Centrus Energy (LEU) - 2023 Q4 - Annual Report

Glossary of Certain Terms and Abbreviations This section defines key terms and abbreviations used throughout the report for clarity Centrus Energy Corp. and Related Entities This section defines key entities related to Centrus Energy Corp., including its Board, subsidiaries like Enrichment Corp., and operational facilities such as Oak Ridge, Paducah GDP, and Piketon - Key entities defined include Centrus Energy Corp. (Centrus), its Board of Directors, United States Enrichment Corporation (Enrichment Corp.), and various operational sites like Oak Ridge and Piketon[10] Other Terms and Abbreviations This section provides definitions for various technical, financial, and regulatory terms and abbreviations used throughout the report, such as HALEU, LEU, SWU, DOE, NRC, and specific contracts like the TENEX Supply Contract - Important technical terms include High Assay Low-Enriched Uranium (HALEU) and Separative Work Unit (SWU)[11][12] - Key regulatory and governmental bodies mentioned are the U.S. Department of Energy (DOE) and the U.S. Nuclear Regulatory Commission (NRC)[11][12] - Significant contracts and agreements include the HALEU Demonstration Contract, HALEU Operation Contract, and TENEX Supply Contract[12] FORWARD-LOOKING STATEMENTS This section outlines cautionary statements regarding forward-looking information and associated risks Cautionary Statements Regarding Forward-Looking Information This section advises readers that the Annual Report contains forward-looking statements based on management's current views and assumptions, which involve known and unknown risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements are based on current information and management's views, but are not guarantees of future performance and involve known and unknown risks and uncertainties[16] - Readers are cautioned not to place undue reliance on these statements, and the Company does not undertake to revise them unless required by law[17] Risks Related to the War in Ukraine The war in Ukraine poses significant risks, including potential impacts on the Company's ability to obtain, deliver, or sell LEU due to sanctions, proposed legislation banning Russian LEU imports, and the refusal or inability of TENEX to fulfill contracts - Risks include impacts on obtaining, delivering, transporting, or selling LEU due to sanctions or measures by governments/institutions[19] - Proposed legislation to ban Russian LEU imports into the U.S. could prevent the Company from importing under the TENEX Supply Contract[19] - TENEX's refusal or inability to deliver LEU due to sanctions or directives from the Russian government is a significant concern[19] Risks Related to Economic and Industry Factors Economic and industry risks encompass uncertainties in government funding for HALEU, reliance on key suppliers like TENEX and Orano, impacts of natural disasters on the nuclear industry, financial difficulties of customers/suppliers, and market imbalances affecting LEU pricing and demand - Uncertainty regarding government funding and demand for HALEU for both government and commercial uses[21] - Dependence on key suppliers such as TENEX and Orano for goods and services[21] - Risks related to supply/demand imbalance in the LEU market and pricing trends in uranium and enrichment markets[21] Risks Related to Operational Factors Operational risks include challenges in commercially deploying enrichment technology, potential demobilization or termination of the HALEU Operation Contract, and the inability to complete obligated work in a timely manner - Uncertainty regarding the ability to commercially deploy competitive enrichment technology[21] - Potential for demobilization or termination of the HALEU Operation Contract[21] - Risks of not being able to timely complete obligated work[21] Risks Related to Financial Factors Financial risks involve significant long-term liabilities, including pension obligations and 8.25% Notes, potential fluctuations in revenue and operating results, and impacts of financial market conditions on liquidity and pension assets - Significant long-term liabilities, including unfunded defined benefit pension plan obligations and 8.25% Notes maturing in February 2027[24] - Risks of revenue and operating results fluctuating significantly from quarter to quarter and year to year[24] - Impact of financial market conditions on business, liquidity, pension assets, and insurance facilities[24] Risks Related to General Factors General risks include the government's inability to fulfill obligations (e.g., supplying equipment, processing security clearances), challenges in extending the Piketon lease, cybersecurity incidents, and the ability to attract and retain key personnel - Government's inability to satisfy obligations, such as supplying government-furnished equipment for HALEU production or processing security clearances, potentially due to shutdowns[24] - Risks related to obtaining government approval to extend the lease term or scope of permitted activities at the Piketon facility[24] - Cybersecurity incidents that may impact business operations[24] - Ability to attract and retain key personnel[24] Risks Related to Legal and Compliance Factors Legal and compliance risks involve potential changes or termination of U.S. government agreements, outcomes of legal proceedings, impacts of government regulation (DOE, NRC), and liabilities from handling toxic or radioactive materials - Risks related to changes or termination of agreements with the U.S. government or other counterparties[27] - Outcomes of legal proceedings and other contingencies, including lawsuits and government investigations[27] - Impact of government regulation and policies, particularly from the DOE and NRC[27] - Risks of accidents during transportation, handling, or processing of toxic, hazardous, or radioactive material, leading to potential claims[27] PART I This part provides a comprehensive overview of the company's business, risk factors, properties, and legal proceedings Item 1. Business Centrus Energy Corp. is a nuclear fuel components and services supplier, operating in two segments: LEU (supplying enriched uranium to commercial customers) and Technical Solutions (providing advanced engineering and manufacturing services, including HALEU production for next-generation reactors). The company is focused on restoring domestic uranium enrichment capabilities and addressing supply chain needs - Centrus Energy Corp. is a supplier of nuclear fuel components and services, incorporated in 1998 as part of the U.S. government's uranium enrichment enterprise privatization[29] - The Company operates two business segments: LEU (supplying nuclear fuel components to commercial customers) and Technical Solutions (providing advanced engineering, design, and manufacturing services, including HALEU production)[30] - Centrus began enrichment operations at its HALEU production facility in Piketon, Ohio, on October 11, 2023, under a contract with the DOE, aiming to enable the deployment of HALEU-fueled advanced reactors[37] Overview Centrus Energy Corp. is a nuclear fuel components and services supplier, operating in two segments: LEU, which provides enriched uranium to commercial customers, and Technical Solutions, focused on advanced engineering, design, and manufacturing, including HALEU production. The company aims to restore domestic uranium enrichment capability and support next-generation reactors - Centrus' LEU segment is its primary revenue source, selling enriched uranium (SWU component) to utilities, with a global Order Book extending through 2030[31][33] - The Technical Solutions segment is deploying uranium enrichment capabilities for advanced nuclear fuel, focusing on HALEU production to meet U.S. national security and energy security requirements[34][35] - Centrus is pioneering U.S. production of HALEU, a high-performance nuclear fuel component (5-20% U-235 concentration) critical for advanced reactor designs, and is the only company with an NRC license actively enriching up to 20% U-235 assay HALEU[37] Low Enriched Uranium (LEU) The LEU segment, accounting for approximately 84% of total revenue in 2023, primarily sells SWU and natural uranium hexafluoride to domestic and international utilities. The Order Book is approximately $1.0 billion through 2030, but faces risks from geopolitical events like the war in Ukraine and potential bans on Russian LEU imports, which is a major supply source - LEU segment revenue accounted for approximately 84% of total revenue for the year ended December 31, 2023, primarily from sales of SWU and natural uranium hexafluoride[43] - The LEU segment's Order Book was approximately $1.0 billion as of December 31, 2023, extending to 2030, including $0.3 billion in deferred revenue and advances from customers[50] - The TENEX Supply Contract with Russia is the largest source of SWU, extending through 2028, but is subject to U.S. quotas under the Russian Suspension Agreement (RSA) and faces significant risk from proposed legislation to ban Russian LEU imports due to the war in Ukraine[53][55][57] - Market prices for SWU have significantly increased since 2018, especially after the Russian invasion of Ukraine, reaching $155 per SWU by December 31, 2023, a 356% increase from 2018 lows[62][222] Technical Solutions The Technical Solutions segment focuses on advanced engineering, design, and manufacturing services, particularly for HALEU production. Under the HALEU Operation Contract, Centrus began enrichment operations in October 2023 and made its first HALEU delivery to the DOE in November 2023, completing Phase 1. Phase 2 involves continued operations and production, but faces challenges with 5B Cylinder supply. The company plans to bid on new DOE RFPs for HALEU production and deconversion - The Technical Solutions segment is deploying uranium enrichment capabilities for advanced nuclear fuel, including HALEU production, and offers engineering, design, and advanced manufacturing services[64] - Centrus began HALEU enrichment operations in Piketon, Ohio, on October 11, 2023, and made its first delivery to the DOE on November 7, 2023, completing Phase 1 of the HALEU Operation Contract[69][225] - Phase 2 of the HALEU Operation Contract involves continued operations and production at an annual rate of 900 kg of HALEU UF6, with an expected contract value of approximately $90 million, subject to Congressional appropriations[70][225] - Supply chain challenges for 5B Cylinders are impacting HALEU production, leading Centrus to procure cylinders under DOE technical direction[70][71][225] - Centrus expects to submit bids for new DOE RFPs focusing on HALEU deconversion and production, aiming to expand capabilities at the Piketon facility[72][227] Competition and Foreign Trade The global LEU market, estimated at 50 million SWU per year, is highly competitive, with Centrus holding less than 5% market share. Major competitors (Rosatom, Urenco, CNEIC, Orano) are government-owned or controlled. Imports of Russian LEU into the U.S. are subject to quotas under the RSA, which extends through 2040, but proposed legislation could ban these imports, posing a significant risk to Centrus' supply chain - The global LEU market is estimated at 50 million SWU per year, with Centrus holding less than 5% market share[74] Major LEU Suppliers and Production Capacity (2022) | Supplier | Production Capacity (SWU/year) | | :------- | :----------------------------- | | Rosatom/TENEX | ~27 million | | Urenco | ~18 million | | CNEIC | ~9 million | | Orano | ~8 million | - All major competitors are wholly or partially owned/controlled by foreign governments, influencing business decisions beyond commercial considerations[76] - Imports of Russian LEU into the U.S. are subject to quotas under the Russian Suspension Agreement (RSA), extended through 2040, with specific quotas set aside for Centrus through 2028[79][80][81] - Proposed U.S. legislation to ban Russian LEU imports, if enacted, would represent a significant risk to Centrus' business, as the TENEX Supply Contract is a major source of supply[82] Ukraine War The war in Ukraine has heightened geopolitical tensions, leading to potential sanctions and export controls that could disrupt Centrus' ability to purchase and resell Russian uranium enrichment under the TENEX Supply Contract. Proposed U.S. legislation to ban Russian LEU imports poses a significant risk, as TENEX is a major supply source, potentially leading to reduced revenues and increased costs if waivers are not granted - The war in Ukraine has escalated tensions, leading to potential additional sanctions and export controls that could affect Centrus' ability to purchase and resell Russian uranium enrichment or implement the TENEX Supply Contract[85] - Proposed U.S. legislation to ban Russian LEU imports, if enacted, would pose a significant risk, as the TENEX Supply Contract is Centrus' major source of supply[86][88] - Absent waivers, sanctions on Russian LEU imports could result in reduced material deliveries to customers, leading to a loss of revenues and significant harm to Centrus' business and financial condition[88] Other Actions Adversely Affecting International Trade The re-imposition of U.S. sanctions on AEOI and its subsidiaries, following the withdrawal from the Joint Comprehensive Plan of Action, could potentially lead to sanctions on Russian entities involved in nuclear work in Iran, including Rosatom or its subsidiaries like TENEX, even if not directly involved in Iranian projects - U.S. sanctions re-imposed on AEOI and its subsidiaries could potentially lead to sanctions on Russian entities like Rosatom or TENEX involved in nuclear work in Iran, even if not directly related to the TENEX Supply Contract[91] DOE Facilities Centrus leases facilities near Piketon, Ohio, from the DOE, with the lease extended until December 31, 2025. The DOE is responsible for Decontamination & Decommissioning (D&D) liabilities for facilities and equipment constructed under the HALEU Operation Contract, which are owned by the DOE and can be returned in 'as is' condition - Centrus leases facilities near Piketon, Ohio, from the DOE, with the lease agreement renewed and extended until December 31, 2025[93] - The DOE assumed all D&D liabilities arising from the HALEU Operation Contract, and any constructed facilities or equipment will be owned by the DOE and can be returned in an 'as is' condition[93] Human Capital Management Centrus emphasizes honesty, integrity, safety, and security, guided by its Code of Business Conduct. The company focuses on attracting, developing, and retaining skilled personnel, particularly those with security clearances, through competitive compensation, comprehensive benefits, and a commitment to diversity and inclusion. As of December 31, 2023, Centrus had 292 employees across its locations - Centrus operates with a corporate philosophy based on honesty, trust, integrity, safety, and security, outlined in its Code of Business Conduct[94] - The company prioritizes attracting, developing, and retaining skilled and qualified personnel, many requiring security clearances, through fair compensation, comprehensive benefits, and a culture of diversity and inclusion[95][97] Number of Employees by Location (December 31, 2023 vs. 2022) | Location | 2023 | 2022 | | :------------ | :--- | :--- | | Piketon, OH | 130 | 122 | | Oak Ridge, TN | 110 | 104 | | Bethesda, MD | 52 | 49 | | Total Employees | 292 | 275 | Information about our Executive Officers This section lists Centrus Energy Corp.'s executive officers as of February 9, 2024, including President and CEO Amir V. Vexler (effective January 1, 2024), CFO Kevin J. Harrill, General Counsel Shahram Ghasemian, SVP Field Operations Larry B. Cutlip, and SVP Chief Marketing Officer John M.A. Donelson, along with their professional backgrounds Executive Officers as of February 9, 2024 | Name | Age | Position | | :--------------- | :-- | :-------------------------------------------------------------------- | | Amir V. Vexler | 51 | President and Chief Executive Officer (effective January 1, 2024) | | Kevin J. Harrill | 47 | Senior Vice President, Chief Financial Officer, and Treasurer | | Shahram Ghasemian| 57 | Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary | | Larry B. Cutlip | 64 | Senior Vice President, Field Operations | | John M.A. Donelson | 59 | Senior Vice President and Chief Marketing Officer | - Amir V. Vexler, the new President and CEO, brings extensive experience from the nuclear fuel industry, including leadership roles at Orano USA and General Electric Company[103] Available Information Centrus makes its SEC filings (10-K, 10-Q, 8-K), Code of Business Conduct, Board of Directors Governance Guidelines, and Board committee charters available on its website (www.centrusenergy.com) and through the SEC's website (www.sec.gov) - Centrus provides access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments on its website (www.centrusenergy.com) and the SEC's website (**www.sec.gov**)[110](index=110&type=chunk) - The Company's Code of Business Conduct, Board of Directors Governance Guidelines, and Board committee charters are also available on its website[111][112] Item 1A. Risk Factors This section details material risks that could affect Centrus' financial condition and operations, categorized into Ukraine War, Economic and Industry, Operational, Financial, General, and Legal and Compliance factors. Key risks include geopolitical impacts on supply, market volatility, dependence on suppliers/customers, cost overruns in contracts, significant long-term liabilities, regulatory compliance, and cybersecurity threats - The war in Ukraine and related international sanctions pose a material adverse impact on business, operations, and financial condition, particularly concerning Russian LEU imports[115][121] - Economic and industry risks include financial difficulties of customers/suppliers, health crises, and price volatility in SWU and uranium procurement[116][130][132][134] - Operational risks involve restrictions on imports/sales from Russian suppliers, inability to sell LEU at cost-covering prices, dependence on third-party services, intense competition from government-backed entities, and challenges in foreign markets[116][135][138][139][141][142] - Financial risks highlight significant long-term liabilities (8.25% Notes, pension obligations), fluctuating operating results, potential impairment of intangible assets, and dependence on intercompany support from Enrichment Corp[116][154][155][157][158][160] - General risks include failures to protect sensitive information (cybersecurity), inability to attract/retain key personnel, potential DOE contract terminations or modifications, and the impact of government audits[118][183][186][188][191] - Legal and compliance risks cover high regulation by NRC/DOE, liabilities from handling toxic/radioactive materials, and foreign ownership restrictions on equity securities[119][167][171][179] Item 1B. Unresolved Staff Comments This section states that there are no unresolved staff comments from the SEC - There are no unresolved staff comments[195] Item 1C. Cybersecurity Centrus considers cybersecurity risk critical and integrates its evaluation into the enterprise risk management process, with periodic reporting to the Board. The company aligns with NIST Cybersecurity Framework, uses external and internal assessments, and has a cybersecurity program to monitor, prevent, detect, and respond to threats. No material effect on business strategy, results, or financial condition from cybersecurity threats is currently expected - Centrus integrates cybersecurity risk evaluation into its enterprise risk management process and provides periodic reporting to the Board[197] - The company aligns with the National Institute of Standards and Technology Cybersecurity Framework and uses external and internal assessments to evaluate its cybersecurity posture[198] - No material effect on the Company's business strategy, results of operations, or financial condition is currently expected from cybersecurity threats[199] - The Board's Audit and Finance Committee and Technology, Competition and Regulatory Committee oversee cybersecurity risks, with a Cybersecurity Risk Committee managing the program[201] Item 2. Properties Centrus maintains its corporate headquarters in Bethesda, Maryland, and owns a manufacturing facility in Oak Ridge, Tennessee. It also leases industrial buildings and office space near Piketon, Ohio, from the DOE, which support its Technical Solutions segment. All facilities are considered adequate for current and foreseeable needs - Centrus' corporate headquarters is in Bethesda, Maryland (24,000 sq ft leased office space)[202] - The company owns a 440,000 sq ft manufacturing facility in Oak Ridge, Tennessee[202] - Centrus leases industrial buildings and 110,000 sq ft of office space from the DOE near Piketon, Ohio, built for uranium enrichment operations[202] - All facilities are maintained in good operating condition and are deemed adequate for present and foreseeable needs[202] Item 3. Legal Proceedings This section refers to Note 17 of the Consolidated Financial Statements for details on legal proceedings and contingencies - Details on legal proceedings are provided in Note 17, Commitments and Contingencies, of the Consolidated Financial Statements[203] Item 4. Mine Safety Disclosures This item is not applicable to Centrus Energy Corp - This item is not applicable[204] PART II This part covers market information, financial condition, operating results, market risks, and internal controls Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Centrus Energy Corp. has Class A and Class B Common Stock outstanding, with Class A trading on the NYSE American. No cash dividends were paid in 2023 or 2022, and none are intended for the foreseeable future due to debt restrictions. The company's certificate of incorporation includes foreign ownership restrictions to comply with NRC licensing requirements, allowing the Board to take actions like redeeming or exchanging shares if foreign ownership thresholds are exceeded Common Stock Outstanding as of February 1, 2024 | Class | Shares Outstanding | | :---------------- | :----------------- | | Class A Common Stock | 14,956,434 | | Class B Common Stock | 719,200 | - Class A Common Stock trades on the NYSE American LLC under the symbol 'LEU'[3] - No cash dividends were paid in 2023 or 2022, and there is no intention to pay them in the foreseeable future, partly due to restrictions from the 8.25% Notes indenture[209] - The company's certificate of incorporation includes foreign ownership restrictions, allowing the Board to take actions such as refusing transfers, suspending voting rights, or redeeming/exchanging shares if foreign ownership thresholds are exceeded, to comply with NRC licensing[179][180][215] - On December 18, 2023, Kulayba LLC cashless exercised a warrant for 250,000 shares of Class A Common Stock, resulting in the issuance of 149,179 net shares[210][322] Item 6. [Reserved] This item is reserved and contains no information - This item is reserved[217] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive analysis of Centrus' financial condition and results of operations for the year ended December 31, 2023, compared to 2022. It covers market conditions, operating performance by segment (LEU and Technical Solutions), critical accounting policies, and liquidity and capital resources, highlighting the impact of geopolitical events and strategic initiatives like HALEU production - Centrus is a trusted supplier of nuclear fuel components and services, with its financial performance significantly influenced by market conditions, particularly the war in Ukraine and growing interest in carbon-free energy[221][222] - The Company completed Phase 1 of the HALEU Operation Contract in November 2023, making its first HALEU delivery to the DOE, and is now in Phase 2 for continued operations and production[225] - Centrus is exploring opportunities to deploy LEU enrichment alongside HALEU to meet commercial and government requirements, subject to funding and offtake commitments[228] - Net income increased by $32.2 million (62%) to $84.4 million in 2023, driven by higher nonoperating benefit income, lower income tax expense, and increased investment income, partially offset by a decrease in gross profit[296] Overview The overview highlights the significant increase in SWU spot prices (356% since 2018) due to the war in Ukraine and nuclear power interest. Centrus completed Phase 1 of the HALEU Operation Contract, delivering initial HALEU to the DOE, and is now in Phase 2. The company is exploring expanding LEU and HALEU enrichment and pursuing complementary technologies like deconversion and fuel fabrication - SWU spot prices reached $155 per SWU by December 31, 2023, a 41% increase from the beginning of the year and 356% over the 2018 historic low, driven by the war in Ukraine and growing interest in nuclear power[222] - Centrus completed Phase 1 of the HALEU Operation Contract in November 2023 by delivering its first HALEU to the DOE and transitioned to Phase 2 for continued operations and maintenance[225] - The DOE is contemplating additional contracts for HALEU availability, with $700 million appropriated from the Inflation Reduction Act, and Centrus plans to bid on RFPs for HALEU production and deconversion[227] - Centrus is exploring deploying LEU enrichment alongside HALEU to meet commercial and U.S. government requirements, aiming for cost synergies and increased revenue opportunities[228] Market Conditions and Outlook The global nuclear industry outlook is improving, with 60 reactors under construction worldwide and IEA projecting substantial growth in nuclear energy generation. However, the market faces uncertainties from the war in Ukraine, which has prompted calls for domestic enrichment capacity and potential bans on Russian LEU imports, posing a significant risk to Centrus' supply chain - The global nuclear industry outlook is improving, with approximately 60 reactors under construction worldwide as of January 2024, and the IEA projects substantial growth in global nuclear energy generation[233][234][235] - Centrus has signed MOUs with TerraPower and Oklo Inc. to collaborate on establishing commercial-scale domestic HALEU production and supporting advanced reactor deployment[238][239] - The war in Ukraine has escalated tensions, leading to potential sanctions and proposed U.S. legislation to ban Russian LEU imports, which would significantly impact Centrus as the TENEX Supply Contract is a major source of supply[240][241] - Without Russian supply, the global uranium enrichment market would be undersupplied, and existing inventories in the U.S. are insufficient to compensate for a loss of Russian supply[223][254] Operating Results Centrus' operating results fluctuate significantly, with the LEU segment's Order Book extending to 2030 at approximately $1.0 billion. In 2023, total revenue increased by 9% to $320.2 million, but gross profit decreased by 5% to $112.1 million. LEU segment revenue increased by 14% due to higher SWU and uranium volumes, while Technical Solutions revenue decreased by 12% due to reduced work on older contracts, partially offset by the HALEU Operation Contract - Centrus' Order Book in the LEU segment extends to 2030 and was approximately $1.0 billion as of December 31, 2023 and 2022[246] Segment Operating Results (Year Ended December 31, 2023 vs. 2022) | Metric | 2023 ($ millions) | 2022 ($ millions) | $ Change | % Change | | :-------------- | :---------------- | :---------------- | :------- | :------- | | LEU Segment | | | | | | Revenue | 269.0 | 235.6 | 33.4 | 14% | | Cost of Sales | 163.9 | 105.0 | 58.9 | 56% | | Gross Profit | 105.1 | 130.6 | (25.5) | (20)% | | Technical Solutions Segment | | | | | | Revenue | 51.2 | 58.2 | (7.0) | (12)% | | Cost of Sales | 44.2 | 70.9 | (26.7) | (38)% | | Gross Profit (Loss) | 7.0 | (12.7) | 19.7 | 155% | | Total Company | | | | | | Revenue | 320.2 | 293.8 | 26.4 | 9% | | Cost of Sales | 208.1 | 175.9 | 32.2 | 18% | | Gross Profit | 112.1 | 117.9 | (5.8) | (5)% | - LEU segment revenue increased by $33.4 million (14%) in 2023, driven by a 37% increase in SWU volume and a 49% increase in UF6 volume, partially offset by a 23% decrease in average SWU price[285] - Technical Solutions segment revenue decreased by $7.0 million (12%) in 2023, primarily due to decreased work on the HALEU Demonstration Contract and X-energy contract, partially offset by increased work on the HALEU Operation Contract[285] SWU and Uranium Market Price Indicators (TradeTech, LLC) | Indicator | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | | :-------- | :----------- | :----------- | :----------- | | SWU Spot Price | $155/SWU | $110/SWU | $56/SWU | Non-Segment Information Non-segment results show a decrease in operating income by 12% to $52.4 million in 2023. Net income, however, increased by 62% to $84.4 million, primarily due to a $16.6 million increase in nonoperating components of net periodic benefit income (driven by pension annuitization), a $15.5 million decrease in income tax expense (due to valuation allowance release), and a $6.7 million increase in investment income Non-Segment Operating Results (Year Ended December 31, 2023 vs. 2022) | Metric | 2023 ($ millions) | 2022 ($ millions) | $ Change | % Change | | :----------------------------------------- | :---------------- | :---------------- | :------- | :------- | | Gross profit | 112.1 | 117.9 | (5.8) | (5)% | | Advanced technology costs | 14.2 | 14.8 | (0.6) | (4)% | | Selling, general and administrative | 35.6 | 33.9 | 1.7 | 5% | | Amortization of intangible assets | 6.3 | 9.0 | (2.7) | (30)% | | Special charges for workforce reductions | 3.6 | 0.5 | 3.1 | 620% | | Operating income | 52.4 | 59.7 | (7.3) | (12)% | | Nonoperating components of net periodic benefit income | (23.2) | (6.6) | (16.6) | (252)% | | Interest expense | 1.3 | 0.5 | 0.8 | 160% | | Investment income | (8.7) | (2.0) | (6.7) | (335)% | | Other income, net | (1.5) | — | (1.5) | n/a | | Income before income taxes | 84.5 | 67.8 | 16.7 | 25% | | Income tax expense | 0.1 | 15.6 | (15.5) | (99)% | | Net income | 84.4 | 52.2 | 32.2 | 62% | - Amortization of intangible assets decreased by $2.7 million (30%) in 2023, reflecting the reduction of the sales Order Book and customer relationships intangible assets[291] - Special charges for workforce reductions increased by $3.1 million (620%) to $3.6 million in 2023, primarily due to a severance charge for one executive[292] - Nonoperating components of net periodic benefit income increased by $16.6 million (252%) to $23.2 million in 2023, mainly due to the partial annuitization of a pension plan[294] - Investment income increased by $6.7 million (335%) to $8.7 million in 2023, primarily due to higher interest rates on operating cash[295] - Income tax expense decreased by $15.5 million (99%) to $0.1 million in 2023, largely due to a partial release of the federal valuation allowance on net deferred tax assets[295] Critical Accounting Policies and Estimates Centrus' critical accounting policies involve significant estimates and judgments, particularly in revenue recognition for Technical Solutions contracts (cost-to-cost method), asset valuations (SWU and uranium inventories, intangible assets), pension and postretirement benefit costs, and income taxes (deferred tax assets and valuation allowances). These estimates are subject to substantial risks and uncertainties, with changes potentially materially impacting financial results - Critical accounting estimates include revenue recognition for Technical Solutions (cost-to-cost method), asset valuations (SWU/uranium inventories, intangible assets), pension/postretirement benefit costs, and income taxes (deferred tax assets and valuation allowances)[259][261][265][269][274] - Revenue for Technical Solutions is recognized over time using the cost-to-cost input method, requiring significant estimates of total costs and contract profit/loss[263][264] - SWU and uranium inventories are valued at the lower of cost or net realizable value (NRV), with NRV based on contract pricing or published price indicators[265] - Intangible assets (Order Book, customer relationships) are subject to impairment tests, with fair value determinations relying on projections of future cash flows and market conditions[267][268] - Pension and postretirement benefit costs are based on actuarial valuations, with actuarial gains and losses recognized immediately in the fourth quarter, leading to potential significant fluctuations in results[269][270] - Centrus released $19.4 million of its federal valuation allowance in 2023 due to increased forecasted future income in the LEU segment, but maintains a partial valuation allowance of $382.4 million against remaining federal and state net deferred tax assets[280][281] Liquidity and Capital Resources As of December 31, 2023, Centrus had $201.2 million in cash and $29.8 million in restricted cash, anticipating adequate liquidity for the next 12 months. The LEU segment's Order Book provides stability, while cash resources fund Technical Solutions and corporate expenses. The company partially annuitized a pension plan in October 2023, transferring $186.5 million in obligations. Net cash provided by operating activities was $9.1 million in 2023, a decrease from $20.6 million in 2022 - As of December 31, 2023, Centrus had a consolidated cash balance of $201.2 million and $29.8 million in restricted cash, anticipating adequate liquidity for the next 12 months[301] - The LEU segment's Order Book provides stability for liquidity, and cash resources from LEU fund technology costs in Technical Solutions and general corporate expenses[302][303] - In October 2023, Centrus partially annuitized one of its defined benefit pension plans, transferring approximately $186.5 million of obligations to an insurer, funded by $171.4 million from plan assets[310] Cash Flow Summary (Year Ended December 31, 2023 vs. 2022) | Activity | 2023 ($ millions) | 2022 ($ millions) | | :---------------------------------------- | :---------------- | :---------------- | | Cash provided by operating activities | 9.1 | 20.6 | | Cash used in investing activities | (1.6) | (0.7) | | Cash provided by (used in) financing activities | 13.9 | (4.3) | | Increase in cash, cash equivalents and restricted cash | 21.4 | 15.6 | Working Capital (December 31, 2023 vs. 2022) | Metric | 2023 ($ millions) | 2022 ($ millions) | | :---------------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | 201.2 | 179.9 | | Accounts receivable | 49.4 | 38.1 | | Inventories, net | 222.1 | 148.4 | | Current debt | (6.1) | (6.1) | | Deferred revenue and advances from customers, net of deferred costs | (165.0) | (137.5) | | Other current assets and liabilities, net | (87.3) | (84.9) | | Working capital | 214.3 | 137.9 | - Centrus sold 722,568 shares of Class A Common Stock in 2023 through at-the-market offerings, generating $23.4 million in net proceeds for working capital and general corporate purposes[318] - The company's 8.25% Notes mature in February 2027 and include restrictions on Enrichment Corp.'s ability to transfer cash to Centrus, potentially constraining dividend payments or funding other commitments[308] Item 7A. Quantitative and Qualitative Disclosures about Market Risk Centrus does not use derivative financial instruments for speculative trading or hedging. The company's primary market risks include interest rate risk on its 8.25% Notes, inflation risk affecting costs, foreign currency exchange rate risk (primarily for euro-denominated payments), and commodity price risk for SWU and uranium, which is naturally hedged by its purchase arrangements - Centrus does not use derivative financial instruments for speculative trading or hedging market risk[340] - Interest rate risk primarily relates to the 8.25% Notes, with a fair value of approximately $71.7 million as of December 31, 2023, but limited exposure to interest rate risk due to fixed terms[341] - Inflation risk is a concern, but Centrus generally anticipates cost increases in its contracts, with Technical Solutions contracts often on a cost-plus basis and LEU contracts including escalation assumptions[342][343] - Foreign currency exchange rate risk is minimal as most contracts are U.S. dollar-denominated, with a 20% change in the euro not expected to materially impact financial condition[344] - Commodity price risk for SWU and uranium is mitigated by a natural hedge in the Company's purchase arrangements, which include fixed and market-related pricing components[345] Item 8. Financial Statements and Supplementary Data This section refers to Part IV, Item 15 of the Annual Report for the Consolidated Financial Statements, related notes, and reports of independent registered public accounting firms - The Consolidated Financial Statements, related notes, and reports of independent registered public accounting firms are located in Part IV, Item 15 of this Annual Report[346] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section states that there have been no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[347] Item 9A. Controls and Procedures Centrus maintains effective disclosure controls and procedures, evaluated by management, CEO, and CFO as of December 31, 2023. Management also concluded that internal control over financial reporting was effective based on the COSO framework, an assessment audited by Deloitte & Touche LLP - Centrus maintains effective disclosure controls and procedures, designed to ensure timely and accurate reporting of information required by the Exchange Act[348] - As of December 31, 2023, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[349] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework, and this assessment was audited by Deloitte & Touche LLP[351][352] Item 9B. Other Information This section states that none of the directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fourth quarter of 2023 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fourth quarter of 2023[354] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section states that there is no disclosure regarding foreign jurisdictions that prevent inspections - There is no disclosure regarding foreign jurisdictions that prevent inspections[355] PART III This part incorporates information on corporate governance, executive compensation, security ownership, and related party transactions by reference Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement. Centrus has a Code of Business Conduct for all employees and directors, and Securities Trading and Confidentiality Policies to ensure compliance with insider trading laws - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement[358] - Centrus has a Code of Business Conduct applicable to all employees and directors, and Securities Trading and Confidentiality Policies to promote compliance with insider trading laws[359][360] Item 11. Executive Compensation Information concerning executive and director compensation is incorporated by reference from the 2024 Proxy Statement - Information concerning executive and director compensation is incorporated by reference from the 2024 Proxy Statement[361] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, as well as common stock issuable under the 2014 Equity Incentive Plan, is incorporated by reference from the 2024 Proxy Statement - Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the 2024 Proxy Statement[362] - Information regarding common stock issuable under the 2014 Equity Incentive Plan is incorporated by reference from the 2024 Proxy Statement[363] Item 13. Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement - Information concerning certain relationships and related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement[364] Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the 2024 Proxy Statement - Information concerning principal accounting fees and services is incorporated by reference from the 2024 Proxy Statement[365] PART IV This part includes financial statements, exhibits, and certifications, detailing the company's financial position and audit reports Item 15. Exhibits and Financial Statement Schedules This section lists the Consolidated Financial Statements, confirms no financial statement schedules are required, and provides an index of exhibits filed or incorporated by reference, including various agreements, plans, and certifications - The Consolidated Financial Statements are included elsewhere in this Annual Report[367] - No financial statement schedules are required to be filed[368] - An Exhibit Index lists various agreements, plans, and certifications filed or incorporated by reference, including sales agreements, certificates of incorporation, indentures, rights agreements, and employment agreements[369][374][375][376][377][378][379][380][381][382][383] Item 16. Form 10-K Summary This section indicates that there is no Form 10-K Summary provided - No Form 10-K Summary is provided[370] SIGNATURES This section contains the signatures of Centrus Energy Corp.'s authorized representatives, including the President and Chief Executive Officer, Chief Financial Officer, and members of the Board of Directors, certifying the report's submission - The report is duly signed on behalf of Centrus Energy Corp. by its President and Chief Executive Officer, Amir V. Vexler, and other authorized persons including the Chief Financial Officer and Board members[385][387] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS This index provides a list of the Consolidated Financial Statements and accompanying notes included in the report, along with the reports of independent registered public accounting firms - The index lists the Reports of Independent Registered Public Accounting Firms, Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income, Consolidated Statements of Cash Flows, Consolidated Statements of Stockholders' Equity (Deficit), and Notes to Consolidated Financial Statements[389] Reports of Independent Registered Public Accounting Firm Deloitte & Touche LLP provided an unqualified opinion on Centrus' consolidated financial statements and the effectiveness of internal control over financial reporting for the year ended December 31, 2023. PricewaterhouseCoopers LLP provided an unqualified opinion on the consolidated financial statements for the two years ended December 31, 2022. A critical audit matter identified by Deloitte was the valuation allowance related to federal deferred tax assets, due to significant management judgment and auditor effort in assessing future taxable income - Deloitte & Touche LLP issued an unqualified opinion on Centrus' consolidated financial statements and internal control over financial reporting for the year ended December 31, 2023[391][392][400][401] - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements for the two years ended December 31, 2022[409] - A critical audit matter for Deloitte was the valuation allowance related to federal deferred tax assets, due to significant management judgment in estimating future taxable income and the high degree of auditor judgment required[396][397] Consolidated Financial Statements This section presents Centrus Energy Corp.'s Consolidated Balance Sheets, Statements of Operations and Comprehensive Income, Statements of Cash Flows, and Statements of Stockholders' Equity (Deficit) for the periods ended December 31, 2023, 2022, and 2021, providing a comprehensive overview of the company's financial position and performance Consolidated Balance Sheets (as of December 31, 2023 vs. 2022) | ASSETS (in millions) | 2023 | 2022 | | :------------------- | :---- | :---- | | Total current assets | $685.4 | $587.1 | | Total assets | $796.2 | $705.5 | | LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (in millions) | | | | Total current liabilities | $471.1 | $449.2 | | Total liabilities | $763.9 | $779.6 | | Total stockholders' equity (deficit) | $32.3 | $(74.1) | Consolidated Statements of Operations and Comprehensive Income (Year Ended December 31, 2023 vs. 2022 vs. 2021) | Metric (in millions) | 2023 | 2022 | 2021 | | :------------------- | :---- | :---- | :---- | | Total revenue | $320.2 | $293.8 | $298.3 | | Total cost of sales | $208.1 | $175.9 | $183.8 | | Gross profit | $112.1 | $117.9 | $114.5 | | Operating income | $52.4 | $59.7 | $68.3 | | Income before income taxes | $84.5 | $67.8 | $135.9 | | Net income and comprehensive income | $84.4 | $52.2 | $175.0 | | Net income allocable to common stockholders | $84.4 | $50.7 | $135.3 | | Basic EPS | $5.55 | $3.47 | $10.03 | | Diluted EPS | $5.44 | $3.38 | $9.75 | Consolidated Statements of Cash Flows (Year Ended December 31, 2023 vs. 2022 vs. 2021) | Activity (in millions) | 2023 | 2022 | 2021 | | :--------------------- | :---- | :---- | :---- | | Cash provided by operating activities | $9.1 | $20.6 | $50.0 | | Cash used in investing activities | $(1.6) | $(0.7) | $(1.2) | | Cash provided by (used in) financing activities | $13.9 | $(4.3) | $(9.9) | | Increase in cash, cash equivalents and restricted cash | $21.4 | $15.6 | $38.9 | | Cash, cash equivalents and restricted cash, end of year | $233.8 | $212.4 | $196.8 | Consolidated Statements of Stockholders' Equity (Deficit) (as of December 31, 2023 vs. 2022 vs. 2021) | Metric (in millions) | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | | :------------------- | :----------- | :----------- | :----------- | | Total Stockholders' Equity (Deficit) | $32.3 | $(74.1) | $(141.9) | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, explaining significant accounting policies, revenue recognition, cash and inventory management, asset valuations, debt, leases, fair value measurements, pension and postretirement benefits, executive severance, stock-based compensation, income taxes, net income per share, stockholders' equity, commitments and contingencies, and segment information - Centrus' financial statements are prepared in conformity with U.S. GAAP, requiring significant estimates and judgments in areas like revenue, asset valuations, and benefit obligations[423][424] - The LEU segment's revenue is primarily from SWU and uranium sales, recognized when customers obtain control of the product, often at nuclear fuel fabricators[446][447] - The Technical Solutions segment's revenue, including the HALEU Operation Contract, is recognized over time using the cost-to-cost input method, with the DOE assuming D&D liabilities for the Piketon facility[451][453][475] - Centrus had $201.2 million in cash and cash equivalents and $32.4 million in long-term deposits for financial assurance as of December 31, 2023[481][483] - Inventories of SWU and uranium were $222.1 million net as of December 31, 2023, valued at the lower of cost or net realizable value[485][486] - The company's 8.25% Notes mature in February 2027, with a carrying value of $95.7 million and a fair value of $71.7 million as of December 31, 2023[494][510] - Centrus' defined benefit pension plans had an unfunded status of $(17.7) million as of December 31, 2023, after a partial annuitization of $186.5 million in obligations[512][517] - The company recorded a $3.6 million severance charge in 2023 related to an executive separation[536] - Centrus released $19.4 million of its federal valuation allowance in 2023, but still maintains a partial valuation allowance of $382.4 million against remaining deferred tax assets[568][569] - Net income per common share (diluted) was $5.44 in 2023, up from $3.38 in 2022[586] - The company's certificate of incorporation includes foreign ownership restrictions to comply with NRC licensing, allowing actions like share redemption if thresholds are exceeded[598][608] - Centrus is involved in several legal proceedings, including class action complaints related to alleged off-site contamination at the Portsmouth GDP site, with the company believing its operations were compliant and liabilities should be indemnified under the Price-Anderson Act[622][623][624][625] 1. Summary of Significant Accounting Policies This note outlines Centrus' significant accounting policies, including the basis of presentation (U.S. GAAP, consolidation), use of estimates, cash and cash equivalents, inventory valuation (lower of cost or NRV), deferred taxes (asset and liability approach), property/plant/equipment, intangible assets (from fresh start accounting), financial instruments, credit risk, and supply risk related to the war in Ukraine. It also covers revenue recognition for both LEU and Technical Solutions segments, advanced technology costs, pension/postretirement benefits, executive severance, and stock-based compensation - Consolidated Financial Statements are prepared in conformity with U.S. GAAP, requiring significant estimates and judgments[423][424] - SWU and uranium inventories are valued at the lower of cost or Net Realizable Value (NRV), using the average cost method[426] - Intangible assets from fresh start accounting (Order Book, customer relationships) are amortized over their useful lives and subject to impairment tests[430][431] - The TENEX Supply Contract is Centrus' largest supply source, and its performance is vulnerable to sanctions or restrictions due to the war in Ukraine, posing a material adverse impact if supply is limited[437][439] - Revenue for the LEU segment is recognized at the point of sale when the customer obtains control of LEU or uranium, while Technical Solutions revenue is recognized over time as services are rendered, typically using the cost-to-cost input method[445][447][451][453] - The Company recognizes actuarial gains and losses for pension and postretirement benefit plans immediately in the statement of operations in the fourth quarter[459] 2. Revenue and Contracts with Customers This note disaggregates Centrus' revenue, showing that U.S. customers accounted for $230.4 million in SWU and uranium sales in 2023, a significant increase from $96.1 million in 2022, while foreign sales decreased. The LEU segment's Order Book remains at approximately $1.0 billion. Technical Solutions revenue decreased in 2023,