.S. government corporation that was created by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Centrus also maintains non-qualified defined benefit pension plans for certain executive officers. Effective August 2013, accrued benefits under the defined benefit pension plans are fixed and no longer increase to reflect changes in compensation or Company service. In addition, Enrichment Corp. maintains postretirement health and life benefit plans. The aforementioned pension and health and life benefit plans are closed to new participants. These plans are anticipated to require material cash contributions in the future, which may divert funds from other uses and could adversely impact our liquidity depending on the timing of any required contributions or payments in relation to our sources of cash and other payment obligations. See also the Risk Factor, Levels of returns on pension and postretirement
Our revenues and operating results may fluctuate significantly from quarter to quarter and year to year, which could have an adverse effect on our cash flows.
Revenue is recognized when or as we transfer control of the promised LEU or uranium to the customer. Customer demand is affected by, among other things, electricity markets, reactor operations, maintenance, and the timing of refueling outages. Customer payments for the SWU component of LEU typically average roughly $10 million per order. Further, some customers are facing challenging market and financial conditions, including seeking protection under bankruptcy laws. Accordingly, they may seek modification of or relief from their obligations either informally or under bankruptcy laws. As a result, a relatively small change in the timing, amount, or other terms of customer orders for LEU due to a change in a customer’s refueling schedule or other reasons may cause operating results to be substantially above or below expectations, which could have an adverse effect on our cash flows.
Results of operations could be negatively impacted if adverse conditions or changes in circumstances indicate a possible impairment loss related to our intangible assets.assets.
Intangible assets originated from our reorganization and application of fresh start accounting as of September 30, 2014. The intangible assets represented the fair value adjustment to the assets and liabilities for our LEU segment. The intangible assets remaining on our balance sheet relate to our sales order book and customer relationships. The order book intangible asset is amortized to expense as the order book valued at emergence is reduced, principally as a result of deliveries to customers. The customer relationships intangible asset is amortized to expense using the straight-line method over the estimated average useful life of 15 years.years with 7 ¾ years of scheduled amortization remaining.
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The carrying values of the intangible assets are subject to impairment tests whenever adverse conditions or changes in circumstances indicate a possible impairment loss. If impairment is indicated, the asset carrying value will be reduced to its fair value. Inherent in our fair value determinations are certain judgments and estimates, including projections of future cash flows, the discount rate reflecting the risk inherent in future cash flows, the interpretation of current economic indicators and market valuations, and strategic plans with regard to operations. A change in these underlying assumptions would cause a change in the results of the tests, which could cause the fair value of the intangible asset to be less than its respective carrying amount.
Centrus is dependent on intercompany support from Enrichment Corp.
Substantially all of our revenue-generating operations are conducted at our subsidiary, Enrichment Corp. The financing obtained from Enrichment Corp. funds our general corporate expenses, including interest payments on the 8.25% Notes, which are guaranteed on a limited and subordinated basis by Enrichment Corp. As a wholly ownedwholly-owned subsidiary of Centrus, Enrichment Corp. has its own set of creditors and a separate board of directors (the “Enrichment Board”), who are elected by Centrus. Current and future funding and support are conditional and dependent on Enrichment Corp.’s own financial condition and a determination by the Enrichment Board that such funding is in the interest of Enrichment Corp.
There is a limited trading marketvolume for our securities and the market price of our securities is subject to volatility.
The price of our Class A Common Stock remains subject to volatility. The market price and level of trading of our Class A Common Stock could be subject to wide fluctuations in response to numerous factors, many of which are beyond our control. These factors include, among other things, our limited trading history, our limited trading volume, the concentration of holdings of our Class A Common Stock, actual or anticipated variations in our operating results and cash flow, the nature and content of our earnings releases, announcements or events that impact our products, customers, competitors or markets, business conditions in our markets and the general state of the securities markets and the market for energy-related stocks, as well as general economic and market conditions and other factors that may affect our future results. Additionally, future sales of our common stock or instruments convertible into our common stock, in public or private offerings may depress our stock price.
Our 8.25% Notes and the Series B Preferred Stock are not listed on any securities exchange. No assurance can be given as to the liquidity of the trading market for the 8.25% Notes or the Series B Preferred Stock.Notes. The 8.25% Notes and the Series B Preferred Stock may only be traded only infrequently in transactions arranged through brokers or otherwise, and reliable market quotations for the 8.25% Notes and the Series B Preferred Stock may not be available. In addition, the trading prices of the 8.25% Notes and the Series B Preferred Stock will depend on many factors, including prevailing interest rates, the limited trading volumes, and the other factors discussed above with respect to the Class A Common Stock.
A small number of holders of our Class A stockholdersCommon Stock may exert significant influence over the direction of the Company.
As of December 31, 2019,2021, based solely on amounts reported in Schedule 13D and 13G filings with the SEC, two principal stockholders (those stockholders with beneficial ownership of more than 10%the largest holdings of our Class A Common Stock)Stock collectively beneficially own approximately 30%19% of our Class A Common Stock. As a result, these stockholders may be able to exert significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger of the Company, or sale of substantially all of the Company’s assets. These stockholders may have interests that differ from, and may vote in a way adverse to, other holders of Class A Common Stock, or adverse to the recommendations of the Company’s management. This concentration of ownership may make it more difficult for other stockholders to effect substantial changes in the Company, may limit the ability of the Company to pass
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certain initiatives or other items that require stockholder approval, and may also have the effect of delaying, preventing, or expediting, as the case may be, a change in control of the Company.
A small number of Class A stockholders, who also have significant holdings of the Company’s Series B Preferred Stock and 8.25% Notes, may be motivated by interests that are not aligned with the Company’s other Class A stockholders.
Currently, a small number of persons who also are stockholders collectively own greater than 50% of our Series B Preferred Stock and 25% of our 8.25% Notes. As a result, these stockholders may have interests that differ from the remainder of the holders of our Class A stockholders,Common Stock, and, as a result, may vote or take other actions in a way adverse to other holders of Class A Common Stock.
Our ability to utilize our net operating loss carryforwards to offset future taxable income may be limited.
Our ability to fully utilize our existing net operating losses (“NOLs”) or net unrealized built-in losses could be limited or eliminated in the event (i) we undergo an “ownership change” as described under Section 382 of the Internal Revenue Code, (ii) we do not reach profitability or are only marginally profitable, or (iii) there are changes in U.S. government laws and regulations. An “ownership change” is generally defined as a greater than 50% change in equity ownership by value over a rolling three-year period. Past or future ownership changes, some of which may be beyond our control, as well as differences and fluctuations in the value of our equity securities may adversely affect our ability to utilize our NOLs and could reduce our flexibility to raise capital in future equity financings or other transactions, or we may determinedecide to pursue transactions even if they would result in an ownership change and impair our ability to use our NOLs. In addition, the Section“Section 382 Rights AgreementAgreement” we have adopted with respect to our common stock and the transfer restrictions in the Series B Preferred Stock containcontains limitations on transferability intended to prevent the possibility of experiencing an “ownership change,” but we cannot assure yoube certain that these measures will be effective or weeffective. We also may determinedecide to pursue transactions even if they would result in an ownership change and impair our ability to use our NOLs. In addition, any changes to tax rules and regulations or the interpretation of tax rules and regulations (including recent tax legislation) could negatively impact our ability to recognize any potential benefits from our NOLs or net unrealized built-in losses.
Legal and Compliance Risks
Our operations are highly regulated by the U.S. government, including the NRC and the DOE as well as the States of Ohio and Tennessee.Tennessee and could be significantly impacted by changes in government policies and priorities.
Our operations, including the facilities we lease innear Piketon, Ohio, are subject to regulation by the U.S Nuclear Regulatory Commission (“NRC”). The NRC has granted us two licenses for the Piketon facility, i.e.facility: a license for thea Lead Cascade test facility that was granted in February 2004, and a separate license to construct and operate a commercial plant that was granted in April 2007. Our license to construct and operate a commercial plant will expire on April 13, 2037. In June 2021, the NRC approved an amendment to permit HALEU production as a subset of the larger commercial plant license. We are currently performing work under a three-year contract with DOE for the construction and operations of a cascade to produce HALEU. PriorThis contract is currently set to the award of the contract we were in process of terminating our licenses and had demobilized programs and processes which are necessary to perform the work. To successfully complete the work in connection with the HALEU project, we withdrew the termination and are pursuing modifications to our NRC license for our commercial plant. There is no assurance that we will be able to re-instate the programs and processes necessary to perform the work in a timely and cost efficient manner. Further we may be unable to gain NRC approval of the necessary license modifications, or gaining such approval may take longer and increase costs.expire on June 1, 2022.
The NRC also could refuse to renew our license to construct and operate a commercial plant if it determines that: (1) we are foreign owned, controlled, or dominated; (2) the issuance of a renewed license would be inimical to the maintenance of a reliable and economic domestic source of enrichment; (3) the issuance of a renewed license would be adverse to U.S. defense or security objectives; or (4) the issuance of a renewed license is otherwise not consistent with applicable laws or regulations in effect at the time of renewal.
The NRC has the authority to issue notices of violation for violations of the Atomic Energy Act of 1954, as amended (the “Atomic Energy Act”), the NRC regulations and conditions of licenses, certificates of compliance, or orders. The NRC has the authority to impose civil penalties or additional requirements and to order cessation of operations for violations of its regulations. Penalties under the NRC regulations could include substantial fines, imposition of additional requirements, or withdrawal or suspension of licenses or certificates. Any penalties
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imposed on us could adversely affect our results of operations and liquidity. The NRC also has the authority to issue new regulatory requirements or to change existing requirements. Changes to the regulatory requirements also could also adversely affect our results of operations.operations and financial condition.
In addition, certain operations atof our centrifuge technology development and manufacturing facility in Oak Ridge, Tennesseeoperations are subject to DOE regulation by DOE.or contractual requirements. Our facility in Oak Ridge is also regulated by the State of Tennessee under NRC’s agreementAgreement State Program as well as applicable state program. DOE and the State of Tennessee have the authority to impose civil penalties and additional requirements, which could adversely affect our results of operations.
Our operations involve the use, transportation and disposal of toxic, hazardous and/or radioactive materials and could result in liability without regard to fault or negligence.
Our operations involve the use, transportation, and disposal of toxic, hazardous and radioactive materials. A release of these materials could pose a health risk to humans or animals. If an accident were to occur, its severity would depend on the volume of the release and the speed of corrective action taken by emergency response personnel, as well as other factors beyond our control, such as weather and wind conditions. Actions taken in response to an actual or suspected release of these materials, including a precautionary evacuation, could result in significant costs for which we could be legally responsible. In addition to health risks, a release of these materials may cause damage to, or the loss of, property and may adversely affect property values. Additionally, we may be responsible for decontamination or decommissioning of facilities where we conduct, or previously conducted, operations. Activities of our contractors, suppliers or other counterparties similarly may involve toxic, hazardous, and radioactive materials and we may be liable contractually, or under applicable law, to contribute to remedy damages or other costs arising from such activities, including the decontamination or decommission of third-party facilities.
We lease facilities from DOE innear Piketon, Ohio. Pursuant to the Price-Anderson Act, as well as the HALEU Contract, DOE has agreed to indemnify the Company’s subsidiaries who are party to those agreements, and other Company entities who fall under the definition of a person indemnified under the CompanyAtomic Energy Act of 1954, against claims for public liability (as defined in the Atomic Energy Act) arising out of or in connection with activities under those leases and the HALEU Contract, as applicable, resulting from a nuclear incident or precautionary evacuation.evacuation including transportation. If an incident or evacuation is not covered under DOE indemnification, we could be financially liable for damages arising from such incident or evacuation, which could have an adverse effect on our results of operations and financial condition. The DOE indemnification does not apply to incidents outside the United States, including in connection with international transportation of uranium products.
While DOE has provided indemnification pursuant to the Price-Anderson Act, there could be delays in obtaining reimbursement for costs from DOE and DOE may also determine that some or all costs are not reimbursable under the indemnification. In addition, the Price-Anderson Act indemnification does not cover loss or damage due to a nuclear incident to property located on the leased facilities due to a nuclear incident. For example, facilities.
Centrus and Enrichment Corp. have been named as defendants in class action lawsuits alleging damages resulting from releases at the facilities we leased in the past at the Portsmouth Gaseous Diffusion Plant, and the centrifuge facilities we still lease innear Piketon, Ohio. These claims include allegations of damages that the plaintiffs assert are not covered by the Price-Anderson Act, which claims we and the other defendants have challenged. If DOE were to determine that the Price-Anderson Act did not apply, we would have to pay all or part of any damages awarded as a result of such claims, the cost to us, including legal fees, could adversely affect our results of operations and financial condition. Refer to Note 16, Commitments and Contingencies — Legal Matters, of our consolidated financial statements in Part IV of this Annual Report for further details.
In our contracts, we seek to protect ourselves from liability, but there is no assurance that such contractual limitations on liability will be effective in all cases. The costs of defending against a claim arising out of a nuclear
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incident or precautionary evacuation, and any damages awarded as a result of such a claim, could adversely affect our results of operations and financial condition.
Our certificate of incorporation gives us certain rights with respect to equity securities held (beneficially or of record) by foreign persons. If levels of foreign ownership set forth in our certificate of incorporation are exceeded, we have the right, among other things, to redeem or exchange common stock held by foreign persons, and in certain cases, the applicable redemption price or exchange value may be equal to the lower of fair market value or a foreign person’s purchase price.
Our certificate of incorporation gives us certain rights with respect to shares of our common stock held (beneficially or of record) by foreign persons. Foreign persons are defined in our certificate of incorporation to include, among others, an individual who is not a U.S. citizen, an entity that is organized under the laws of a non-U.S. jurisdiction and an entity that is controlled by individuals who are not U.S. citizens, or by entities that are organized under the laws of non-U.S. jurisdictions.
The occurrence of any one or more of the following events is a “foreign ownership review event” and triggers the board of directors’ right to take various actions under our certificate of incorporation: (1) the beneficial ownership by a foreign person of (a) 5% or more of the issued and outstanding shares of any class of our equity securities, (b) 5% or more in voting power of the issued and outstanding shares of all classes of our equity securities, or (c) less than 5% of the issued and outstanding shares of any class of our equity securities or less than 5% of the voting power of the issued and outstanding shares of all classes of our equity securities, if such foreign person is entitled to control the appointment and tenure of any of our management positions or any director; (2) the beneficial ownership of any shares of any class of our equity securities by or for the account of a foreign uranium enrichment provider or a foreign competitor (defined in our certificate of incorporation as a “Contravening Person”); or (3) any ownership of, or exercise of rights with respect to, shares of any class of our equity securities or other exercise or attempt to exercise control of us that is inconsistent with, or in violation of, any regulatory restrictions, or that could jeopardize the continued operations of our facilities (defined in our certificate of incorporation as an “Adverse Regulatory Occurrence”). These rights include requesting information from holders (or proposed holders) of our securities, refusing to permit the transfer of securities by such holders, suspending or limiting voting rights of such holders, redeeming or exchanging shares of our stock owned by such holders on terms set forth in our certificate of incorporation, and taking other actions that we deem necessary or appropriate to ensure compliance with the foreign ownership restrictions.
The terms and conditions of our rights with respect to our redemption or exchange right in respect of shares held by foreign persons or Contravening Persons are as follows:
•Redemption price or exchange value: Generally, the redemption price or exchange value for any shares of our common stock redeemed or exchanged would be their fair market value. However, if we redeem or exchange shares held by foreign persons or Contravening Persons and our Board in good faith determines that such person knew or should have known that its ownership would constitute a foreign ownership review event (other than shares for which our Board determined at the time of the person’s purchase that the ownership of, or exercise of rights with respect to, such shares did not at such time constitute an Adverse Regulatory Occurrence), the redemption price or exchange value is required to be the lesser of fair market value and the person’s purchase price for the shares redeemed or exchanged.
•Form of payment: Cash, securities or a combination, valued by our board of directors in good faith.
•Notice: At least 30 days written notice of redemption is required; however, if we have deposited the cash or securities for the redemption or exchange in trust for the benefit of the relevant holders, we may redeem shares held by such holders on the same day that we provide notice.
Accordingly, there are situations in which a foreign stockholder or Contravening Person could lose the right to vote its shares or in which we may redeem or exchange shares held by a foreign person or Contravening Person and
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in which such redemption or exchange could be at the lesser of fair market value and the person’s purchase price for the shares redeemed or exchanged, which could result in a significant loss for that person.
General Risk Factors
Failures to protect classified or other sensitive information, or security breaches of information technology (“IT”) systems could result in significant liability or otherwise have an adverse effect on our business.
Our business requires us to use and protect classified, sensitive, and other protected information as well as business proprietary information and intellectual property (collectively, “sensitive information”). Our computer networks and other information technology (“IT”) systems are designed to protect this information through the use of classified networks and other procedures. We routinely experience various cybersecurity threats, threats to our information technology infrastructure, unauthorized attempts to gain access to the Company’s sensitive information, and denial-of-service attacks, as do our customers, suppliers, subcontractors, and other business partners. The threats we face vary from attacks common to most industries, attacks by more advanced and persistent, highly organized adversaries, including nation states, which target us and other government contractors because we protect national security information. If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures, and depending on the severity of the incident, the Company’s data, customers’ data, our employees’ data, our intellectual property, and other third-party data could be compromised. As a consequence of the persistence, sophistication, and volume of these attacks, we may not be successful in defending against all such attacks. Due to the evolving nature of these security threats and the national security aspects of much of the data we protect, the impact of any future incident cannot be predicted.
We have a number of suppliers and indirect suppliers with a wide variety of systems and cybersecurity capabilities and we may not be successful in preventing adversaries from exploiting possible weak links in our supply chain. We also must rely on this supply chain for detecting and reporting cyber incidents, which could affect our ability to report or respond to cybersecurity incidents in a timely manner. The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means.
A material network breach in the security of the IT systems of the Company or third parties for any reasons, including, but not limited to, human error, could include the theft of sensitive information, including, without limitation, our and our customers’ business proprietary and intellectual property. To the extent any security breach or human error results in a loss or damage to sensitive information, or in inappropriate or unauthorized disclosure of sensitive information, the breach could cause grave damage to the country’s national security and to our business. Threats, via insider threat or third parties, to our IT systems, are constantly evolving and there is no assurance that our efforts to maintain and improve our IT systems will be sufficient to meet current or future threats. Any event leading to a security breach or loss of, or damage to, data, whether by our employees or third parties, could result in negative publicity, significant remediation costs, legal liability, and damage to our reputation and could have a material adverse effect on our business, financial condition, results of operations, and cash flows. In an extreme case, DOE could terminate our permit to access classified information resulting in the elimination of our ability to continue American Centrifuge work or performance of DOE contracts, including the HALEU Contract.
The inability to attract and retain key personnel could have an adverse impact on our business.
The Company’s LEU and technical services segments require people with unique skills and experience in the uranium enrichment industry. It also requires people with U.S. security clearances. To train employees and obtain the required U.S. Security clearances for them can take considerable time and expense. The success of our business depends on key executives, managers, scientists, engineers and other skilled personnel. The ability to attract and retain these key personnel may be difficult in light of the uncertainties currently facing the business and changes we may make to the organizational structure to adjust to changing circumstances.
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Changes in senior management could create uncertainty among our employees, customers, suppliers, and other third parties with which we do business. The inability to retain appropriately qualified and experienced senior executives could negatively affect our operations, strategic planning, and performance.
The potential for DOE to seek to terminate or exercise its remedies under the 2002 DOE-USEC Agreement and our other agreements with DOE, or to require modifications to such agreements that are adverse to our interests, may have adverse consequences on the Company.
The Company and DOE signed an agreement dated June 17, 2002, as amended (the “2002 DOE-USEC Agreement”), that requires the Company to develop, demonstrate, and deploy advanced enrichment technology in accordance with milestones and provides for remedies in the event of a failure to meet a milestone under certain circumstances. DOE has specific remedies under the 2002 DOE-USEC Agreement if we fail to meet a milestone or if we abandon or constructively abandon the commercial deployment of an advanced enrichment technology. These remedies include terminating the 2002 DOE-USEC Agreement, revoking our access to DOE’s centrifuge technology that is required for the success of the American Centrifuge project, the HALEU Contract or other projects, requiring us to transfer certain rights in the American Centrifuge technology and facilities to DOE, and to reimburse DOE for certain costs associated with the American Centrifuge project.
We have granted to DOE an irrevocable, non-exclusive right to use or permit third parties on behalf of DOE to use all centrifuge technology intellectual property (“Centrifuge IP”) royalty free for U.S. government purposes (which includes national defense purposes, including providing nuclear material to operate commercial nuclear power reactors for tritium production). We also granted an irrevocable, non-exclusive license to DOE to use such Centrifuge IP developed at our expense for commercial purposes (including a right to sublicense), which may be exercised only if we miss any of the milestones under the 2002 DOE-USEC Agreement or if we (or our affiliate or entity acting through us) are no longer willing or able to proceed with, or have determined to abandon, or have constructively abandoned, the commercial deployment of the centrifuge technology. Such a commercial purposes license is subject to payment of an agreed upon royalty to us, which will not exceed $665 million in the aggregate. While our long-term objective is to commercially deploy the American Centrifuge technology when it is commercially feasible to do so, DOE may take the position that we are no longer willing or able to proceed with commercial deployment, or have actually, or constructively, abandoned commercial deployment, and could invoke its rights under the license described above. Any of these actions could adversely impact our business and prospects.
DOE may seek to exercise remedies under these agreements and there is no assurance that the parties will be able to reach agreement on appropriate modifications to the agreements in the future. Moreover, even if the parties reach agreement on modifications to such agreements, there is no assurance that such modifications will not impose material additional requirements, provide DOE with material additional rights or remedies, or otherwise affect the overall economics of the American Centrifuge technology and our ability to finance and successfully deploy the technology. Any of these actions could have an adverse impact on our business and prospects.
Our U.S. government contract work is regularly reviewed and audited by the U.S. government and these reviews can lead to withholding or delay of payments to us, non-receipt of award fees, legal actions, fines, penalties and liabilities, and other remedies against us.
Our U.S. government contracts are subject to specific regulations such as the Federal Acquisition Regulation, among others, and also subject to audits, cost reviews, and investigations by the U.S. government contracting oversight agencies. Should a contracting agency determine that we have not complied with the terms of our contracts and applicable statutes and regulations, payments to us may be disallowed, which could result in adjustments to previously reported revenues and refunding of previously collected cash proceeds. Additionally, we may be subject to litigation brought by private individuals on behalf of the U.S. government under the Federal False Claims Act, which could include claims for treble damages. If we experience performance issues under any of our U.S. government contracts, the U.S. government retains the right to pursue remedies, which could include termination under any affected contract. Termination of a contract could adversely affect our ability to secure future
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contracts, and could have material adverse effect on our business, financial condition, results of operations, and cash flows.
Our U.S. government contracts and subcontracts are dependent on continued U.S. government funding and government appropriations, which may not be made on a timely basis or at all, and could have an adverse effect on our business.
Current and future U.S. government contracts and subcontracts, including our HALEU Contract, are dependent on government funding, which are generally subject to Congressional appropriations. Our ability to perform under these federal contracts and subcontracts is dependent upon sufficient funding for, and timely payment by, the entities with which we have contracted. If the contracting governmental agency, or the prime contractor, does not receive sufficient appropriations, it may terminate our contract or subcontract (in whole or in part) or reduce scope of our contract or subcontract, or delay or prevent an acquisitionreduce payment to us. Any inability to award us a contract or subcontract, any delay in payment, or the termination of us.a contract or subcontract, in whole or in part, due to a lapse in funding or otherwise, could adversely affect our business, financial condition or results of operations, or cash flows.
Changes to, or termination of, any agreements with the U.S. government, or deterioration in our relationship with the U.S. government, could adversely affect results of operations.
We are a Delaware corporation,party to a number of agreements and arrangements with the U.S. government that are important to our business including our HALEU Contract, the lease for the centrifuge facility near Piketon, Ohio, and the anti-takeover provisions2002 DOE-USEC agreement. Termination, expiration, or modification of Delaware law impose various impedimentsone or more of these or other agreements could adversely affect our business and prospects. In addition, deterioration in our relationship with the U.S. agencies that are parties to thethese agreements could impair or impede our ability to successfully implement these agreements, which could adversely affect our business, financial condition or results of a third-party to acquire control of our Company, even if a change of control would be beneficial to our existing stockholders. In particular, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,operations, or DGCL, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder becomes an “interested” stockholder. cash flows.
Our certificate of incorporation, or charter, establishes restrictions on foreign ownership of our securities. Other provisions of our charter and bylaws may make it more difficult for a third-party to acquire control of us without the consent of our board of directors. These provisions include:
The uranium enrichment sector of the nuclear fuel cycle industry remains oversupplied, creating downward pressures on commodity pricing, with uncertainty regarding nuclear power generation. Changes in the competitive landscape may adversely affect pricing trends, change customer spending patterns, or create uncertainty. To address these changes, we may seek to adjust our net operating loss carryforwardscost structure and operations, and evaluate opportunities to grow our business organically or through acquisitions and other taxstrategic transactions. We are actively considering, and expect to consider from time to time in the future, potential strategic transactions, which could involve, without limitation, changes in our capital structure, acquisitions and/or dispositions of businesses or assets, joint ventures or investments in businesses, products, or technologies. In connection with any such transaction, we may seek additional debt or equity financing, contribute or dispose of assets, assume additional indebtedness, or partner with other parties to consummate a transaction. Any such transaction may not result in the intended benefits whichand could involve significant commitments of our financial and other resources. Legal and consulting costs incurred in connection with debt or equity financing transactions in development are deferred and subject to immediate expensing if such a transaction becomes less likely to occur. If the actions we take in response to industry changes are not successful, our business, results of operations and financial condition may be used to reduce potential future income tax obligations. Pursuant to the terms of the Rights Agreement, if certain persons or groups acquire more than a certain amount of the outstanding shares of our Class A Common Stock, then, subject to certain exceptions, the Rights Agreement would be triggered.adversely affected.
Item 1B. Unresolved Staff Comments
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(a) we have revised our disclosures on non-GAAP measures in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations, beginning in this Annual Report on Form 10-K for the year ended December 31, 2021, in response to the Staff’s comments. As of the date of this annual report, we have not received notice from the Staff that its review process is complete.
Item 2. Properties
Our corporate headquarters is located at 6901 Rockledge Drive, Suite 800, Bethesda, Maryland 20817, where we lease 24,000 square feet of office space through October 2027. We own a 440,000 square foot manufacturing facility, including supporting office space, on 72 acres at 400 Centrifuge Way, Oak Ridge, Tennessee 37830. We also lease industrial buildings and 110,000 square feet of supporting office space from DOE at 3930 U.S. Route 23, Piketon, Ohio 45661. The industrial buildings encompass more than 14 acres under roof and were built to contain uranium enrichment operations using centrifuge technology. In May 2017, we entered into a lease through July 2021 for 6,000 square feet of office space at 14074 U.S. Highway 23, Waverly, Ohio. We also have a short-term leaseslease for a small areasarea of office space in Washington, DC and Tokyo, Japan.D.C.
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
None.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s certificate of incorporation authorizes 100,000,000 shares of common stock, consisting of 70,000,000 shares of Class A common stock,Common Stock, $0.10 par value per share (the “Class A Common Stock”) and 30,000,000 shares of Class B common stock,Common Stock, $0.10 par value per share (the “Class B Common Stock,” and together with the Class A Common Stock, the “Common Stock”)., As of March 2, 2020,1, 2022, the Company has issued 9,472,38914,393,133 shares of Common Stock, consisting of 8,673,97613,673,933 shares of Class A Common Stock and 798,413719,200 shares of Class B Common Stock. The Class B Common Stock was issued to Toshiba America Nuclear Energy Corporation (“Toshiba”) and Babcock & Wilcox Investment Company (“B&W”) and has the same rights, powers, preferences and restrictions and ranks equally in all matters with the Class A Common Stock, except voting. Holders of Class B Common Stock are entitled to elect, in the aggregate, two members of the Board of Directors of the Company, subject to certain holding requirements. Additionally, the Company has reserved 1,200,0001,900,000 shares of Class A Common Stock under its management incentive plan, of which approximately 422,000844,293 shares were available for future awards as of December 31, 2019,2021, including approximately 120,000 shares associated with awards which terminated or were cancelled without being exercised.
The Class A Common Stock trades on the NYSE American LLC (the “NYSE American”) under the symbol “LEU”.
As of March 2, 2020,1, 2022, there were 8,673,97613,673,933 shares of Class A Common Stock outstanding. As of March 2, 2020,1, 2022, there were approximately 930850 holders of record and approximately 6,98614,360 beneficial owners of the Company’s Class A Common Stock. As of March 2, 2020,1, 2022, there were two holders of record of the Company’s Class B Common Stock.
No cash dividends were paid in 20182021 or 2019,2020, and we have no intention to pay cash dividends in the foreseeable future. Our Series B Preferred Stock provides that so long as any shares of our Series B Preferred Stock are outstanding, we may not pay dividends on our Class A Common Stock (other than dividends payable in shares of Class A Common Stock). In addition, theThe indenture governing our 8.25% Notes, subject to certain exceptions, places certain restrictions on the ability of Enrichment Corp. to transfer cash and other assets to us. This could act as an additionala constraint on our ability to pay dividends on our Class A Common Stock.
There were no unregistered sales of equity securities by the Company during the years ended December 31, 20192021 or 2018.2020.
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Fourth Quarter 20192021 Issuer Repurchases of Equity Securities
Matters Affecting our Foreign Stockholders
In order to aid in our compliance with our NRC license, our certificate of incorporation gives us certain rights with respect to shares of our Common Stock held (beneficially or of record) by foreign persons. Foreign persons are defined in our certificate of incorporation to include, among others, an individual who is not a U.S. citizen, an entity that is organized under the laws of a non-U.S. jurisdiction, and an entity that is controlled by individuals who are not U.S. citizens or by entities that are organized under the laws of non-U.S. jurisdictions.
The occurrence of any one or more of the following events is a “foreign ownership review event” and triggers the board of directors’ right to take various actions under our certificate of incorporation: (1) the beneficial ownership by a foreign person of (a) 5% or more of the issued and outstanding shares of any class of our equity securities, (b) 5% or more in voting power of the issued and outstanding shares of all classes of our equity securities, or (c) less than 5% of the issued and outstanding shares of any class of our equity securities or less than 5% of the voting power of the issued and outstanding shares of all classes of our equity securities, if such foreign person is entitled to control the appointment and tenure of any of our management positions or any director; (2) the beneficial ownership of any shares of any class of our equity securities by or for the account of a foreign uranium enrichment provider or a foreign competitor (referred to as “contravening persons”); or (3) any ownership of, or exercise of rights with respect to, shares of any class of our equity securities or other exercise or attempt to exercise control of us that is inconsistent with, or in violation of, any regulatory restrictions, or that could jeopardize the continued operations of our facilities (an “adverse regulatory occurrence”). These rights include requesting information from holders (or proposed holders) of our securities, refusing to permit the transfer of securities by such holders, suspending or limiting voting rights of such holders, redeeming or exchanging shares of our stock owned by such holders on terms set forth in our certificate of incorporation, and taking other actions that we deem necessary or appropriate to ensure compliance with the foreign ownership restrictions.
For information regarding the foreign ownership restrictions set forth in our certificate of incorporation, please refer to — Part I, Item 1A, Risk Factors - Our certificate of incorporation gives us certain rights with respect to equity securities held (beneficially or of record) by foreign persons. If levels of foreign ownership set forth in our certificate of incorporation are exceeded, we have the right, among other things, to redeem or exchange common stock held by foreign persons, and in certain cases, the applicable redemption price or exchange value may be equal to the lower of fair market value or a foreign person’s purchase price.
Item 6. Selected Financial Data[Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements and related notes appearing elsewhere in this report.
This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from the results discussed in the forward-looking statements particularly in light of the economic, social and market uncertainty created by the COVID-19 pandemic and the evolving events regarding the war in Ukraine. See also“Forward-Looking Statements” at the section titled “Forward-Looking Statements.”beginning of this Annual Report on Form 10-K.
Overview
Centrus Energy Corp., a Delaware corporation (“Centrus” or the “Company”), is a trusted supplier of nuclear fuel and services for the nuclear power industry.industry, which provides a reliable source of carbon free energy. References to “Centrus”, the “Company”, “our”, or “we” include Centrus Energy Corp. and its wholly ownedwholly-owned subsidiaries as well as the predecessor to Centrus, unless the context otherwise indicates.indicates otherwise.
Centrus operates two business segments: (a) low-enriched uranium (“LEU”), which supplies various components of nuclear fuel to utilities,commercial customers from our global network of suppliers, and (b) technical solutions, which provides advanced engineering, design, and manufacturing services to government and private sector customers. The technical solutions segment was formerly our contract services segment. The segment was renamed the technical solutions segment on December 31, 2019, to better reflect the nature of work performedcustomers and is consistent with our marketingdeploying uranium enrichment and other capabilities necessary for production of service offerings as Centrus Technical Solutions. There was no changeadvanced nuclear fuel to power existing and next-generation reactors around the composition of the segment as a result of the re-naming.world.
Our LEU segment provides most of the Company’s revenue and involves the sale of LEU, its components, and natural uraniumnuclear fuel to customers that are primarily utilities operatingthat operate commercial nuclear power plants. The majority of these sales are for the enrichment component of LEU, which is measured in separative work units (“SWU”). Centrus also sells natural uranium (the raw material needed to produce LEU) and occasionally sells LEU with the natural uranium, uranium conversion, and SWU components combined into one sale.
LEU is a critical component in the production of nuclear fuel for reactors that produce electricity. We supply LEU and its components to both domestic and international utilities for use in nuclear reactors worldwide. We provide LEU from multiple sources, including our inventory, medium-medium and long- termlong-term supply contracts, and spot purchases. As a long-term supplier of LEU to our customers, our objective is to provide value through the reliability and diversity of our supply sources.
Our global order book includes long-term goal issales contracts with major utilities through 2029. We have secured cost-competitive supplies of SWU under long-term contracts through the end of this decade to resume commercial enrichment production,allow us to fill our existing customer orders and we are exploring approachesmake new sales. A market-related price reset provision in our largest supply contract took effect at the beginning of 2019 – when market prices for SWU were near historic lows – which has significantly lowered our cost of sales and contributed to that end.improved margins. Spot price indicators for SWU have risen by approximately 65% to $56 as of December 31, 2021, since bottoming out in August 2018.
In October 2020, the U.S. Department of Commerce reached agreement with the Russian Federation on an extension of the 1992 Russian Suspension Agreement (“RSA”), a trade agreement which allows for Russian-origin nuclear fuel to be exported to the United States in limited quantities. The two parties agreed to extend the agreement through 2040 and to set aside a significant portion of the quota for Centrus’ shipments to the United States through 2028 to execute our long-term supply (purchase) agreement (the “TENEX Supply Contract”) with the Russian government entity, TENEX, Joint-Stock Company (“TENEX”). This outcome allows for sufficient quota for Centrus to continue serving its utility customers.
Our technical solutions segment utilizesis deploying uranium enrichment and other capabilities necessary for production of advanced nuclear fuel to meet the evolving needs of the global nuclear industry and the U.S. government, while also leveraging our unique technical expertise, operational experience and specialized facilities that we developed over nearly two decades as part of our uranium enrichment technology program. We are leveraging these capabilities to expand and diversify our business beyond uranium enrichment, offering new services to existing and new customers in complementary markets.
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The United States has not had a domestic uranium enrichment capability suitable to meet U.S. national security requirements since the Paducah Gaseous Diffusion Plant (“Paducah GDP”) shut down in 2013. Longstanding U.S. policy and binding nonproliferation objectives.agreements prohibit the use of foreign-origin enrichment technology for U.S. national security missions. Our AC100M centrifuge is currently the only deployment-ready U.S. uranium enrichment technology in the U.S. that can meet these national security requirements.
carbon-free power. HALEU is a high-performance nuclear fuel component of an advanced nuclear reactor fuel thatwhich is not commercially available today and mayexpected to be required forby a number of advanced reactor and fuel designs currentlythat are now under development in both thefor commercial and government sectors. Existinguses. While existing reactors typically operate on LEU with the uranium-235 isotope concentration below 5%., HALEU has ais further enriched so that the uranium-235 concentration ranging fromis between 5% and 20%. The higher U-235 concentration offers a number of potential advantages, which may include better fuel utilization, improved performance, fewer refueling outages, simpler reactor designs, reduced waste volumes, and greater nonproliferation resistance.
The lack of a domestic HALEU supply is widely viewed as a major obstacle to 20%, giving it several potential technical and economic advantages.the successful commercialization of these new reactors. For example, in surveys conducted by the higher concentrationU.S. Nuclear Industry Council in 2021 and 2020, advanced reactor developers indicated that the number one issue that “keeps you up at night” was access to HALEU. As the only company with a license from the Nuclear Regulatory Commission (“NRC”) to enrich up to 20% uranium-235 assay HALEU, Centrus is uniquely positioned to fill a critical gap in the supply chain and facilitate the deployment of uranium-235 meansthese promising next-generation reactors.
The DOE has experienced a COVID-19 related supply chain delay in obtaining the HALEU storage cylinders. Since it is not possible to begin HALEU production without the storage cylinders, it would not be possible to complete the operational portion of the demonstration before the June 1, 2022 expiration date of the existing HALEU Contract. As a result, the DOE elected to change the scope of the HALEU Contract and move the operational portion of the demonstration to a new, competitively-awarded contract that fuel assemblieswould provide for operations beyond the term of the existing contract. On February 7, 2022, DOE issued a pre-solicitation notice for a request for proposal to complete the HALEU demonstration facility and reactors can be smallerto produce HALEU, noting that the “the Administration supports longer-term demonstration of production capability.” The pre-solicitation notice outlines a two-phase approach. Phase 1 consists of completing installation of the centrifuges – which DOE expects will take up to one year from contract signing – followed by one full year of cascade operations. The second phase consists of three optional, 3-year extensions to produce HALEU, so that the prospective contract could help support a total of one to ten years of cascade operations in addition to completing construction and reactorscentrifuge installation.
Centrus believes it is well-positioned to compete for a follow-on contract with DOE to operate the machines in Piketon but there is no assurance that the DOE will require less frequent refueling. Reactors can also achieve higher “burnup” rates, meaningaward such a smaller volumecontract to the Company. Congress has not yet adopted a Fiscal Year 2022 appropriations bill for the DOE, and there is no assurance that the proposed program, which would go beyond the scope and expiration of fuelour existing contract, will be required overallapproved and less waste will be produced.funded.
The U.S. government has been operating under a series of continuing resolutions in Fiscal Year 2022. The DOE continues to support the HALEU may also be usedprogram during the continuing resolution period, and has incrementally increased the government’s cost share ceiling as funds have become available. Currently, DOE has provided additional funding, and increased the government’s cost share ceiling to $126.7 million.
Additional COVID-19 related impacts, delays in the futureDOE furnishing equipment, or changes to fabricate next-generation fuel forms for the existing fleetscope of reactorsthe HALEU Contract could result in further material increases to our estimate of the United Statescosts required to complete the existing HALEU Contract, as well as delay completion of the contract. The Company does not currently have a contractual obligation to perform work in excess of the funding provided by DOE and, around therefore, no additional loss has been accrued as of December 31, 2021. If DOE does not commit to fully fund
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the world. These new HALEU-based fuelsadditional costs, and the Company nevertheless commits to a plan to complete the demonstration cascade and produce HALEU, we may incur material additional costs or losses in future periods that could improve the economics of nuclear reactorshave an adverse impact on our financial condition and inherent safety features while increasing the amount of electricity that can be generated at existing reactors. HALEU fuel may also ultimately be used in new commercial and government applications in the future, such as reactors for the military.liquidity.
We believe our investment in the HALEU technology will position the Company to meet the needs of ourgovernment and commercial customers in the future as they deploy advanced reactors and next generation fuels. At present, there are a number of advanced reactors under development. For example, of the ten advanced reactor designs selected by the U.S. Department of Energy for its Advanced Reactor Demonstration Program, nine will require HALEU.In addition, the first non-light water reactor to have begun active NRC-license review requires HALEU.The U.S. Department of Defense also plans to construct a prototype HALEU-fueled mobile microreactor in the next three to four years as part of a program called “Project Pele.”The U.S. Air Force also announced plans to deploy a microreactor at Eielson Air Force Base in Alaska.While the use of HALEU is not an express requirement of the Air Force program, the vast majority of microreactor designs are expected to need HALEU.
Advanced nuclear reactors promise to provide an important source of reliable carbon-free power. By investing in HALEU technology now, and as the only domestically-ownedAmerican-based company withcurrently pursuing HALEU enrichment capability, we believe the Company could beis well positioned to capitalize on a potential new market as the demand for HALEU-based fuels increases in the mid to late-2020s with the development of advanced reactors. ThereHowever, there are no guarantees about whether or when government or commercial demand for HALEU will materialize, and there are a number of technical, regulatory, and economic hurdles that must be overcome for these fuels and reactors to come to the market. Also, foreign government-owned and government-operated competitors could seek to enter the market and offer HALEU at more competitive prices. There is one known foreign government-owned source which currently has the capability to produce HALEU although this source is currently subject to trade restrictions that limit the amount of material from this source which may be imported into the United States. Other foreign government-owned entities which are not currently subject to U.S. trade restrictions, however, may enter the market. One such foreign-government owned entity has expressed an interest in and potential capability for HALEU production but has not committed publicly to enter the market to enrich above 10% uranium-235 enrichment assays. This entity has indicated publicly that it would take six to seven years to be able to produce HALEU.
The nuclear industry in general, and the nuclear fuel industry in particular, is in a period of significant change, whichCompany continues to affectreview opportunities to improve its capital structure and to enhance shareholder value. As a result, pursuant to a sales agreement with its agents, the competitive landscape. Company sold at the market price an aggregate of 1,516,467 shares of its Class A Common Stock in 2021, for a total of $44.2 million. After expenses and commissions paid to the agents the Company’s proceeds total $42.4 million. Additionally, the Company recorded direct costs of $0.3 million related to the issuance. The shares of Class A Common Stock were issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-239242), which became effective on August 5, 2020, and a prospectus supplement dated December 31, 2020 to the prospectus, dated August 5, 2020. At present, the Company has $5.8 million remaining available for sale under the prospectus supplement dated December 31, 2020, and may from time to time sell additional shares through the sales agreement at the then market price. The Company currently intends to use the net proceeds from this offering for general working capital purposes, to invest in technology development, or to repay outstanding debt.
In addition and in connection with the entry into an amendment (the “Voting Agreement Amendment”) to its existing Voting and Nomination Agreement with Mr. Morris Bawabeh, Kulayba LLC and M&D Bawabeh Foundation, Inc., the Company and Kulayba LLC also entered into an Exchange Agreement, dated February 2, 2021 (the “Exchange Agreement”), pursuant to which Kulayba LLC agreed to exchange (the “Exchange”) 3,873 shares of the Company’s outstanding Series B Senior Preferred Stock, par value $1.00 per share, representing a $5,000,198 liquidation preference (including accrued and unpaid dividends), for (i) 231,276 shares of the Company’s Class A Common Stock, priced at the closing market price of $21.62 on the date the Exchange Agreement was signed and (ii) a Centrus Energy Corp. Warrant to Purchase Common Stock (the “Warrant”), exercisable for 250,000 shares of Common Stock at an exercise price of $21.62 per share, which
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was the closing market price on the date the Exchange Agreement was signed, subject to certain customary adjustments pursuant to the terms of the Warrant. The Company retired the 3,873 shares of Series B Senior Preferred Stock received by the Company under the Exchange Agreement.
On November 23, 2021, pursuant to a tender offer announced on October 20, 2021, the Company completed the purchase of 36,867 shares of its outstanding Series B Senior Preferred Stock at a price per share of $1,145.20, less any applicable withholding taxes, for an aggregate purchase price of approximately $42.2 million. On November 23, 2021, the Company issued a Notice of Full Redemption providing for the redemption of any and all shares of the Company’s Series B Senior Preferred Stock outstanding after consummation of the Company’s tender offer to purchase all of its issued and outstanding Series B Senior Preferred Stock. On December 15, 2021, the Company completed the redemption of all 980 outstanding Series B Senior Preferred Stock for aggregate cash consideration of $1.1 million. The aggregate purchase price of $43.3 million was offset by direct costs totaling $0.9 million. For additional details, refer to Note 15,Stockholders’ Equity, of the consolidated financial statements in Part IV of this Annual Report.
In the years following the 2011 Fukushima accident in Japan, the published market prices for uranium enrichment declined more than 75%. through mid-2018. While the monthly price indicators have gradually started to increase beginning in 2018,since increased, the uranium enrichment segment of the nuclear fuel market remains oversupplied and faces uncertainty about future demand for nuclear power generation. Changes in the competitive landscape affect pricing trends, change customer spending patterns, and create uncertainty. To address these changes, we have taken steps to adjust our cost structure andstructure; we may seek further adjustments to our cost structure and operations and to evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions.
We are also actively considering, and expect to consider from time to time in the future, potential strategic transactions, which could involve, without limitation, acquisitions and/or dispositions of businesses or assets, joint ventures or investments in businesses, products or technologies, or changes to our capital structure. In connection with any such transaction, we may seek additional debt or equity financing, contribute or dispose of assets, assume additional indebtedness, or partner with other parties to consummate a transaction.
Refer to Part I, Item 1, Business, for additional information.
COVID-19 Update
The Company has taken actions to protect its workforce and to maintain critical operations during the COVID-19 pandemic. Travel, operational, and other restrictions imposed by the U.S. and foreign governments may impact our ability to make future sales and may impact the ability of our suppliers, including our suppliers of low enriched uranium, to perform under their contracts. As of the date of this filing, our LEU segment operations have not been materially affected by the COVID-19 pandemic and we are working with our suppliers, fabricators, and customers to monitor the situation closely, including with respect to the impact of emerging variants. However, our technical solutions segment has been impacted by supply chain disruptions and increased costs as a result of the COVID-19 pandemic.
Further, the governments of states and counties in which we operate have from time to time issued orders imposing various restrictions, including prohibiting holding gatherings and closing nonessential businesses. Many of these restrictions remain in place and we continue to monitor and adjust as necessary. The Company has issued a policy requiring vaccinations subject to medical, religious and other exemptions as required by law. In some cases, state laws preclude us from fully implementing our vaccination policy. The Company has also continued other measures to protect its workforce such as expanded telework to protect our workforce, to comply with government orders, and to maintain critical operations. We are working closely with DOE and we are continuing to make progress while implementing measures to protect our workforce. Further, the actions taken by our suppliers and government regulatory agencies to protect their workforces may impact our ability to obtain the necessary supplies and governmental reviews and approvals to timely complete the HALEU
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project. We are experiencing delays by our suppliers and increased costs from them as a result of the impact of the COVID-19.
For further discussion, refer to Part I, Item 1A, Risk Factors - Our business, financial and operating performance could be adversely affected by epidemics and other health related issues including but not limited to the coronavirus disease 2019 (“COVID-19”) pandemic.
Market Conditions and Outlook
The global nuclear industry outlook has begun to improve after many years of decline or stagnation. The development of advanced small and large-scale reactors, innovative advanced fuel types, and the commitment of nations to begin deploying or to increase the share of nuclear power in their nations has created optimism in the market. Part of the momentum has resulted from efforts to lower greenhouse gas emissions to combat climate change and improve health and safety.
According to the World Nuclear Association, as of January 2022, there were 57 reactors under construction worldwide, almost a third of which are in China. The industry continues to face headwinds, however, as low cost electricity generation sources, resistance to nuclear power, and the high costs of deploying nuclear power impede expansion of the nuclear industry. Threats of trade actions that could impact the nuclear fuel supply chain is an overhang on the industry.
The nuclear fuel industry continues to attempt to recover from the March 2011 incident in Fukushima, Japan, that occurred from an earthquake and tsunami thatwhich caused irreparable damage to four reactors in Fukushima. As a consequence, approximately 60 reactors in Japan and Germany were taken offline, and other countries curtailed or slowed their construction of new reactors or accelerated theirthe retirement of existing plants. While someten reactors in Japan have restarted and manymore are expected to restart, during the next five years, supply and demand dynamics for nuclear fuel continue to be somewhat depressed.impacted.
While the market for uranium enrichment for nuclear fuel is expected to remaincurrently oversupplied, into the 2020s, the market demand is expected to grow as the nuclear power industry expands around the world. During 2019, pricesOver the past few years, prices for nuclear fuel, especially conversion and enrichment, have risen significantly. According to the World Nuclear Association, aroundaround 10% of the world's electricity is generated by about 440437 nuclear reactors, and an additional 5057 or so reactors are under construction. During 2020,Recently, two nations new to nuclear new build nations are expected to startenergy generation started their first commercial reactors. The newNew reactor builds will have added new demand for nuclear fuel suppliers.
The recent action of Russian military forces in Ukraine has escalated tensions between Russia and the U.S. The U.S. has imposed, and is likely to impose additional, financial and economic sanctions and export controls against certain Russian organizations and/or individuals. The U.S. imposed financial and economic sanctions that, in various ways, constrain transactions with Russian entities and individuals. While the current sanctions and export controls do not affect the Company’s supply agreement with TENEX, additional sanctions and trade restrictions by the U.S., as well as any actions by Russia, could adversely affect our business. The Company is monitoring the situation closely and assessing the potential impact of any new sanctions and how the impact on the Company might be mitigated.
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Operating Results
Our revenues, operating results, and cash flows can fluctuate significantly from quarter to improvequarter and year to year.Our sales order book in the LEU segment consists primarily of long-term, fixed commitment contracts, and we have visibility on a significant portion of our revenue for 2022-2026.
In 2021 and 2020, we benefited from collections of $43.5 million and $32.6 million, respectively. In 2021, we collected $43.5 million related to the settlement of the Company’s claims for reimbursements for certain pension and postretirement benefits costs incurred in connection with a past cost-reimbursable contract performed at the Portsmouth GDP, recognized as revenue within our technical solutions segment. In 2020, we collected $32.6 million from a customer in settlement of a supply contract that was subject to the customer’s bankruptcy proceeding, recognized as revenue within our LEU segment.
Based on our current order book and under current market conditions, we anticipate fiscal year 2022 revenues and gross margins in the long-term.LEU segment to be higher than 2021. Please see Forward Looking Statements at the beginning of this Annual Report.
With respect to our technical solutions segment, work under the HALEU Contract currently remains on schedule but we have been experiencing increased delays from vendors and increased costs due to the continuing COVID pandemic. We are working with DOE to minimize the impacts and to obtain funding for these additional costs. Additional funding commitments from DOE and a contract amendment will be required to complete the project. Refer to Overview above for additional details.
Our order book of sales under contract in the LEU segment (“order book”) extends to 2029. For the years ended December 31, 2021 and 2020, our order book was approximately $986 million and $960 million, respectively. The order book is the estimated aggregate dollar amount of revenue for future SWU and uranium deliveries, and includes approximately $348.2 million of deferred revenue and advances from customers as of December 31, 2021, whereby customers have made advance payments to be applied against future deliveries. We estimate that approximately 3% of our order book is at risk related to customer operations. Due to the nature of the long-term contracts and our order book, we have visibility of a significant portion of our anticipated revenue for 2022 and 2023 in the LEU segment. However, these long-term contracts are subject to significant risks and uncertainties, including existing import laws and restrictions under current contracts such as, the Russian Suspension Agreement, which limits imports of Russian uranium products into the United States and applies to our sales using material procured under the TENEX Supply Contract, as well as the potential for sanctions and other restrictions on trade with Russia or in dealings with Russian person and entities, in response to the evolving situation regarding the war in Ukraine. For further discussion of these risks and uncertainties, refer to Part I, Item 1A, Risk Factors - (1) Restrictions on imports or sales of SWU or uranium that we buy from our Russian supplier and our other sources of supply could adversely affect profitability and the viability of our business, and - (2) The dollar amount of the sales order book, as stated at any given time, is not necessarily indicative of future sales revenues and is subject to uncertainty.
Our future operating results are subject to a number of uncertainties that could affect results either positively or negatively. Among the factors that could affect our results are the following:
•Additional purchases or sales of SWU and uranium;
•Conditions in the LEU and energy markets, including pricing, demand, operations, government restrictions on imports, exports or investments, and regulations of our business and activities and those of our customers, suppliers, contractors, and subcontractors;
•Timing of customer orders, related deliveries, and purchases of LEU or components;
•Costs, future funding, and demand for HALEU;
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•Financial market conditions and other factors that may affect pension and benefit liabilities and the value of related assets;
•The outcome of legal proceedings and other contingencies;
•Potential use of cash for strategic or financial initiatives;
•Actions taken by customers, including actions that might affect existing contracts;
•Market, international trade, and other conditions impacting Centrus’ customers and the industry;
•Armed conflicts, including the war in Ukraine, government actions and other events that disrupt supply chains, production, transportation, payments and importation of nuclear materials or other critical supplies or services; and,
•The length and severity of the COVID-19 pandemic and its impact on our operations.
Revenue
We have two reportable segments: the LEU segment and the technical solutions segment.
Revenue from our LEU segment is derived primarily from:
•sales of the SWU component of LEU;
•sales of both the SWU and natural uranium components of LEU; and
•sales of natural uranium.
Our technical solutions segment reflects our technical, manufacturing, engineering, and operations services offered to public and private sector customers, including engineering and testing activities as well as technical and resource support currently being performed by the Company. This includes our agreement with DOE to demonstratethe HALEU productionContract and a variety of other contracts with public and private sector customers.
SWU and Uranium Sales
Revenue from our LEU segment accounted for approximately 81%62% of our total revenue in 2019.2021. The majority of our customers are domestic and international utilities that operate nuclear power plants, with international sales constituting approximatelyover one-third of revenue from our LEU segment in recent years. Our agreements with electric utilities are primarily medium and long-term fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of the SWU component of LEU from us. Our agreements for natural uranium and
Utility customers, in general, have the option to defer receipt of SWU and natural uranium products purchased from Centrus beyond the contractual sale period, resulting in the deferral of costs and revenue recognition. Refer to Note 2, Revenue and Contracts with Customers, in the consolidated financial statements in Part IV of this Annual Report for further details.
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Our financial performance over time can be significantly affected by changes in prices for SWU and natural uranium. Since 2011, market prices for SWU and uranium have significantly declined.declined until mid-2018, when they began to trend upward. Since our sales order book includes contracts awarded to us in previous years, the average SWU price billed to customers typically lags behind published price indicators by several years. While newer sales reflect the low prices prevalent in recent years, certain older contracts included in our order book have sales prices that are significantly above current market prices.
SWU and Uranium Market Price Indicators*
* Source: Nuclear Market Review, a TradeTech publication, www.uranium.info
Our contracts with customers are denominated primarily denominated in U.S. dollars and although revenue has not been directlymaterially affected by changes in the foreign exchange rate of the U.S. dollar, we may have a competitive price advantage or disadvantage obtaining new contracts in a competitive bidding process depending upon the weakness or strength of the U.S. dollar. On occasion, we will accept payment in euros for spot sales that may be subject to short-term exchange rate risk. Costs of our primary competitors are denominated in other currencies. Our contracts with suppliers have historically beenare primarily denominated in U.S. dollars. In 2018, however, we entered into anWe have a SWU supply agreement, nominally commencing in 2023, with Orano Cycle (“Orano”) for the long-term supply of SWU. We may elect to begin deliveries as early as 2021. Purchases under the contract with Orano will beprices payable in a combination of U.SU.S. dollars and euros, and we may be subject tobut with a contract defined exchange rate risk for the portion of purchases payable in euros.rate.
On occasion, we will accept payment for SWU in the form of natural uranium. Revenue from the sale of SWU under such contracts is recognized at the time LEU is delivered and is based on the fair value of the natural uranium at contract inception, or as the quantity of natural uranium is finalized, if variable.
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Cost of sales for SWU and natural uranium is based on the amount of SWU and natural uranium sold and delivered during the period and unit inventory costs. Unit inventory costs are determined using the average cost method. Changes in purchase costs have an effect on inventory costs and cost of sales over current and future periods.sales. Cost of sales includes costs for inventory management at off-site licensed locations. Cost of sales also includes certain legacy costs related to former employees of the Portsmouth GDP and Paducah gaseous diffusion plants.GDP.
Technical Solutions
Our technical solutions segment reflects our technical, manufacturing, engineering and operations services offered to public and private sector customers, including the American Centrifuge engineering, and testing activities we have performed as a contractor for UT-Battelle and the engineering, procurement, construction, manufacturing and operations services being performed under the HALEU Contract. With our government and private sector customers, we seek to leverage our domestic enrichment experience, engineering know-how, and precision manufacturing facility to assist customers with a range of engineering, design, and advanced manufacturing projects, including the production of fuel for next-generation nuclear reactors and the development of related facilities.
We continue to invest in advanced technology because of the potential for future growth into new areas of business for the Company, while also preserving our unique workforce at our Technology and Manufacturing Center in Oak Ridge, Tennessee.Tennessee, and our production facility near Piketon, Ohio.
Government Contracting
On September 27, 2018,October 31, 2019, we leveraged our D&D experience and entered into an agreementsigned the cost-share HALEU Contract with DOE to decontaminatedeploy a cascade of centrifuges to demonstrate production of HALEU for advanced reactors. The three-year program has been under way since May 31, 2019, when the Company and decommissionDOE signed an interim HALEU letter agreement that allowed work to begin while the K-1600 facility located atfull contract was being finalized. The Company entered into this cost-share contract with DOE as a critical first step on the East Tennessee Technology Park. Underroad back to the termscommercial production of enriched uranium, which the Company had terminated in 2013 with the closure of the agreement, pursuantPaducah GDP. The HALEU Contract, if fully implemented, is expected to result in the Company having constructed the AC100M technology and prepared the systems to enrich uranium to the 20% concentration in the uranium-235 isotope that is required by many of the advanced reactor concepts now under development. Centrus is the only company with an NRC license to enrich HALEU.
In 2019, under the HALEU Contract, DOE agreed to reimburse the Company for 80% of its costs incurred in performing the contract, up to a maximum of $115 million which was increased to $126.7 million. In addition, on March 4, 2022, the DOE informed the Company of their intent to fund an additional $9.0 million above the $126.7 million, as disclosed above. The Company’s cost share is the corresponding 20% and any costs the Company elects to incur above these amounts. Costs under the HALEU Contract include program costs, including internal labor, third-party services and materials and associated indirect costs that are classified as Cost of Sales, and an allocation of corporate costs supporting the program that are classified as Selling, General and Administrative Expenses. Services to be provided over the three-year contract include constructing and assembling centrifuge machines and related infrastructure in a cascade formation. When estimates of total costs for such an integrated, construction-type contract exceed estimates of total revenue to be earned, a provision for the remaining loss on the contract is recorded to Cost of Sales in the period the loss is determined. Our corporate costs supporting the program are recognized as expense as incurred over the duration of the contract term. The accrued loss on the contract is being adjusted over the remaining contract term based on actual results, remaining program cost projections, and the Company’s anticipated cost-share. The impact to Cost of Sales for the year ended December 31, 2021, and 2020, is $7.2 million and $10.6 million, respectively, for previously accrued contract losses attributable to work authorizationperformed in the periods. As of December 31, 2021, a total of $19.1 million of previously accrued contract losses have been realized and the accrued contract loss balance included in Accounts Payable and Accrued Liabilities is $0.5 million.
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Our HALEU Contract expires June 1, 2022, and although we believe demand for HALEU will emerge over the next several years thereafter, there are no guarantees that we will be awarded a contract to operate the demonstration facility plant or about whether or when government or commercial demand for HALEU will materialize, and there are a number of technical, regulatory, and economic hurdles that must be overcome for these fuels and reactors to come to the market.
The U.S. government has been operating under a series of Continuing Resolutions in Fiscal Year 2022. The DOE continues to support the HALEU program during the continuing resolution period, and has incrementally increased the government’s cost share ceiling as funds have become available. Currently, DOE has provided incremental funding, and increased the government’s cost share ceiling to $126.7 million.
While the existing contract ends on June 1, 2022, the DOE has unilaterally changed the scope of the existing contract and plans to compete the operational portion of the demonstration in a new, competitively-awarded contract, with operations to begin in mid-2022. Centrus believes it is well-positioned to compete for a follow-on contract to operate the machines in Piketon but there is no assurance that DOE will award such a contract to the Company. Congress has not yet adopted a Fiscal Year 2022 appropriations bill for the Department, and there is no assurance that the proposed program, which would go beyond the scope and expiration of our lease withexisting contract, will be approved and funded.
Additional COVID-19-related impacts, delays in DOE we werefurnishing equipment, or changes to the existing scope of the HALEU Contract could result in further material increases to our estimate of the costs required to removecomplete the demonstration cascade and dispose of government owned materials and equipment in order to render the facility radiologically uncontaminated and unclassified. The contract was a cost-plus fixed fee contract totaling approximately $15 million. The Company announced that it had successfully completed D&D of the facility on October 9, 2019. In connection with the substantialproduce HALEU, as well as delay completion of the HALEU Contract. The Company does not currently have a contractual obligation to perform work we terminated our lease within excess of the funding provided by DOE forand, therefore, no additional costs have been accrued as of December 31, 2021. If the K-1600 facility on September 30, 2019.
Commercial Contracting
In March 2018, we entered into aan initial services agreement with X Energy, LLC (“X-energy”)X-energy to provide X-energy with technical and resource support for criticality safety evaluation of processing equipment,conceptual design of freshits TRISO fuel transport packages, and conceptual mock-up of a nuclear fuel production facility.manufacturing process. In November 2018, we entered into a second services agreement with X-energy to provide technical and resource support toproceed with preliminary design of the design and license application development of its nuclear fuel productionTRISO facility. Under both agreements, which were funded by two separate cooperative agreement awards by DOE, we provideprovided X-energy with non-cash in-kind contributions subjectpursuant to a cooperative agreement between X-energy and the United States government.X-energy’s obligations under those agreements. Both of these contracts have been completed. In November 2019,2020, the parties extended the period of performance through June 30, 2020.August 2021. In August 2021, we entered into a new services agreement with X-energy to provide design services for detailed design of the TRISO fuel manufacturing facility and various support services for establishing their TRISO Research and Development Center. X-energy is funded under the current DOE cooperative agreement titled Advanced Reactor Demonstration Program (ARDP). The task orders under the new agreement may include in-kind contributions that we are not currently, but may provide, at our discretion.
Under the X-energy agreements, Centrus performs services are performed pursuant to separate task orders issued andthat provide for time-and-materials based pricing. The cumulative value of task orders issued callsthrough December 31, 2021 under the three agreements provided for payments to us of $11.9 million and in-kind contributions to be provided by us of $6.5 million. Revenue in 2018-2019 for payments received or pending totaled $9.5$26.3 million and in-kind contributions provided by us totaled $5.0of $10.4 million.
Prior Site Services Work
We formerly performed sites services work under contracts with DOE and its contractors at the former Portsmouth (Ohio) and Paducah (Kentucky) Gaseous Diffusion Plants.GDP. In January 2018, we entered into a settlement agreement with DOE andSeptember 2021, the U.S. government regarding breach of contract claims brought by the Company relating to this work. In connection with the settlement, the Company (a) received $4.7 million from the U.S. government, (b) applied approximately $19.3 million of advances from the U.S. government received in prior years against the receivables balance, and (c) recorded additional revenue of $9.5 million in the first quarter of 2018.
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reimbursable contract for work performed at the Portsmouth and Paducah plant sites. There isGDP. Under the potential for additional income to be recognized for this work pendingterms of the outcomesettlement agreement, DOE paid the Company $43.5 million in September 2021, of legal proceedings relatedwhich $33.8 million was contributed in September 2021 to the Company’s claimspension plan for its subsidiary United States Enrichment Corp. (“Enrichment Corp.”) and $9.7 million was deposited in October 2021 in a trust for payment and the potential release of previously established valuation allowances on receivables. Refer to Part II, Item 1, Legal Proceedings, for additional information.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1, Summary of Significant Accounting Policies, of our consolidated financial statements, which were prepared in accordance with generally accepted accounting principles. Generally accepted accounting principles in the United States and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business are complex and involve many subjective assumptions, estimates and judgments that are, by their nature, subject to substantial risks and uncertainties. Critical accounting estimates are those that require management to make assumptions about matters that are uncertain at the time the estimate is made and for which different estimates, often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but are inherently uncertain and unpredictable, could have a material impact on our operating results and financial condition. It is also possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. We are also subject to risks and uncertainties that may cause actual results to differ from estimated amounts, such as the healthcare environment, legislation and regulation. Additionally, changes in accounting rules or their interpretation could significantly affect our results of operations and financial condition.
The sensitivity analyses used below are not intended to provide a reader with our predictions of the variability of the estimates used. Rather, the sensitivities used are included to allow the reader to understand a general cause and effect of changes in estimates.
We have identified the following to be our critical accounting estimates:
Revenue Recognition - Technical Solutions
Revenue for the technical solutions segment principally representing technical, manufacturing, engineering, procurement, construction and operations services offered to public and private sector customers, is recognized over the contractual period as services are rendered. The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer. For public sector contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit, and assume control of any work in progress. The Company’s private sector contracts generally contain contractual termination clauses or entitle the Company to paymentspayment for work performed to date for goods and services that do not have an alternative use. With control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. A contract may contain one or more performance obligations. Two or more promises to transfer goods or services to a customer may be considered a single performance obligation if the goods or services are highly interdependent or highly interrelated such that utility of the promised goods or services to the customer includes integration services provided by the Company.
The Company determines the transaction price for each contract based on the consideration it expects to receive for the products or services being provided under the contract. If transaction prices are not stated in the contract for each performance obligation, contractual prices are allocated to performance obligations based on estimated relative standalone selling prices of the promised services.
The Company generally uses the cost-to-cost input method of progress for performance obligations to deliver products with continual transfer of control to the customer, because it best depicts the transfer of control to the
customer that occurs as the Company incurs costs. Under the cost-to-cost method, the extent of
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progress towards completion is measured based on the proportion of direct costs incurred to date to the total estimated direct costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. For performance obligations to provide services to the customer, revenue is recognized over time based on direct costs incurred or the right to invoice method (in situations where the value transferred matches the Company’s billing rights) as the customer receives and consumes the benefits.
Use of the cost-to-cost method requires the Company to make reasonably dependable estimates regarding the revenue andof costs at completion associated with the design, manufacture and delivery of products and services.services in order to calculate revenue. Significant judgment is used to estimate total revenue and costs at completion.completion, particularly in the assumptions related to internal labor hours and third-party services for which a vendor invoice or quote is not yet available. As a significant change in one or more estimates could affect the profitability of the Company’s contracts, the Company reviews and updates its contract-related estimates regularly. Adjustments in estimated profits/losses are recognized under the cumulative catch-up method. Under this method, the impact of the adjustments is recognized in the period the adjustment is recognized. When estimates of total costs to be incurredat completion for an integrated, construction type contract exceed total estimates of revenue to be earned on a performance obligation related to complex equipment or related services, a provision for the entireremaining loss on the performance obligation is recognized in the period the loss is identified.determined.
Asset Valuations
The accounting for SWU and uranium inventories includes estimates and judgments. SWU and uranium inventory costs are determined using the average cost method. Inventories of SWU and uranium are valued at the lower of cost or net realizable value (“NRV”). NRV is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The estimated selling price for SWU and uranium under contract is based on the pricing terms of contracts in our sales order book, and, forbook. For uranium not under contract, the estimated selling price is based primarily on published price indicators at the balance sheet date.
Intangible assets originated from our reorganization and application of fresh start accounting as of September 30, 2014. The intangible assets represented the fair value adjustment to the assets and liabilities for our LEU segment. The identifiable intangible assets relate to our order book and customer relationships. The order book intangible asset is amortized as the order book valued at emergence is reduced, principally as a result of deliveries to customers. The customer relationships intangible asset is amortized using the straight-line method over the estimated average useful life of 15 years, with 97 ¾ years of scheduled amortization remaining. The aggregate net balance of identifiable intangible assets was $69.5$54.7 million as of December 31, 2019.2021.
The carrying values of the intangible assets are subject to impairment tests whenever events or changes in business circumstances indicate that the carrying amount of the intangible assets may not be fully recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset, or asset group exceeds its fair value.
Inherent in our fair value determinations are certain judgments and estimates, including projections of future cash flows, the discount rate reflecting the risk inherent in future cash flows, the interpretation of current economic indicators and market valuations, and strategic plans with regard to operations. A change in these underlying assumptions would cause a change in the results of the tests, which could cause the fair value of the intangible asset to be less than its respective carrying amount.
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Pension and Postretirement Health and Life Benefit Costs and Obligations
We provide retirement benefits to certain employees and retirees under defined benefit pension plans and postretirement health and life benefit plans. The valuation of benefit obligations and costs is based on provisions of the plans and actuarial assumptions that involve judgments and estimates.
Assets and obligations related to our retiree benefit plans are remeasured each year as of the balance sheet date resulting in differences between actual and projected results for the year. The Company has elected the accounting option to recognize these actuarial gains and losses in the statement of operations in the fourth quarter. The alternative would be to amortize gains and losses into operating results over time. The Company’s treatment of recognizing actuarial gains and losses immediately is intended to increase transparency into how movements in plan assets and benefit obligations impact financial results. Immediate recognition of such gains and losses in the statement of operations may cause significant fluctuations in our results of operations. In addition, an interim remeasurement and recognition of gains or losses may be required for a plan during the year if lump sum payments exceed certain levels.
Changes in actuarial assumptions could impact the measurement of benefit obligations and benefit costs, as follows:
•The expected return on benefit plan assets is approximately 6.5%5.50% for 2020.2022. The expected return is based on historical returns and expectations of future returns for the composition of the plans’ equity and debt securities. A one-half percentage point decrease in the expected return on plan assets would increase annual pension costs by $3.0$3.2 million in 2020.2022. However, the net impact of any changes in the expected return on benefit plan assets on the final benefit cost recognized for fiscal year 20202022 would be $0 since the actual return on assets would effectively be reflected at December 31, 2020,2022, under our mark-to-market accounting methodology.
•The present value of pension obligations is calculated by discounting long-term obligations using a market interest rate. This discount rate is the estimated rate at which the benefit obligations could be effectively settled on the measurement date and is based on yields of high quality fixed income investments whose cash flows match the timing and amount of expected benefit payments of the plan. Discount rates of approximately 3.3%2.8% were used as of December 31, 2019.2021. A one-half percentage point reduction in the discount rate would increase the valuation of pension benefit obligations by $39.9$35.5 million and postretirement health and life benefit obligations by $7.7$6.9 million, and the resulting changes in the valuations would decrease the aggregate service cost and interest cost components of annual pension costs and postretirement health and life benefit costs by $2.5$2.6 million and $0.5$0.4 million, respectively.
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•The healthcare costs trend rates are 6.0%6% projected in 20202022 reducing to a final trend rate of 5% by 2022.2026. The healthcare costs trend rate represents our estimate of the annual rate of increase in the gross cost of providing benefits. The trend rate is a reflection of health care inflation assumptions, changes in healthcare utilization and delivery patterns, technological advances, and changes in the health status of our plan participants. A one-percentage point increase in the healthcare cost trend rates would increase postretirement health benefit obligations by about $3.5 million and would increase the service cost and interest cost components of annual benefit costs by about $0.1 million.
Income Taxes
During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. To the extent that the final tax outcome of these matters is different than the amounts that were initially recorded, such differences will impact the income tax provision in the period in which such determination is made.
Accounting standards prescribe a minimum recognition threshold that a tax position is required to meet before the related tax benefit may be recognized in the financial statements. As of December 31, 2019,2021, the liability for unrecognized tax benefits, included in Other Long-Term Liabilities, on the consolidated balance sheet in Part IV of this Annual Report was $0.4$1.0 million and accrued interest and penalties totaled less than $0.1 million.
Accounting for income taxes involves estimates and judgments relating to the tax bases of assets and liabilities and the future recoverability of deferred tax assets. In assessing the realization of deferred tax assets, we determine whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income in future years when deferred tax assets are recoverable or are expected to reverse. Factors that may affect estimates of future taxable income include, but are not limited to, competition, changes in revenue, costs or profit margins, market share, and developments related to the American Centrifuge technology. In practice, positive and negative evidence is reviewed with objective evidence receiving greater weight. If, based on the weight of available evidence, it is more likely than not that all, or some portion, of the deferred tax assets will not be realized, we record a valuation allowance. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed for all, or some portion, of the deferred tax assets. A cumulative loss in recent years is a significant piece of
All available positive and negative evidence and one of the most difficult forms of negative evidenceis analyzed quarterly to overcome. We have incurred cumulative operating losses since 2011.
In the net deferred tax asset created bysecond quarter of 2020, the expensing of previously capitalized costs related to a number of earlier centrifuge machines used invaluation allowance on the demonstration cascade test program, as well as all other previously recordedstate net deferred tax assets for the LEU segment was released due to a return to profitability that led to cumulative income for state income tax purposes. A full valuation allowance against the federal and state net deferred tax assets for the rest of the business remained throughout 2020 because negative evidence, including statecumulative losses, outweighed positive evidence.
Centrus evaluated both positive and negative evidence that was objectively verifiable to determine the amount of the federal valuation allowance that is required on Centrus’ federal deferred taxes.tax assets. As discussed in Operating Results, Centrus has visibility on a significant portion of revenue in the LEU segment through 2026, primarily from its long-term sales contracts. Centrus considered both its achievement ofsustained profitability and cumulative income in 2021, as well as the forecasted income to be significant forms of positive evidence. Negative evidence included uncertainty in and the lack of objectively verifiable evidence for profitability in later years when Centrus’ existing sales order book and supply contracts reach expiration in its LEU segment. In Centrus’ technical solutions segment, negative evidence included uncertainty in the future funding of the HALEU enrichment facility and thus, no assumptions for the future funding of the HALEU enrichment facility were included in the forecast model because it was not objectively verifiable. Centrus
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determined that the positive evidence outweighed the negative evidence and supported a release of the federal valuation allowance. However, due to lack of objectively verifiable information in later years, it was determined that forecasted future income was not sufficient to realize all the deferred tax assets. Therefore, the Company recorded a $40.7 million partial release of its federal valuation allowance in the fourth quarter of 2021. As of December 31, 2019,2021, the valuation allowance against the remaining federal and state net deferred taxestax assets was $459.5$414.7 million.
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Results of Operations
A discussion of the results of operations from 2019 can be found in Item 7, Management Discussion and Analysis, of the Company’s ability to use its deferred tax assets when it generates taxable income. In connectionAnnual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the 2014 bankruptcy plan, tax attributes, such as net operating losses (“NOLs”), tax credits, and tax basis in property have been reduced. When tax attributes are reduced, deferred taxes related to the tax attributes and the corresponding valuation allowance are adjusted. Management reassesses the realization of the deferred tax assets each reporting period. As financial results improve and the deferred tax assets become realizable, we will reduce the valuation allowance accordingly.
SEC on March 22, 2021.
Segment Information
The following table presents elements of the accompanying consolidated statements of operations that are categorized by segment (dollar amounts in millions):
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| LEU segment | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| SWU revenue | $ | 163.3 | $ | 151.5 | $ | 11.8 | 8 | % | |||||||||||||||
| Uranium revenue | 22.8 | 39.0 | (16.2) | (42) | % | ||||||||||||||||||
| Total | 186.1 | 190.5 | (4.4) | (2) | % | ||||||||||||||||||
| Cost of sales | 113.1 | 92.7 | (20.4) | (22) | % | ||||||||||||||||||
| Gross profit | $ | 73.0 | $ | 97.8 | $ | (24.8) | |||||||||||||||||
| Technical solutions segment | |||||||||||||||||||||||
| Revenue | $ | 112.2 | $ | 56.7 | $ | 55.5 | 98 | % | |||||||||||||||
| Cost of sales | 70.7 | 56.9 | (13.8) | (24) | % | ||||||||||||||||||
| Gross profit (loss) | $ | 41.5 | $ | (0.2) | $ | 41.7 | |||||||||||||||||
| Total | |||||||||||||||||||||||
| Revenue | $ | 298.3 | $ | 247.2 | $ | 51.1 | 21 | % | |||||||||||||||
| Cost of sales | 183.8 | 149.6 | (34.2) | (23) | % | ||||||||||||||||||
| Gross profit | $ | 114.5 | $ | 97.6 | $ | 16.9 | |||||||||||||||||
| Year Ended December 31, | ||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||
| LEU segment | ||||||||||||||
| Revenue: | ||||||||||||||
| SWU revenue | $ | 123.7 | $ | 130.6 | $ | (6.9 | ) | (5 | )% | |||||
| Uranium revenue | 45.7 | 33.8 | 11.9 | 35 | % | |||||||||
| Total | 169.4 | 164.4 | 5.0 | 3 | % | |||||||||
| Cost of sales | 118.6 | 187.7 | 69.1 | 37 | % | |||||||||
| Gross profit (loss) | $ | 50.8 | $ | (23.3 | ) | $ | 74.1 | |||||||
| Technical solutions segment | ||||||||||||||
| Revenue | $ | 40.3 | $ | 28.6 | $ | 11.7 | 41 | % | ||||||
| Cost of sales | 58.6 | 23.2 | (35.4 | ) | (153 | )% | ||||||||
| Gross profit (loss) | $ | (18.3 | ) | $ | 5.4 | $ | (23.7 | ) | ||||||
| Total | ||||||||||||||
| Revenue | $ | 209.7 | $ | 193.0 | $ | 16.7 | 9 | % | ||||||
| Cost of sales | 177.2 | 210.9 | 33.7 | 16 | % | |||||||||
| Gross profit (loss) | $ | 32.5 | $ | (17.9 | ) | $ | 50.4 | |||||||
Revenue
Revenue from the LEU segment increased $5.0decreased $4.4 million (or 3%or (2%) in 20192021 compared to 2018.2020. SWU revenue declined $6.9increased $11.8 million (or 5%)or 8% in 20192021 compared to 2018.2020. The volume of SWU sales declined 24% andincreased 64%. SWU revenue in 2020 includes $32.6 million collected from a customer in settlement of a supply contract that was subject to the customer’s bankruptcy proceeding. Excluding this payment, the average SWU price billed to customers increased 24%decreased 16%, reflecting the particular contracts under which SWU were sold during the periods. Uranium revenue increased $11.9decreased $16.2 million (or 35%or (42%) in 20192021 compared to 2018.2020. The volume of uranium sales increased 29% and the average uranium price billed to customers increased 5%decreased (46%).
Revenue from the technical solutions segment increased $11.7$55.5 million (or 41%)or 98% in 20192021 compared to 2018, primarily2020. Revenue in 2021 included $43.5 million related to the resultsettlement of the Company’s claims for reimbursements for certain pension and postretirement benefits costs incurred in connection with a past cost-reimbursable contract performed at the Portsmouth GDP. Excluding this payment, revenue from the technical solutions segment increased $12.0 million or 21% in 2021, due to increased work performed under the HALEU contract and the K-1600 D&D contract, partially offset by a decrease in work performed under the UT-Battelle contract. Revenue in 2018 included $9.5 million related to the January 2018 settlement with DOE related to past work performed.other contracts.
Cost of Sales
Cost of sales for the LEU segment declined $69.1increased $20.4 million (or 37%)or 22% in 20192021 compared to 2018, primarily2020, reflecting a declinethe increase in SWU sales volume, partially offset by the decrease in uranium sales volume. The average cost of sales
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per SWU and the changes in SWU and uranium sales volumes. In 2019, the average cost of sales per SWU declined 38%, primarily due to lower pricing under the Russian Supply Agreement.was unchanged from 2020. Cost of sales includes legacy costs related to former employees of the Portsmouth GDP and Paducah Gaseous Diffusion PlantsGDP of $4.1$2.7 million in 20192021 and $3.4$3.7 million in 2018. Valuation adjustments for our uranium inventory to reflect declines in uranium market price indicators totaled $2.3 million in 2019 and there were no valuation adjustments in 2018. The average uranium unit cost of sales increased 17% in 2019 compared to 2018.2020.
Cost of sales for the technical solutions segment increased $35.4$13.8 million (or 153%)or 24% in 20192021 compared to 2018,2020, largely reflecting the mixincrease in contract work performed. The impact to cost of technical solutionssales is $7.2 million in 2021 and $10.6 million in 2020 for previously accrued contract losses attributable to work performed in each of the periods. As of December 31, 2019, our share of remaining projected program costs under the HALEU Contract. For details on HALEU Contract was recognized in Cost of Sales as an accrued loss of $18.3 million. The accrued loss on the contract will be adjusted over the remaining contract term based on actual results and remaining program cost projections.accounting, refer to Technical Solutions - Government Contracting above.
Gross Profit (Loss)
We recognized a gross profit of $32.5$114.5 million in 2019,2021, an increaseimprovement of $50.4$16.9 million compared to the gross lossprofit of $17.9$97.6 million in 2018.2020.
The gross profit for the LEU segment was $50.8$73.0 million in 20192021 compared to a gross loss of $23.3$97.8 million in 2018.2020. The improvementdecrease for the LEU segment of $74.1$24.8 million was primarily due to the declinepayment of $32.6 million in 2020 from a customer in settlement of a supply contract that was subject to the average cost of sales per SWUcustomer’s bankruptcy proceeding and the increasedecrease in the average SWU price billed to customers, partially offset by the decline in SWU volume sold. The gross profit from uranium sales in 2019 was relatively minor, with the impact of the increase in uranium volume sold and the increase in the average unit sales price, largelypartially offset by the increase in the averageSWU and uranium unit cost of sales.sales volumes.
For the technical solutions segment, we recognized a gross lossprofit of $18.3$41.5 million in 2019,2021 compared to gross profit of $5.4 million in 2018. The gross profit for 2019 was break even excluding the accrued contract loss of $18.3 million related to projected costs for the HALEU program. In 2018, there was a gross loss of $4.1$0.2 million excludingin 2020. Excluding the $9.5 million of revenue in the January 2018 settlement with DOE, relatedgross profit (loss) from the technical solutions segment increased to past work performed.a loss of $2.0 million in 2021 from a loss of $0.2 million in 2020.
Non-Segment Information
The following table presents elements of the accompanying consolidated statements of operations that are not categorized by segment (dollar amounts in millions):
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Gross profit | $ | 114.5 | $ | 97.6 | $ | 16.9 | 17 | % | |||||||||||||||
| Advanced technology costs | 2.1 | 2.8 | 0.7 | 25 | % | ||||||||||||||||||
| Selling, general and administrative | 36.0 | 36.0 | — | — | % | ||||||||||||||||||
| Amortization of intangible assets | 8.1 | 6.8 | (1.3) | (19) | % | ||||||||||||||||||
| Special charges for workforce reductions | — | 0.6 | 0.6 | 100 | % | ||||||||||||||||||
| Other expense, net | — | 0.4 | 0.4 | 100 | % | ||||||||||||||||||
| Operating income | 68.3 | 51.0 | 17.3 | 34 | % | ||||||||||||||||||
| Nonoperating components of net periodic benefit income | (67.6) | (1.6) | 66.0 | 4,125 | % | ||||||||||||||||||
| Interest expense | 0.1 | 0.1 | — | — | % | ||||||||||||||||||
| Investment income | (0.1) | (0.5) | (0.4) | (80) | % | ||||||||||||||||||
| Income before income taxes | 135.9 | 53.0 | 82.9 | 156 | % | ||||||||||||||||||
| Income tax benefit | (39.1) | (1.4) | 37.7 | - | |||||||||||||||||||
| Net income | $ | 175.0 | $ | 54.4 | $ | 120.6 | 222 | % | |||||||||||||||
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| Year Ended December 31, | ||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||
| Gross profit (loss) | $ | 32.5 | (17.9 | ) | $ | 50.4 | 282 | % | ||||||
| Advanced technology costs | 14.6 | 26.1 | 11.5 | 44 | % | |||||||||
| Selling, general and administrative | 33.7 | 39.9 | 6.2 | 16 | % | |||||||||
| Amortization of intangible assets | 6.5 | 6.6 | 0.1 | 2 | % | |||||||||
| Special charges (credits) for workforce reductions and advisory costs | (1.9 | ) | 2.2 | 4.1 | 186 | % | ||||||||
| Gain on sales of assets | (0.7 | ) | (0.3 | ) | 0.4 | 133 | % | |||||||
| Operating loss | (19.7 | ) | (92.4 | ) | 72.7 | 79 | % | |||||||
| Gain on early extinguishment of debt | — | (0.5 | ) | (0.5 | ) | (100 | )% | |||||||
| Nonoperating components of net periodic benefit expense (income) | (4.3 | ) | 10.6 | 14.9 | 141 | % | ||||||||
| Interest expense | 3.0 | 4.1 | 1.1 | 27 | % | |||||||||
| Investment income | (2.2 | ) | (2.5 | ) | (0.3 | ) | (12 | )% | ||||||
| Loss before income taxes | (16.2 | ) | (104.1 | ) | 87.9 | 84 | % | |||||||
| Income tax expense | 0.3 | — | (0.3 | ) | - | |||||||||
| Net loss | (16.5 | ) | (104.1 | ) | 87.6 | 84 | % | |||||||
| Preferred stock dividends - undeclared and cumulative | 7.8 | 7.8 | — | — | % | |||||||||
| Net loss allocable to common stockholders | $ | (24.3 | ) | $ | (111.9 | ) | $ | 87.6 | 78 | % | ||||
Advanced Technology Costs
Advanced technology costs consist of American Centrifuge and related expenses that are outside of our customer contracts in the technical solutions segment. Costs declined $11.5 million (or 44%) in 2019 comparedsegment, including costs for work at the Piketon facility prior to 2018, primarily due to a reduction in our license and facility caretaker costs at Piketon following the commencement of work under the HALEU contractwork in June 2019.2020 and costs to continue to advance our advanced technology. Costs declined $0.7 million (or 25%) in 2021 compared to 2020.
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses declined $6.2 million (or 16%) in 2019 compared to 2018. Compensation and benefits declined $4.0 million, information technology costs declined $0.8 million, consulting expenses declined $0.4 million, travel costs declined $0.4were $36.0 million in 2019,each of 2021 and other costs declined by a net $0.6 million.2020. These expenses remained flat year over year.
Amortization of Intangible Assets
Amortization of intangible assets declined $0.1increased $1.3 million (or 2%)or 19% in 20192021 compared to 2018.2020. Amortization expense for the intangible asset related to the September 2014 sales order book is a function of SWU sales volume under that order book, and amortization expense for the intangible asset related to customer relationships is amortized on a straight-line basis.
Special Charges (Credits) for Workforce Reductions and Advisory Costs
There were no special charges in 2021. Special charges declined $4.1of $0.6 million (or 186%) in 2019, compared to 2018. Special charges in 2019 included a credit of $2.9 million for the reversal of accrued termination benefits for employees who were retained with the signing of the HALEU letter agreement in May 2019. Special charges in 20182020 consisted of estimated employee termination benefits of $2.1 million and advisory costs related to updating the Company’s information technology systems of $0.1$0.6 million.
Nonoperating Components of Net Periodic Benefit Expense (Income)Income
Nonoperating components of net periodic benefit expense (income) netted to income of $4.3was ($67.6) million in 2019,2021, compared to expense of $10.6($1.6) million in 2018.2020. Nonoperating components of net periodic benefit expense (income) consistincome in 2021 consists primarily of the expecteda return on plan assets of ($58.2) million and future impacts of the change in the discount rate of ($31.0) million, offset by interest cost of $21.5 million, as the discounted present value of benefit obligations nears payment.
Interest Expense
Interest expense declined $1.1was $0.1 million (or 27%) in 2019, compared to 2018, primarily as a result of the repayment the outstanding 8% PIK Toggle Notes that matured on September 30, 2019.2021 and 2020.
Income Tax Expense (Benefit)Benefit
The income tax expense was $0.3 million in 2019 and the income tax benefit was less than $0.1$39.1 million in 2018.2021 and $1.4 million in 2020. The income tax benefit in 2021 relates to the release of the federal valuation allowance of $40.7 million offset by the effect of state rate changes of $1.2 million and state income tax expense of $0.4 million. The income tax benefit in 2020 relates to the release of the state valuation allowance against state net deferred tax assets for the LEU segment of $2.0 million offset primarily by state income tax expense of $0.6 million. The state income tax expense in 20192021 and 2020, primarily relates to an accrual for a current unrecognized tax benefit offset by the reversal of a previously accrued unrecognized tax benefit. The income tax benefit in 2018 primarily relates to a reversal like the one in 2019.
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Net LossIncome
Net Income per Share
The Company measures Net Income per Share both on a $11.5 million decline in advanced technology costs, a $6.2 million decline in selling, generalU.S. GAAP basis and administrative expenses, and a $4.1 million decline in special charges.adjusted to exclude deemed dividends allocable to retired preferred stock shares (“Adjusted Net Income per Share”).
On November 17, 2020, the Company completed the purchase of 62,854 shares of its outstanding Series B Senior Preferred Stock Dividends - Undeclaredat a price per share of $954.59, less any applicable withholding taxes. (Refer below to Liquidity and CumulativeCapital Resources for additional details.) The purchase price per share represented a 25% discount from the aggregate liquidation preference, including accrued but unpaid dividends, of $1,272.78 per share as of September 30, 2020. Since origination, the carrying value on the Balance Sheet was $43.80 per share based on values assigned in the originating securities exchange. The liquidation amount at origination was $1,000.00 per share.
On February 2, 2021, the Company completed the exchange of 3,873 shares of its outstanding Series B Senior Preferred Stock, par value $1.00 per share (“Preferred Stock”) for (i) 231,276 shares of Class A Common Stock and (ii) a warrant to purchase 250,000 shares of Class A Common Stock at an exercise price of $21.62 per share, for an aggregate valuation of approximately $7.5 million. The carrying value of the Series B Senior Preferred Stock are entitled to cumulative dividends of 7.5%on the Balance Sheet was $1.00 per annum of theshare par value. The aggregate liquidation preference at origination of $104.6 million. We did not meet the criteria for a dividend payment obligation for the years ended December 31, 2019 and 2018 and we have not declared, accrued or paid dividends on the Series B Senior Preferred Stock, since issuanceincluding accrued but unpaid dividends, was $1,291.04 per share as of December 31, 2020.
On November 23, 2021, the Company completed the purchase of 36,867 shares of its outstanding Series B Senior Preferred Stock at a price per share of $1,145.20, less any applicable withholding taxes. The Company also completed the purchase of the remaining 980 shares of its outstanding Series B Senior Preferred Stock at a price per share of $1,149.99, less any applicable withholding taxes, on February 14, 2017. Dividends onDecember 15, 2021. For more information refer to Note 15 - Stockholders’ Equity in the consolidated financial statements in Part IV of this Annual Report. The aggregate purchase price of both transactions was $43.3 million. The carrying value of the Series B Senior Preferred Stock are cumulativeon the Balance Sheet was $1.00 per share par value.
The aggregate valuation of all 2021 preferred stock transactions of approximately $50.8 million, less accrued but unpaid dividends attributable to the extent not paid at any quarter-end, whether or not declaredacquired and whether or not there are assetsretired shares of Preferred Stock, is considered for purposes of Net Income per Share to be a deemed dividend in the aggregate amount equal to the amount by which it exceeds the carrying value of the Preferred Stock on the Balance Sheet, or $37.6 million.
The Company legally available formeasures Net Income and Net Income per Share both on a GAAP basis and on an adjusted basis to exclude deemed dividends allocable to retired preferred stock shares (“Adjusted Net Income” and “Adjusted Net Income per Share”). We believe Adjusted Net Income and Adjusted Net Income per Share, which are non-GAAP financial measures, provide investors with additional understanding of the paymentCompany’s financial performance as well as its strategic financial planning analysis and period-to-period comparability. These metrics are useful to investors because they reflect how management evaluates the Company’s ongoing operating performance from period-to-period after removing certain transactions and activities that affect comparability of such dividends in whole or in part. Referthe metrics and are not reflective of the Company’s core operations.
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| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Numerator (in millions): | |||||||||||||||||||||||
| Net income | $ | 116.2 | $ | 16.4 | $ | 175.0 | $ | 54.4 | |||||||||||||||
| Less: Preferred stock dividends - undeclared and cumulative | — | 0.8 | 2.1 | 6.7 | |||||||||||||||||||
| Less: Distributed earnings allocable to retired preferred shares | 31.0 | 41.9 | 37.6 | 41.9 | |||||||||||||||||||
| Net income (loss) allocable to common stockholders | $ | 85.2 | $ | (26.3) | $ | 135.3 | $ | 5.8 | |||||||||||||||
| Plus: Distributed earnings allocable to retired preferred shares | $ | 31.0 | $ | 41.9 | $ | 37.6 | $ | 41.9 | |||||||||||||||
| Adjusted net income, including distributed earnings allocable to retired preferred shares (Non-GAAP) | $ | 116.2 | $ | 15.6 | $ | 172.9 | $ | 47.7 | |||||||||||||||
| Denominator (in thousands) (a): | |||||||||||||||||||||||
| Average common shares outstanding - basic | 13,873 | 10,322 | 13,493 | 9,825 | |||||||||||||||||||
| Average common shares outstanding - diluted (b) | 14,278 | 10,322 | 13,879 | 10,123 | |||||||||||||||||||
| Net Income (Loss) per Share (in dollars): | |||||||||||||||||||||||
| Basic | $ | 6.14 | $ | (2.55) | $ | 10.03 | $ | 0.59 | |||||||||||||||
| Diluted | $ | 5.97 | $ | (2.55) | $ | 9.75 | $ | 0.57 | |||||||||||||||
| Plus: Effect of distributed earnings allocable to retired preferred shares, per common share (in dollars): | |||||||||||||||||||||||
| Basic | $ | 2.24 | $ | 4.06 | $ | 2.78 | $ | 4.26 | |||||||||||||||
| Diluted | $ | 2.17 | $ | 4.01 | $ | 2.71 | $ | 4.14 | |||||||||||||||
| Adjusted Net Income per Share (Non-GAAP) (in dollars): | |||||||||||||||||||||||
| Basic | $ | 8.38 | $ | 1.51 | $ | 12.81 | $ | 4.85 | |||||||||||||||
| Diluted | $ | 8.14 | $ | 1.46 | $ | 12.46 | $ | 4.71 | |||||||||||||||
(a) For details related to average shares outstanding, refer to Note 16, Stockholders’ Equity, 14, Net Income (Loss) Per Shareof the consolidated financial statements.statements.
(b) For purposes of Adjusted Net Income per Share for the three months ended December 31, 2020, average common shares outstanding - diluted is 10,659,000 shares. No dilutive effect is recognized in a period in which a net loss has occurred.
Liquidity and Capital Resources
We ended 20192021 with a consolidated cash balance of $130.7$193.8 million. We anticipate having adequate liquidity to support our business operations for at least the next 12 months from the date of this report. Our view of liquidity is dependent on, among other things, conditions affecting our operations, including market, international trade restrictions, COVID-19 and other conditions, and the level of expenditures and government funding for our services contracts, and the timing of customer payments. Liquidity requirements for our existing operations are affected primarily by the timing and amount of customer sales and our inventory purchases.
We believe our sales order book in our LEU segment is a source of stability for our liquidity position. Our sales order book extendsSubject to 2030. Although based on current market conditions, we see limitedthe potential for growing uncommitted demand for LEU forduring the next few years before an anticipated risewith accelerated open demand in uncommitted demand later in the 2020s, we continue to seek2025 and make additional sales, including sales for delivery through the late 2020s.beyond.
Cash resources and net sales proceeds from our LEU segment fund technology costs that are outside of our customer contracts in the technical solutions segment and general corporate expenses, including cash interest payments on our debt. We believe our investment in advanced U.S. uranium enrichment technology will position
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the Company to meet the needs of our customers as they deploy advanced reactors and next generation fuels. We signed the three-year HALEU Contract with DOE in October 2019 to deploy a cascade of centrifuges to demonstrate production of HALEU for advanced reactors.2019. Under the agreement,HALEU Contract, the Company is contributing a portion of the program costs. The program has been under way since May 31, 2019, when Centrus and DOE signed a preliminary letter agreement that allowed work to begin while the full contract was being finalized.
We lease facilities and related personal property innear Piketon, Ohio from DOE. We previously provided financial assurance in the form of surety bonds to DOE for lease turnover obligations and to the NRC for D&D obligations related to the facility. These surety bonds were fully cash collateralized by us. We completed our obligations and, in 2019, the financial assurance instruments were cancelled and we received the cash collateral totaling $30.5 million including interest.
In connection with the HALEU program,September 2021, DOE and Centrus renewed the lease agreement and extended the lease term through MayDecember 31, 2022.2025. Any facilities or equipment constructed or installed in leased facilities under contract with DOE, including the HALEU Contract, will be owned by DOE,DOE. DOE-owned property may be returned to DOE in an “as is” condition at the end of the lease term and DOE would be responsible for its decontamination and decommissioning.D&D. If we determine the equipment and facilities may benefit Centrus after completion of the HALEU program,Contract, we can extend the facility lease and ownership of the equipment will be transferred to us, subject to mutual agreement regarding D&D and other issues.issues, including those impacted by DOE’s recent decision to competitively bid the contract for operations of the HALEU cascade.
In the event that funding by the U.S. government for research, development and demonstration of gas centrifuge technology is reduced or discontinued, or we are not awarded a DOE contract to operate the cascade we are now constructing under the HALEU Contract, such actions may have a material adverse impact on our ability to deploy the American Centrifuge technology and on our liquidity.
We have taken steps over the last several years to reduce the size and volatility of our defined benefit pension obligations, including offering the option for pension-eligible employees to receive a lump sum payment upon termination of their employment. In the fourth quarter of 2020, the Company entered into an arrangement with an insurance company and transferred certain future benefit obligations and administrative costs from our primary qualified pension plan. In this transaction, we transferred approximately $30 million of pension plan assets to the insurance company in order to reduce our pension plan obligations by approximately $30 million. This transaction will save administrative costs associated with the PBGC and reduce the volatility of future pension obligations.
Capital expenditures of approximately $2-3$1 million are anticipated over the next 12 months.
| Year Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Cash provided by (used in) operating activities | $ | 11.3 | $ | (74.4 | ) | ||
| Cash provided by investing activities | 0.6 | 0.4 | |||||
| Cash used in financing activities | (35.0 | ) | (11.1 | ) | |||
| Decrease in cash, cash equivalents and restricted cash | $ | (23.1 | ) | $ | (85.1 | ) | |
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Cash and cash equivalents | $ | 130.7 | $ | 123.1 | |||
| Accounts receivable | 21.1 | 60.2 | |||||
| Inventories, net | 58.9 | 26.7 | |||||
| Deposits for financial assurance | 0.2 | 30.3 | |||||
| Current debt | (6.1 | ) | (32.8 | ) | |||
| Deferred revenue, net of deferred costs | (98.9 | ) | (69.6 | ) | |||
| Other current assets and liabilities, net | (73.1 | ) | (92.1 | ) | |||
| Working capital | $ | 32.8 | $ | 45.8 | |||
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opportunities that require capital, we believe we would seek to satisfy these needs through a combination of working capital, cash generated from operations or additional debt or equity financing.
The change in cash, cash equivalents and restricted cash from our consolidated statements of cash flows are as follows on a summarized basis (in millions):
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash provided by operating activities | $ | 50.0 | $ | 67.1 | |||||||
| Cash used in investing activities | (1.2) | (1.4) | |||||||||
| Cash used in financing activities | (9.9) | (44.4) | |||||||||
| Increase in cash, cash equivalents and restricted cash | $ | 38.9 | $ | 21.3 | |||||||
Operating Activities
During 2021, net cash provided by operating activities was $50.0 million. Net income of $175.0 million in 2021, net of non-cash expenses, was a significant source of cash. Income included the $43.5 million recovery of claims for reimbursement for costs related to past contract services performed. The net increase is also the result of a $16.6 million increase in accounts payable and other liabilities and a $13.2 million increase in deferred revenue and advances from customers. These increases were partially offset by a $57.0 million reduction in pension and postretirement benefit liabilities and a $10.7 million increase in inventories.
During 2020, net cash provided by operating activities was $67.1 million. Net income of $54.4 million in 2020, net of non-cash expenses, was a significant source of cash. Income included $32.6 million on recovery of bankruptcy court claims. The net increase is also the result of a decrease in inventories of $25.8 million and a $13.2 million increase in payables under SWU purchase agreements. These increases were partially offset by a $32.7 million reduction in pension and postretirement benefit liabilities.
Investing Activities
Investing activities consisted of capital expenditures of $1.2 million in 2021 and $1.4 million in 2020.
Financing Activities
In 2021, net cash used in financing activities included the redemption of preferred stock for $44.4 million, net of direct costs, pursuant to a tender offer and net proceeds received of $42.1 million from the issuance of common stock pursuant to a Registration Statement on Form S-3.
In 2020, net cash used in financing activities included the purchase of preferred stock for $61.6 million, including transaction costs, pursuant to a tender offer and net proceeds received of $23.1 million from the issuance of common stock pursuant to a Registration Statement on Form S-3. See Common Stock Issuance and 2021 Tender Offer below.
In both 2021 and 2020, payments of $6.1 million of interest classified as debt are classified as a financing activity. Refer to Note 8, Debt, of the consolidated financial statements in Part IV of this Annual Report regarding the accounting for the 8.25% Notes.
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Working Capital
The following table summarizes the Company’s working capital (in millions):
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash and cash equivalents | $ | 193.8 | $ | 152.0 | |||||||
| Accounts receivable | 29.1 | 29.6 | |||||||||
| Inventories, net | 82.7 | 59.9 | |||||||||
| Current debt | (6.1) | (6.1) | |||||||||
| Deferred revenue and advances from customers, net of deferred costs | (159.8) | (131.3) | |||||||||
| Other current assets and liabilities, net | (67.1) | (64.1) | |||||||||
| Working capital | $ | 72.6 | $ | 40.0 | |||||||
We are managing our working capital to seek to improve the long-term value of our LEU and technical solutions businesses and are planning to continue funding the Company’s qualified pension plans in the ordinary course because we believe that is in the best interest of all stakeholders. We expect that any other uses of working capital will be undertaken in light of these strategic priorities and will be based on the Company’s determination as to the relative strength of its operating performance and prospects, financial position, and expected liquidity requirements. In addition, we expect that any such other uses of working capital will be subject to compliance with contractual restrictions to which the Company and its subsidiaries are subject, including the terms and conditions of theirour debt securities and credit facilities. We continually evaluate alternatives to manage our capital structure, and may opportunistically repurchase, exchange, or redeem Company securities from time to time.
Common Stock Issuance
Pursuant to a sales agreement with its agents, the Company sold at the market price an aggregate of 1,516,467 shares of its Class A Common Stock in 2021, for a total of $44.2 million. After expenses and commissions paid to the agents, the Company’s proceeds total $42.4 million. Additionally, the Company recorded direct costs of $0.3 million related to the issuance. The shares of Class A Common Stock were issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-239242), which became effective on August 5, 2020, and a prospectus supplement dated December 31, 2020, to the prospectus. At present, the Company has $5.8 million remaining available for sale under the prospectus supplement dated December 31, 2020, and may from time to time sell additional shares through the sales agreement. The Company used the net proceeds from this offering for general working capital purposes, to invest in technology development, repay outstanding debt and retire shares of its Series B Senior Preferred Stock.
As previously disclosed in our Current Report on Form 8-K filed February 5, 2021, on February 2, 2021, the Company entered into an amendment (the “Voting Agreement Amendment”) to its existing Voting and Nomination Agreement with Mr. Morris Bawabeh, Kulayba LLC and M&D Bawabeh Foundation, Inc. (collectively, the “MB Group”) and an Exchange Agreement (as described below) whereby the MB Group agreed to support management’s recommendation on certain matters at the Company’s 2021 annual meeting of stockholders (the “Annual Meeting”) and Kulayba LLC agreed to exchange shares of Preferred Stock for shares of Class A Common Stock and a warrant to acquire additional shares of Class A Common Stock. Pursuant to the First Amendment to the Voting and Nomination Agreement, the MB Group agreed to cause all shares of Class A Common Stock owned of record or beneficially owned by the MB Group at the Annual Meeting to be voted in favor of (i) an amendment to extend the length of the term of the Company’s Section 382 Rights Agreement dated as of April 6, 2016, as amended to date, for two years from June 30, 2021, to June 30, 2023, and (ii) an increase of shares of Class A Common Stock reserved for delivery under the Company’s 2014 Equity Incentive Plan, as amended to date, of an additional 700,000 shares of Class A Common Stock.
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In connection with the entry into the Voting Agreement Amendment, the Company and Kulayba LLC also entered into the Exchange Agreement, pursuant to which Kulayba LLC agreed to the Exchange, representing a $5,000,198 liquidation preference (including accrued and unpaid dividends), for (i) 231,276 shares of Class A Common Stock priced at the closing market price of $21.62 on the date the Exchange Agreement was signed and (ii) a warrant (the “Warrant”), exercisable for 250,000 shares of Class A Common Stock at an exercise price of $21.62 per share, which was the closing market price on the date the Exchange Agreement was signed, subject to certain customary adjustments pursuant to the terms of the Warrant. The Warrant is exercisable by Kulayba LLC for a period commencing on the closing date of the Exchange and ending, unless sooner terminated as provided in the Warrant, on the first to occur of: (a) the second anniversary of the closing date of the Exchange or (b) the last business day immediately prior to the consummation of a Fundamental Transaction (as defined in the Warrant) which results in the shareholders of the Company immediately prior to such Fundamental Transaction owning less than 50% of the voting equity of the surviving entity immediately after the consummation of the Fundamental Transaction. The Company retired the 3,873 shares of Preferred Stock received by the Company under the Exchange Agreement.
Capital Structure and Financial Resources
Interest on the 8.25% Notes is payable semi-annually in arrears as of February 28 and August 31 based on a 360-day year consisting of twelve 30-day months. The 8.25% Notes are guaranteed on a subordinated and limited basis by, and secured by substantially all assets of, Enrichment Corp. The 8.25% Notes mature on February 28, 2027. Additional terms and conditions of the 8.25% Notes are described in Note 8, Debt, of the consolidated financial statements in Part IV of this Annual Report.
2021 Tender Offer
On October 20, 2021, the Company announced the commencement of a tender offer to purchase all of its outstanding Series B Senior Preferred Stock, par value $1.00 per share (the “Series B Senior Preferred Stock”), at a price of $1,145.20 per Series B Senior Preferred Stock (inclusive of any rights to accrued but unpaid dividends), to the sellers in cash, less any applicable withholding taxes (the “Offer”). The Offer was made pursuant to the Tender Offer Statement on Schedule TO filed by the Company on October 20, 2021, with the SEC. The aggregate liquidation preference per Series B Senior Preferred Stock (including accrued but unpaid dividends) was $1,347.29 as of September 30, 2021.
On November 23, 2021, the Company announced the results of the tender offer and the related consent solicitation (the “Consent Solicitation”) to amend the certificate of designation of the Series B Senior Preferred Stock (the “Series B Preferred Amendment”). 36,867 shares of the Series B Senior Preferred Stock were properly tendered and not properly withdrawn in the Offer, and corresponding consents have been delivered in the Consent Solicitation. Pursuant to the terms of the Offer and Consent Solicitation, the Company has accepted for purchase all of the Series B Senior Preferred Stock tendered in the Offer, for an aggregate purchase price of $42.2 million. The accepted shares represent 97.4% of the Company’s outstanding Series B Senior Preferred Stock as of September 30, 2021. Based on the final results, the requisite consent of at least 90% of the outstanding Series B Senior Preferred Stock required to approve the Series B Preferred Amendment was obtained. On November 23, 2021, the Company issued a Notice of Full Redemption providing for the redemption of any and all shares Series B Senior Preferred Stock outstanding after consummation of the Company’s tender offer to purchase all of its issued and outstanding Series B Senior Preferred Stock. On December 15, 2021, the Company completed the redemption of all 980 outstanding Series B Senior Preferred Stock for aggregate cash consideration of $1.1 million. The aggregate purchase price of $43.3 million was offset by direct costs totaling $0.9 million.
The effect of the Series B Preferred Amendment was to: (i) cease any obligation to pay dividends on Series B Senior Preferred Stock (other than the payment of accrued dividends in connection with a redemption or distribution of assets upon liquidation, dissolution or winding up), (ii) permit the Company to redeem Series B Senior Preferred Stock during the 90 days following the date of effectiveness of the Series B Preferred Amendment at a redemption price per share equal to $1,145.20 (plus any additional accrued dividends for the period from and including the date
60
of effectiveness of the Series B Preferred Amendment to the date of redemption), (iii) remove the prohibition on the declaration and payment of dividends on junior stock of the Company, which includes all shares of the Company’s capital stock defined as “Common Stock” in the Company’s Amended and Restated Certificate of Incorporation, or the redemption, purchase or acquisition of such junior stock, and (iv) remove the restriction on redemption, purchase or acquisition of capital stock of the Company ranking on parity with the Series B Senior Preferred Stock.
On December 16, 2021, the Company filed a Certificate of Elimination of the Series B Senior Preferred Stock of Centrus Energy Corp. with the Secretary of State of Delaware (the “Certificate of Elimination”) to eliminate the designation of the Series B Senior Preferred Stock and to return all shares of preferred stock of the Company previously designated as Series B Senior Preferred Stock to authorized but unissued and undesignated shares of preferred stock of the Company.
2020 Tender Offer
On November 17, 2020, pursuant to a tender offer announced on October 19, 2020, the Company completed the purchase of 62,854 shares of its outstanding Series B Senior Preferred Stock at a price per share of $954.59, less any applicable withholding taxes, for an aggregate purchase price of approximately $60 million. The purchase price per share represented a 25% discount from the aggregate liquidation preference, including accrued but unpaid dividends, of $1,272.78 per share as of September 30, 2020. These shares represented approximately 60% of the Company's outstanding Series B Senior Preferred Stock as of September 30, 2020. The remaining Series B Senior Preferred Stock outstanding after the transaction was 41,720 shares.
Commitments under Long-Term SWU Purchase Agreements
The Company purchases SWU contained in LEU from Russia, supplied to us under a long-term agreement, as amended, signed in 2011 with the Russian government owned entity TENEX. Under a 2018 agreement, the Company will purchase SWU contained in LEU from Orano with deliveries starting as early as 2021.the French government owned company, Orano. Refer to Note 17,16,Commitments and Contingencies, of the consolidated financial statements for additional information.
DOE Technology License
We have a non-exclusive license in DOE inventions that pertain to enriching uranium using gas centrifuge technology. The license agreement with DOE provides for annual royalty payments based on a varying percentage (1% up to 2%) of our annual revenues from sales of the SWU component of LEU produced by us using DOE centrifuge technology. There is a minimum annual royalty payment of $100,000 and the maximum cumulative royalty over the life of the license is $100 million. There is currently no commercial enrichment facility producing LEU using DOE centrifuge technology. We are continuing to advance our U.S. centrifuge technology that has evolved from DOE inventions at specialized facilities in Oak Ridge, Tennessee, and near Piketon, Ohio, with a viewplan to deployingdeploy a commercial enrichment facility over the long term once market conditions recover.long-term.
New Accounting Standards
Reference is made to New Accounting Standards in Note 1, Summary of Significant Accounting Policies, of the consolidated financial statements in Part IV of this Annual Report for information on new accounting standards.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Not provided as a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements, together with related notes and the report of PricewaterhouseCoopers LLP, our independent registered public accounting firm, are set forth in Part IV, Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Centrus maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by Centrus in reports it files or submits under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported in the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures.
As of December 31, 2019,2021, the end of the period covered by this report, our management performed an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed by, and under the supervision of the Chief Executive Officer and the Chief Financial Officer and effected by the Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019.2021. This evaluation was based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.2021.
Changes in Internal Control Over Financial Reporting
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding executive officers is included in Part I of this Annual Report. Additional information concerning directors, executive officers and corporate governance appearing under the captions Proposal 1. Election of Directors, Governance Information Delinquent Section 16(a) Reports, and Board and Committee Membership in the Company’s Proxy Statement for the 20202022 annual meeting of stockholders, which will be filed no later than 120 days after December 31, 20192021 (the “2020“2022 Proxy Statement”), is incorporated herein by reference.
We have adopted a code of business conduct (the “Code of Business Conduct”) that applies to our employees, including our principal executive officer, principal financial officer and principal accounting officer, as well as to members of our board of directors. Our codeCode of business conductBusiness Conduct provides a brief summary of the standards of conduct that are at the foundation of our business operations. The codeCode of business conductBusiness Conduct states that we conduct our business in strict compliance with all applicable laws. Each employee must read the codeCode of business conductBusiness Conduct and sign a form stating that he or she has read, understands and agrees to comply with the codeCode of business conduct.Business Conduct. A copy of the codeCode of business conductBusiness Conduct is available in the Corporate Governance section of our website at www.centrusenergy.com or upon request without charge. We will disclose on the website any amendments to, or waivers from, the codeCode of business conductBusiness Conduct that are required to be publicly disclosed.
Item 11. Executive Compensation
Information concerning executive and director compensation appearing under the captions Executive Compensation and Compensation of Directors in the 20202022 Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information concerning security ownership of certain beneficial owners and management appearing under the caption Security Ownership of Certain Beneficial Owners and Management in the 20202022 Proxy Statement is incorporated herein by reference.
Information concerning the common stock that may be issued under the 2014 Equity Incentive Plan (as amended and restated in May 2017) appearing under the caption Equity Compensation Plan Information in the 20202022 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information concerning certain relationships and related transactions and director independence appearing under the captions Transactions with Related Persons, and Director Independence in the 20202022 Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information concerning principal accounting fees and services appearing under the caption Audit and Non-Audit Fees in the 20202022 Proxy Statement is incorporated herein by reference.
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PART IV
Item 15.Exhibits and Financial Statement Schedules
(a)(1) Consolidated Financial Statements
Reference is made to the consolidated financial statements appearing elsewhere in this Annual Report.
(2) Financial Statement Schedules
No financial statement schedules are required to be filed as part of this Annual Report.
(3) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report and such Exhibit Index is incorporated herein by reference. The accompanying Exhibit Index identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.
Item 16.Form 10-K Summary
None.
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| EXHIBIT INDEX | ||||||
| Exhibit No. | Description | |||||
| 1.1 | ||||||
| 3.1 | ||||||
| 3.2 | ||||||
| 3.3 | ||||||
| 3.4 | ||||||
| 3.6 | ||||||
| 3.7 | ||||||
| 3.8 | ||||||
| 4.1 | ||||||
| 4.2 | ||||||
| 4.3 | ||||||
| 4.4 | ||||||
| 4.5 | ||||||
65
| 4.6 | |||||
| 4.7 | |||||
| 4.8 | |||||
| 4.9 | |||||
| 4.10 | |||||
| 4.11 | |||||
| 4.12 | |||||
| 4.13 | |||||
| 4.14 | |||||
| 4.15 | |||||
| 4.16 | |||||
| 10.1 | |||||
66
| 10.4 | |||||
| 10.5 | |||||
| 10.6 | |||||
| 10.7 | |||||
| 10.8 | |||||
| 10.9 | |||||
| 10.10 | |||||
| 10.11 | |||||
| 10.12 | |||||
| 10.13 | |||||
| 10.14 | |||||
| 10.15 | |||||
67
68
69
| 10.40 | |||||
| 10.41 | |||||
| 10.42 | |||||
| 10.43 | |||||
| 10.44 | |||||
| 10.45 | |||||
| 10.46 | |||||
| 10.47 | |||||
| 10.48 | |||||
| 10.49 | |||||
| 10.53 | |||||
| 21 | |||||
70
| 23.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 101 | Consolidated financial statements from the Annual Report on Form 10-K for the fiscal year ended December 31, | ||||
(a) Filed herewith.
(b) Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of this report.
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Centrus Energy Corp. | |||||
| March | /s/ Daniel B. Poneman | ||||
| Daniel B. Poneman | |||||
| President and Chief Executive Officer | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 26, 2020:
11, 2022:
| Signature | Title | |||||||
| /s/ Daniel B. Poneman | President and Chief Executive Officer (Principal Executive Officer) and Director | |||||||
| Daniel B. Poneman | ||||||||
| /s/ Philip O. Strawbridge | Senior Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer (Principal Financial Officer) | |||||||
| Philip O. Strawbridge | ||||||||
| /s/ | Controller and Chief Accounting Officer (Principal Accounting Officer) | |||||||
| /s/ Mikel H. Williams | Chairman of the Board and Director | |||||||
| Mikel H. Williams | ||||||||
| /s/ | Director | |||||||
| /s/ Tetsuo Iguchi | Director | |||||||
| Tetsuo Iguchi | ||||||||
| /s/ W. Thomas Jagodinski | Director | |||||||
| W. Thomas Jagodinski | ||||||||
| /s/ | Director | |||||||
| /s/ William J. Madia | Director | |||||||
| William J. Madia | ||||||||
| /s/ Bradley K. Sawatzke | Director | |||||||
| Bradley K. Sawatzke | ||||||||
| /s/ Neil S. Subin | Director | |||||||
| Neil S. Subin | ||||||||
72
CENTRUS ENERGY CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
Reports of Independent Registered Public Accounting Firm (PCAOB ID 238) | |||||
| Consolidated Balance Sheets | |||||
73
Report of Independent Registered Public Accounting Firm
Tothe Board of Directors and Stockholders of Centrus Energy Corp.
We have audited the accompanying consolidated balance sheets of Centrus Energy Corp. and its subsidiaries (the “Company”) as of December 31, 20192021 and 2018,2020, and the related consolidated statements of operations and comprehensive income, (loss), of stockholders' deficit and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding offraud, and whether effective internal control over financial reporting but not for the purpose of expressing an opinion on the effectivenesswas maintained in all material respects.
Our audits of the Company's internal control overconsolidated financial reporting. Accordingly, we express no such opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
74
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation Allowance related to Federal Deferred Tax Assets
As described in Notes 1 and 13 to the consolidated financial statements, as of December 31, 2021, the Company’s deferred tax assets were $464.8 million, net of a valuation allowance of $414.7 million, both of which a significant portion relates to federal deferred tax assets. In prior years, management maintained a full valuation allowance against federal deferred tax assets, and in the fourth quarter of 2021, management released $40.7 million of the valuation allowance against federal deferred taxes that most likely will be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient income in future years when deferred tax assets are recoverable or are expected to reverse. A valuation allowance is provided if it is more likely than not that the deferred tax assets may not be realized. Management evaluates both positive and negative evidence that is objectively verifiable to determine the amount of the federal valuation allowance. Sustained profitability and cumulative income, as well as, forecasted income, are considered to be significant forms of positive evidence. Negative evidence includes uncertainty in and the lack of objectively verifiable evidence for profitability in later years when the Company’s existing sales order book and supply contracts reach expiration.
The principal considerations for our determination that performing procedures relating to the valuation allowance related to federal deferred tax assets is a critical audit matter are (i) the significant judgment by management when assessing the ability to realize the federal deferred tax assets and whether a valuation allowance is necessary, particularly as it relates to forecasted income and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions related to forecasted income.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the ability to realize federal deferred tax assets and whether a valuation allowance is necessary, including controls over forecasted income. These procedures also included, among others (i) testing management’s process for assessing the ability to realize federal deferred tax assets and whether a valuation allowance is necessary; (ii) testing the completeness and accuracy of underlying data used in management’s process for assessing the ability to realize federal deferred tax assets and whether a valuation allowance is necessary; and (iii) evaluating the reasonableness of the significant assumptions used by management related to forecasted income. Evaluating management’s assumption related to the forecasted income involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Company; (ii) the terms of the Company’s existing contractual agreements with its customers and suppliers; (iii) the source and reliability of market related inputs; and (iv) whether the assumptions were consistent with evidence obtained in other areas of the audit.
75
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
March 26, 202011, 2022
We have served as the Company'sCompany’s auditor since 2002.
76
CENTRUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 193.8 | $ | 152.0 | |||||||
| Accounts receivable | 29.1 | 29.6 | |||||||||
| Inventories | 91.1 | 64.8 | |||||||||
| Deferred costs associated with deferred revenue | 143.3 | 151.9 | |||||||||
| Other current assets | 8.6 | 7.8 | |||||||||
| Total current assets | 465.9 | 406.1 | |||||||||
| Property, plant and equipment, net | 5.3 | 4.9 | |||||||||
| Deposits for financial assurance | 2.8 | 5.7 | |||||||||
| Intangible assets, net | 54.7 | 62.8 | |||||||||
| Deferred tax assets, net | 41.4 | 1.9 | |||||||||
| Other long-term assets | 2.3 | 4.9 | |||||||||
| Total assets | $ | 572.4 | $ | 486.3 | |||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 37.8 | $ | 50.6 | |||||||
| Payables under inventory purchase agreements | 37.9 | 21.3 | |||||||||
| Inventories owed to customers and suppliers | 8.4 | 4.9 | |||||||||
| Deferred revenue and advances from customers | 303.1 | 283.2 | |||||||||
| Current debt | 6.1 | 6.1 | |||||||||
| Total current liabilities | 393.3 | 366.1 | |||||||||
| Long-term debt | 101.8 | 108.0 | |||||||||
| Postretirement health and life benefit obligations | 114.9 | 130.8 | |||||||||
| Pension benefit liabilities | 23.1 | 124.4 | |||||||||
| Advances from customers | 45.1 | 45.2 | |||||||||
| Other long-term liabilities | 36.1 | 32.4 | |||||||||
| Total liabilities | 714.3 | 806.9 | |||||||||
| Commitments and contingencies (Note 16) | 0 | 0 | |||||||||
| Stockholders’ deficit: | |||||||||||
| Preferred stock, par value $1.00 per share, 20,000,000 shares authorized | |||||||||||
| Series A Participating Cumulative Preferred Stock, none issued | — | — | |||||||||
| Series B Senior Preferred Stock, 7.5% cumulative, 0 and 41,720 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $53.9 as of December 31, 2020 | — | 0.1 | |||||||||
| Class A Common Stock, par value $0.10 per share, 70,000,000 shares authorized, 13,649,933 and 11,390,189 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | 1.4 | 1.1 | |||||||||
| Class B Common Stock, par value $0.10 per share, 30,000,000 shares authorized, 719,200 shares issued and outstanding as of December 31, 2021 and December 31, 2020 | 0.1 | 0.1 | |||||||||
| Excess of capital over par value | 140.7 | 85.0 | |||||||||
| Accumulated deficit | (284.6) | (407.7) | |||||||||
| Accumulated other comprehensive income, net of tax | 0.5 | 0.8 | |||||||||
| Total stockholders’ deficit | (141.9) | (320.6) | |||||||||
| Total liabilities and stockholders’ deficit | $ | 572.4 | $ | 486.3 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 130.7 | $ | 123.1 | |||
| Accounts receivable | 21.1 | 60.2 | |||||
| Inventories | 64.5 | 129.7 | |||||
| Deferred costs associated with deferred revenue | 144.1 | 134.9 | |||||
| Deposits for financial assurance | 0.2 | 30.3 | |||||
| Other current assets | 9.0 | 6.3 | |||||
| Total current assets | 369.6 | 484.5 | |||||
| Property, plant and equipment, net | 3.7 | 4.2 | |||||
| Deposits for financial assurance | 5.7 | 6.3 | |||||
| Intangible assets, net | 69.5 | 76.0 | |||||
| Other long-term assets | 7.4 | 0.7 | |||||
| Total assets | $ | 455.9 | $ | 571.7 | |||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued liabilities | $ | 50.7 | $ | 52.4 | |||
| Payables under SWU purchase agreements | 8.1 | 46.0 | |||||
| Inventories owed to customers and suppliers | 5.6 | 103.0 | |||||
| Deferred revenue and advances from customers | 266.3 | 204.5 | |||||
| Current debt | 6.1 | 32.8 | |||||
| Total current liabilities | 336.8 | 438.7 | |||||
| Long-term debt | 114.1 | 120.2 | |||||
| Postretirement health and life benefit obligations | 138.6 | 136.2 | |||||
| Pension benefit liabilities | 141.8 | 168.9 | |||||
| Advances from customers | 29.4 | 15.0 | |||||
| Other long-term liabilities | 32.1 | 14.6 | |||||
| Total liabilities | 792.8 | 893.6 | |||||
| Commitments and contingencies (Note 17) | |||||||
| Stockholders’ deficit: | |||||||
| Preferred stock, par value $1.00 per share, 20,000,000 shares authorized | |||||||
| Series A Participating Cumulative Preferred Stock, none issued | — | — | |||||
| Series B Senior Preferred Stock, 7.5% cumulative, 104,574 shares issued and outstanding and an aggregate liquidation preference of $127.2 as of December 31, 2019 and $119.3 as of December 31, 2018 | 4.6 | 4.6 | |||||
| Class A Common Stock, par value $0.10 per share, 70,000,000 shares authorized, 8,347,427 and 8,031,307 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively | 0.8 | 0.8 | |||||
| Class B Common Stock, par value $0.10 per share, 30,000,000 shares authorized, 1,117,462 and 1,406,082 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively | 0.1 | 0.1 | |||||
| Excess of capital over par value | 61.5 | 61.2 | |||||
| Accumulated deficit | (405.0 | ) | (388.5 | ) | |||
| Accumulated other comprehensive income, net of tax | 1.1 | (0.1 | ) | ||||
| Total stockholders’ deficit | (336.9 | ) | (321.9 | ) | |||
| Total liabilities and stockholders’ deficit | $ | 455.9 | $ | 571.7 | |||
| Year Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Revenue: | |||||||
| Separative work units | $ | 123.7 | $ | 130.6 | |||
| Uranium | 45.7 | 33.8 | |||||
| Technical solutions | 40.3 | 28.6 | |||||
| Total revenue | 209.7 | 193.0 | |||||
| Cost of Sales: | |||||||
| Separative work units and uranium | 118.6 | 187.7 | |||||
| Technical solutions | 58.6 | 23.2 | |||||
| Total cost of sales | 177.2 | 210.9 | |||||
| Gross profit (loss) | 32.5 | (17.9 | ) | ||||
| Advanced technology costs | 14.6 | 26.1 | |||||
| Selling, general and administrative | 33.7 | 39.9 | |||||
| Amortization of intangible assets | 6.5 | 6.6 | |||||
| Special charges (credits) for workforce reductions and advisory costs | (1.9 | ) | 2.2 | ||||
| Gain on sales of assets | (0.7 | ) | (0.3 | ) | |||
| Operating loss | (19.7 | ) | (92.4 | ) | |||
| Gain on early extinguishment of debt | — | (0.5 | ) | ||||
| Nonoperating components of net periodic benefit expense (income) | (4.3 | ) | 10.6 | ||||
| Interest expense | 3.0 | 4.1 | |||||
| Investment income | (2.2 | ) | (2.5 | ) | |||
| Loss before income taxes | (16.2 | ) | (104.1 | ) | |||
| Income tax expense | 0.3 | — | |||||
| Net loss and comprehensive loss | (16.5 | ) | (104.1 | ) | |||
| Preferred stock dividends - undeclared and cumulative | 7.8 | 7.8 | |||||
| Net loss allocable to common stockholders | $ | (24.3 | ) | $ | (111.9 | ) | |
| Net loss per common share - basic and diluted | $ | (2.54 | ) | $ | (12.23 | ) | |
| Average number of common shares outstanding - basic and diluted (in thousands) | 9,566 | 9,151 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
CENTRUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions, except share and per share data)
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Revenue: | |||||||||||
| Separative work units | $ | 163.3 | $ | 151.5 | |||||||
| Uranium | 22.8 | 39.0 | |||||||||
| Technical solutions | 112.2 | 56.7 | |||||||||
| Total revenue | 298.3 | 247.2 | |||||||||
| Cost of Sales: | |||||||||||
| Separative work units and uranium | 113.1 | 92.7 | |||||||||
| Technical solutions | 70.7 | 56.9 | |||||||||
| Total cost of sales | 183.8 | 149.6 | |||||||||
| Gross profit | 114.5 | 97.6 | |||||||||
| Advanced technology costs | 2.1 | 2.8 | |||||||||
| Selling, general and administrative | 36.0 | 36.0 | |||||||||
| Amortization of intangible assets | 8.1 | 6.8 | |||||||||
| Special charges for workforce reductions | — | 0.6 | |||||||||
| Other expense, net | — | 0.4 | |||||||||
| Operating income | 68.3 | 51.0 | |||||||||
| Nonoperating components of net periodic benefit (income) expense | (67.6) | (1.6) | |||||||||
| Interest expense | 0.1 | 0.1 | |||||||||
| Investment income | (0.1) | (0.5) | |||||||||
| Income before income taxes | 135.9 | 53.0 | |||||||||
| Income tax benefit | (39.1) | (1.4) | |||||||||
| Net income and comprehensive income | 175.0 | 54.4 | |||||||||
| Preferred stock dividends - undeclared and cumulative | 2.1 | 6.7 | |||||||||
| Distributed earnings allocable to retired preferred shares | 37.6 | 41.9 | |||||||||
| Net income allocable to common stockholders | $ | 135.3 | $ | 5.8 | |||||||
| Net income per common share: | |||||||||||
| Basic | $ | 10.03 | $ | 0.59 | |||||||
| Diluted | $ | 9.75 | $ | 0.57 | |||||||
| Average number of common shares outstanding (in thousands): | |||||||||||
| Basic | 13,493 | 9,825 | |||||||||
| Diluted | 13,879 | 10,123 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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CENTRUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| OPERATING | |||||||||||
| Net income | $ | 175.0 | $ | 54.4 | |||||||
| Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 8.6 | 7.3 | |||||||||
| Accrued loss on long-term contract | (7.2) | (10.6) | |||||||||
| Deferred tax assets | (39.5) | (1.9) | |||||||||
| Retirement benefit plans (gains) losses, net | (50.5) | 7.2 | |||||||||
| Revaluation of inventory borrowing | 4.8 | — | |||||||||
| Equity related compensation | 12.1 | 7.1 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 0.5 | (8.6) | |||||||||
| Inventories, net | (10.7) | 25.8 | |||||||||
| Payables under inventory purchase agreements | 16.6 | 13.2 | |||||||||
| Deferred revenue and advances from customers, net of deferred costs | 13.2 | 9.7 | |||||||||
| Accounts payable and other liabilities | (4.6) | (5.2) | |||||||||
| Pension and postretirement liabilities | (67.0) | (32.7) | |||||||||
| Other, net | (1.3) | 1.4 | |||||||||
| Cash provided by operating activities | 50.0 | 67.1 | |||||||||
| INVESTING | |||||||||||
| Capital expenditures | (1.2) | (1.4) | |||||||||
| Cash used in investing activities | (1.2) | (1.4) | |||||||||
| FINANCING | |||||||||||
| Proceeds from the sale of common stock, net | 42.1 | 23.1 | |||||||||
| Redemption of preferred stock, net | (44.4) | (61.6) | |||||||||
| Payment of interest classified as debt | (6.1) | (6.1) | |||||||||
| Exercise of stock options | 0.9 | 0.3 | |||||||||
| Shares withheld for employee taxes | (2.4) | — | |||||||||
| Payments for deferred issuance costs | — | (0.1) | |||||||||
| Cash used in financing activities | (9.9) | (44.4) | |||||||||
| Increase in cash, cash equivalents and restricted cash | 38.9 | 21.3 | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period (Note 3) | 157.9 | 136.6 | |||||||||
| Cash, cash equivalents and restricted cash, end of period (Note 3) | $ | 196.8 | $ | 157.9 | |||||||
| Supplemental cash flow information: | |||||||||||
| Non-cash activities: | |||||||||||
| Property, plant and equipment included in accounts payable and accrued liabilities | $ | — | $ | 0.3 | |||||||
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| Year Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| OPERATING | |||||||
| Net loss | $ | (16.5 | ) | $ | (104.1 | ) | |
| Adjustments to reconcile net loss to cash used in operating activities: | |||||||
| Depreciation and amortization | 7.0 | 7.4 | |||||
| Accrued loss on long-term contract | 18.3 | — | |||||
| Immediate recognition of retirement benefit plans (gains) losses, net | (4.0 | ) | 17.3 | ||||
| PIK interest on paid-in-kind toggle notes | 1.1 | 1.7 | |||||
| Gain on early extinguishment of debt | — | (0.5 | ) | ||||
| Gain on sales of assets | (0.7 | ) | (0.4 | ) | |||
| Inventory valuation adjustments | 2.3 | — | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | 29.3 | 9.7 | |||||
| Inventories, net | 0.1 | 61.0 | |||||
| Payables under SWU purchase agreements | (37.9 | ) | (33.4 | ) | |||
| Deferred revenue and advances from customers, net of deferred costs | 44.0 | 0.1 | |||||
| Accounts payable and other liabilities | (12.3 | ) | 3.7 | ||||
| Pension and postretirement liabilities | (19.5 | ) | (28.0 | ) | |||
| Other, net | 0.1 | (8.9 | ) | ||||
| Cash provided by (used in) operating activities | 11.3 | (74.4 | ) | ||||
| INVESTING | |||||||
| Capital expenditures | (0.1 | ) | (0.1 | ) | |||
| Proceeds from sales of assets | 0.7 | 0.5 | |||||
| Cash provided by investing activities | 0.6 | 0.4 | |||||
| FINANCING | |||||||
| Principal payments on debt | (27.5 | ) | (5.0 | ) | |||
| Payments for deferred financing costs | (1.4 | ) | — | ||||
| Payment of interest classified as debt | (6.1 | ) | (6.1 | ) | |||
| Cash used in financing activities | (35.0 | ) | (11.1 | ) | |||
| Decrease in cash, cash equivalents and restricted cash | (23.1 | ) | (85.1 | ) | |||
| Cash, cash equivalents and restricted cash, beginning of period (Note 4) | 159.7 | 244.8 | |||||
| Cash, cash equivalents and restricted cash, end of period (Note 4) | $ | 136.6 | $ | 159.7 | |||
| Supplemental cash flow information: | |||||||
| Interest paid in cash | $ | 1.5 | $ | 7.1 | |||
| Non-cash activities: | |||||||
| Conversion of interest payable-in-kind to debt | $ | 0.7 | $ | 1.7 | |||
| Deferred financing costs included in accounts payable and accrued liabilities | $ | 0.8 | $ | — | |||
| Additional right of use operating lease assets recorded | $ | 5.2 | $ | — | |||
| Disposal of right of use operating lease assets for early termination | $ | 0.4 | $ | — | |||
| Exchange of debt for Class A common stock | $ | — | $ | 0.9 | |||
| Equity transaction costs included in accounts payable and accrued liabilities | 0.4 | 0.2 | |||||||||
| Disposal of right to use lease assets from lease modification | 1.0 | 0.2 | |||||||||
| Reclassification of equity compensation liability to equity | 7.5 | — | |||||||||
| Common stock and warrant issued in exchange for preferred stock | 7.5 | — | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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CENTRUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(in millions, except per share data)
| Senior Preferred Stock, Series B | Common Stock, Class A, Par Value $.10 per Share | Common Stock, Class B, Par Value $.10 per Share | Excess of Capital Over Par Value | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 4.6 | $ | 0.8 | $ | 0.1 | $ | 61.5 | $ | (405.0) | $ | 1.1 | $ | (336.9) | |||||||||||||||||||||||||||
| Net income | — | — | — | — | 54.4 | — | 54.4 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | 0.3 | — | 22.8 | — | — | 23.1 | ||||||||||||||||||||||||||||||||||
| Purchase under tender offer | (4.5) | — | — | — | (57.1) | — | (61.6) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax benefit | — | — | — | — | — | (0.3) | (0.3) | ||||||||||||||||||||||||||||||||||
| Issuance and amortization of restricted stock units and stock options | — | — | — | 0.7 | — | — | 0.7 | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 0.1 | $ | 1.1 | $ | 0.1 | $ | 85.0 | $ | (407.7) | $ | 0.8 | $ | (320.6) | |||||||||||||||||||||||||||
| Net income | — | — | — | — | 175.0 | — | 175.0 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | 0.2 | — | 41.9 | — | — | 42.1 | ||||||||||||||||||||||||||||||||||
| Exchange of preferred stock for common stock and common stock warrant | — | 0.1 | — | 7.5 | (7.6) | — | — | ||||||||||||||||||||||||||||||||||
| Purchase under tender offer | (0.1) | — | — | — | (44.3) | — | (44.4) | ||||||||||||||||||||||||||||||||||
| Reclassification of stock-based compensation liability to equity | — | — | — | 7.5 | — | — | 7.5 | ||||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes | — | — | — | (2.4) | — | — | (2.4) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax benefit | — | — | — | — | — | (0.3) | (0.3) | ||||||||||||||||||||||||||||||||||
| Issuance and amortization of restricted stock units and stock options | — | — | — | 1.2 | — | — | 1.2 | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | — | $ | 1.4 | $ | 0.1 | $ | 140.7 | $ | (284.6) | $ | 0.5 | $ | (141.9) | |||||||||||||||||||||||||||
Preferred Stock, Series B | Common Stock, Class A, Par Value $.10 per Share | Common Stock, Class B, Par Value $.10 per Share | Excess of Capital Over Par Value | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||
| Balance at December 31, 2017 | $ | 4.6 | $ | 0.8 | $ | 0.1 | $ | 60.0 | $ | (284.5 | ) | $ | 0.1 | $ | (218.9 | ) | |||||||||||
| Adoption of ASC 606 as of January 1, 2018 (Note 1) | — | — | — | — | 0.1 | — | 0.1 | ||||||||||||||||||||
| Net loss | — | — | — | — | (104.1 | ) | — | (104.1 | ) | ||||||||||||||||||
| Issuance of common stock | — | — | — | 0.8 | — | — | 0.8 | ||||||||||||||||||||
| Other comprehensive loss, net of tax benefit | — | — | — | — | — | (0.2 | ) | (0.2 | ) | ||||||||||||||||||
| Issuance and amortization of restricted stock units and stock options | — | — | — | 0.4 | — | — | 0.4 | ||||||||||||||||||||
| Balance at December 31, 2018 | $ | 4.6 | $ | 0.8 | $ | 0.1 | $ | 61.2 | $ | (388.5 | ) | $ | (0.1 | ) | $ | (321.9 | ) | ||||||||||
| Net loss | — | — | — | — | (16.5 | ) | — | (16.5 | ) | ||||||||||||||||||
| Other comprehensive income, net of tax expense | — | — | — | — | — | 1.2 | 1.2 | ||||||||||||||||||||
| Issuance and amortization of restricted stock units and stock options | — | — | — | 0.3 | — | — | 0.3 | ||||||||||||||||||||
| Balance at December 31, 2019 | $ | 4.6 | $ | 0.8 | $ | 0.1 | $ | 61.5 | $ | (405.0 | ) | $ | 1.1 | $ | (336.9 | ) | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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CENTRUS ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of Centrus Energy Corp. (“Centrus” or the “Company”), which include the accounts of the Company, its principal subsidiary United States Enrichment Corporation (“Enrichment Corp.”) and its other subsidiaries, were prepared in conformity with generally accepted accounting principles in the U.S. (“U.S. GAAP”). Certain prior year amounts have been reclassified for consistency with the current year presentation. All material intercompany transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts presented and disclosed in the consolidated financial statements. Significant estimates and judgments include, but are not limited to, revenue and related costs, asset valuations, pension and postretirement health and life benefit costs and obligations, the tax bases of assets and liabilities, the future recoverability of deferred tax assets, and determination of the valuation allowance for deferred tax assets. Actual results may differ from such estimates, and estimates may change if the underlying conditions or assumptions change.
Cash and Cash Equivalents
Cash and cash equivalents include short-term or highly liquid assets with original maturities of three months or less.
Inventories and Inventories Owed to Customers and Suppliers
Low-enriched uranium (“LEU”) consists of two components: separative work units (“SWU”) and uranium. SWU is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components: enriched uranium having a higher percentage of U235 and depleted uranium having a lower percentage of U235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium deemed to be used in the production of LEU under this formula is referred to as its uranium or “feed” component.
SWU and uranium inventory costs are determined using the average cost method. SWU and uranium purchase costs include shipping costs when applicable. Inventories of SWU and uranium are valued at the lower of cost or net realizable value (“NRV”). NRV is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The estimated selling price for SWU and uranium is based on the pricing terms of contracts in the Company’s sales order book, and, for uranium not under contract, the estimated selling price is based primarily on published price indicators at the balance sheet date.
Inventories owed to customers and suppliers, included in current liabilities, consist primarily of SWU and uranium inventories owed to fabricators. Fabricators process LEU into fuel for use in nuclear reactors. Under inventory optimization arrangements between Centrus and domestic fabricators, fabricators order quantities of LEU from Centrus based on scheduled or anticipated orders from utility customers, for deliveries in future periods. As delivery obligations under actual customer orders arise, Centrus typically satisfies these obligations by arranging for the transfer to the customer of title to the specified quantity of LEU at the fabricator. Centrus’ balances of SWU and uranium vary over time based on the timing and size of the fabricator’s LEU orders from Centrus and the fabricator’s needs for working stock of LEU. Balances can be positive or negative at the discretion of the fabricator.
82
Fabricators have other inventory supplies and, where a fabricator has elected to order less material from Centrus
than Centrus is required to deliver to its customers at the fabricator, the fabricator will use these other inventories to satisfy Centrus’ customer order obligations on Centrus’ behalf. In such cases, the transfer of title of LEU from Centrus to the customer results in quantities of SWU and uranium being owed by Centrus to the fabricator. The amounts of SWU and uranium owed to fabricators are satisfied as future deliveries of LEU to fabricators are made.
Deferred Taxes
Centrus follows the asset and liability approach to account for deferred taxes. Deferred tax assets and liabilities are recognized for the anticipated future tax consequences of temporary differences between the balance sheet carrying amounts of assets and liabilities and their respective tax bases. Deferred taxes are based on income tax rates in effect for the years in which temporary differences are expected to reverse. The effect on deferred taxes of a change in income tax rates is recognized in income when the change in rates is enacted in the law. A valuation allowance is provided if it is more likely than not that all, or some portion, of the deferred tax assets may not be realized.
Property, Plant and Equipment
Property, plant and equipment are recorded at acquisition cost. Leasehold improvements and machinery and equipment are depreciated on a straight-line basis over the shorter of the useful life of the assets or the lease term, if applicable. Refer also to Carrying Value of Long-Lived Assets below.
Intangible Assets
Centrus has intangible assets resulting from fresh start accounting as a result of emergence from Chapter 11 bankruptcy on September 30, 2014. The identifiable intangible assets relate to the sales order book and customer relationships. The order book intangible asset is amortized as the order book valued at emergence is reduced, principally as a result of deliveries to customers. The customer relationships intangible asset is amortized using the straight-line method over the estimated average useful life of 15 years.years, with 7 ¾ years of scheduled amortization remaining. Refer also to Carrying Value of Long-Lived Assets below.
Carrying Value of Long-Lived Assets
The Company evaluates the carrying values of property, plant and equipment and identifiable intangible assets when events or changes in business circumstances indicate that the carrying amount of asset, or asset group, may not be fully recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset, or asset group, exceeds its fair value.
Financial Instruments and Fair Value Measurement
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, consideration is given to the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.
Pursuant to accounting standards, Centrus’ 8.25% notes due February 2027 (the “8.25% Notes”) and its former 8.0% paid-in-kind (“PIK”) toggle notes (the “8% PIK Toggle Notes”) are recorded at face value and the fair value is disclosed. The estimated fair value of each of the 8% PIK Toggle Notes and the 8.25% Notes is based on recent trading prices and bid/ask quotes as of or near the balance sheet date. Debt issuance costs are deferred and amortized over the life of the instrument.
83
The balance sheet carrying amounts for accounts receivable, accounts payable and accrued liabilities, and payables under SWU purchase agreements approximate fair value because of the short-term nature of the instruments.
Concentrations of Credit Risk
Credit risk could result from the possibility of a customer failing to perform or pay according to the terms of a contract. Extension of credit is based on an evaluation of each customer’s financial condition. Centrus regularly monitors credit risk exposure and takes steps intended to mitigate the likelihood of such exposure resulting in a loss.
Concentrations of Supply Risk and Other Considerations with the War in Ukraine
The current war in Ukraine has led to the U.S., Russia and other countries imposing sanctions and other measures that restrict international trade. The situation is rapidly changing, and it is not possible to predict future actions that could be taken. The Company has multiple sources of supply; however, the supply contract with TENEX remains our largest source. At present, sanctions have not impacted the ability of the Company or TENEX to perform under the TENEX supply contract. Recently, sanctions have been imposed by the U.S. on exports of fossil fuels. Russia has imposed sanctions on the export of commodities but does not include the export of LEU. Additional sanctions or other measures by the U.S. or foreign governments (including the Russian government) could be imposed. Any sanctions or measures directed at trade in LEU from Russia or the parties involved in such trade or otherwise could interfere with, or prevent, implementation of the TENEX Supply Contract. While the initial sanctions announced do not affect the ability of the Company or TENEX to implement the TENEX Supply Contract, the situation at this time is unpredictable and therefore there is no assurance that future developments would not have a material adverse effect on the Company’s procurement, payment, delivery or sale of LEU under the TENEX Supply Contract.
If measures were taken to limit the supply of Russian LEU or to prohibit or limit dealings with Russian entities, including, but not limited to, TENEX or ROSATOM, the Company would seek a license, waiver or other approval from the government imposing such measures to ensure that the Company could continue to fulfill its purchase and sales obligations. There is no assurance that such a license, waiver, or approval would be granted. If a license, waiver or approval were not granted, the Company would need to look to alternative sources of LEU to replace the LEU that it could not procure from TENEX. The Company has contracts for alternative sources that could be used to mitigate a portion of the near term impacts. However, to the extent these sources were insufficient or more expensive or additional supply cannot be obtained, it could have a material adverse impact on our business, results of operations, and competitive position.
Segments
Centrus operates two business segments: LEU, which supplies various components of nuclear fuel to utilities, and technical solutions, which provides advanced engineering, design, and manufacturing services to government and private sector customers. The technical solutions segment was formerly the Company’s contract services segment. The segment was renamed the technical solutions segment
Related Party
As previously disclosed in our Current Report on Form 8-K filed on December 31, 2019,2020, on that same date the
Company entered into an At Market Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. and
Lake Street Capital Markets, LLC (the “Agents”), relating to better reflect the natureat the market offering (the “ATM Offering”) of work performed and is consistent with
shares of the Company’s marketing of service offerings as Centrus Technical Solutions. There was no change to the compositionClass A Common Stock, $0.10 par value per share. Mr. Williams, Chairman of the segment as a resultCentrus
Board of Directors, also serves on the board of B. Riley Financial, Inc. Mr. Williams recused himself and took no
part in the selection of B. Riley or the negotiation of the re-naming.terms of the Sales Agreement. Please refer to Note 15 - Stockholders’ Equity for a description of the ATM Offering in 2021.
84
Revenue
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue for product and service sales is recognized when or as the Company transfers control of the promised products or services to the customer. Revenue is measured at the transaction price, which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised goods or services to the customer. The transaction price will include estimates of variable consideration until it is probable that a significant reversal of revenue recognized will not occur.
SWU and Uranium Revenue
Revenue for the Company’s LEU segment is derived from sales of the SWU component of LEU, from sales of both the SWU and uranium components of LEU, and from sales of uranium. Contracts with customers are primarily medium and long-term, fixed-commitment contracts under which its customers are obligated to purchase a specified quantity of the SWU component of LEU or the SWU and uranium components of LEU. The Company’s contracts for natural uranium are generally shorter-term, fixed-commitment contracts.
Revenue is recognized at the time the customer obtains control of the LEU or uranium. Customers generally obtain control of LEU at nuclear fuel fabricators. Centrus ships LEU to nuclear fuel fabricators for scheduled or anticipated orders from utility customers. Based on customer orders, Centrus arranges for the transfer of title of LEU from Centrus to the customer for the specified quantity of LEU at the fuel fabricator. Each such delivery to a customer is accounted for as a distinct performance obligation under a contract, and a contract may call for multiple deliveries over a number of periods. The contract’s transaction price is allocated to each performance obligation based on the observable standalone selling price of each distinct delivery of SWU or uranium. For certain contracts the customers may elect not to take control of the LEU or uranium and Centrus may have the right to enforce payment under the terms of the contractual agreement. The revenue recognition for these contracts is assessed when it occurs.
Utility customers in general have the option to defer receipt of uranium products purchased from the Company beyond the contractual sale period. In such cases, title to SWU and/or uranium components are transferred to the customer and a performance obligation for Centrus is created and a receivable is recorded. Cash is collected for the receivable under normal credit terms. The performance obligation is represented as Deferred Revenue on the consolidated balance sheet and the customer-titled product is classified as Deferred Costs Associated with Deferred Revenue on the consolidated balance sheet. Risk of loss remains with Centrus until the customer obtains control of the uranium product. The recognition of revenue and related cost of sales occurs at the point in time at which the customer obtains control of SWU or uranium and risk of loss of the product transfers to the customer, which may occur beyond one year. The timing of the transfer of control, subject to notice period requirements, is at the option of the customer. As such, deferred costs and deferred revenue are classified within current assets and current liabilities, respectively.
On occasion, the Company will accept payment in the form of uranium. Revenue from the sale of SWU under such contracts is recognized at the time transfer of control of LEU occurs and is based on the fair value of the uranium at contract inception or as the quantity of uranium is finalized, if variable. The Company may also borrow SWU from customers, in which case the Company will record the SWU and the related liability for the borrowing using a projected average purchase price over the borrowing period.
Amounts billed to customers for handling costs are included in sales. Handling costs are accounted for as a fulfillment cost and are included in cost of sales. The Company does not have shipping costs associated with outbound freight after control over a product has transferred to a customer. The Company’s contracts with customers do not provide for significant payment terms or financing components.
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Technical Solutions Revenue
Revenue for the technical solutions segment, principally representing technical, manufacturing, engineering, procurement, construction and operations services offered to public and private sector customers, is recognized over the contractual period as services are rendered. The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer. For public sector contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and assume control of any work in progress. The Company’s government and private sector contracts generally contain contractual termination clauses or entitle the Company to payments for work performed to date for goods and services that do not have an alternative use. With control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. A contract may contain one or more performance obligations. Two or more promises to transfer goods or services to a customer may be considered a single performance obligation if the goods or services are highly interdependent or highly interrelated such that utility of the promised goods or services to the customer includes integration services provided by the Company.
The Company determines the transaction price for each contract based on the consideration it expects to receive for the products or services being provided under the contract. If transaction prices are not stated in the contract for each performance obligation, contractual prices are allocated to performance obligations based on estimated relative standalone selling prices of the promised services.
The Company generally uses the cost-to-cost input method of progress for performance obligations to deliver products with continual transfer of control to the customer, because it best depicts the transfer of control to the customer that occurs as the Company incurs costs. Under the cost-to-cost method, the extent of progress towards completion is measured based on the proportion of direct costs incurred to date to the total estimated direct costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. For performance obligations to provide services to the customer, revenue is recognized over time based on direct costs incurred or the right to invoice method (in situations where the value transferred matches the Company’s billing rights) as the customer receives and consumes the benefits.
The Company has applied the practical expedient in paragraph ASC 606-10-50-14 and does not providedisclose the value of remaining performance obligations under service contracts having original expected terms of one year or less.
The timing of revenue recognition may differ from the timing of invoicing to customers. Progress on satisfying performance obligations under contracts with customers and the related billings and cash collections are recorded on the consolidated balance sheet as contract assets or contract liabilities. Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period.
Unbilled receivables are included in Accounts Receivable on the consolidated balance sheet and arise when the timing of cash collected from customers differs from the timing of revenue recognition, such as when contract provisions require specific milestones to be met before a customer can be billed.recognition. Those assets are recognized when the revenue associated with the contract is recognized prior to billing and derecognized when billed in
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accordance with the terms of the contract. To the extent billings to the customer precede the recognition of technical solutions revenue, the Company recognizes a liability included in Deferred Revenue and Advances from Customers on the consolidated balance sheet.
Advanced Technology Costs
American Centrifuge and related expenses that are outside of our customer contracts are included in Advanced Technology Costs, including caretaker costs at the Piketon facility prior to the commencement of work under the HALEU contract in June 2019..
Pension and Postretirement Health and Life Benefit Plans
The Company provides retirement benefits to certain employees and retirees under defined benefit pension plans and postretirement health and life benefit plans. The valuation of benefit obligations and costs is based on provisions of the plans and actuarial assumptions that involve judgments and estimates. Plan assets and benefit obligations are remeasured each year as of the balance sheet date, or when lump sum payments exceed certain levels, resulting in differences between actual and projected results. The Company has elected to recognize these actuarial gains and losses immediately in the statement of operations to provide transparency regarding the impacts of changes in plan assets and benefit obligations.
Stock-Based Compensation
Centrus has a stock-based compensation plan which authorizes the issuance of common stock to the Company’s employees, officers, directors, and other individuals providing services to the Company or its affiliates pursuant to options, notional stock units, stock appreciation rights, restricted stock units, restricted stock, performance awards, dividend equivalent rights, and other stock basedstock-based awards.
Stock-based compensation cost isfor options and stock-settled awards are measured at the grant date based on the fair value of the award. The cost is recognized over the requisite service period on a straight-line basis over the vesting period.
Stock-based compensation cost for awards likely to be settled with cash payments are recognized over the requisite service period and accrued as a liability and re-measured each reporting period based on the trading price of the Company’s common stock.
The Company recognizes forfeitures as they occur.
New Accounting Standards
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which modifies the disclosure requirements for employers that sponsor defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The standard is to be applied on a retrospective basis to all periods presented and early adoption is permitted. The Company is evaluatingAdoption of this new standard did not have a significant impact to the effect that the provisions of ASU 2018-14 will have on its consolidated financial statements.Company’s annual disclosures.
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2. REVENUE AND CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following table presents revenue from SWU and uranium sales disaggregated by geographical region, including foreign countries representing 10% or more of revenue, based on the billing addresses of customers (in millions):
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| United States | $ | 108.3 | $ | 115.0 | |||||||
| Foreign: | |||||||||||
| Belgium | 36.6 | 35.8 | |||||||||
| Japan | 34.6 | 23.4 | |||||||||
| Other | 6.6 | 16.3 | |||||||||
| Total foreign | 77.8 | 75.5 | |||||||||
| Revenue - SWU and uranium | $ | 186.1 | $ | 190.5 | |||||||
| Year Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| United States | $ | 112.1 | $ | 112.7 | |||
| Foreign: | |||||||
| Japan | 23.4 | * | |||||
| Belgium | 21.5 | 35.2 | |||||
| Other | 12.4 | 16.5 | |||||
| Total foreign | 57.3 | 51.7 | |||||
| Revenue - SWU and uranium | $ | 169.4 | $ | 164.4 | |||
| * less than 10% | |||||||
Refer to Note 19,18, Revenue by Geographic Area, Major Customers and Segment Information for disaggregation of revenue by segment. Disaggregation by end-market is provided in Note 1918 and the consolidated statements of operations. SWU and uranium sales are made primarily to electric utility customers.customers, and uranium sales are primarily made to other nuclear fuel related companies. Technical solutions revenue resulted primarily from services provided to the U.S. government and its contractors. SWU and uranium revenue is recognized at point of sale and technical solutions revenue is generally recognized over time.
SWU revenue in 2020 includes $32.6 million collected from a customer in settlement of a supply contract that was subject to the customer’s bankruptcy proceeding.
Accounts Receivable
| December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| ($ millions) | |||||||||||||||||
| Accounts receivable: | |||||||||||||||||
| Billed | $ | 23.1 | $ | 23.0 | |||||||||||||
| Unbilled (a) | 6.0 | 6.6 | |||||||||||||||
| Accounts receivable | $ | 29.1 | $ | 29.6 | |||||||||||||
| (a) Billings under certain contracts in the technical services segment are invoiced based on approved provisional billing rates. Unbilled revenue represents difference between actual costs incurred and invoiced amounts. The Company expects to invoice and collect the unbilled amounts after actual rates are submitted to the customer and approved. Unbilled revenue also includes unconditional rights to payment that are not yet billable under applicable contracts pending the compilation of supporting documentation. | |||||||||||||||||
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| December 31, | |||||||||
| 2019 | 2018 | ||||||||
| ($ millions) | |||||||||
| Accounts receivable: | |||||||||
| Billed | $ | 13.2 | $ | 50.4 | |||||
| Unbilled * | 7.9 | — | |||||||
| Uranium feed receivable | — | 9.8 | |||||||
| Accounts receivable | $ | 21.1 | $ | 60.2 | |||||
| * Billings under certain contracts in the technical services segment are invoiced based on approved provisional billing rates. Unbilled revenue represents difference between actual costs incurred and invoiced amounts. The Company expects to invoice and collect the unbilled amounts after actual rates are submitted to the customer and approved. Unbilled revenue also includes unconditional rights to revenue that is not yet billable under applicable contracts pending the compilation of supporting documentation. | |||||||||
Contract Liabilities
The following table presents changes in contract liability balances (in millions):
| December 31, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| Accrued loss on HALEU Contract: | ||||||||||||||||||||
Current - Accounts payable and accrued liabilities | $ | 0.5 | $ | 7.0 | $ | (6.5) | ||||||||||||||
Non-current - Other long-term liabilities | $ | — | $ | 0.7 | $ | (0.7) | ||||||||||||||
| Deferred revenue - current | $ | 288.1 | $ | 281.7 | $ | 6.4 | ||||||||||||||
| Advances from customers - current | $ | 15.0 | $ | 1.5 | $ | 13.5 | ||||||||||||||
| Advances from customers - non current | $ | 45.1 | $ | 45.2 | $ | (0.1) | ||||||||||||||
| December 31, | ||||||||||||
| 2019 | 2018 | Change | ||||||||||
| Accrued loss on HALEU Contract: | ||||||||||||
Current - Accounts payable and accrued liabilities | $ | 10.0 | $ | — | $ | 10.0 | ||||||
Noncurrent - Other long-term liabilities | $ | 8.3 | $ | — | $ | 8.3 | ||||||
| Deferred revenue - current | $ | 243.0 | $ | 204.5 | $ | 38.5 | ||||||
| Advances from customers - current | $ | 23.3 | $ | — | $ | 23.3 | ||||||
| Advances from customers - noncurrent | $ | 29.4 | $ | 15.0 | $ | 14.4 | ||||||
Deferred revenue activitysales totaled $47.2 million and $38.7 million in the yearyears ended December 31, 2019, follows (in millions):2021, and 2020, respectively. Previously deferred sales recognized in revenue totaled $42.6 million and $0 million in the years ended December 31, 2021, and 2020, respectively.
| Deferred Sales in the Period | Previously Deferred Sales Recognized in the Period | Change | ||||||
| Deferred revenue | 49.2 | (10.7 | ) | 38.5 | ||||
LEU Segment
The SWU component of LEU is typically bought and sold under long-term contracts with deliveries over several years. The Company’s agreements for natural uranium sales are generally shorter-term, fixed-commitment contracts. The Company’s order book of sales under contract in the LEU segment (“order book”) extends to 2030. As of2029. For the years ended December 31, 20192021 and December 31, 2018, the2020, our order book was $1.0 billion.approximately $986 million and $960 million, respectively. The order book isrepresents the estimated aggregate dollar amount of revenue for future SWU and uranium deliveries under contract and includes the approximately $348.2 million of Deferred Revenue and Advances from Customers amounts in theCustomers. Refer to Contract BalancesLiabilities table above. Approximately $0.9 billion of the order book as of December 31, 2019 is anticipated to be recognized as revenue beyond 2020.
Most of the Company’s customer contracts provide for fixed purchases of SWU during a given year. The Company’s order book is partially based on customers’ estimates of the timing and size of their fuel requirements and other assumptions that are subject to change. For example, depending on the terms of specific contracts, the customer may be able to increase or decrease the quantity delivered within an agreed range. The Company’s order book estimate is also based on the Company’s estimates of selling prices, which may be subject to change. For example, depending on the terms of specific contracts, prices may be adjusted based on escalation using a general inflation index, published SWU price indicators prevailing at the time of delivery, and other factors, all of which are variable. The Company uses external composite forecasts of future market prices and inflation rates in its pricing estimates.
Under the terms of certain contracts with customers in the LEU segment, the Company will accept payment for SWU in the form of uranium. Revenue from the sale of SWU under such contracts is recognized at the time LEU is delivered and is based on the fair value of the uranium at contract inception, or as the quantity of uranium is finalized, if variable. In 2020, SWU revenue of $23.4 million was recognized under such contracts based on the fair market value of uranium acquired in exchange for SWU delivered. Uranium received from customers as advance payments for the future sales of SWU totaled $59.6 million and $44.4 million as of December 31, 2021, and 2020, respectively. The advance payments are included in either Advances from Customers, Current or Advances from Customers, Noncurrent, based on the anticipated SWU sales period.
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Technical Solutions Segment
Revenue for the technical solutions segment, representing the Company’s technical, manufacturing, engineering, procurement, construction and operations services offered to public and private sector customers, is recognized over the contractual period as services are rendered. For details, refer to Note 1, Summary of Significant Accounting Policies — Revenue —Technical Solutions Revenue.
On October 31, 2019, the Company signed a three-year cost-share contract with the U.S. Department of Energy (“DOE”) (“the HALEU Contract”) to deploy a cascade of centrifuges to demonstrate production of high-assay, low-enriched uranium (“HALEU”) for advanced reactors. HALEU is a component of an advanced nuclear reactor fuel that is not commercially available today and may be required for a number of advanced reactor designs currently under development in both the commercial and government sectors. The program has been under way since May 31, 2019, when the Company and DOE signed a preliminary letter agreement that allowed work to begin while the full contract was being finalized.
Additional COVID-19-related impacts, delays in DOE furnishing equipment, or changes to the $115 millionexisting scope of anticipated revenue over the three-year contract term, approximately $40 million is anticipatedHALEU Contract could result in further material increases to be recognizedour estimate of the costs required to complete the HALEU Contract, as revenuewell as delay completion of the contract. The Company does not currently have a contractual obligation to perform work in 2021-2022 (beyond twelve months fromexcess of the fiscalfunding provided by DOE and, therefore, no additional costs have been accrued as of December 31, 2021. If DOE does not commit to fully fund the additional costs, and the Company nevertheless commits to a plan to complete the demonstration cascade and produce HALEU, we may incur material additional costs or losses in future periods that could have an adverse impact on our financial condition and liquidity.
Revenue for the technical solutions segment in the year ended December 31, 2019).
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Liability December 31, 2018 | Year Ended December 31, 2019 | Liability December 31, 2019 | ||||||||||||||
| Charges (Credits) for Termination Benefits | Paid/ Settled | |||||||||||||||
| Workforce reductions: | ||||||||||||||||
| Corporate functions | $ | 0.9 | $ | 1.0 | $ | (0.7 | ) | $ | 1.2 | |||||||
| Piketon facility | 3.2 | (2.9 | ) | (0.1 | ) | 0.2 | ||||||||||
| Total | $ | 4.1 | $ | (1.9 | ) | $ | (0.8 | ) | $ | 1.4 | ||||||
The following table summarizes the Company’s cash, cash equivalents and restricted cash as presented on the consolidated balance sheet to amounts on the consolidated statement of cash flows (in millions):
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash and cash equivalents | $ | 193.8 | $ | 152.0 | |||||||
| Deposits for financial assurance - current | 0.2 | 0.2 | |||||||||
| Deposits for financial assurance - non current | 2.8 | 5.7 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 196.8 | $ | 157.9 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Cash and cash equivalents | $ | 130.7 | $ | 123.1 | |||
| Deposits for financial assurance - current | 0.2 | 30.3 | |||||
| Deposits for financial assurance - noncurrent | 5.7 | 6.3 | |||||
| Total cash, cash equivalents and restricted cash | $ | 136.6 | $ | 159.7 | |||
The following table provides additional detail regarding the Company’s deposits for financial assurance (in millions):
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | Current | Long-Term | Current | Long-Term | |||||||||||||||||||||||||||||||||
| Current | Long-Term | Current | Long-Term | |||||||||||||||||||||||||||||||||||
| Piketon facility obligations | $ | — | $ | — | $ | 30.1 | $ | — | ||||||||||||||||||||||||||||||
| Workers compensation | — | 5.4 | — | 6.0 | Workers compensation | $ | — | $ | 2.6 | $ | — | $ | 5.4 | |||||||||||||||||||||||||
| Other | 0.2 | 0.3 | 0.2 | 0.3 | Other | 0.2 | 0.2 | 0.2 | 0.3 | |||||||||||||||||||||||||||||
| Total deposits for financial assurance | $ | 0.2 | $ | 5.7 | $ | 30.3 | $ | 6.3 | Total deposits for financial assurance | $ | 0.2 | $ | 2.8 | $ | 0.2 | $ | 5.7 | |||||||||||||||||||||
The Company has provided financial assurance to states in which it was previously self-insured for workers’ compensation in accordance with each state’s requirements in the form of a surety bond or letters of creditdeposit that areis fully cash collateralized by the Company.Centrus. As each state determines that the likelihood of further workers’ compensation obligations related to the period of self-insurance is reduced, the surety bond or letters of credit aredeposit is subject to reduction and/or cancellation and the Company would receive the excess cash collateral. In 2019, the Company received $0.6 million as return of cash collateral related to the cancellation of a letter of credit.
Centrus holds uranium at licensed locations in the form of natural uranium and as the uranium component of LEU. Centrus also holds SWU as the SWU component of LEU at licensed locations (e.g., fabricators) to meet book transfer requests by customers. Fabricators process LEU into fuel for use in nuclear reactors. Components of inventories are as follows (in millions):
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Current Assets | Current Liabilities (a) | Inventories, Net | Current Assets | Current Liabilities (a) | Inventories, Net | ||||||||||||||||||||||||||||||
| Separative work units | $ | 8.8 | $ | — | $ | 8.8 | $ | 17.0 | $ | 4.6 | $ | 12.4 | |||||||||||||||||||||||
| Uranium | 82.3 | 8.4 | 73.9 | 47.8 | 0.3 | 47.5 | |||||||||||||||||||||||||||||
| Total | $ | 91.1 | $ | 8.4 | $ | 82.7 | $ | 64.8 | $ | 4.9 | $ | 59.9 | |||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||
Current Assets | Current Liabilities (a) | Inventories, Net | Current Assets | Current Liabilities (a) | Inventories, Net | ||||||||||||||||||
| Separative work units | $ | 7.8 | $ | — | $ | 7.8 | $ | 20.1 | $ | 3.6 | $ | 16.5 | |||||||||||
| Uranium | 56.7 | 5.6 | 51.1 | 109.6 | 99.4 | 10.2 | |||||||||||||||||
| Total | $ | 64.5 | $ | 5.6 | $ | 58.9 | $ | 129.7 | $ | 103.0 | $ | 26.7 | |||||||||||
(a)Inventories owed to customers and suppliers, included in current liabilities, include SWU and uranium inventories owed to fabricators.
Inventories are valued at the lower of cost or net realizable value. Valuation adjustments for uraniumIn 2021, there was a valuation adjustment to reflect an update of projected timing and sources of inventory to reflect declines in uranium market price indicators totaled $2.3 million in 2019.be used for repayment of borrowed SWU inventory. There were no valuation adjustments in 2018.2020. For details, refer to Note 1,Summary of Significant Accounting Policies — Contract Liabilities — LEU Segment.
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The Company may also borrow SWU from customers, in which case the Company completedwill record the SWU and the related liability for the borrowing using a one-timeprojected average purchase price over the borrowing period. In 2018 through 2020 the Company borrowed SWU inventory valued at $20.7 million from a customer under an agreement signed in 2017 and recorded the SWU and the related liability using the Company’s average unit price of SWU and uranium from Nuclear Fuel Industries, Ltd. (“NFI”)purchases under contract projected to be used for $7.1repayment. The loan is repayable only with SWU. The cumulative liability to the customer for borrowed inventory was revalued to $25.5 million pursuant toin the third quarter of 2021.The revaluation reflected an August 2018 agreement between Enrichment Corp. and NFI. Toshiba America Nuclear Energy Corporation (“TANE”) holds 718,200 sharesupdated projection of the Company’s Class B common stocktiming and certainsources of inventory to be used for repayment. In the Company’s 8.25% senior notes due 2027. Eachfourth quarter of NFI2021, the Company repaid borrowed SWU inventory valued at $3.1 million to a customer and TANE are wholly-owned, indirect subsidiariesreduced the SWU and the related liability using an average purchase price over the borrowing period. The remaining liability to the customer of Toshiba Corporation.$22.4 million for borrowed inventory is included in Other Long-Term Liabilities. Cost of Sales for the twelve months ended December 31, 2021, includes the related expense of $4.8 million.
5. PROPERTY, PLANT AND EQUIPMENT
A summary of changes in property, plant and equipment follows (in millions):
| December 31, 2020 | Additions / (Depreciation) | December 31, 2021 | |||||||||||||||||||||
| Land | $ | 1.2 | $ | — | $ | 1.2 | |||||||||||||||||
| Buildings and leasehold improvements | 3.9 | 0.7 | 4.6 | ||||||||||||||||||||
| Machinery and equipment | 1.4 | — | 1.4 | ||||||||||||||||||||
| Other | 1.1 | — | 1.1 | ||||||||||||||||||||
| Property, plant and equipment, gross | 7.6 | 0.7 | 8.3 | ||||||||||||||||||||
| Accumulated depreciation | (2.7) | (0.3) | (3.0) | ||||||||||||||||||||
| Property, plant and equipment, net | $ | 4.9 | $ | 0.4 | $ | 5.3 | |||||||||||||||||
| December 31, 2018 | Additions / (Depreciation) | December 31, 2019 | |||||||||
| Land | $ | 1.2 | $ | — | $ | 1.2 | |||||
| Leasehold improvements | 2.5 | — | 2.5 | ||||||||
| Machinery and equipment | 1.0 | 0.1 | 1.1 | ||||||||
| Other | 1.1 | — | 1.1 | ||||||||
| Property, plant and equipment, gross | 5.8 | 0.1 | 5.9 | ||||||||
| Accumulated depreciation | (1.6 | ) | (0.6 | ) | (2.2 | ) | |||||
| Property, plant and equipment, net | $ | 4.2 | $ | (0.5 | ) | $ | 3.7 | ||||
Depreciation expense was $0.6 million in 2019 and $0.8 million in 2018.
6. INTANGIBLE ASSETS
Intangible assets originated from the Company’s reorganization and application of fresh start accounting as of September 30, 2014, the date the Company emerged from bankruptcy, and reflect the conditions at that time. The intangible asset related to the sales order book is amortized as the order book existing at emergence is reduced, principally as a result of deliveries to customers. The intangible asset related to customer relationships is amortized using the straight-line method over the estimated average useful life of 15 years. Amortization expense is presented below gross profit on the consolidated statements of operations. Intangible asset balances are as follows (in millions):
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Amount | Gross Carrying Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||||||||||||
| Sales order book | $ | 54.6 | $ | 35.5 | $ | 19.1 | $ | 54.6 | $ | 32.0 | $ | 22.6 | |||||||||||||||||||||||
| Customer relationships | 68.9 | 33.3 | 35.6 | 68.9 | 28.7 | 40.2 | |||||||||||||||||||||||||||||
| Total | $ | 123.5 | $ | 68.8 | $ | 54.7 | $ | 123.5 | $ | 60.7 | $ | 62.8 | |||||||||||||||||||||||
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| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Amount | Gross Carrying Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||
| Sales order book | $ | 54.6 | $ | 29.9 | $ | 24.7 | $ | 54.6 | $ | 28.0 | $ | 26.6 | |||||||||||
| Customer relationships | 68.9 | 24.1 | 44.8 | 68.9 | 19.5 | 49.4 | |||||||||||||||||
| Total | $ | 123.5 | $ | 54.0 | $ | 69.5 | $ | 123.5 | $ | 47.5 | $ | 76.0 | |||||||||||
The amount of amortization expense for intangible assets in each of the succeeding years is estimated to be as follows (in millions):
| 2022 | $ | 9.5 | |||
| 2023 | 6.6 | ||||
| 2024 | 8.6 | ||||
| 2025 | 7.6 | ||||
| 2026 | 9.9 | ||||
| Thereafter | 12.5 | ||||
| Total | $ | 54.7 | |||
| 2020 | $ | 7.0 | |
| 2021 | 7.6 | ||
| 2022 | 10.5 | ||
| 2023 | 7.2 | ||
| 2024 | 8.0 | ||
| Thereafter | 29.2 | ||
| Total | $ | 69.5 | |
Components of accounts payable and accrued liabilities follow (in millions):
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Trade payables | $ | 4.9 | $ | 4.9 | |||||||
| Compensation and employee benefits | 23.1 | 22.2 | |||||||||
| Postretirement health and life benefit obligations - current | 7.0 | 11.6 | |||||||||
| Accrued HALEU Contract loss | 0.5 | 7.0 | |||||||||
| Operating lease liability | 0.9 | 2.4 | |||||||||
| Other accrued liabilities | 1.4 | 2.5 | |||||||||
| Total accounts payable and accrued liabilities | $ | 37.8 | $ | 50.6 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Trade payables | $ | 7.0 | $ | 3.9 | |||
| Postretirement health and life benefit obligations - current | 14.2 | 15.4 | |||||
| Compensation and employee benefits | 13.1 | 22.4 | |||||
| Accrued HALEU contract loss - current | 10.0 | — | |||||
| Operating lease liability | 2.5 | — | |||||
| Severance | 1.4 | 4.1 | |||||
| Accrued interest on 8% PIK Toggle Notes | — | 0.6 | |||||
| Other accrued liabilities | 2.5 | 6.0 | |||||
| Total accounts payable and accrued liabilities | $ | 50.7 | $ | 52.4 | |||
A summary of debt follows (in millions):
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| Maturity | Current | Long-Term | Current | Long-Term | |||||||||||||||||||||||||
| 8.25% Notes: | Feb. 2027 | ||||||||||||||||||||||||||||
| Principal | $ | — | $ | 74.3 | $ | — | $ | 74.3 | |||||||||||||||||||||
| Interest | 6.1 | 27.5 | 6.1 | 33.7 | |||||||||||||||||||||||||
| Total | $ | 6.1 | $ | 101.8 | $ | 6.1 | $ | 108.0 | |||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||||||||
| Maturity | Current | Long-Term | Current | Long-Term | |||||||||||||
| 8.25% Notes: | Feb. 2027 | ||||||||||||||||
| Principal | $ | — | $ | 74.3 | $ | — | $ | 74.3 | |||||||||
| Interest | 6.1 | 39.8 | 6.1 | 45.9 | |||||||||||||
| 8.25% Notes | $ | 6.1 | $ | 114.1 | $ | 6.1 | $ | 120.2 | |||||||||
| 8% PIK Toggle Notes | Sep. 2019 | $ | — | $ | — | $ | 26.7 | $ | — | ||||||||
| Total | $ | 6.1 | $ | 114.1 | $ | 32.8 | $ | 120.2 | |||||||||
Interest on the 8.25% Notes is payable semi-annually in arrears as of February 28 and August 31 based on a 360-day year consisting of twelve 30-day months. The 8.25% Notes mature on February 28, 2027. As describedshown in the table above, all future interest payment obligations on the 8.25% Notes are included in the carrying value of the 8.25% Notes. As a result, the Company’s reported interest expense will be less than its contractual interest payments throughout the term of the 8.25% Notes. As of December 31, 2019,2021, and December 31, 2018,2020, $6.1 million of interest is recorded as current and classified as Current Debt in the consolidated balance sheet.
The 8.25% Notes rank equally in right of payment with all of the Company’s existing and future unsubordinated indebtedness other than its Issuer Senior Debt and our Limited Secured Acquisition Debt (each as defined below). The 8.25% Notes rank senior in right of payment to all of the Company’s existing and future subordinated indebtedness and to certain limited secured acquisition indebtedness of the Company (the “Limited Secured Acquisition Debt”). The Limited Secured Acquisition Debt includes (i) any indebtedness, the proceeds of which are used to finance all or a portion of an acquisition or similar transaction if any lender’s lien is solely limited to the assets acquired in such a transaction and (ii) any indebtedness, the proceeds of which are used to finance all or a
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portion of the American Centrifuge project or another next generation enrichment technology if any lender’s lien is solely limited to such assets, provided that a lien securing the 8.25% Notes that is junior with respect to the lien securing such indebtedness will be limited to the assets acquired with such Limited Secured Acquisition Debt.
The 8.25% Notes are subordinated in right of payment to certain indebtedness and obligations of the Company, as described in the indenture governing the 8.25% Notes Indenture (the “Issuer Senior Debt”), including (i) any indebtedness of the Company (inclusive of any indebtedness of Enrichment Corp.) under a future credit facility up to $50 million with a maximum net borrowing of $40 million after taking into account any minimum cash balance (unless a higher amount is approved with the consent of the holders of a majority of the aggregate principal amount of the 8.25% Notes then outstanding), (ii) any revolving credit facility to finance inventory purchases and related working capital needs, and (iii) any indebtedness of the Company to Enrichment Corp. under the secured intercompany notes.
The 8.25% Notes are guaranteed on a subordinated and limited basis by, and secured by substantially all of the assets of, Enrichment Corp. The Enrichment Corp. guarantee is a secured obligation and ranks equally in right of payment with all existing and future unsubordinated indebtedness of Enrichment Corp. (other than Designated Senior Claims (as defined below) and Limited Secured Acquisition Debt) and senior in right of payment to all existing and future subordinated indebtedness of Enrichment Corp. and Limited Secured Acquisition Debt. The Enrichment Corp. guarantee is subordinated in right of payment to certain obligations of, and claims against, Enrichment Corp. described in the indenture governing the 8.25% Notes Indenture (collectively, the “Designated Senior Claims”), including obligations and claims:
•under a future credit facility up to $50 million with a maximum net borrowing of $40 million after taking into account any minimum cash balance;
•under any revolving credit facility to finance inventory purchases and related working capital needs;
•held by or for the benefit of the Pension Benefit Guaranty Corporation (“PBGC”) pursuant to any settlement (including any required funding of pension plans); and
•under surety bonds or similar obligations held by or on behalf of the U.S. government pursuant to regulatory requirements.
The lien securing the Enrichment Corp. guarantee of the 8.25% Notes is junior in priority with respect to the lien securing Limited Secured Acquisition Debt, which is limited to the assets acquired with such Limited Secured Acquisition Debt.
Centrus leases facilities and equipment under operating leases. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company has facility leases with terms greater than 12 months, and the Company records the related asset and obligation at the present value of lease payments over the term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Refer to Note 1, Summary of Significant Accounting Policies, for information regarding the Company’s adoption of Topic 842 on January 1, 2019.
Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets exclude lease incentives. Lease terms reflect options to extend or terminate the lease when it is reasonably certain that those options will be exercised. The depreciable life of lease assets and leasehold improvements is limited by the expected lease term. The weighted-average remaining lease term was 3.65.3 years at December 31, 2019,2021, with maturity dates ranging from July 2021December 31, 2025 to September 2027, and the weighted-average discount rate was 12.1%12.5%. Lease expense amounted to $2.7totaled a credit of $0.5 million in 2021 and expense of $2.6 million for the year ended December 31, 2019. Lease expense was $3.1 million for the year ended December 31, 2018.2020. Lease expense primarily related to operating leases and for the yearyears ended December 31, 20192021 and 2020 includes a $0.5$2.0 million and $0.3 million credit, respectively, from DOE for true uptrue-up of prior yearyears’ lease expense. Other amounts related to short-term lease expense were insignificant. Operating lease expense is included in Cost of Sales, Selling, General and Administrative Expenses and Advance Technology Costs on the Statement of Operations. Cash paid for amounts included in operating cash flows for operating leases was $2.9$2.4 million for the year ended December 31, 2019.2021.
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The Company leases facilities and related personal property innear Piketon, Ohio from DOE. On May 31, 2019, in connection with the HALEU letter agreement, DOE and the Company amended theunder a lease agreement, which was scheduled to expire by its terms on June 30, 2019.is classified as operating. The lease was renewedamended on May 6, 2021, resulting in a decrease in the monthly lease payment beginning with the June 2021 payment. The Company accounted for the amendment as a modification and extended untilremeasured the remaining future lease payments through May 31, 2022, provided, however, thatresulting in the recording of a $1.0 million reduction in lease assets and liabilities. In September 2021, the lease was extended through December 31, 2025. The Company did not remeasure the lease as under the terms of the lease amendment it may be terminated early upon completion of the work under the HALEU Contract.Contract which is expected to occur by June 1, 2022. Any facilities, centrifuges or other equipment constructed or installed under contract with DOE will be owned by DOE and may be returned to DOE in an “as is” condition at the end of the lease term, and DOE would be responsible for its D&D. The Company accounted for the amendment as a modification and reassessed its classification. The Company classified the lease as an operating lease as the lease does not contain a transfer of ownership or purchase option, the fair value of the underlying asset cannot be practicably determined, and the economic life of the asset is indeterminate. The remeasurement of the remaining future lease payments through May 31, 2022 resulted in the recording of $3.8 million of additional lease assets and liabilities related to the modification. The modification resulted in an insignificant impact on the consolidated statement of operations. On October 8, 2019 the DOE notified the Company of an increase in the monthly lease payment beginning with the October 2019 payment. The Company accounted for the amendment as a modification and reassessed its classification. The remeasurement of the remaining future lease payments through May 31, 2022 resulted in the recording of $1.4 million additional lease assets and liabilities related to the modification.
Operating Lease Assets and Liabilities
The table below presents the lease-related assets and liabilities recorded on the consolidated balance sheet (in millions).
| December 31, 2021 | Classification on the Balance Sheet | ||||||||||
| Lease assets | $ | 2.1 | Other long-term assets | ||||||||
| Lease liabilities: | |||||||||||
| Current | $ | 0.9 | Accounts payable and accrued liabilities | ||||||||
| Non-current | 3.0 | Other long-term liabilities | |||||||||
| Total lease liabilities | $ | 3.9 | |||||||||
| December 31, 2019 | Classification on the Balance Sheet | ||||
| Lease assets | $ | 7.2 | Other long-term assets | ||
| Lease liabilities: | |||||
| Current | 2.5 | Accounts payable and accrued liabilities | |||
| Noncurrent | 7.0 | Other long-term liabilities | |||
| Total lease liabilities | $ | 9.5 | |||
Maturity of Operating Lease Liabilities
The table below reconciles undiscounted payments for operating leases with terms greater than 12 months to the operating lease liabilities recorded on the balance sheet (in millions).
| 2022 | $ | 1.3 | |||
| 2023 | 1.0 | ||||
| 2024 | 1.0 | ||||
| 2025 | 1.0 | ||||
| 2026 | 1.0 | ||||
| Thereafter | 0.8 | ||||
| Total lease payments | 6.1 | ||||
| Less imputed interest | 2.2 | ||||
| Present value of lease payments | $ | 3.9 | |||
| 2020 | $ | 3.2 | |
| 2021 | 3.2 | ||
| 2022 | 1.9 | ||
| 2023 | 1.0 | ||
| 2024 | 1.0 | ||
| Thereafter | 2.8 | ||
| Total lease payments | 13.1 | ||
| Less imputed interest | 3.6 | ||
| Present value of lease payments | $ | 9.5 | |
| 2019 | $ | 0.9 | |
| 2020 | 0.9 | ||
| 2021 | 0.9 | ||
| 2022 | 1.0 | ||
| 2023 | 1.0 | ||
| Thereafter | 3.8 | ||
| $ | 8.5 | ||
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value of assets and liabilities, the following hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
•Level 1 –assets include investments with quoted prices for identical instruments in active markets.markets that the Company has the ability to liquidate as of the reporting date.
•Level 2 –assets include investments in U.S. government agency securities, corporate and municipal debt whose estimates are valued based on observable inputs, other than quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.prices.
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•Level 3 –assets include investments with unobservable inputs, such as third party valuations, derived using onedue to little or more significant inputs that are not observable.no market activity.
Financial Instruments Recorded at Fair Value (in millions):
| December 31, 2019 | December 31, 2018 | December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 130.7 | $ | — | $ | — | $ | 130.7 | $ | 123.1 | $ | — | $ | — | $ | 123.1 | Cash and cash equivalents | $ | 193.8 | $ | — | $ | — | $ | 193.8 | $ | 152.0 | $ | — | $ | — | $ | 152.0 | |||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation asset (a) | 1.8 | — | — | 1.8 | 1.4 | — | — | 1.4 | Deferred compensation asset (a) | 3.2 | — | — | 3.2 | 2.4 | — | — | 2.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation obligation (a) | $ | 1.8 | $ | — | $ | — | $ | 1.8 | $ | 1.4 | $ | — | $ | — | $ | 1.4 | Deferred compensation obligation (a) | $ | 3.2 | $ | — | $ | — | $ | 3.2 | $ | 2.3 | $ | — | $ | — | $ | 2.3 | |||||||||||||||||||||||||||||||||||||||||||||