USEC INC.
How do I vote my shares?
You may vote using any of the following methods:
By MailShareholders of Record
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| • | By Mail.If you are a shareholder of record or hold shares through a USEC stock ownership plan, be sure to complete, sign and date the proxy card accompanying this Proxy Statement and return it in the prepaid envelope. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example as guardian, executor, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity. If you are a shareholder of record and you return your signed proxy card but do not indicate your voting preferences, the persons named as proxies in the proxy card will vote the shares represented by that proxy as recommended by the Board of Directors. |
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| • | By telephone or over the Internet. You can vote by calling the toll-free telephone number on your proxy card and following the voice prompts that you hear during the call. By following the voice prompts, you may vote your shares and confirm that your instructions have been properly recorded. The website for Internet voting ishttp://www.proxyvoting.com/USU. As with telephone voting, you can confirm that your instructions have been properly recorded. Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day. Proxies submitted by telephone or the Internet must be received by 10:00 a.m. Eastern Time on April 28, 2011. If you vote by telephone or on the Internet, you should not separately return your proxy card or voting instruction card. |
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| • | In person at the annual meeting. If you choose to vote at the annual meeting, you may vote by the ballot provided at the meeting. Even if you plan to attend the meeting, we encourage you to vote by completing, signing, dating, and returning the enclosed proxy card or by voting using the Internet or telephone so your vote will be counted if you later decide not to attend the meeting. If you decide to change your vote at the meeting, you may do so by voting in person at the meeting. If you hold your shares through a USEC stock ownership plan, you cannot vote in person at the annual meeting. Please vote by signing and dating your proxy card and mailing it in the postage-paid envelope provided or by using the Internet or telephone. |
Beneficial Owners
If you are a beneficial owner whose shares are held of record by a broker, bank broker or other nominee, be sure to complete, sign and return the voting instruction card received from your nominee.
By Telephonebroker, bank or on the Internet
The telephone and Internet voting procedures established by USEC for shareholders of record are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions have been properly recorded.
You can vote by calling the toll-free telephone number on your proxy card and following the voice prompts that you hear during the call. By following the voice prompts, you may vote your shares and confirm that your instructions have been properly recorded.
The website for Internet voting ishttp://www.proxyvoting.com/USU. As with telephone voting, you can confirm that your instructions have been properly recorded.
Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day. Proxies submitted by telephone or the Internet must be received by 10:00 a.m. Eastern Time on April 29, 2010.
other nominee. The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other nominee. Therefore, we recommend that you follow the voting instructions in the materials you receive.
If you vote by telephone or on the Internet, you should not separately return your proxy card or voting instruction card.
In Person Shares held beneficially may be voted at the Annual Meeting
Evenannual meeting only if you plan to attend the meeting, we encourageobtain and bring with you to vote by completing, signing, dating, and returning the enclosedannual meeting a legal proxy cardfrom your broker, bank or by voting using the Internet or telephone so your vote will be counted if you later decide not to attend the meeting. If you decide to change your vote at the meeting, you may do so by voting in person at the meeting. If you choose to vote at the Annual Meeting:
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| • | If you are a shareholder of record, you may vote by the ballot provided at the meeting. |
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| • | If you hold your shares in “street name,” you must obtain and bring with you to the Annual Meeting a legal proxy from your bank, broker, nominee or other holder of record in order to vote by ballot at the meeting. |
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| • | If you hold your shares through a USEC stock ownership plan, you cannot vote in person at the Annual Meeting. Please vote by signing and dating your proxy card and mailing it in the postage-paid envelope provided or by using the Internet or telephone. |
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What are my voting choices when voting for director nominees (Item 1) and what vote is needed to elect directors?
In the vote on the election of nine directors to serve until the 2011 Annual Meeting of Shareholders, shareholders may:
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| • | vote “FOR” all nominees; |
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| • | “WITHHOLD” votes as to all nominees; or |
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| • | “WITHHOLD” votes as to one or more specific nominees. |
Directors will be elected by a plurality of the votes cast. This means that the nine nominees who receive the largest number of “FOR” votes cast will be elected as directors. If you “WITHHOLD” authority to vote with respect to any director nominee, your shares will be counted for purposes of establishing a quorum, but will have no effect on the election of that nominee.
The Board of Directors recommends that you vote “FOR” each of the director nominees.
What are my voting choices when voting on the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors (Item 2), and what vote is needed to ratify their appointment?
In the vote on the ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for 2010, shareholders may:
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| • | vote “FOR” the ratification; |
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| • | vote “AGAINST” the ratification; or |
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| • | “ABSTAIN” from voting on the ratification. |
The ratification of the appointment of the independent auditors requires the “FOR” vote of a majority of the shares present in person or by proxy at the meeting and entitled to vote on that proposal. Abstentions will have the same effect as a vote “AGAINST” the ratification of the appointment of the independent auditors.
The Board of Directors recommends that you vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors.
What if I do not specify a choice for a matter when returning a proxy?
Shareholders should specify their choice for each matter on the enclosed proxy card. If you just sign and submit your proxy card without marking your vote, your shares will be voted:
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| | • | ItemProposal 1: “FOR” eachFOR the election of the eleven director nominee; andnominees for a term of one year; |
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| | • | ItemProposal 2: “FOR”FOR the approval, on an advisory basis, of the compensation of our named executive officers; |
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| • | Proposal 3: FOR the approval, on an advisory basis, of a triennial advisory vote on executive compensation; |
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| • | Proposal 4: FOR the approval of an amendment to the USEC Inc. 2009 Equity Incentive Plan; and |
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| • | Proposal 5: FOR the ratification of the appointment of PricewaterhouseCoopers LLP as USEC’s independent auditors for 2010.2011. |
May I revoke my proxy and change my vote?
You may revoke your proxy at any time before it is voted at the annual meeting by:
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| | • | submitting a properly executed proxy card with a later date, which proxy card is received prior to the date of the Annual Meeting;annual meeting; |
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| | • | delivering to the Secretary of USEC, prior to the date of the Annual Meeting,annual meeting, a written notice of revocation bearing a later date than the proxy; or |
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| | • | voting in person at the Annual Meeting.annual meeting. |
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How are proxies solicited and what isare the cost?costs?
We have hired Morrow & Co., LLC, located at 470 West Avenue, Stamford, CTConnecticut 06902, to assist us in soliciting proxies from brokers, banks brokers, and nominees and we will pay Morrow & Co., LLC a fee of approximately $8,500,$10,000, plus expenses, for these services. We will reimburse banks, brokerage houses, and other institutions, custodians, nominees, and fiduciaries for reasonable expenses in forwarding proxy material to their principals.
Our directors, officers, and employees may also solicit proxies by mail,e-mail, telephone or personal contact. They will not receive additional compensation for these activities.
What is householding?
If you and other residents at your mailing address own shares of USEC stock in “street name,” your broker, or bank or other nominee may have notified you that your household will receive only one annual report, proxy statement and Notice of Internet Availability of Proxy Materials for each company in which you hold stock through that broker or bank or other nominee. This practice is known as “householding.” Unless you responded that you did not want to participate in “householding,” you were deemed to have consented to the process. Your broker, or bank or other nominee will send one copy of our annual report, proxy statement and Notice of Internet Availability of Proxy Materials to your address. Each shareholder will continue to receive a separate proxy card or voting instruction card.
If you would like to receive your own set of USEC’s future annual report, proxy statement and Notice of Internet Availability of Proxy Materials or if you share an address with another USEC shareholder and together both of you would like to receive only a single set of USEC annual disclosure documents, please contact Broadridge Financial Solutions, Householding Department, 51 Mercedes Way, Edgewood, New York 11717 or call them at(800) 542-1061. Be sure to indicate your name, the name of your brokerage firm or bank or other nominee, and your account number. Any revocation of your consent to householding will be effective 30 days following its receipt.
If you did not receive an individual copy of this year’s proxy statement, our annual report, or the Notice of Internet Availability of Proxy Materials, we will promptly send a copy to you if you address a written request to USEC Inc., Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817, Attention: Investor Relations or call(301) 564-3354.
How can I find out the results of the annual meeting?
Preliminary results will be announced at the annual meeting. Final results also will be published in a current report onForm 8-K to be filed with the SEC within four business days after the annual meeting. If the official results are not available at that time, we will provide preliminary voting results in theForm 8-K and will provide the final results in an amendment to theForm 8-K as soon as they become available.
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ITEMPROPOSAL 1. ELECTION OF DIRECTORS
On the nominationThe current structure of our Board of Directors James R. Mellor, Michael H. Armacost, Joyce F. Brown, Joseph T. Doyle, H. William Habermeyer, John R. Hall, William J. Madia, W. Henson Moore,consists of eleven directors elected by the holders of USEC Inc. common stock and John K. Welch will stand for re-election attwo directors elected by the holders of the Company’s convertible preferred stock, as described below under “Governance of the Company — Governance Information — Investor-Designated Directors.”
At the 2011 annual meeting, eacheleven directors are to be elected to hold office until the next Annual Meeting of Shareholders2012 annual meeting and until his or her successor istheir successors have been elected and qualified. EachThe eleven nominees for election at the 2011 annual meeting are listed below, with brief biographies. They are all presently USEC directors. Mr. Cornelius, Mr. Skowronski and Mr. Smith were elected to the board of directors in 2011 as part of a Board search process. The board of directors has determined that all nominees except John K. Welch, President and CEO, satisfy the nominees presently is a memberNew York Stock Exchange’s definition of our Board.
Unless otherwise directed, shares represented by proxies solicited on behalf of the Board of Directors will be voted for the nominees listed below.independent director. All nominees have consented to serve if elected, but if any nominee becomes unavailable to serve, the persons named as proxies may exercise their discretion to vote for a substitute nominee.
The principal occupations of and certain other information about the nominees are set forth on the following pages.
The Board recommends a vote FOR the election of these eleven nominees as directors.
NOMINEES FOR DIRECTORSDIRECTOR
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  | | James R. Mellor | | Director since 1998
Age 7980 |
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| | Mr. Mellor retired in 1997 as Chairman and Chief Executive Officer of General Dynamics Corporation, a company engaged in shipbuilding and marine systems, land and amphibious combat systems, information systems, and business aviation businesses, a position he held since 1994. Prior to assuming that position, Mr. Mellor was President and Chief Executive Officer from 1993 to 1994 and was previously President and Chief Operating Officer of General Dynamics. Mr. Mellor served as interim President and Chief Executive Officer of the Company from December 2004 to October 2005. Mr. Mellor also serves on the Board of Trustees of the Scripps Research Institute. Mr. Mellor previously served on the Board of Directors of AmerisourceBergen Corporation, Computer Sciences Corporation, Net2Phone, Inc. and IDT Corporation. |
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| | | In recommending the re-election of Mr. Mellor, the Board considered the following key competencies: USEC leadership as current Chairman and formerly as interim CEO; CEO experience; government contracting experience; and public company board experience. Mr. Mellor has served as USEC’s chairmanChairman since USEC’s privatization in 1998. |
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  | | Michael H. Armacost | | Director since 2002
Age 7273 |
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| | Mr. Armacost is a Walter H. Shorenstein distinguished fellow and visiting professor in the Asia/Pacific Research Center at Stanford University. Mr. Armacost served as President and a Trustee of The Brookings Institution from 1995 to 2002. He served as Undersecretary of State for Political Affairs from 1984 to 1989, as U.S. Ambassador to Japan from 1989 to 1993 and to the Philippines from 1982 to 1984. Mr. Armacost also serves on the Board of Directors of AFLAC Inc. Mr. Armacost previously served on the Board of Directors of Applied Materials Inc. and Cargill, Incorporated. |
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| | | In recommending the re-election of Mr. Armacost, the Board considered the following key competencies: government and public policy experience; international experience; and public company board experience. |
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  | | Joyce F. Brown | | Director since 1998
Age 6364 |
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| | Dr. Brown is the President of the Fashion Institute of Technology of the State University of New York, a position she has held since 1998. From 1994 to 1997, Dr. Brown was a professor of clinical psychology at the City University of New York, where she previously held several Vice Chancellor positions. From 1993 to 1994, she served as the Deputy Mayor for Public and Community Affairs in the Office of the Mayor of the City of New York. Dr. Brown also serves on the Board of Directors of Polo Ralph Lauren Corporation. Dr. Brown previously served on the Board of Directors of Linens & Things and the PAXAR Corporation. |
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| | | In recommending the re-election of Dr. Brown, the Board considered the following key competencies: executive experience; public relations experience; government experience; and public company board experience. Dr. Brown has been a member of USEC’s Board since its privatization in 1998. |
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  | | Sigmund L. Cornelius | | Director since 2011
Age 56 |
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| Mr. Cornelius retired in January 2011 from ConocoPhillips, an integrated energy company, where he was Senior Vice President, Finance, and Chief Financial Officer from 2008 to 2010. Prior to that, Mr. Cornelius served as Senior Vice President, Planning, Strategy and Corporate Affairs from 2007 to 2008, having previously served as President, Exploration and Production — Lower 48 from 2006 to 2007 and President, Global Gas from 2004 to 2006. Mr. Cornelius joined ConocoPhillips predecessor Conoco Inc. in 1980. Mr. Cornelius also serves on the Board of Directors of Carbo Ceramics Inc. |
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| | Mr. Cornelius was appointed to the Board effective March 2011 following a board search process. In recommending the election of Mr. Cornelius, the Board considered the following key competencies: CFO experience; audit committee financial expert; energy experience; business operations experience; and public company board experience. |
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 | | Joseph T. Doyle | | Director since 2006
Age 6263 |
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| | Mr. Doyle is a consultant to and a director of several for profit companies and not for profit organizations. From July 2002 through March 2003, he served as Senior Vice President and Chief Financial Officer of Foster Wheeler, Inc. Prior to joining Foster Wheeler, Mr. Doyle was Executive Vice President and Chief Financial Officer of U.S. Office Products from 1998 through 2001, Chief Financial Officer of Westinghouse Electric Company’s Industrial Group from 1996 through 1998, and Chief Financial Officer of Allison Engine Company (now Rolls Royce Allison) from 1994 through 1996. U.S. Office Products filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in March 2001. |
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| | | In recommending the re-election of Mr. Doyle, the Board considered the following key competencies: CFO and 17 years of public accounting experience; audit committee financial expert; internal audit experience; nuclear submarine and nuclear energy and power experience; and engineering and construction experience. |
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 | | H. William Habermeyer | | Director since 2008
Age 6768 |
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| | Mr. Habermeyer retired in 2006 as President and Chief Executive Officer of Progress Energy Florida, a subsidiary of Progress Energy, Inc., a diversified energy company. Mr. Habermeyer joined Progress Energy predecessor, Carolina Power & Light in 1993 and served as Vice President of Nuclear Services and Environmental Support, Vice President of Nuclear Engineering, and Vice President of the Western Region in North Carolina, before assuming the role of President and Chief Executive Officer of Progress Energy Florida in 2000. Prior to that, Mr. Habermeyer had a28-year career in the U.S. Navy, retiring as a Rear Admiral. Mr. Habermeyer also serves on the Board of Directors of Raymond James Financial, Inc. and Southern Company. |
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| | | In recommending the re-election of Mr. Habermeyer, the Board considered the following key competencies: CEO experience; business operations experience, including operating and managing nuclear powered submarines and commercial nuclear power plants; nuclear engineering experience; electric utility experience; and public company board experience. |
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 | | John R. Hall | | Director since 1998
Age 77 |
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| Mr. Hall retired in 1997 as Chairman of the Board of Directors of Ashland, Inc., a company engaged in specialty chemicals, lubricants, car-care products, chemical and plastics distribution businesses, a position he held since 1981. Mr. Hall also was Chief Executive Officer of Ashland, Inc. from 1981 to 1996. Mr. Hall was Chairman of the Board of Directors of Arch Coal, Inc. from 1997 to 1998, and a director until 1999. Mr. Hall previously served on the Board of Directors of Humana Inc. and GrafTech International Ltd. |
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| | In recommending the re-election of Mr. Hall, the Board considered the following key competencies: CEO experience; public company board experience; mining and chemicals experience; and nuclear experience. Mr. Hall has been a member of USEC’s Board since its privatization in 1998.
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  | | William J. Madia | | Director since 2008
Age 6263 |
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| | Dr. Madia is a vice president at Stanford University responsible for oversight of the SLAC National Accelerator Laboratory, a U.S. Department of Energy national science lab. Dr. Madia retired in 2007 as Executive Vice President of Laboratory Operations of the Battelle Memorial Institute, a non-profit independent research and development organization, where he oversaw the management or co-management of six Department of Energy National Laboratories. Dr. Madia served in that position since 1999. In addition, he was President and CEO of UT-Battelle, LLC, he managed Battelle’s global environmental business, served as president of Battelle Technology International, director of Battelle’s Columbus Laboratories, and corporate vice president and general manager of Battelle’s Project Management Division. |
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| | | In recommending the re-election of Dr. Madia, the Board considered the following key competencies: science and technology experience; nuclear experience; DOE experience, including the management of six DOE laboratories; and executive and management experience. |
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  | | W. Henson Moore | | Director since 2001
Age 7071 |
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| | Mr. Moore was President and Chief Executive Officer of the American Forest and Paper Association, the national trade association of the forest, paper and wood products industry, from 1995 to 2006. He was also President of the International Council of Forest Product Associations from 2002 to 2004. Mr. Moore was previously Deputy Secretary of Energy from 1989 to 1992 and in 1992 became Deputy Chief of Staff for President George Bush. From 1975 to 1987 he represented the Sixth Congressional District of Louisiana in the U.S. House of Representatives. Mr. Moore also serves on the Board of Directors of Domtar Corporation. |
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| | | In recommending the re-election of Mr. Moore, the Board considered the following key competencies: DOE experience; political affairs experience; legal experience; CEO experience; international experience; and public company board experience. |
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  | | Walter E. Skowronski | | Director since 2011
Age 62 |
| Mr. Skowronski retired in 2009 as Senior Vice President of The Boeing Company and President, Boeing Capital Corporation, a wholly-owned subsidiary of The Boeing Company, a position he held from 2003 to 2009. Prior to that, Mr. Skowronski was Senior Vice President of Finance and Treasurer of The Boeing Company from 1999 to 2003. Prior to joining Boeing, Mr. Skowronski was Vice President and Treasurer of Lockheed Martin and its predecessor Lockheed Corporation from 1992 to 1999 after joining Lockheed Corporation in 1990. |
| | Mr. Skowronski was appointed to the Board effective March 2011 following a board search process. In recommending the election of Mr. Skowronski, the Board considered the following key competencies: finance experience, audit committee financial expert; government contracting experience; and business operations experience. |
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 | | M. Richard Smith | | Director since 2011
Age 63 |
| Mr. Smith retired in 2007 as Senior Vice President and President of Fossil Power of Bechtel Corporation, a global project execution company. During his 25-year Bechtel career he held other senior positions in engineering, construction and project management including Chief Executive Officer of Intergen and Senior Vice President of USGen, both Bechtel joint ventures, and Executive Vice President of Bechtel Enterprises. Since his retirement Mr. Smith has served as a consultant and director to Sithe Global Power LLC, an international power development company and Skyfuel Inc., a solar technology company. Mr. Smith also currently serves on the Boards of Directors of Instituform Technologies, Inc. and of McGrath RentCorp. He previously served on the Board of Directors of Evergreen Energy Inc. |
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| | Mr. Smith was appointed to the Board effective January 2011 following a board search process. In recommending the election of Mr. Smith, the Board considered the following key competencies: senior executive experience; engineering, construction and project management experience; and public company board experience. |
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 | | John K. Welch | | Director since 2005
Age 60 |
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| | Mr. Welch has been President and Chief Executive Officer since October 2005. Prior to joining USEC, he served as a consultant to several government and corporate entities. He was Executive Vice President and Group Executive, Marine Systems at General Dynamics Corporation from March 2002 to March 2003, and Senior Vice President and Group Executive, Marine Systems from January 2000 to March 2002. Prior to that, Mr. Welch held several executive positions over a ten-year period at General Dynamic’s Electric Boat Corporation, including President from 1995 to 2000. Mr. Welch currently serves on the Board of Directors of Battelle Memorial Institute the U.S. Naval Academy Foundation and Precision Custom Components Inc. |
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| | | In recommending the re-election of Mr. Welch, the Board considered the following key competencies: current service as USEC CEO; other executive experience; nuclear and defense experience; professional engineer experience; and manufacturing experience. |
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OTHER DIRECTORS
Biographical information, including relevant business and professional experience for each of the investor-designated directors is provided below:
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 | | Hiroshi Sakamoto | | Director since 2010
Age 54 |
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| Mr. Sakamoto has served as Senior Vice President and General Manager, Toshiba Nuclear Energy Holdings (US) Inc., a subsidiary of Toshiba Corporation, since April 2007. Since April 2008, Mr. Sakamoto has also served as Senior Vice President and Board Director, Toshiba America Nuclear Energy Corporation, also a subsidiary of Toshiba Corporation. Mr. Sakamoto joined Toshiba Corporation in April 1981 and has held a variety of positions of increasing responsibility over his career, including Vice President for Nuclear Business Development from April 2003 to September 2009 and Senior Manager for Nuclear Energy Engineering from October 2001 to March 2003 at Toshiba International Corporation, a subsidiary of Toshiba Corporation focusing on the energy business. Mr. Sakamoto has a Bachelors Degree and a Masters Degree in Nuclear Engineering from Kyoto University. |
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 | | Michael S. Taff | | Director since 2010
Age 48 |
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| Mr. Taff has served as Senior Vice President and Chief Financial Officer of The Babcock & Wilcox Company since its spin-off from McDermott International, Inc. in July 2010. From April 2007 until that date, he served as Senior Vice President and Chief Financial Officer of McDermott. Previously, he was Vice President and Chief Accounting Officer of McDermott since June 2005, Vice President and Chief Financial Officer of HMT Inc. (an engineering and construction company) from June 2004 to June 2005, and Vice President and Corporate Controller of Philip Services Corporation (a provider of industrial, environmental, transportation and container services) from September 1994 to May 2004. |
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GOVERNANCE OF THE COMPANY
Governance Information
Our Governance Guidelines
The Board of Directors recognizes that good corporate governance is an important means of protecting the interests of USEC’s shareholders, employees, customers, and the community. We havehas adopted Governance Guidelines, which serve as principles addressing the role of the Board of Directors in the areas of fiduciary oversight, independence, evaluation of the chief executive officer, and succession planning. The Governance Guidelines also set standards relating to the composition and operation of the Board of Directors and its committees, including standards relating to the selection and qualification of directors, evaluation of the Board and its committees, and director education. The Governance Guidelines are administered by the Board’s Nominating and Governance Committee, which regularly reviews director criteria and qualifications, and leads the performance assessments of the Board and its Committees. The Board annually assesses the adequacy and effectiveness of its Governance Guidelines. Copies of the current Governance Guidelines are available on our website atwww.usec.com under “Corporate Governance” or upon written request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.
Executive Sessions of Non-Management Directors
Our Governance Guidelines contemplate that non-management directors meet regularly in executive session. During 2009,2010, the non-management directors met without management at regularly scheduled executive sessions, and Michael Armacost,James R. Mellor, Chairman, of the Nominating and Governance Committee, presided at these executive sessions.
Communications with the Board of Directors
The Board has an established process to receive communications from shareholders and other interested parties. This process has been approved by a majority of the independent directors. Shareholders and other interested parties may contact the Board, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group, by mail or electronically. To communicate with the Board of Directors, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group, correspondenceCommunications by mail should be addressed to such recipient or recipients in care of USEC’s Secretary at the following address:c/o Secretary, USEC Inc., Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.
To communicate electronically with the Board, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group, shareholders and other interested parties should go to Electronic communications can be made through our website atwww.usec.com. Under the Corporate Governance section, you will find a link to thee-mail address for writing an electronic message to the Board, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group.
Director Independence
The New York Stock Exchange (“NYSE”) listing standards require that the boards of listed companies have a majority of independent directors and that audit, nominating and governance, and compensation committee members must all be independent as affirmatively determined by the Board. At its February 20102011 meeting, after reviewing the NYSE standards of independence, the Board of Directors affirmatively determined that the following eightten directors were independent: Mr. Armacost, Dr. Brown, Mr. Cornelius, Mr. Doyle, Mr. Habermeyer, Mr. Hall,Dr. Madia, Mr. Mellor, Mr. Moore, Mr. Skowronski, and Mr. Paquette.Smith. The basis for these determinations was that each of these eightten directors (other than Mr. Habermeyer)Habermeyer and Dr. Madia) had no relationships with the Company other than being a directorand/or shareholder of the Company. The Board determined that Mr. Habermeyer had no material relationships with the Company, taking into consideration his service on the board of directors of Southern Company, a customer of USEC. The Board determined that Dr. Madia had no material relationships with the Company, taking into consideration his service on a scientific advisory board of The Babcock & Wilcox Company, who through its subsidiaries is an investor in the Company (described below under “Investor-Designated Directors”) and is a supplier to the Company and party to a manufacturing joint venture with the Company. All of the members of the Company’s Audit and Finance, Nominating and Governance, and Compensation committees are independent.
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Investor-Designated Directors
On May 25, 2010, we announced that Toshiba Corporation and Babcock and Wilcox Investment Company (“B&W”) signed a securities purchase agreement to make a $200 million investment in the Company over three phases upon the satisfaction at each phase of certain closing conditions. Toshiba Corporation assigned its rights and obligations as an investor pursuant to the securities purchase agreement to its subsidiary, Toshiba America Nuclear Energy Corporation (“Toshiba”). Toshiba and B&W will invest equally in each of the phases in an aggregate amount of $100 million each. On September 2, 2010, the first closing of $75 million occurred and Toshiba and B&W received shares of convertible preferred stock and warrants to purchase shares of common stock, which will be exercisable in the future. Effective at the first closing, Mr. Hiroshi Sakamoto and Mr. Michael S. Taff became members of the Board of Directors of the Company. Under the purchase agreement and related transaction documents, Toshiba and B&W, as the holders of the convertible preferred stock, have the right to elect a total of two directors of the Company (the “Investor-Designated Directors”). They could lose this right under certain circumstances, including the failure to close the remaining two phases of the investment because of their breach, a change in control of the Company, or reductions in their equity holdings of the Company below certain thresholds.
Mr. Sakamoto and Mr. Taff abstain from voting on any matters involving Toshiba, B&W and their affiliates.
Criteria for Board Membership
The Nominating and Governance Committee believes that the minimum qualifications for serving as a director of the Company are that a nominee demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the Board’s oversight of the business and affairs of the Company. This assessment includes the consideration of each director’s, or each nominee’s, business background, experience and capabilities complementary to other directors’ experience and capabilities, financial acumen, experience with government, willingness and ability to devote adequate time to the Company, integrity, and any other factor deemed appropriate, all in the context of an assessment of the perceived needs of the Board at that point in time. In addition, the Board considers the diversity of its members when considering a candidate. USEC does not have a formal policy on Board diversity, however, USEC’s Board of Directors Governance Guidelines include diversity as one of the criteria to be considered in reviewing the appropriate skills and characteristics required of Board members and nominees. When the Nominating and Governance Committee considers diversity, it takes an expansive view and seeks to achieve a diversity of viewpoints, skills, experience and other factors.
The Nominating and Governance Committee identifies potential nominees by asking current directors to notify the Committee if they become aware of persons meeting the criteria described above, who might be available to serve on the Board. The Nominating and Governance Committee also, from time to time, may engage firms that specialize in identifying director candidates. During 2010, the Company engaged a third-party search firm to assist in a director search in light of the retirement of two directors in 2010. As described below, the Committee will also consider candidates recommended by shareholders.
Once a person has been identified by the Nominating and Governance Committee as a potential candidate, the Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Nominating and Governance Committee determines that the candidate warrants further consideration, the Chairman or another member of the Committee or their designee contacts the person. Generally, if the person expresses a willingness to be considered and to serve on the Board, the Nominating and Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of any other candidates that the Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate’s accomplishments. The Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a shareholder.
11
Mr. Cornelius, Mr. Skowronski and Mr. Smith, who were appointed directors by the Board effective in 2011 and are nominated for election at the 2011 annual meeting, were identified by the Nominating and Governance Committee in consultation with the third-party search firm engaged to assist in a director search. Mr. Sakamoto and Mr. Taff, who were appointed to the Board in 2010, were designated by Toshiba and B&W, respectively. Under the terms of the securities purchase agreement with Toshiba and B&W, the Nominating and Governance Committee reviewed the qualifications of Mr. Sakamoto and Mr. Taff prior to their election to the Board.
Director Nominations by Shareholders
The Nominating and Governance Committee will consider director candidates recommended by shareholders. In considering candidates submitted by shareholders, the Nominating and Governance Committee will take into consideration the needs of the Board and the qualifications of the candidate. To have a candidate considered by the Nominating and Governance Committee, a shareholder must comply with notification requirements in USEC’s bylaws. The bylaws require, among other things, that a shareholder must submit the recommendation in writing and must include the following information:
| | |
| | • | the name of the shareholder and evidence of the person’s ownership of Company stock, including the number of shares owned and the length of time of ownership; and |
| |
| | • | the name of the candidate, the candidate’s resume or a listing of his or her qualifications to be a director of the Company and the person’s consent to be named as a director if selected by the Nominating and Governance Committee and nominated by the Board. |
Under our bylaws, a shareholder’s nomination for director must be delivered to the Company’s Secretary not less than 90 days nor more than 120 days prior to the anniversary date of the previous year’s annual meeting, unless the date of the next annual meeting is more than 30 days before or more than 60 days after such anniversary date, in which case notice must be received not later than the tenth day following the day on which notice of the meeting is mailed or public disclosure of the date of the annual meeting is made.
10
Accordingly, shareholder nominations for director must be received by the Company between December 30, 20102011 and January 29, 2011,2012, in order to be considered timely, unless the Company gives notice that the date of the annual meeting is more than 30 days before, or more than 60 days after, April 29, 2011.28, 2012.
Board Leadership Structure and Role in Risk Oversight
The Board does not have a policy on whether or not the role of the Chairman and Chief Executive Officer should be separate. However, USEC currently has a separate, independent Chairman. Mr. Mellor has been Chairman since USEC’s privatization in 1998. USEC believes this leadership structure is appropriate for USEC at this time because Mr. Mellor provides valuable oversight of management, while avoiding potential conflicts, and encourages a proactive and effective board. In his role as Chairman, Mr. Mellor provides Board leadership, presides at all Board meetings, approves all Board agendas, and attends all Committee meetings.
The Board has responsibility for risk oversight of USEC and exercises this oversight function both through the entire Board and through the individual committees of the Board. Individuals who superviseare responsible for USEC’s risk management responsibilitieskey risks report directly to the entire Board on a regular basis regarding USEC’s enterprise risk management (ERM) program. The Audit and Finance Committee has responsibility to discuss the Company’s guidelines and policies governing risk assessment and risk management and the process by which each is handled. The risks that are identified as part of USEC’s ERM program and through the Audit and Finance Committee process flow down to the specific committees based on their areas of responsibility. For example, the Audit and Finance Committee oversees the management by USEC of risks as they relate to audit and finance matters or other matters within the committee’s scope of responsibilities, while the Regulatory and Government Affairs Committee oversees the management by USEC of risks as they relate to compliance with regulatory requirements or other matters within the committee’s scope of responsibilities.
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Code of Business Conduct
USEC has a Codecode of Business Conduct,business conduct, applicable to all of our directors, officers and employees, thatemployees. The code of business conduct provides a summary of the standards of conduct that are at the foundation of our business operations. The code of business conduct states that we conduct our business in strict compliance with all applicable laws and addresses other important matters such as conflicts of interest and how violations of the code may be reported and will be handled. Each director, officer and employee must read the code of business conduct and sign a form stating that he has read, understands and agrees to comply with the code of business conduct. Our Business Conduct Committee is responsible for monitoring performance under the code of business conduct and for addressing any issues that arise with respect to the code. A copy of the code of business conduct is available on our website atwww.usec.com or upon written request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.
Transactions with Related Persons
The Board has adopted a policy and procedures for review, approval or ratification of transactions involving the Company and “related persons” (the Company’s directors and executive officers and shareholders owning 5% or greater of the Company’s outstanding stock, or their immediate family members). The policy covers any related person transaction that meets the minimum threshold for disclosure under the relevant SEC rules or that is otherwise referred to the Board for review. This generally includes transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest. Under this policy, related person transactions must be approved by the Nominating and Governance Committee, although the Chairman of the Board may direct that the full Board review specific transactions. The transaction must be approved in advance whenever feasible and, if not feasible, must be ratified at the Nominating and Governance Committee’s next meeting. In determining whether to approve or ratify a related person transaction, the Nominating and Governance Committee will take into account all factors it deems appropriate, including: whether the subject matter of the transaction is available from other non-affiliated sources; whether the transaction is on terms no less favorable to the Company than terms generally available from an unaffiliated third party; the extent of the related person’s interest in the transaction; and whether the transaction is in the best interests of the Company.
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Management is responsible for the development and implementation of processes and controls to ensure that related person transactions are identified and that disclosure is made as required by law. To that end, currently we annually require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related person transactions.
Corporate Governance Information
Shareholders will find information about our corporate governance practices on our website atwww.usec.com. Our website contains information about our Board of Directors, Board committees, current copies of our bylaws and charter, committee charters, Code of Business Conduct and Governance Guidelines. Shareholders may obtain, without charge, hard copies of the above documents by writing to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.
Board and Committee Membership
Pursuant to the Delaware General Corporation Law, under which USEC is organized, our business, property, and affairs are managed under the direction of our Board of Directors. Members of the Board are kept informed of our business through discussions with the Chief Executive Officer and other officers, by reviewing materials prepared for them by management, by participating in meetings of the Board and its committees, and by other means.
It is the Board’s policy that all directors attend the annual meeting. We had ten directors at the time of the 2009 Annual Meeting, all2010 annual meeting, nine of whom attended the 2009 Annual Meeting.2010 annual meeting. One director was unable to attend for medical reasons.
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During 2009,2010, the Board of Directors held eight regular meetings and threeno special meetings. All directors attended 75% or more of the Board of Directors’ meetings and meetings of the committees on which they served. The average attendance of all directors at all Board and committee meetings in 20092010 was 93%99%.
During 2009,2010, the Board held one meeting at the Company’s American Centrifuge Plant in Piketon Ohio. The Technology and Competition Committee also held one of its regular meetings at the Company’s testing facility in Oak Ridge, Tennessee.
During 2010, the Board had designated five committees, each identified in the table below. All five committees are composed entirely of non-employee directors. The Board has adopted a written charter for each of these committees. The full text of each charter is available on the Company’s website located atwww.usec.com.
The table below sets forth the membership of these committees as of March 4, 20102011 and the number of meetings held in 2009:2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Regulatory and
| | | | | | | | | | Regulatory and
| | |
| | | Audit and
| | | | Nominating and
| | Government
| | Technology and
| | Audit and
| | | | Nominating and
| | Government
| | Technology and
|
| | | Finance
| | Compensation
| | Governance
| | Affairs
| | Competition
| | Finance
| | Compensation
| | Governance
| | Affairs
| | Competition
|
Director | | Committee | | Committee | | Committee | | Committee | | Committee | | Committee | | Committee | | Committee | | Committee | | Committee |
| |
| James R. Mellor | | | | | | | | | | | | X | | | | | | | | | | | | | X | | | | | | | |
| Michael H. Armacost | | | X | | | | | | | X | * | | | | | | | | | | | | | | | X | * | | | X | | | | |
| Joyce F. Brown | | | | | | X | | | | X | | | | | | | | | | | | | X | | | | X | | | | | | | |
| Sigmund L. Cornelius | | | | X | | | | | | | | | | | | | |
| Joseph T. Doyle | | | X | * | | | X | | | | | | | | | | | | | X | * | | | X | | | | | | | | | | |
| H. William Habermeyer | | | | | | X | * | | | | | | | | | X | | | | | | | X | * | | | | | | | | | X | |
| John R. Hall | | | | | | X | | | | X | | | | | | | | |
| William J. Madia | | | | | | | | | | | | X | | | | X | * | | | | | | | | | | | | X | | | | X | * |
| W. Henson Moore | | | X | | | | | | | | | | X | * | | | | | | X | | | | | | | | | | X | * | | | |
| Joseph F. Paquette, Jr. | | | X | | | | | | | | | | | | | X | | |
| Number of Meetings in 2009 | | | 8 | | | | 7 | | | | 5 | | | | 5 | | | | 4 | | |
| Hiroshi Sakamoto | | | | | | | | | | | | | X | | | | |
| Walter E. Skowronski | | | | X | | | | | | | | | | | | | |
| M. Richard Smith | | | | | | | | | | | | | X | | | | X | |
| Michael S. Taff | | | | | | | | | | | | | | | | X | |
| Number of Meetings in 2010 | | | | 6 | | | | 6 | | | | 5 | | | | 5 | | | | 5 | |
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The functions performed by our five standing committees are described below.
Audit and Finance Committee
The Audit and Finance Committee represents and assists the Board with the oversight of: the integrity of the Company’s financial statements and internal controls, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, the performance of the Company’s internal audit function, and the performance of the independent auditors. In addition, the Committee is responsible for appointing, overseeing and terminating the Company’s independent auditors, and reviewing the Company’s accounting processes, financial controls, reporting systems, and the scope of the audits to be conducted. The Committee is also responsible for advising the Board regarding significant financial matters. The Committee is also responsible for discussing the Company’s guidelines and policies governing risk assessment and risk management and the process by which each is handled and to oversee the management by the Company of risks as they relate to audit and finance matters or other matters within the Committee’s scope of responsibilities. The Committee meets regularly in executive session with the Company’s independent auditors and with the Company’s internal auditors.
The Board has determined that each member of the Audit and Finance Committee is an “independent director” in accordance with NYSE listing standards. Under the NYSE listing standards, all audit committee
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members must be “financially literate,” as that term is determined by the Board in its business judgment. Further, under the Securities and Exchange Commission’s (the “SEC”) rules, the Board must determine whether at least one member of the audit committee is an “audit committee financial expert,” as defined by the SEC’s rules. The Board has determined that all members of the Audit and Finance Committee are “financially literate” and that Mr. Doyle, Mr. Cornelius and Mr. PaquetteSkowronski qualify as “audit committee financial experts.”
Compensation Committee
The Compensation Committee’s responsibilities include annually reviewing the performance of the Chief Executive Officer and other senior management; overseeing and administering the Company’s executive compensation program and advising and making recommendations to the Board with respect thereto;program; and reviewing, overseeing and evaluating overall compensation programs and policies for the Company and its employees and making recommendationsemployees. The Compensation Committee is also responsible for overseeing the management by the Company of risks as they relate to the Board.Company’s compensation policies and practices and other matters within the Committee’s scope of responsibilities. The Compensation Committee is also responsible for periodically reviewing compensation for non-employee directors and making recommendations to the Board. The Compensation Committee also establishes annual performance objectives under the Company’s incentive programs and oversees administration of employee benefit plans. Additional information on the processes and procedures for consideration of executive and director compensation are addressed in the Compensation Discussion and Analysis.
The Compensation Committee is also responsible for overseeing the management by the Company of risks as they relate to the Company’s compensation policies and practices and other matters within the Committee’s scope of responsibilities. The Compensation Committee reviews the Company’s compensation policies and practices for all employees, including executive officers, and has determined that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. The Compensation Committee also considers whether our compensation programs include certain design features which have been identified by compensation consultants as having the potential to encourage excessive risk-taking when part of the plan design at other companies, such as: too much focus on short-term objectives, too much weight on one metric or objective, too many objectives or improper weighting of objectives, compensation mix overly weighted to cash, excessive use of stock options, and unreasonable award levels or goals. The Compensation Committee has noted several design features of the Company’s compensation programs for executives that reduce the likelihood of excessive risk-taking: the program design provides a balanced mix of cash and equity, annual and longer-term incentives, and performance metrics, maximum payout levels awards are reasonable, the Compensation Committee has downward discretion over incentive program awards, the Company’s equity incentive plan allows the Company to “claw back” payments to those engaged in misconduct related to a restatement of the Company’s financial results, and executives are subject to stock ownership guidelines. The Compensation Committee has determined that, for all employees, the
13
Company’s compensation programs do not encourage excessive risk and instead encourage behaviors that support sustainable value creation.
The Board has determined that each member of the Compensation Committee is an “independent director” in accordance with NYSE listing standards.
Nominating and Governance Committee
The functions of the Nominating and Governance Committee include the following: identifying and recommending to the Board individuals qualified to serve as directors of the Company; recommending to the Board directors to serve on committees of the Board; advising the Board with respect to matters of Board composition and procedures; developing and recommending to the Board a set of corporate governance principles applicable to the Company and overseeing corporate governance matters generally; overseeing the annual evaluations of the Chief Executive Officer, the Board and its committees; and overseeing the management by the Company of risks as they relate to the Company’s corporate governance or other matters within the Committee’s scope of responsibilities.
The Nominating and Governance Committee will consider director candidates recommended by shareholders in accordance with the procedures previously described under “Governance Information — Director Nominations by Shareholders.” In addition, the Nominating and Governance Committee is responsible for reviewing the Company’s Codecode of Business Conductbusiness conduct and overseeing the Company’s processes for monitoring compliance, and for reviewing and approving all transactions between the Company and any related person under the Company’s related person transaction policy previously described.
The Board has determined that each member of the Nominating and Governance Committee is an “independent director” in accordance with NYSE listing standards.
Regulatory and Government Affairs Committee
The Regulatory and Government Affairs Committee’s responsibilities include monitoring the Company’s compliance with regulatory requirements, overseeing the Company’s initiatives with and involving various agencies of the United States government and applicable State governments, advising the Board on regulatory and other governmental considerations in the Board’s deliberations and decision-making processes, and overseeing the management by the Company of risks as they relate to the Company’s compliance with regulatory requirements or other matters within the Committee’s scope of responsibilities.
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Technology and Competition Committee
The Technology and Competition Committee’s responsibilities include providing oversight and guidance to management with respect to the Company’s technology initiatives, with a focus on the potential technological advances and technological risk related to the Company’s centrifuge technology; informing the Board of significant energy policy developments and developments in enrichment technology; monitoring competition and market demand in the enrichment industry; monitoring the protection of the Company’s intellectual property; monitoring issues with respect to the Company’s information technology; monitoring operational readiness activities; and overseeing the management by the Company of risks as they relate to the Company’s technology, competition or other matters within the Committee’s scope of responsibilities.
Compensation of Directors
Non-Employee Director Compensation Arrangement
Annual compensation for non-employee directors covers service for the one-year term commencing at the annual meeting. The compensation is unchanged for the 2010 — 20112011–2012 term. Mr. Welch, President and Chief Executive Officer, diddoes not receive separate compensation for his Board activities in 2009.activities. The Investor-Designated Directors described under “Governance Information–Investor-Designated Directors” do not receive compensation from the Company for their Board activities.
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During the 2009 — 20102010–2011 term, non-employee directors received an annual retainer of $200,000, consisting of $80,000 in cash and restricted stock units with a value of $120,000 under the USEC Inc. 2009 Equity Incentive Plan. These restricted stock units will vest one year from the date of grant, however, vesting is accelerated upon (1) the director attaining eligibility for retirement (defined below), (2) termination of the director’s service by reason of death or disability, or (3) a change in control. No separate meeting fees are paid. The Chairman of the Board receives an annual chairman’s fee of $100,000 in cash in connection with his duties as Chairman of the Board. The chairman of the Audit and Finance Committee receives an annual chairman’s fee of $20,000 in cash, the chairman of the Compensation Committee receives an annual chairman’s fee of $10,000 in cash, and the chairman of each other committee receives an annual chairman’s fee of $7,500 in cash. Directors have the option to receive their cash fees in restricted stock units. A director who elects to receive their cash fees in restricted stock units will receive an incentive payment of restricted stock units equal to 20% of the portion of the cash fees that the director elects to take in restricted stock units in lieu of cash. These incentive restricted stock units will vest in equal annual installments over three years from the date of grant, however, vesting is accelerated upon (1) the director attaining eligibility for retirement, (2) termination of the director’s service by reason of death or disability, or (3) a change in control. All fees are payable at the beginning of the term. Settlement of restricted stock units granted to non-employee directors is made in shares of USEC stock upon the director’s retirement or other end of service. All non-employee directors are reimbursed for any reasonable expenses incurred in connection with their duties as directors of the Company.
Retirement is defined in the 2009 Equity Incentive Plan in the case of non-employee directors as a termination of service on or after age 75. As of December 31, 2009, three of the nine non-employee directors were2010, Mr. Mellor was eligible for retirement.
Director Deferred Compensation Plan
Directors also have the option to defer all or a portion of their cash fees into the USEC Inc. Director Deferred Compensation Plan. This plan is intended to be a non-qualified deferred compensation plan that complies with the regulations of Section 409A of the Internal Revenue Code of 1986, as amended. Directors who elect to participate in the plan may defer up to a maximum of 100% and a minimum of 5% of cash director fees. A director may receive a distribution from the plan upon a qualifying distribution event such as a separation from service, disability, death, or in-service distribution, change in control or an unforeseeable emergency all as defined in the plan. Distributions from the plan will be made in cash in a lump sum, annual installments, or a combination of both, in the manner elected by the director and provided for in the plan. During 2009,2010, no directors participated in the plan.
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Director Stock Ownership Guidelines
In order to more closely align directors’ interests with the interests of shareholders, directors are required to hold 25,000 shares of Company common stock. The stock ownership guidelines do not apply to the Investor-Designated Directors. Restricted stock units are counted toward meeting this objective. As an incentive to take more of their compensation in the form of Company stock, directors are eligible to receive incentive restricted stock units described above under “Non-Employee Director Compensation Arrangement.” As of December 31, 2009,2010, all of the directors had satisfied their stock ownership guidelines. Mr. Cornelius, Mr. Smith and Mr. Skowronski joined the Board in early 2011 and therefore have not yet satisfied their stock ownership guidelines.
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Director Compensation in Fiscal Year 20092010
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fees Earned or
| | Stock
| | | | Fees Earned or
| | Stock
| | | |
Name | | Paid in Cash(1) | | Awards(2)(3) | | Total | | Paid in Cash(1) | | Awards(2)(3) | | Total | |
| |
| James R. Mellor | | $ | 180,000 | | | $ | 120,000 | | | $ | 300,000 | | | $ | 180,000 | | | $ | 120,000 | | | $ | 300,000 | |
| Michael H. Armacost | | $ | 87,500 | | | $ | 120,000 | | | $ | 207,500 | | | $ | 87,500 | | | $ | 120,000 | | | $ | 207,500 | |
| Joyce F. Brown | | $ | 80,000 | | | $ | 120,000 | | | $ | 200,000 | | | $ | 80,000 | | | $ | 120,000 | | | $ | 200,000 | |
| Joseph T. Doyle | | | — | | | $ | 240,000 | | | $ | 240,000 | | | $ | 40,000 | | | $ | 192,000 | | | $ | 232,000 | |
| H. William Habermeyer | | $ | 90,000 | | | $ | 120,000 | | | $ | 210,000 | | | $ | 90,000 | | | $ | 120,000 | | | $ | 210,000 | |
John R. Hall | | | — | | | $ | 216,000 | | | $ | 216,000 | | | | — | | | $ | 216,000 | | | $ | 216,000 | |
| William J. Madia | | $ | 87,500 | | | $ | 120,000 | | | $ | 207,500 | | | | — | | | $ | 225,000 | | | $ | 225,000 | |
| W. Henson Moore | | $ | 87,500 | | | $ | 120,000 | | | $ | 207,500 | | | $ | 87,500 | | | $ | 120,000 | | | $ | 207,500 | |
| Joseph F. Paquette, Jr. | | | — | | | $ | 216,000 | | | $ | 216,000 | | |
| | |
| (1) | | The amounts shown in the Fees Earned or Paid in Cash column include the following: |
| | |
| | • | Annual Retainers: Cash paid in 2009 to Mr. Mellor, Mr. Armacost, Dr. Brown, Mr. Habermeyer, Dr. Madia, and Mr. Moore2010 for $80,000 cash portion of annual retainers for the 2009 — 20102010–2011 term. Mr. Doyle elected to take one half of the cash portion of his annual retainer and his annual Audit and Finance Committee chairman fee in restricted stock units in lieu of cash as shown in the Stock Awards column. Mr. Hall and Mr. PaquetteDr. Madia elected to take all fees in restricted stock units in lieu of cash as shown in the Stock Awards column. |
| |
| | • | Chairman’s Fees: Cash paid in 20092010 to Mr. Armacost ($7,500), Mr. Habermeyer ($10,000), Dr. Madia ($7,500) and Mr. Moore ($7,500) for annual committee chairman’s fees for the 2009 — 20102010–2011 term. Also includes cash paid in 20092010 to Mr. Mellor for his annual chairman’s fee of $100,000 for the 2009 — 20102010–2011 term. |
| | |
| (2) | | The amounts shown in the Stock Awards column represents the aggregate grant date fair value of stock awards to directors in 2009,2010, computed in accordance with Financial Accounting Standards Board (“FASB”) Auditing Standards Codification (“ASC”) Topic 718 (Compensation — (Compensation–Stock Compensation). For a discussion of valuation assumptions, see Note 1113 to our consolidated financial statements included in our annual report onForm 10-K for the year ended December 31, 2009.2010. In accordance with SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. |
|
| | Mr. Doyle, Mr. Hall and Mr. Paquette elected to take all fees in restricted stock units in lieu of cash and so amounts include $200,000 annual retainer for the2009-2010 term, any chairman fees, and incentive restricted stock units. The amount for Mr. Mellor, Mr. Armacost, Dr. Brown, Mr. Habermeyer, Dr. Madia and Mr. Moore includes $120,000 annual retainer payable in restricted stock units. The amounts shown in the Stock Awards column for each of the non-employee directors includes the following grants of restricted stock units, which have the following grant date fair value, calculated using the closing price of USEC’s common stock on the date of grant in accordance with FASB ASC Topic 718 (Compensation — Stock Compensation): |
| | | | | | | | | | | | | |
| | | | | Number of
| | |
| | | | | Restricted
| | Grant Date
|
Name | | Grant Date | | Stock Units | | Fair Value |
| |
| James R. Mellor | | | 05/13/09 | | | | 25,586 | | | $ | 120,000 | |
| Michael H. Armacost | | | 05/13/09 | | | | 25,586 | | | $ | 120,000 | |
| Joyce F. Brown | | | 05/13/09 | | | | 25,586 | | | $ | 120,000 | |
| Joseph T. Doyle | | | 05/13/09 | | | | 51,172 | | | $ | 240,000 | |
| H. William Habermeyer | | | 05/13/09 | | | | 25,586 | | | $ | 120,000 | |
| John R. Hall | | | 05/13/09 | | | | 46,056 | | | $ | 216,000 | |
| William J. Madia | | | 05/13/09 | | | | 25,586 | | | $ | 120,000 | |
| W. Henson Moore | | | 05/13/09 | | | | 25,586 | | | $ | 120,000 | |
| Joseph F. Paquette, Jr. | | | 05/13/09 | | | | 46,056 | | | $ | 216,000 | |
The amounts shown in the Stock Awards column includes $120,000 annual retainer payable in restricted stock units. The amount for Mr. Doyle, Mr. Hall and Dr. Madia also includes restricted stock units granted in lieu of cash fees and any related incentive restricted stock units. The amounts shown in the Stock Awards column for each of the non-employee directors includes the following grants of restricted stock units, which have the following grant date fair value, calculated using the closing price of USEC’s
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common stock on the date of grant in accordance with FASB ASC Topic 718 (Compensation — Stock Compensation):
| | | | | | | | | | | | | |
| | | | | Number of
| | |
| | | | | Restricted
| | Grant Date
|
Name | | Grant Date | | Stock Units | | Fair Value |
| |
| James R. Mellor | | | 05/11/10 | | | | 28,302 | | | $ | 120,000 | |
| Michael H. Armacost | | | 05/11/10 | | | | 28,302 | | | $ | 120,000 | |
| Joyce F. Brown | | | 05/11/10 | | | | 28,302 | | | $ | 120,000 | |
| Joseph T. Doyle | | | 05/11/10 | | | | 45,283 | | | $ | 192,000 | |
| H. William Habermeyer | | | 05/11/10 | | | | 28,302 | | | $ | 120,000 | |
| John R. Hall | | | 05/11/10 | | | | 50,944 | | | $ | 216,000 | |
| William J. Madia | | | 05/11/10 | | | | 53,066 | | | $ | 225,000 | |
| W. Henson Moore | | | 05/11/10 | | | | 28,302 | | | $ | 120,000 | |
The aggregate number of stock awards, including shares of restricted stock and restricted stock units, outstanding at December 31, 20092010 for each of the non-employee directors areis as follows:
| | | | | |
| | | Number of Shares of
|
| | | Restricted Stock or
|
Name | | Restricted Stock Units |
| |
| James R. Mellor | | | 288,379236,681 | |
| Michael H. Armacost | | | 82,073110,375 | |
| Joyce F. Brown | | | 101,267129,569 | |
| Joseph T. Doyle | | | 103,978149,261 | |
| H. William Habermeyer | | | 51,197 | |
John R. Hall | | | 209,25879,499 | |
| William J. Madia | | | 51,197104,263 | |
| W. Henson Moore | | | 89,470 | |
Joseph F. Paquette, Jr. | | | 152,657117,772 | |
| | |
| (3) | | No stock option grants were made to directors in 2009.2010. The following table shows the number of stock options held by each non-employee director as of December 31, 2009,2010, all of which are immediately exercisable: |
| | | | | |
| | | Number of Securities
|
| | | Underlying
|
Name | | Unexercised Options |
| |
| James R. Mellor | | | 211,876119,122 | |
| Michael H. Armacost | | | 16,750 | |
| Joyce F. Brown | | | 17,250 | |
| Joseph T. Doyle | | | 1,227 | |
John R. Hall | | | 42,152 | |
| W. Henson Moore | | | 10,500 | |
Joseph F. Paquette, Jr. | | |
| (4) | 17,250 | Mr. Hall retired as a director in September 2010. |
1718
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 4, 20102011,the beneficial ownership of the Company’s common stock for the following persons: (a) all shareholders known by the Company to beneficially own more than 5% of the common stock; (b) each of the Company’s directors; (c) the Company’s Chief Executive Officer, Chief Financial Officer, and the three other most highly paid executive officers of the Company serving as executive officers at December 31, 2009;2010; and (d) all of the Company’s directors and executive officers as a group. Unless otherwise indicated in the table, each person has the sole power to vote and dispose of the shares reported as beneficially owned by such person. Certain information in the table is based on information contained in filings made by the beneficial owner with the SEC.
| | | | | | | | | | | | | | | | | |
| | | Common Stock
| | Common Stock
|
| | | Beneficially Owned(1) | | Beneficially Owned(1) |
Name of Beneficial Owner | | Shares Owned | | Percent of Class | | Shares Owned | | Percent of Class |
| |
FMR LLC(2)
82 Devonshire Street
Boston, Massachusetts 02109 | | | 12,884,911 | | | | 8.0 | % | |
Donald Smith & Co., Inc.(3)
152 West 57th Street
New York, New York 10019 | | | 11,268,350 | | | | 10.0 | % | |
Dimensional Fund Advisors LP(4)
6300 Bee Cave Road
Austin, Texas 78746 | | | 8,470,001 | | | | 7.5 | % | |
Tradewinds Global Investors, LLC(5)
2049 Century Park East, 20th Floor
Los Angeles, California 90067 | | | 7,752,341 | | | | 6.9 | % | |
BlackRock, Inc.(6)
40 East 53nd Street,
New York, New York 10022 | | | 6,359,569 | | | | 5.6 | % | |
| Dimensional Fund Advisors LP(2) | | | | 9,083,158 | | | | 7.4 | % |
| 6300 Bee Cave Road | | | | | | | |
| Austin, Texas 78746 | | | | | | | |
| BlackRock, Inc.(3) | | | | 6,592,071 | | | | 5.4 | % |
| 40 East 52nd Street, | | | | | | | |
| New York, New York 10022 | | | | | | | |
| Noble Group Limited(4) | | | | 5,848,940 | | | | 4.8 | % |
18th Floor, MassMutual Tower | | | | | | | |
| 28 Gloucester Road | | | | | | | |
| Hong Kong | | | | | | | |
Directors | | | | | | | | | | | | |
| Michael H. Armacost | | | 74,552 | (7) | | | | * | | | 100,138 | (5) | | | | * |
| Joyce F. Brown | | | 93,031 | (7) | | | | * | | | 118,617 | (5) | | | | * |
| Sigmund L. Cornelius | | | | — | | | | | * |
| Joseph T. Doyle | | | 81,746 | (7) | | | | * | | | 131,342 | (5) | | | | * |
| H. William Habermeyer | | | 35,611 | (7) | | | | * | | | 61,197 | (5) | | | | * |
| John R. Hall | | | 247,895 | (7) | | | | * | |
| William J. Madia | | | 25,611 | (7) | | | | * | | | 51,197 | (5) | | | | * |
| James R. Mellor | | | 501,255 | (7) | | | | * | | | 529,557 | (5) | | | | * |
| W. Henson Moore | | | 74,384 | (7) | | | | * | | | 99,970 | (5) | | | | * |
| Joseph F. Paquette, Jr. | | | 188,715 | (7) | | | | * | |
| Hiroshi Sakamoto | | | | — | | | | | * |
| Walter E. Skowronski | | | | — | | | | | * |
| M. Richard Smith | | | | — | | | | | * |
| Michael S. Taff | | | | — | | | | | * |
Officers | | | | | | | | | | | | |
| John K. Welch | | | 1,298,530 | (7) | | | 1.1 | % | | | 2,047,973 | (5) | | | 1.7 | % |
| John C. Barpoulis | | | 350,575 | (7) | | | | * | | | 627,024 | (5) | | | | * |
| Peter B. Saba | | | | 297,722 | (5) | | | | * |
| Philip G. Sewell | | | 570,128 | (7) | | | | * | | | 815,492 | (5) | | | | * |
| Robert Van Namen | | | 434,179 | (7) | | | | * | | | 698,061 | (5) | | | | * |
| W. Lance Wright | | | 283,820 | (7) | | | | * | |
| Directors and all executive officers as a group (21 persons) | | | 4,754,223 | (8) | | | 4.1 | % | |
| Directors and all executive officers as a group (24 persons) | | | | 6,883,342 | (6) | | | 5.5 | % |
| | |
| * | | Less than 1% |
| |
| (1) | | For purposes of computing the percentage of outstanding shares beneficially owned by each person, the number of shares owned by that person and the number of shares outstanding includes shares as to which such person has a right to acquire beneficial ownership within 60 days (for example, through the exercise |
18
| | |
| | of stock options or conversion of securities), in accordance withRule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended. |
19
| | |
| (2) | | According to the Schedule 13G/A filed with the SEC by FMR LLC and Edward C. Johnson 3d on February 16, 2010, the beneficial owner of 11,707,226 shares of the Company’s common stock is Fidelity Management & Research Company, a wholly owned subsidiary of FMR LLC, and the beneficial owner of the remaining 1,177,685 shares is Pyramis Global Advisors, LLC, a wholly owned subsidiary of FMR LLC. The Schedule 13G/A states that the number of shares of common stock owned by the investment companies includes 3,107,226 shares of common stock resulting from the assumed conversion of $37,150,000 principal amount of the Company’s 3% convertible senior notes due October 1, 2014 (83.64 shares of common stock for each $1,000 principal amount of notes), and so in calculating the percentage of the class owned by FMR LLC we have assumed the conversion of the entire $575,000,000 principal amount of the Company’s 3% convertible senior notes. The predominant owners of Class B shares of common stock of FMR LLC representing 49% of the voting power of FMR LLC are members of the Edward C. Johnson 3d family. The Schedule 13G/A states that FMR LLC has sole voting power with respect to 1,177,685 shares and sole dispositive power with respect to 12,884,911 shares. For additional information on FMR LLC’s beneficial ownership please see the Schedule 13G/A. |
|
(3) | | The Schedule 13G filed on February 11, 2010 with the SEC by Donald Smith & Co., Inc., Richard Greenberg, and Donald Smith Long/Short Equities Fund, L.P. states that they have the sole power to dispose of 11,268,350 shares. The Schedule 13G states that Donald Smith & Co. has sole power to vote 8,563,062 shares, Richard Greenberg has sole power to vote 10,000 shares and Donald Smith Long/Short Equities Fund, L.P. has the sole power to vote 36,750 shares. In the Schedule 13G, Donald Smith & Co. states that all securities reported therein are owned by its advisory clients, no one of which, to its knowledge, owns more than 5% of the class of securities. |
|
(4) | | The Schedule 13G/A filed on February 8, 201011, 2011 with the SEC by Dimensional Fund Advisors LP states that it has sole power to vote 8,290,0748,854,466 shares and sole power to dispose of 8,470,0019,083,158 shares. Dimensional Fund Advisors states in its Schedule 13G/A that all securities reported therein are owned by its funds, no one of which, to its knowledge, owns more than 5% of the class of securities. In its Schedule 13G/A, Dimensional Fund Advisors disclaims beneficial ownership of all such securities. |
| |
(5) | | The Schedule 13G/A filed on February 12, 2010 with the SEC by Tradewinds Global Investors, LLC states that it has sole power to vote 6,422,465 shares and sole power to dispose of 7,752,341 shares. Tradewinds Global Investors, LLC states in its Schedule 13G/A that all securities reported therein are owned by its clients. |
|
(6)(3) | | The Schedule 13G filed on January 29, 2010February 9, 2011 with the SEC by BlackRock, Inc. states that it has the sole power to vote 6,359,5696,592,071 shares and the sole power to dispose of 6,359,5696,592,071 shares. |
| |
(7)(4) | | The Schedule 13D filed on June 7, 2010 with the SEC by Noble Group Limited states that they have the sole power to vote and to dispose of 5,848,940 shares. |
|
| (5) | | Includes shares subject to options granted pursuant to the USEC Inc. 2009 Equity Incentive Plan (or its predecessor plan, the USEC Inc. 1999 Equity Incentive Plan) exercisable, as of March 4, 2010,2011, or within 60 days from such date as follows: Mr. Armacost 16,750; Dr. Brown 17,250; Mr. Doyle 1,227; Mr. Hall 36,637; Mr. Mellor 211,876;119,122; Mr. Moore 10,500; Mr. Paquette 17,250; Mr. Welch 601,792;807,070; Mr. Barpoulis 178,426;280,306; Mr. Saba 84,678; Mr. Sewell 385,095;485,925; and Mr. Van Namen 251,987; and Mr. Wright 140,523.340,749. Also includes restricted stock units that can be converted into USEC common stock within 60 days from March 4, 20102011 as follows: Mr. Armacost 31,960;57,546; Dr. Brown 31,960;57,546; Mr. Doyle 50,519;100,115; Mr. Habermeyer 25,611; Mr. Hall 110,412;51,197; Dr. Madia 25,611;51,197; Mr. Mellor 116,602;144,904; and Mr. Moore 31,960; and Mr. Paquette 98,228.57,546. |
| |
(8)(6) | | Includes 2,029,3822,574,010 shares subject to options granted pursuant to the USEC Inc. 2009 Equity Incentive Plan (or its predecessor plan, the USEC Inc. 1999 Equity Incentive Plan) exercisable as of March 4, 2010,2011, or within 60 days from such date. Includes 522,863550,051 restricted stock units that can be converted into USEC common stock within 60 days from March 4, 2010.2011. |
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors, and persons who own more than 10% of our common stock to file reports of beneficial ownership and changes in beneficial ownership with the SEC and to furnish us with copies of the reports. We received written representations from each such person who did not file an annual report with the SEC on Form 5 that no Form 5 was due. Based on our review of the reports and representations, we believe that all required Section 16(a) reports were timely filed in 2009, except as follows: Mr. John K. Welch, an executive officer, filed amended Form 4s on April 9, 2009 and on May 4, 2009 which corrected the number of shares of stock disposed of to satisfy his withholding tax obligation that was reported on his Form 4s filed on March 31, 2009 and March 5, 2009, respectively. Mr. John C. Barpoulis and W. Lance Wright, executive officers, both filed an amended Form 4 on June 8, 2009 which corrected the number of shares of stock disposed of to satisfy their withholding tax obligation that was reported on their Form 4 filed on March 5, 2009.2010.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following discussion and analysis contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed inThis section describes the limited context of USEC’s executive compensation programs for our Chief Executive Officer and should not be understoodChief Financial Officer in 2010 as well as our other three most highly compensated executive officers during 2010, all of whom we refer to be statements of management’s expectationscollectively as our named executive officers or estimates of financial results or other guidance. USEC specifically cautions investors not to apply these statements to other contexts.NEOs. Our NEOs for 2010 are:
| | |
| • | President and Chief Executive Officer (CEO), John K. Welch; |
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| • | Senior Vice President and Chief Financial Officer (CFO), John C. Barpoulis; |
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| • | Senior Vice President and General Counsel, Peter B. Saba; |
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| • | Senior Vice President, American Centrifuge and Russian HEU, Philip G. Sewell; and |
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| • | Senior Vice President, Uranium Enrichment, Robert Van Namen. |
Executive Summary
Company Background
USEC, is a global energy company, is a leading supplier of low enriched uranium (“LEU”) for commercial nuclear power plants. USEC enriches uranium at the Paducah gaseous diffusion plant that currently operateswe lease from the only uranium enrichment plant in commercial operation inU.S. Department of Energy (“DOE”) and is also the United States. We areexclusive executive agent for the U.S. government under a nuclear nonproliferation program with Russia known as Megatons to Megawatts. In addition, we perform contract work for DOE and its contractors at the Paducah, Kentucky and Portsmouth, Ohio sites and provide transportation and storage systems for spent nuclear fuel and nuclear and energy consulting services. Our business is in the midst of a critical transition period for our enrichment business. We are developing and deploying an advancedas we work to deploy a highly efficient uranium enrichment gas centrifuge technology, which we refer to ascalled the American Centrifuge technology, as a replacement for our gaseous diffusion technology. The construction and deployment ofWe are deploying this technology in the American Centrifuge Plant is(“ACP”) in Piketon, Ohio.
We must make the transition to more modern and cost-effective technology in order to remain competitive in the long term and so we are devoting significant resources to do so, which has a largenegative impact on our current operational results.
Overview of 2010 Performance
During 2010, under the leadership of our senior executive team, our company performed well and capital-intensive undertaking. The transition period has several challengesmanagement met or exceeded many of its performance goals and opportunities and during this period our abilityobjectives. We worked aggressively in 2010 to attract, motivate and retain employees and executives with the requisite skills and experience to meet these challenges is essential to our success and to the creation of long-term value for our shareholders. USEC began 2009 with a business plan focused on preserving Company liquidity, retiring or mitigating a number of key risks that faced the business, and getting us to the next step with respect tostrengthen the American Centrifuge project.project, retire or mitigate risks, address DOE concerns, attract additional sources of capital and take steps to improve our capital structure.
In July 2008, we applied for $2 billion in financing from the U.S. Department of Energy (“DOE”) Loan Guarantee Program to build the American Centrifuge Plant. We had hoped to receive a commitment for funding from DOE by the end of 2008 but the DOE did not take action to select any advanced energy projects for funding under its Loan Guarantee Program and so we entered 2009 without the funding commitment we needed and with the uncertainty of a new administration. The uncertainty surrounding project funding forced us in early 2009 to begin taking steps to conserve cash and reduce the planned escalation of American Centrifuge project construction and machine manufacturing activities until we gained greater clarity on potential funding for the project through the DOE Loan Guarantee Program. As a result, setting the “tone at the top,” management began the cash conservation program with recommending to the Compensation Committee a freeze in base salaries for senior officers for 2009, capping 2008 annual incentive awards at the target level, and requiring that 50% (rather than 35%, or 0% for someone who had met their stock ownership guidelines) of 2008 annual incentive awards for officers (paid in 2009) be taken in restricted stock instead of cash. Director compensation for2009-2010 was also frozen at the2008-2009 level (all non-employee directors already receive more than 50% of their compensation in equity and have not received an increase in their cash compensation since 2007). The Compensation Committee determined that these actions were appropriate in responding to the Company’s business circumstances while rewarding performance and recognizing the importance of retention of executives and other key employees who are critical to the Company’s success. The uncertainty we faced at the beginning of 2009 and the focus on liquidity and financing was also reflected in the Compensation Committee’s determination to postpone the implementation of a new three-year Executive Incentive Plan that would have begun January 1, 2009 and to instead replace the plan for 2009 with a one-year performance based award that vests over three years, as discussed under “Long-Term Incentive Compensation — 2009 Performance Plan.”
At the beginning of 2009, when the annual performance goals were set, the financial outlook for 2009 included projected revenue of $2.2 to $2.25 billion, projected net income for the year in a range of $25 to $50 million, projected gross profit margin for 2009 of 10% to 12%, and projected cash flows from operations for the year of $240 to $270 million. As reported in our Annual Report onForm 10-K for the year ended December 31, 2009, we ended 2009 with revenues of approximately $2.04 billion, net income of approximately $58.5 million, a gross profit margin of 10%, and cash flow from operations of $443.4 million. 2009 was an active year for USEC as year over year the quantity of separative work units (“SWU”) delivered to our customers increased by 30% over 2008 but still less than expected, which reduced our revenues and affected our gross profit margin compared to our budget, leading to a gross profit margin that was slightly below our
| | |
| • | As of December 31, 2010, we have invested approximately $1.95 billion in the American Centrifuge project, an enormous long-term investment for a company of our size, and are in discussions with the DOE regarding the terms for a conditional commitment for a $2 billion loan guarantee for the ACP. |
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| • | During 2010 we also executed an agreement with Toshiba Corporation and Babcock & Wilcox Investment Company (“B&W”) for a $200 million strategic investment in the company and closed on the first phase of funding in September 2010 totaling $75 million. |
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| • | With Toshiba’s support we are also in discussions with Japanese export credit agencies regarding financing up to $1 billion of the cost to complete the ACP. |
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| • | We also saw significant technical achievements with the project in 2010 as a result of efforts to demonstrate the commercial readiness of our technology — we operated our lead cascade of production-ready AC100 machines in a commercial plant cascade configuration and accumulated significant runtime and we continue to build machines. |
|
| • | We also saw a significant increase in our stock price in 2010 of 56%, outperforming 91% of the S&P 500 in total shareholder return, indicating that our shareholders think we are on the right track and share our belief in the American Centrifuge technology. |
21
annual incentive award target. In January 2009, our long-standing trade case with respect to the application of trade restrictions on the importation of low enriched uranium (“LEU”)
| | |
| • | We had solid financial results in 2010 in spite of the challenges facing our business and exceeded our objectives for gross profit margin and cash flow from operations. Gross profit margin for 2010 was 7.8%, which although down from 10% in 2009, was substantially better than the projected 5% to 6% at the beginning of the year. Adjusted cash flow for 2010 was $35 million above our target. |
|
| • | As expected, despite higher share prices, our 2010 financial results were down from 2009. Because of the impact of high power prices (approximately 70% of our production costs) on our costs of production, we will continue to have reduced margins until we are able to transition our business through the deployment of the substantially more efficient ACP (which uses 95% less electricity to produce LEU). |
Our better than projected 2010 results would not have been achieved without significant effort and initiative by our French government-owned competitor was positively resolved followingmanagement during 2010 and these efforts were a unanimous U.S. Supreme Court ruling. That ruling paved the way for USEC and this competitor to reach a settlement in May that resultedkey factor in the realization by USEC of approximately $70 million of unbudgeted cash flow in the fourth quarter, which was one of the factors that resulted in cash flow from operations in 2009 exceeding the high end of the range of our initial outlookcompensation decisions and our annual incentive award maximum target, notwithstanding the cash impact of the lower than budgeted revenuesperformance-based outcomes for 2009. USEC management also achieved a number of other key business objectives in 2009, including (1) the monetization of SWU inventory that we built up in 2008 in anticipation of 2009 deliveries; (2) continued success with respect to the sales of SWU to support the American Centrifuge Plant, even in light of current uncertainties, with overall customer commitments for the American Centrifuge Plant valued at $3.1 billion; (3) substantial efforts to rework our American Centrifuge project implementation plan and extensive coordination with our strategic suppliers to keep them engaged; (4) efforts to continue to keep a dialogue and a path forward with DOE for a loan guarantee; (5) continued success in our Megatons to Megawatts program that recycles former Soviet-era nuclear warheads into LEU, including an amendment to the pricing methodology to improve purchase price stability; and (6) strengthening our core operations by continuing to operate our Paducah gaseous diffusion plant efficiently and with an excellent safety record.
However, the achievements of 2009 were in many ways overshadowed by setbacks with respect to the American Centrifuge project. The American Centrifuge project suffered a significant setback in August 2009 when DOE deferred review of our application for a loan guarantee until technical and financial concerns are addressed. This resulted in a mid-year change in strategic direction for USEC as we were forced to demobilize construction of the American Centrifuge Plant and to consider strategic alternatives. We are still evaluating the cost of the demobilization and a potential remobilization and how best to configure the project on a go-forward basis. As more fully described below under “Elements of Executive Compensation — Annual Incentive,” adjustments were made to the individual performance objectives under the Annual Incentive Program, effective August 1, 2009, in order to adjust these to be appropriately tied to the Company’s changed strategic business plan and to continue to provide appropriate incentives to management. No change was made to the corporate quantitative goals under the Annual Incentive Program, including American Centrifuge earned value performance measure (measure of project cost and schedule performance) and this significantly adversely affected the overall annual incentive award performance for 2009. Management’s efforts to control selling, general and administrative (SG&A) expense were hampered by consulting costs related to strategy and other organizational efforts, necessitated by the changes in strategic direction, which also affected the annual incentive award achievement.2010.
Taking into account the achievements of management and other key employees, combined with the setbacks with respect to the American Centrifuge project in 2009, the five executives named in the Summary Compensation Table that follows this discussion (whom we refer to as our “named executive officers”)NEOs were awarded annual incentive awards that were between 61% and 70% ofabove target for 2009. With a maximum possible achievement level of 150% of target under the Annual Incentive Program, this represented a significant reduction for the named executive officers.2010.
December 2009 marked the endHighlights of the one-year performance componentOur Compensation Program andPay-For-Performance
Our executive compensation program is built on a strong governance framework andpay-for-performance philosophy. Key design elements and features of the Long-Term Incentive Program described below under “Long-Term Incentive Compensation — 2009 Performance Plan,” which covered the performance period January 1, 2009 through December 31, 2009. Despite the significant achievements of management during the period in ensuring sufficient liquidity for ongoing Company operations, the lack of progress on financing related to the American Centrifuge project led to performance and payout only at threshold (80% of target levels) for this one-year plan. In light of the difficulty in setting appropriate long-term performance targets in early 2010 given the Company’s business circumstances and the need to retain and motivate the Company’s executives, the Compensation Committee determined not to continue the 2009 Performance Plan in 2010 but instead to fold it into the annual grant of restricted stock by increasing the annualized target levels of restricted stock for the named executive officers for 2010 by an equivalent amount, as discussed under “Long-Term Incentive Compensation — 2009 Performance Plan.”program are:
| | |
| • | Strong oversight by our Compensation Committee of all elements of executive compensation; |
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| • | Base salary represents less than 30% of each NEO’s total direct compensation opportunity (22% for the CEO), with the remainder of compensation being variable or “at risk;” |
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| • | The Committee’s use of an independent compensation consultant — Towers Watson; |
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| • | Based on a comprehensivepay-for-performance analysis conducted by Towers Watson during 2010, realizable pay was aligned with Company three-year performance and the Company’s Peer Group, as described below under“Pay-for-Performance Assessment;” |
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| • | Significant stock ownership guidelines that are exceeded by each of our NEOs and directors, as described below under “Stock Ownership Guidelines;” |
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| • | A “no hedging” policy in our insider trading policy that prohibits employees and directors from hedging the economic interest in the USEC shares they hold, as described below under “Hedging Prohibition;” |
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| • | Our equity incentive plan includes a compensation recovery or “claw back” provision that applies to all equity plan participants, as described below under “Recovery of Incentive Compensation;” |
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| • | Provide only very limited perquisites — those provided relate to areas that we believe benefit the Company, including financial planning and executive physicals; |
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| • | No employment agreements with NEOs; severance is limited to one times base salary and annual bonus; |
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| • | Change in control agreements are limited to one to two and a half times base salary and annual bonus and are “double-trigger” requiring a separation from service to receive benefits; although these agreements provide for automatic renewal to protect employees, we retain the ability to terminate the agreements with sufficient notice; |
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| • | Existing change in control agreements contain a limited excise taxgross-up that has been in the Company’s form of agreement since the Company’s change in control arrangements were put in place in 1999; however, the Compensation Committee has determined that beginning in 2011, new or materially amended agreements will not provide for any excise taxgross-up; and |
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| • | A strong risk management program with specific responsibilities assigned to the Board and the Board’s committees, and consideration of avoiding excessive risk in compensation decisions. See discussion of |
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| | |
| | the compensation risk assessment performed during 2010 under “Risk Assessment of Compensation Programs.” |
Looking ahead, the
The Compensation Committee continues to be particularly focused on retention ofcontinually reviews the compensation programs for our NEOs and other key executives to ensure that they achieve the desired goals of attracting and employeesretaining highly qualified individuals during this critical transition period while still maintaining afurther enhancing the focus onpay-for-performance. As a result of its review process, for 2011, the Compensation Committee made the following changes to our executive compensation programs, which further enhanced ourpay-for-performance philosophy:
| | |
| • | Replaced the annual stock option grant to executives under our long-term incentive program with performance-based restricted stock; |
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| • | Added a relative total shareholder return measure to our long-term incentive awards to further align the compensation of our executives with our performance relative to companies we compete with for executive talent; and |
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| • | Replaced a portion of the time-vested grant of restricted stock with a new three year performance-based cash incentive program to further link pay with performance. |
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Compensation Philosophy and Objectives
The Compensation Committee on behalf of the Board of Directors oversees an executive compensation program designed to enable USEC to attract and retain highly talented individuals. This program reflects the Company’s philosophy that the majority of an executive’s compensation should be based on his or her overall contribution to the success of the Company and the creation of long-term value for our shareholders. Thispay-for-performance philosophy is the basis for the development of the Company’s executive compensation program. In keeping with this philosophy, the Compensation Committee has established the following objectives for the Company’s executive compensation program:
| | | |
| Objective | • | | How We Implement Our Objectives |
Compensation should be aligned with shareholders’ interests: The program seeks to align the interests of executives with the long-term interests of our shareholders by providing stronginterests. | | | • Strong incentives to maximize long-term value for our shareholders.
• Long-term stock ownership by our executives is emphasized toand stock-based performance incentives provide ongoing alignment.
|
| |
| • | Compensation should support our business strategy: Our compensation program is designed to reinforce our underlying business strategy and objectives by rewardingobjectives. | | | • Reward successful execution of our business plan withby tying performance goals tied to our business plan. Our success is heavily dependent on our ability to attract and retain experienced
• Stretch performance goals encourage innovation by executives who consistently deliver operational and financial results.while not encouraging excessive risk-taking.
|
| |
| • | Compensation should reward performance:be structured to pay for performance. | | | • A substantial portion of the total compensation opportunity is variable and dependent upon the Company’s operating and financial performance.
• An employee’s realized compensation may be above or below his target compensation depending on performance.
• 2009 compensation was paid out significantly below target opportunity compensation (2009 annual incentives for the NEOs were paid out at between 61% and 70% of target); 2010 compensation is above target based on Company performance (2010 annual incentives for the NEOs were paid out at between 127% and 129% of target).
|
| |
| • | Compensation opportunities should be market competitive: To accomplish these guiding principles, it is essential for the compensationcompetitive. | | | • Compensation and benefits programs are designed to provide competitive compensation relative to the labor markets for our executives while maintaining fiscal responsibility for our shareholders.
• We use peer group proxy and published survey data to review market compensation.
• In light of the Company’s critical transition period, base salaries and target total direct opportunity compensation are positioned at approximately between the 50th and 75th percentile of the market using this data and moving toward the 50th percentile in the long term.
• Current significant challenges facing the Company and talent retention objectives warrant targeting higher levels of compensation for some individuals.
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| |
| • | Compensation and benefits programs should encourage short-term and long-term retention:retention. | | | • Our compensation and benefits programs including our retirement plans are intended to encourage retention and reward continuity of service, which is particularly important due to the unique skill sets of our executives. Short term
• Short-term retention is also important due to the riskschallenges currently facing our business.
|
| | | |
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The elements of direct compensation for the named executive officers are base salary, awards under the Company’s annual incentive program, and long-term incentive awards. In 2009, the long-term awards included restricted stock, non-qualified stock options and a one-year performance component. Named executive officers are also eligible for other elements of indirect compensation, including retirement benefits. In setting the terms of executive compensation, the Compensation Committee considers all elements of compensation, both direct and indirect. In addition, the Compensation Committee has instituted stock ownership guidelines for all executives, providing an additional alignment between the interests of executives and shareholders.
Director compensation is established by the Board upon the recommendation of the Compensation Committee. In recommending director compensation, the Compensation Committee consults with Watson Wyatt Worldwide (“Watson Wyatt”) (Watson Wyatt merged with Towers Perrin to form Towers Watson effective January 4, 2010), an independent compensation consultant. Watson Wyatt utilizes compensation information from a peer group of companies with board members with comparable experience to the Company’s Board. Watson Wyatt’s role is more fully described under “Setting Executive Compensation.”
Role of Executive Officers in Compensation Decisions
The Compensation Committee believes that input from management provides useful information and points of view to assist the Compensation Committee. The Chief Executive Officer and the Senior Vice President of Human Resources and Administration provide support to the Compensation Committee. The Chief
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Executive Officer gives the Compensation Committee performance assessments and compensation recommendations for each of the other named executive officers. Those recommendations are considered by the Compensation Committee with the assistance of the compensation consultant. The Chief Executive Officer and the Senior Vice President of Human Resources and Administration generally attend Compensation Committee meetings but are not present for the executive sessions or for any discussion of their own compensation. The Chief Financial Officer also attends Compensation Committee meetings as needed to report on financial items. Compensation Committee meetings often include an executive session without members of management present, depending on the topics covered at the meeting. During 2009, the Compensation Committee met seven times and met in executive session at four of those meetings.
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| • | CEO and other NEO pay are set by the Compensation Committee (other than base salaries, which are set by the Board upon recommendation by the Compensation Committee). |
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| • | CEO and the Senior Vice President of Human Resources and Administration provide support to the Compensation Committee and attend all Compensation Committee meetings but are not present for executive sessions or discussions of their individual compensation. |
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| • | CEO provides performance assessments and compensation recommendations for each of the other NEOs, including a self-assessment of his own performance. |
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| • | CFO attends Compensation Committee meetings as needed to report on financial items. |
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| • | Compensation Committee meetings often include an executive session without members of management present. |
Setting ExecutiveRole of Compensation Consultant
Based on the foregoing objectives, the Compensation Committee has structured the Company’s executive compensation program to motivate executives to achieve the business goals set by the Company and to reward executives for achieving these goals.
In furtherance of this, theThe Compensation Committee has retained the services ofTowers Watson Wyatt. Watson Wyatt providesto provide the Compensation Committee with independent compensation data, analysis and advice. Towers Watson Wyatt reports to the Compensation Committee and its Chairman and, under the Compensation Committee’s charter, the Compensation Committee has sole authority to retain and terminate the compensation consultantthem and to approve the consultant’stheir fees and other retention terms. During 2009,The Compensation Committee periodically reviews the retention of the compensation consultant, including taking into account its independence. Throughout 2010, Towers Watson Wyatt did not do any work for USEC other than work performed for the Compensation Committee. Throughout 2009, Watson Wyatt worked closely with the Compensation Committee and attended all Compensation Committee meetings.meetings and met with the Compensation Committee regularly in executive session. Examples of projects assigned to Towers Watson Wyatt included market studies of executive pay and of Board pay,pay-for-performance analysis, review of the peer group for executive compensation benchmarking, a review of the value of Company equity owned by executives, a compensation risk-assessment, a review of walk-away values as of year-end, and advice on compensation best practices, including advice regarding implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Setting Executive Compensation
Each year, the Compensation Committee evaluates compensation levels for each of the executive officers of the Company. In setting compensation for 2010, the Compensation Committee reviewed and considered total compensation for each NEO, including a presentation on executivereview of tally sheets that provide the value of (1) historic and current elements of each officer’s compensation trends to the Board. During 2009, Towers Perrin, which, effective January 4, 2010, merged with Watson Wyatt, provided USEC with advisory services for our tax-qualified(including savings plans, pension plans, health and other retirement plans. We expectwelfare benefits and perquisites); (2) stock and stock options held by the executive at year end in the Company’s incentive and benefits plans; and (3) a review of compensation that this work will continue in 2010.would be paid upon termination of employment under various scenarios.
Watson Wyatt usesUse of Peer Group and Survey Data
The Compensation Committee strives to set target opportunity compensation levels to be competitive with the market in which we compete for executive talent. We use compensation information from (1) a “Peer Group” of publicly traded companies in specific industries in which we compete for executive talent through a review of their proxy statements; and (2) general industry companies with revenues comparable to USEC’sours through the pooled survey data. Towers Watson combines the data described below.from the Peer Group with pooled survey data to create the market data reviewed by the Compensation Committee.
Currently, as the only publicly traded uranium enrichment company in the United States, USEC doeswe do not have direct publicly traded U.S. peers. TheTherefore, the Peer Group was selected by the Compensation Committee upon the recommendation of Towers Watson Wyatt. The Peer Group was revised in 2008 for purposes of evaluating executive compensation for 2009 following a review of the Peer Group in light of potential changes in the types of companies we may be competing with for executive talent as we focus on the deployment of the American Centrifuge project, with a greater focus on technology, engineering and construction companies. In selecting companies for the Peer Group, consideration was given to several factors, includingtaking into consideration: industry relevance (focusing on specialty chemicals, aerospace and defense, construction and engineering, utilities with nuclear operations, and other utilities),; business operationsoperations; and roughly comparable size in terms of revenue and market capitalization.capitalization (although this is given less weight due to our stock price volatility). The Peer Group was not picked on the
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basis of executive compensation levels. The Peer Group during 2010 was the same as 2009 was comprised ofand included the following 19 companies: Albemarle Corp., Alliant Techsystems Inc., Arch Chemicals Inc., Arch Coal Inc., Cameco Corp., CONSOL Energy Inc., Curtiss-Wright Corp., Cytec Industries Inc., Esterline Technologies Corp., FMC Corp., Goodrich Corp., Hexcel Corp., McDermott International, Inc., OM Group, Orbital Sciences Corp., Rockwell Collins Inc., Rockwood Holdings Inc., Shaw Group Inc., and Teledyne Technologies.
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| • | | Albemarle Corp. | | • | | Cytec Industries Inc. | | • | | Orbital Sciences Corp. |
| • | | Alliant Techsystems Inc. | | • | | Esterline Technologies Corp. | | • | | Rockwell Collins Inc. |
| • | | Arch Chemicals Inc. | | • | | FMC Corp. | | • | | Rockwood Holdings Inc. |
| • | | Arch Coal Inc. | | • | | Goodrich Corp. | | • | | Shaw Group Inc. |
| • | | Cameco Corp. | | • | | Hexcel Corp. | | • | | Teledyne Technologies |
| • | | CONSOL Energy Inc. | | • | | McDermott International, Inc. | | | | |
| • | | Curtiss-Wright Corp. | | • | | OM Group | | | | |
The Peer Group is different from the peer group index utilized in the performance graph included in our annual report onForm 10-K, which is more focused on companies with similar business attributes, primarily utilities with nuclear power generation capabilities, but also including chemical processing companies and aluminum companies (that are also large users of electric power).
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Peer Group compensation data is limited to publicly available information and therefore does not provide precise comparisons by position as offered by more comprehensive survey data. As a result, our Compensation Committee uses Peer Group data on a limited basis to analyze the competitiveness of our target compensation and our general compensation philosophy.
Because the Peer Group data is limited, ourOur Compensation Committee also used commercially available survey data provided to it by Towers Watson Wyatt to identify market-median and other market elements related to our 20092010 compensation program. This survey data included the 2009 / 20102010/2011 Towers Watson Wyatt Data Services Top Management Report, the 20092010 Mercer Executive Compensation Survey, and a proprietarythe Towers Watson Wyatt large company compensation survey.Compensation Database. This survey data includes pooled compensation data from many companies and the findings are segregated by, for example, revenue level, number of employees, and industry. Using survey cuts of durable goods manufacturing organizations and general manufacturing organizations with comparable annual revenues, the Compensation Committee reviewed pooled compensation data for positions similar to those held by each named executive officer.NEO. In the case of Messrs. Welchthe CEO and Barpoulis,CFO, whose positions are the most directly comparable with those in other companies, the Compensation Committee also used a survey cut of metals and mining organizations with comparable annual revenues. The Compensation Committee is not provided with the names of the companies making up these surveys and is only privy to the statistical summaries provided in these surveys.
Based on the objectives outlined above,Pay-for-Performance Assessment
In July 2010, the Compensation Committee strivesreviewed a historicalpay-for-performance analysis conducted by Towers Watson to set target opportunity compensation levelsevaluate the alignment of pay to be competitive with the market in whichperformance at the Company competesversus our Peer Group for executive talent, with base salaries and target total direct compensation positioned at the levelthree-year period ended December 31, 2009. The analysis considered a comparison of approximately the 75th percentileeach of the market (as described below under “Elements of Executive Compensation”). Incentive compensation may be above or below targets based on bothfollowing over the performance of the Company and of the individual. Executives may realize compensation above target levels based on achieving outstanding results. This approach is intended to ensure that there is a direct relationship between the Company’s overall performance in the achievement of its financial, operational and strategic goals and each individual executive’s total compensation. In making its decisions on an individual’s compensation, the Compensation Committee considers the nature and scope of all elements of an executive’s total compensation package, the executive’s responsibilities and his or her effectiveness in supporting Company performance.three-year period:
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| • | How our performance compared with the Peer Group using operational and shareholder performance metrics — specifically earnings per share growth, sales growth, operating cash flow growth, return on equity, return on assets, and total shareholder return; |
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| • | How the potential compensation opportunity for our executives compared with our Peer Group; and |
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| • | How the amount of cash compensation our executives earned plus the value of equity compensation as of a specified date as a percentage of (1) their potential (realizable) compensation and (2) our reported net income and average market capitalization compared with our Peer Group. |
The Compensation Committee strives to align each componentanalysis concluded that our executive compensation is in alignment with our operational performance and total shareholder return. The analysis reflected that although the Company’s performance was generally below that of the executive’sPeer Group over the three-year period, our executives’ realizable compensation as well aswas below opportunity levels during the total compensation opportunityperiod, thus indicating that pay was in alignment with the competitive market and the Company’s objectives. Generally, as employees move to higher levels of responsibility with greater ability to influence the Company’s results, a greater proportion of pay will be “at risk” and dependent on Company performance. The Compensation Committee’s goal is to strike the appropriate balance among base salary, annual incentives, and long-term incentives, and it may adjust the allocation of pay to best meet the Company’s objectives, including objectives with respect to retention in light of the Company’s current circumstances, or maintain compensation equity with the competitive market in which the Company competes for executive talent.
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Elements of Executive Compensation
TOTAL DIRECT COMPENSATION
For 2009, total direct compensation for the named executive officers consistedSummary of three key elements: base salary, performance-based annual incentive, and performance-based and time-based long-term incentive compensation. The chart below shows the relative proportion of each program (based on target levels):
Information Related to the CEO
Total Direct CompensationBase Salary: $900,000
Target Annual Incentive: $900,000 (100% of base salary)
Target Long-Term Incentive: $2,250,000 (250% of base salary)
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Fixed vs. Variable PayCompensation
| | | Short-Term vs. Long-Term Incentive PayObjectives
| | | Cash vs. Equity-Based PayKey Features
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Fixed 22%Element | | Short-Term 29% | | | Cash 37% | |
(Base Salary)Salary | | (Annual Incentive Value) | • Provides a stable annual income at a level consistent with individual contributions. | | (Salary + 65% | • Adjustments are considered annually based on individual performance, level of pay relative to the market, internal pay equity, and retention issues. |
Annual Incentive Value) |
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Variable 78%Awards | | Long-Term 71% | • Rewards the achievement of critical annual financial and operational performance goals.
• Aligns NEOs interests with those of our shareholders by promoting improved financial results through improvements to gross margin and cash flow and reductions in controllable expenses, as well as rewarding total shareholder return performance.
• Retains NEOs by providing market-competitive compensation. | | Equity-Based 63% | • Annual incentives can vary from 0% to 150% of the target amount.
• Annual performance goals are predetermined and include a combination of company performance measures, weighted 55%, and individual performance measures, weighted 45%. |
(Annual + Long-Term Incentive Value)Awards (Restricted Stock and Stock Options) | | (Long-Term Incentive Value) | • Aligns NEO’s interests with long-term shareholder interests by linking part of each NEO’s compensation to long-term corporate stock performance.
• Provides opportunities for wealth creation and ownership, which promotes retention and enables us to attract and motivate our NEOs.
• Retains NEOs through multi-year vesting of equity grants and by providing market-competitive compensation.
• Ensures that the executive decision-making process maintains a balanced focus on both immediate measures of success and on the effective growth and development of the business three to five years in the future. | | (35% of Annual Incentive Value + | • Utilizes different equity types, including restricted stock and stock options, to balance the multiple objectives.
Long-Term Incentive Value)• Long-term equity awards generally vest in increments over a three year period.
• Additional performance components added for 2011 to further emphasize pay-for-performance. |
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Information Related to the Other Named Executive Officers
Base Salary: $370,000 — $470,000 (Range)
Target Annual Incentive: $259,000 — $329,000 (70% of base salary)
Target Long-Term Incentive: $518,000 — $846,000 (140% of base salary to 180% of base salary)
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Fixed vs. Variable Pay | | Short-Term vs. Long-Term Incentive Pay | | Cash vs. Equity-Based Pay |
Fixed29-32% | | Short-Term 28-33% | | Cash 42-47% |
(Base Salary) | | (Annual Incentive Value) | | (Salary + 65% of Annual Incentive Value) |
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Variable68-71% | | Long-Term 67-72% | | Equity-Based 53-58% |
(Annual + Long-Term Incentive Value) | | (Long-Term Incentive Value) | | (35% of Annual Incentive Value +
Long-Term Incentive Value) |
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Observations Regarding the Mix of Total Direct Compensation
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| • | The target value of long-term incentives is more than double that of the annual incentive to weight an executive’s compensation toward a focus on long-term rather than short-term goals. |
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| • | The amount of variable or “at-risk” compensation is higher for the Chief Executive Officer than the other named executive officers in light of his greater responsibility and ability to influence the Company’s results. |
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| • | Annual incentives for 2009 performance (paid in 2010) were payable 65% in cash and 35% in restricted stock. However, if an executive had met his or her stock ownership guidelines, the executive could have elected to receive a greater proportion of his or her annual incentive in cash, up to 100% in cash. Alternatively, an executive could have elected to receive a greater proportion of his annual incentive in restricted stock in lieu of cash. For annual incentives for 2010 performance (to be paid in 2011), annual incentives will be paid 100% in cash. |
The chart below shows the relative proportion of each element of total direct compensation (based on 2010 target levels). The target value of long-term incentives is more than double that of the annual incentive to weight an executive’s compensation toward a focus on long-term rather than short-term goals. In addition, the amount of variable or “at-risk” compensation is higher for the CEO than the other NEOs in light of his greater responsibility and ability to influence the Company’s results.
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Short-Term vs. Long-Term Incentive Pay Opportunity as a Percentage of Total Pay |
| | | | Short-Term Incentive Pay
Target Annual Incentive | | | Long-Term Incentive Pay
Target Long-Term Incentive |
| CEO | | | 29% | | | 71% |
| Other NEOs (Average) | | | 29% | | | 71% |
Cash vs. Equity-Based Pay Opportunity as a Percentage of Total Pay |
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Base Salary + Target Annual Incentive | | | Equity-Based
Target Long-Term Incentives |
| CEO | | | 44% | | | 56% |
| Other NEOs (Average) | | | 50% | | | 50% |
Fixed vs. Variable Pay Opportunity as a Percentage of Total Pay |
| | | | Fixed
Base Salary | | | Variable Performance-Related Pay
Target Annual Incentive + Target Long-Term Incentive |
| CEO | | | 22% | | | 78% |
| Other NEOs (Average) | | | 29% | | | 71% |
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Each year, using the resourcesTotal Pay — The sum of base salary, target annual incentive, and services of its compensation consultant, thetarget long-term incentives.
Fixed Pay — Base pay or salary.
Variable Pay — Compensation Committee evaluates compensation levels for each of the executive officers of the Company. In setting compensation for 2009, thethat can vary based on Company or individual performance. Variable pay is “at risk.”
Cash — Compensation Committee reviewed and considered total compensation for each named executive officer, including a review of tally sheets that provide the value of (1) historic and current elements of each
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