# CENTRUS ENERGY CORP (LEU) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CENTRUS ENERGY CORP's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1065059/000106505923000009/leu-20221231.htm
Accession: 0001065059-23-000009
Filing date: 2023-02-22
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LEU/
All MD&A years: /company/LEU/mda/
Previous year: /company/LEU/mda/fy2021/ (FY 2021)
Next year: /company/LEU/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and related notes appearing elsewhere in this report.

This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from the results discussed in the forward-looking statements particularly in light of the economic, social and market uncertainty created by, among other things, the COVID-19 pandemic, including emerging variants, and the war in Ukraine. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.

Overview

Centrus, a Delaware corporation (the “Company,” “we” or “us”), is a trusted supplier of nuclear fuel and services for the nuclear power industry, which provides a reliable source of carbon-free energy. References to “Centrus”, the “Company”, “our”, or “we” include Centrus Energy Corp. and its wholly-owned subsidiaries as well as the predecessor to Centrus, unless the context indicates otherwise.

Published spot price indicators for SWU reached historic highs in April 2009 at $163 per SWU. In the years following the 2011 Fukushima accident in Japan, spot prices declined more than 75%, bottoming out in August 2018 at $34 per SWU. This was followed by a slow and steady rise, reaching $56 per SWU by December 31, 2021. In 2022, spot prices continued to increase substantially, reaching $110 per SWU by December 31, 2022. This represents an increase of 96% since the beginning of the year and 224% over the 2018 historic low. This sudden surge in the SWU spot price has been driven by uncertainty created as a result of Russia’s invasion of Ukraine, coupled with growing interest in nuclear power as a source of secure and carbon-free energy.

When Russian supply is included, the uranium enrichment segment of the global nuclear fuel market is oversupplied, but without Russian supply, the global market would be undersupplied for uranium enrichment. Changes in the supply-demand balance and in the competitive landscape arising from the war in Ukraine may affect pricing trends, change customer spending patterns, and create uncertainty in the uranium market. To address these changes, we will continue to evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions.

Under the HALEU Demonstration Contract, Centrus was engaged by the DOE to construct a cascade of sixteen AC100M centrifuges in Piketon to demonstrate HALEU production. The Company’s goal under the HALEU Demonstration Contract was to complete the demonstration and scale up production of HALEU and LEU, to meet the needs of new and existing reactors as well as national security and other U.S. Government requirements for enriched uranium.

The HALEU Demonstration Contract was originally set to expire on June 1, 2022; however, it was extended through November 30, 2022. The DOE elected to change the scope of the HALEU Demonstration Contract and moved the operational portion of the demonstration to a new, competitively-awarded contract that would provide for operations beyond the term of the existing HALEU Demonstration Contract. The DOE has incrementally increased funds on the HALEU Demonstration Contract with total funding to date of $168.7 million.

On November 10, 2022, the DOE notified Centrus that the Company had won the HALEU Operation Contract with work beginning November 14, 2022. The HALEU Operation Contract provides for a 50/50 cost share contract for Phase 1 of the base contract to complete the cascade, begin operations and produce 20 Kg of HALEU UF6 by no later than December 31, 2023. Phase 2 includes continued operations and maintenance on a cost-plus-incentive-fee basis and the production for a full year at an annual production rate of 900 Kg of HALEU UF6, but by no later than December 31, 2024. Finally, under the HALEU Operation Contract, the DOE has three 3-year options to extend the term of the contract on a cost-plus-incentive-fee basis. There is no guarantee that the DOE will exercise any of those options or authorize the Company to continue production. Concurrently, pursuant to an amendment to our lease for

43

the Piketon facility, the DOE assumed all D&D liabilities arising out of the HALEU Operation Contract. At this time, work is progressing on-schedule and on-budget for production of a small quantity of HALEU in the quarter ended December 31, 2023.

On February 9, 2023, the Company announced that construction and initial testing of the cascade and most of the support systems was complete. Before operations can begin, the Company needs to finish construction for the remaining support systems, including a fissile materials storage area, to allow HALEU produced for the DOE to be stored onsite, and complete final operational readiness reviews with the NRC to obtain approval for production to begin. The operational readiness reviews are required under the Company’s NRC license, which was successfully amended in 2021 to allow for HALEU production and made the Piketon site the only NRC-licensed HALEU production facility.

Centrus believes it is well positioned to compete for any follow-on contract(s) to expand HALEU production capability at the Piketon site. The DOE is contemplating additional contracts to ensure availability of HALEU for the ARDP and for the advanced reactor market, in general. Centrus responded to a DOE Sources Sought during late October 2022. The DOE plans to use this Sources Sought to guide development of a HALEU Availability Program which may be offered to industry on a competitive basis during 2023.

The Inflation Reduction Act signed into law on August 16, 2022, includes a $700 million appropriation for the DOE HALEU Availability Program, with the goal of making HALEU commercially available by 2026, of which $500 million will be available to support new production and $200 million will be available to resolve related supply chain challenges such as HALEU transportation. On October 6, 2022, the DOE issued a “Sources Sought” notice outlining a potential 10-year program to support the construction and operation of HALEU enrichment in the United States via government purchases of up to 25 metric tons of HALEU per year. The Sources Sought notice is a preliminary step, not a formal request for proposals, and the DOE would require additional annual appropriations beyond what is contained in the Inflation Reduction Act to fully implement that program. On October 14, 2022, the Company attended an Industry Day, where the DOE provided additional information on the potential procurement activity. The Company is evaluating its next steps associated with participating in a potential future request for proposal.

The war in Ukraine has contributed to a significant increase in market prices for enrichment and prompted calls for public and private investment in new, domestic uranium enrichment capacity not only for HALEU production but also for LEU production to support the existing fleet of reactors. As a result, Centrus is exploring the opportunity to deploy LEU enrichment alongside HALEU enrichment to meet a range of commercial and U.S. Government requirements, which would bring cost synergies while increasing revenue opportunities. Our ability to deploy LEU and/or HALEU enrichment, and the timing, sequencing, and scale of those capabilities, is subject to the availability of funding and/or offtake commitments.

We believe our investments in our enrichment technology and the HALEU demonstration will position the Company to meet the needs of government and commercial customers in the future as they deploy advanced reactors and next generation fuels, and also offer potential cost synergies for a return to LEU production. At present, a number of advanced reactors under development would use HALEU fuel. For example, of the ten advanced reactor designs selected by the DOE for its ARDP, nine will require HALEU. In addition, the first non-light water reactor to have begun active NRC-license review requires HALEU. The DOD recently awarded a contract to construct a prototype HALEU-fueled mobile microreactor by 2024 as part of a program called “Project Pele.” The U.S. Air Force also announced plans to deploy a microreactor at Eielson Air Force Base in Alaska. While the use of HALEU is not an express requirement of the Air Force program, the vast majority of microreactor designs are expected to need HALEU. In addition, the Defense Advanced Research Projects Agency is funding an effort called Demonstration Rocket for Agile Cislunar Operations, which aims to demonstrate a HALEU-fueled nuclear thermal propulsion system that could eventually support missions to the moon and Mars.

44

While the monthly price indicators have increased for several years, the uranium enrichment segment of the nuclear fuel market remains oversupplied and faces uncertainty about future demand for nuclear power generation. Changes in the competitive landscape affect pricing trends, change customer spending patterns, and create uncertainty. To address these changes, we have taken steps to adjust our cost structure; we may seek further adjustments to our cost structure and operations and evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions.

We are also actively considering, and expect to consider from time to time in the future, potential strategic transactions, which could involve, without limitation, acquisitions and/or dispositions of businesses or assets, joint ventures or investments in businesses, products or technologies, or changes to our capital structure. In connection with any such transaction, we may seek additional debt or equity financing, contribute or dispose of assets, assume additional indebtedness, or partner with other parties to consummate a transaction.

Refer to Part I, Item 1, Business, for additional information.

Market Conditions and Outlook

The global nuclear industry outlook has begun to improve after many years of decline and stagnation. The development of advanced small and large-scale reactors, innovative advanced fuel types, and the commitment of nations to begin deploying or to increase the share of nuclear power in their nations has created optimism in the market. Part of the momentum has resulted from efforts to lower greenhouse gas emissions to combat climate change and improve health and safety.

According to the WNA, as of January 2023, there were 58 reactors under construction worldwide, about a third of which are in China. The United States, with 92 operating reactors, remains the world’s largest market for nuclear fuel. The nuclear industry in the United States, Japan, and Europe faces headwinds as well as opportunities. In the United States, the industry has been under pressure from lower cost natural gas resources, until recently as gas prices have been rising, and the expansion of subsidized renewable energy. Twelve U.S. reactors have prematurely shut down in the past ten years and others could shut down in the next few years. At the same time, two large reactors are under construction, and there are active efforts to develop, demonstrate, and deploy next generation reactors in the United States, many of which are expected to require HALEU.

45

The IEA projects that global nuclear energy generation will grow substantially in the next three decades. In the IEA’s 2022 World Energy Outlook, nuclear generation is forecasted to grow by 25 percent by 2030 and 46 percent by 2040 under the “Stated Policies” scenario. In the “Net Zero Emissions by 2050” scenario, nuclear generation would grow by 46 percent by 2030 and more than double by 2040. Notably, these estimates of the global growth of nuclear represent a significant increase from the IEA’s 2021 World Energy Outlook, reflecting improving expectations for the future prospects of nuclear energy.

As a consequence of the March 2011 earthquake and tsunami in Japan, over 60 reactors in Japan and Germany were taken offline, and other countries curtailed or slowed their construction of new reactors or accelerated the retirement of existing plants. Ten reactors in Japan have restarted and an additional seven are expected to restart in 2023; more of Japan’s reactors are expected to restart in subsequent years. Due to the war in Ukraine, the EU is encouraging its member countries to reconsider the planned early retirement of existing plants in order to reduce reliance on Russian gas imports.

In October 2020, the DOC reached an agreement with the Russian Federation on an extension of the RSA, a trade agreement which allows for Russian-origin nuclear fuel to be exported to the United States in limited quantities. The two parties agreed to extend the agreement through 2040 and to set aside a significant portion of the annual quota for Centrus’ shipments to the United States through 2028 to execute our long-term TENEX Supply Contract with TENEX. This outcome allows for sufficient quota for Centrus to continue serving its utility customers.

The war in Ukraine has escalated tensions between Russia and the international community. As a result, the United States and other countries have imposed, and may continue imposing, additional sanctions and export controls against certain Russian products, services, organizations and/or individuals. While sanctions imposed to date do not preclude the import of Russian uranium products into the United States, it is possible that additional restrictions could be added in the future that would affect our ability to purchase and resell Russian uranium

46

enrichment, which could have a negative material impact on our business. Further, sanctions by the United States, Russia or other countries may impact our ability and cost to transport, export, import, take delivery, or make payments related to the LEU we purchase, or make timely deliveries to our customers, and may require us to increase purchases from non-Russian sources to the extent available.

In response to the war in Ukraine, there have been proposals in U.S. Congress and elsewhere to ban imports of uranium products that could affect our ability to import LEU in one or more years under the TENEX Supply Contract but none of these have been adopted as of the date of this filing.

The expanding sanctions imposed by the United States and foreign governments on the mechanisms used to make payments to Russia and to obtain services including transportation and other services have increased the risk that implementation of the TENEX Supply Contract may be disrupted in the future. Accordingly, we continue to monitor the situation closely and assess the potential impact of any new sanctions and how the impact on the Company might be mitigated.

For further discussion of these risks and uncertainties, refer to Part I, Item 1A, Risk Factors - The current war in Ukraine and related international sanctions and restrictions on trade could have a material adverse impact on our business, results of operations, and financial condition.

Operating Results

Our revenues, operating results, and cash flows can fluctuate significantly from quarter to quarter and year to year. Our Order Book in the LEU segment consists primarily of long-term, fixed commitment contracts, and we have visibility on a significant portion of our revenue for 2023-2026.

Given the current uncertainty and disruption in the market, due to among other things, the war in Ukraine, we are no longer providing guidance on our results of operations for 2023. Please see Forward Looking Statements at the beginning of this Annual Report on Form 10-K.

Our Order Book in the LEU segment extends to 2029. As of December 31, 2022 and December 31, 2021, our Order Book was approximately $1.0 billion. The Order Book is the estimated aggregate dollar amount of revenue for future SWU and uranium deliveries, and includes approximately $319 million of deferred revenue and advances from customers as of December 31, 2022, whereby customers have made advance payments to be applied against future deliveries. No orders in our Order Book are considered at risk related to customer operations. These medium and long-term contracts are subject to significant risks and uncertainties, including existing import laws and restrictions, such as the RSA, which limits imports of Russian uranium products into the United States and applies to our sales using material procured under the TENEX Supply Contract as well as the potential for additional sanctions and other restrictions in response to the evolving situation regarding the war in Ukraine.

Our future operating results are subject to uncertainties that could affect results either positively or negatively. Among the factors that could affect our results are the following:

•Armed conflicts, including the war in Ukraine, government actions and other events or third-party actions that disrupt supply chains, production, transportation, payments, and importation of nuclear materials or other critical supplies or services;

•The potential for sanctions and other measures affecting purchases of LEU, SWU or uranium, or goods or services required for the purchase or delivery of such LEU, SWU or uranium;

•The availability and terms of additional purchases or sales of LEU, SWU and uranium;

•Conditions in the LEU and energy markets, including pricing, demand, operations, government restrictions on imports, exports or investments, and regulations of our business and activities and those of our customers, suppliers, contractors, and subcontractors;

47

•Timing of customer orders, related deliveries, and purchases of LEU or its components;

•Costs, future funding, and demand for HALEU;

•Financial market conditions and other factors that may affect pension and benefit liabilities and the value of related assets;

•The outcome of legal proceedings and other contingencies;

•Potential use of cash for strategic or financial initiatives;

•Actions taken by customers and suppliers, including actions that might affect existing contracts;

•Market, international trade, and other conditions impacting Centrus’ customers and the industry; and

•The length and severity of the COVID-19 pandemic and its impact on our operations.

For further discussion of these risks and uncertainties, refer to Part I, Item 1A, Risk Factors - (1) Restrictions on imports or sales of SWU or uranium that we buy from our Russian supplier and our other sources of supply could adversely affect profitability and the viability of our business, and - (2) The dollar amount of the Order Book, as stated at any given time, is not necessarily indicative of future sales revenues and is subject to uncertainty.

Revenue

We have two reportable segments: the LEU segment and the Technical Solutions segment.

Revenue from our LEU segment is derived primarily from: 

•sales of the SWU component of LEU;

•sales of natural uranium; and

•sales of enriched uranium product that include both the natural uranium and SWU components of LEU.

Our Technical Solutions segment reflects our technical, manufacturing, engineering, and operations services offered to public and private sector customers, including engineering and testing activities as well as technical and resource support currently being performed by the Company. This includes the HALEU Demonstration Contract, the HALEU Operation Contract, and a variety of other contracts with public and private sector customers.

SWU and Uranium Sales

Revenue from our LEU segment accounted for approximately 80% of our total revenue for the year ended December 31, 2022. The majority of our customers are domestic and international utilities that operate nuclear power plants, with international sales constituting approximately 50% of revenue from our LEU segment since 2020. Our agreements with electric utilities are primarily medium and long-term fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of the SWU component of LEU from us. Contracts where we sell both the SWU and natural uranium component of LEU to utilities or where we sell natural uranium to utilities and other nuclear fuel related companies are generally shorter-term, fixed-commitment contracts. Individual customer orders for the SWU component of LEU fulfilled in 2022 averaged approximately $10 million per order. As a result, a relatively small shift in the timing of customer orders for LEU may cause significant variability in our operating results year over year.

Utility customers, in general, have the option to make payment but defer receipt of SWU and uranium products purchased from Centrus beyond the contractual sale period, resulting in the deferral of costs and revenue recognition. Refer to Note 2, Revenue and Contracts with Customers, in the Consolidated Financial Statements in Part IV of this Annual Report for further details.

48

Our financial performance over time can be affected significantly by changes in prices for SWU and natural uranium. Market prices for SWU and uranium significantly declined from 2011 until mid-2018, when they began to trend upward. More recently, market uncertainty in the wake of the Russian invasion of Ukraine has driven SWU and uranium prices sharply higher. Since our Order Book includes contracts awarded to us in previous years, the average SWU price billed to customers typically lags published price indicators by several years. While some newer sales reflect the low prices prevalent in recent years, certain older contracts included in our Order Book have sales prices that are significantly above current market prices.

Recent proposals to severely limit or cut off supply of LEU from Russia have drawn attention to the potential for significant tightening of supplies in the market. Russian enrichment plants represent 46% of the world’s capacity, and Russian capacity significantly exceeds its domestic needs. According to data from the WNA, the annual enrichment requirements of reactors worldwide outside of Russia vastly exceeds the available supply of non-Russian enrichment, which potentially threatens the viability of some reactors, including those in the United States. While inventories and increased production at non-Russian plants may mitigate the shortfall, these options would not fully replace Russian supply. Deployment of new capacity ultimately could replace Russian enrichment but this capacity will take a number of years and significant funding from private or government sources to come on line.

The following chart summarizes long-term and spot SWU price indicators, and a spot price indicator for UF6, as published by TradeTech, LLC in Nuclear Market Review:

SWU and Uranium Market Price Indicators*

    * Source: Nuclear Market Review, a TradeTech publication, www.uranium.info

Our contracts with customers are denominated primarily in U.S. dollars, and, although revenue has not been materially affected by changes in the foreign exchange rate of the U.S. dollar, we may have a competitive price advantage or disadvantage obtaining new contracts in a competitive bidding process depending upon the weakness or strength of the U.S. dollar. On occasion, we will accept payment in euros for spot sales that may be subject to

49

short-term exchange rate risk. Costs of our primary competitors are denominated in other currencies. Our contracts with suppliers are primarily denominated in U.S. dollars. We have a SWU supply agreement, nominally commencing in 2023, with prices payable in a combination of U.S. dollars and euros, but with a contract-defined exchange rate.

On occasion, we will accept payment for SWU in the form of natural uranium. Revenue from the sale of SWU under such contracts is recognized at the time LEU is delivered and is based on the fair value of the natural uranium at contract inception, or as the quantity of natural uranium is finalized, if variable.

Cost of sales for SWU and natural uranium is based on the amount of SWU and natural uranium sold and delivered during the period and unit inventory costs. Unit inventory costs are determined using the average cost method. Changes in purchase costs have an effect on inventory costs and cost of sales. Cost of sales includes costs for inventory management at off-site licensed locations. Cost of sales also includes certain legacy costs related to former employees of the Portsmouth GDP and Paducah GDP.

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1, Summary of Significant Accounting Policies, of our Consolidated Financial Statements in Part IV of this Annual Report, which were prepared in accordance with U.S. GAAP. U.S. GAAP and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business are complex and involve many subjective assumptions, estimates and judgments that are, by their nature, subject to substantial risks and uncertainties. Critical accounting estimates are those that require management to make assumptions about matters that are uncertain at the time the estimate is made and for which different estimates, often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but are inherently uncertain and unpredictable, could have a material impact on our operating results and financial condition. It is also possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. We are also subject to risks and uncertainties that may cause actual results to differ from estimated amounts, such as the healthcare environment, legislation and regulation. Additionally, changes in accounting rules or their interpretation could significantly affect our results of operations and financial condition.

The sensitivity analyses used below are not intended to provide a reader with our predictions of the variability of the estimates used. Rather, the sensitivities used are included to allow the reader to understand a general cause and effect of changes in estimates.

We have identified the following to be our critical accounting estimates:

Revenue Recognition - Technical Solutions

Revenue for the Technical Solutions segment is recognized over the contractual period as services are rendered. The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer.

The Company determines the transaction price for each contract based on the consideration it expects to receive for the products or services being provided under the contract. If transaction prices are not stated in the contract for each performance obligation, contractual prices are allocated to performance obligations based on estimated relative standalone selling prices of the promised services. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the estimated standalone selling price of the product or service underlying each performance obligation. The standalone selling price represents the amount the Company would sell the product or service to a customer on a standalone basis (i.e., not bundled with any other products or services). The Company's contracts with the U.S. Government are subject to the FAR and the price is typically based on estimated or actual costs plus a reasonable profit margin. As a result of these regulations, the standalone selling price of products or services in the Company’s contracts with the U.S. Government are

50

typically equal to the selling price stated in the contract. The Company does not contemplate future modifications, including unexercised options until they become legally enforceable. Contracts may be subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, the Company considers whether to account for the modification as an adjustment to the existing contract or as a separate contract.

In cases where the Company uses the cost-to-cost input method of progress for performance obligations, the extent of progress towards completion is measured based on the proportion of direct costs incurred to date to the total estimated direct costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. For performance obligations to provide services to the customer, revenue is recognized over time based on direct costs incurred or the right to invoice method (in situations where the value transferred matches the Company’s billing rights) as the customer receives and consumes the benefits.

Significant estimates and assumptions are made in estimating revenue under the cost-to-cost method and total estimated costs, including the estimated contract profit/loss. At the outset of a long-term contract, the Company identifies and monitors risks to the achievement of the technical, schedule and cost aspects of the contract, and assesses the effects of those risks on its estimates of revenue and total costs to complete the contract. The estimates consider the technical requirements, schedule and costs. The initial estimated total costs for each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract. Total estimated costs may decrease during the performance of the contract if the Company successfully retires risks surrounding the technical, schedule and cost aspects of the contract. Conversely, total estimated costs may decrease if the estimated total costs to complete the contract increase. As a significant change in one or more estimates could affect the profitability of the Company’s contracts, the Company reviews and updates its contract-related estimates regularly. When estimates of total costs at completion for an integrated, construction type contract exceed total estimates of revenue to be earned on a performance obligation related to complex equipment or related services, a provision for the remaining loss on the performance obligation is recognized in the period the loss is determined. Estimated costs are subject to change during the performance period of the contract and may affect the estimated contract loss.

Asset Valuations

The accounting for SWU and uranium inventories includes estimates and judgments. SWU and uranium inventory costs are determined using the average cost method. Inventories of SWU and uranium are valued at the lower of cost or NRV. NRV is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The estimated selling price for SWU and uranium under contract is based on the pricing terms of contracts in our Order Book. For uranium not under contract, the estimated selling price is based primarily on published price indicators at the balance sheet date.

Intangible assets originated from our reorganization and application of fresh start accounting as of September 30, 2014. The intangible assets represented the fair value adjustment to the assets and liabilities for our LEU segment. The identifiable intangible assets relate to our Order Book and customer relationships. The Order Book intangible asset is amortized as the Order Book valued at emergence is reduced, principally as a result of deliveries to customers. The customer relationships intangible asset is amortized using the straight-line method over the estimated average useful life of 15 years, with 6 ¾ years of scheduled amortization remaining. The aggregate net balance of identifiable intangible assets was $45.7 million as of December 31, 2022.

The carrying values of the intangible assets are subject to impairment tests whenever events or changes in business circumstances indicate that the carrying amount of the intangible assets may not be fully recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset, or asset group exceeds its fair value.

51

Inherent in our fair value determinations are certain judgments and estimates, including projections of future cash flows, the discount rate reflecting the risk inherent in future cash flows, the interpretation of current economic indicators and market valuations, and strategic plans with regard to operations. A change in these underlying assumptions would cause a change in the results of the tests, which could cause the fair value of the intangible asset to be less than its respective carrying amount.

Pension and Postretirement Health and Life Benefit Costs and Obligations

We provide retirement benefits to certain employees and retirees under defined benefit pension plans and postretirement health and life benefit plans. The valuation of benefit obligations and costs is based on provisions of the plans and actuarial assumptions that involve judgments and estimates.

Assets and obligations related to our retiree benefit plans are remeasured each year as of the balance sheet date resulting in differences between actual and projected results for the year. The Company has elected the accounting option to recognize these actuarial gains and losses in the statement of operations in the fourth quarter. The alternative would be to amortize gains and losses into operating results over time. The Company’s treatment of recognizing actuarial gains and losses immediately is intended to increase transparency into how movements in plan assets and benefit obligations impact financial results. Immediate recognition of such gains and losses in the statement of operations may cause significant fluctuations in our results of operations. In addition, an interim remeasurement and recognition of gains or losses may be required for a plan during the year if lump sum payments exceed certain levels.

Components of retirement benefit expense/income other than service cost are presented in our consolidated statement of operations as Nonoperating Components of Net Periodic Benefit Income. These components consist primarily of the return on plan assets, offset by interest cost as the discounted present value of benefit obligations nears payment. Results also reflect claims experience, changes in mortality and healthcare claim assumptions and changes in market interest rates. Service cost is recognized in Cost of Sales (for the LEU segment) and Selling, General and Administrative expense.

Nonoperating components of net periodic benefit income netted to income of $6.6 million, $67.6 million, and $1.6 million for the year ended December 31, 2022, 2021, and 2020, including a net actuarial loss of $7.8 million for the year ended December 31, 2022, net actuarial gain of $50.5 million for the year ended December 31, 2021, and net actuarial loss of $7.2 million for the year ended December 31, 2020. For the year ended December 31, 2022, the net actuarial loss reflected unfavorable investment returns relative to the expected return assumption, partially offset by an increase in interest rates from approximately 2.8% to 5.5%. For the year ended December 31, 2021, the net actuarial gain reflected an increase in interest rates from approximately 2.5% to 2.8%, favorable investment returns relative to the expected return assumption, and healthcare claims assumption, partially offset by changes in mortality, healthcare costs trend assumptions, and claims experience. For the year ended December 31, 2020, the net actuarial loss reflected a decline in market interest rates from approximately 3.3% to 2.5%, partially offset by favorable investment returns relative to the expected return assumption and changes in mortality and healthcare claim assumptions.

Changes in actuarial assumptions could impact the measurement of benefit obligations and benefit costs, as follows:

•The expected return on benefit plan assets is approximately 6.8% for 2023. The expected return is based on historical returns and expectations of future returns for the composition of the plans’ equity and debt securities. A one-half percentage point decrease in the expected return on plan assets would increase annual pension costs by $2.3 million in 2023. However, the net impact of any changes in the expected return on benefit plan assets on the final benefit cost recognized for fiscal year 2023 would be $0 since the actual return on assets would effectively be reflected at December 31, 2023, under our mark-to-market accounting methodology.

52

•The present value of pension obligations is calculated by discounting long-term obligations using a market interest rate. This discount rate is the estimated rate at which the benefit obligations could be effectively settled on the measurement date and is based on yields of high quality fixed income investments whose cash flows match the timing and amount of expected benefit payments of the plan. Discount rates of approximately 5.5% were used as of December 31, 2022. A one-half percentage point reduction in the discount rate would increase the valuation of pension benefit obligations by $21.7 million and postretirement health and life benefit obligations by $3.7 million, and the resulting changes in the valuations would decrease the aggregate service cost and interest cost components of annual pension costs and postretirement health and life benefit costs by $1.4 million and $0.3 million, respectively.

•The healthcare costs trend rates are 7% projected in 2023 reducing to a final trend rate of 5% by 2031. The healthcare costs trend rate represents our estimate of the annual rate of increase in the gross cost of providing benefits. The trend rate is a reflection of health care inflation assumptions, changes in healthcare utilization and delivery patterns, technological advances, and changes in the health status of our plan participants.

Income Taxes

During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. To the extent that the final tax outcome of these matters is different than the amounts that were initially recorded, such differences will impact the income tax provision in the period in which such determination is made.

Accounting standards prescribe a minimum recognition threshold that a tax position is required to meet before the related tax benefit may be recognized in the financial statements. As of December 31, 2022, the liability for unrecognized tax benefits, included in Other Long-Term Liabilities on the Consolidated Balance Sheet in Part IV of this Annual Report, was $1.9 million and accrued interest and penalties totaled $0.1 million.

Accounting for income taxes involves estimates and judgments relating to the tax bases of assets and liabilities and the future recoverability of deferred tax assets. In assessing the realization of deferred tax assets, we determine whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income in future years when deferred tax assets are recoverable or are expected to reverse. Factors that may affect estimates of future taxable income include, but are not limited to, competition, changes in revenue, costs or profit margins, market share, and developments related to the American Centrifuge technology. In practice, positive and negative evidence is reviewed with objective evidence receiving greater weight. If, based on the weight of available evidence, it is more likely than not that all, or some portion, of the deferred tax assets will not be realized, we record a valuation allowance. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed for all, or some portion, of the deferred tax assets.

All available positive and negative evidence is analyzed quarterly to determine the amount of the valuation allowance. A full valuation allowance against the federal and state net deferred assets was first recorded in the fourth quarter of 2011 because of significant losses and other negative evidence.

In the second quarter of 2020, the valuation allowance on the state net deferred tax assets for the LEU segment was released due to a return to profitability that led to cumulative income for state income tax purposes. A full valuation allowance against the federal and state net deferred tax assets for the rest of the business remained throughout 2020 because negative evidence, including cumulative losses, outweighed positive evidence.

In 2021, Centrus evaluated both positive and negative evidence that was objectively verifiable to determine the amount of the federal valuation allowance that was required on Centrus’ federal deferred tax assets. As discussed in Operating Results, Centrus has visibility on a significant portion of revenue in the LEU segment through 2026,

53

primarily from its long-term sales contracts. Centrus considered both its achievement of sustained profitability and cumulative income in 2021, as well as the forecasted income to be significant forms of positive evidence. Negative evidence included uncertainty in and the lack of objectively verifiable evidence for profitability in later years when Centrus’ existing Order Book and supply contracts reach expiration in its LEU segment. In Centrus’ Technical Solutions segment, negative evidence included uncertainty in the future funding of the HALEU enrichment facility and thus, no assumptions for the future funding of the HALEU enrichment facility were included in the forecast model because it was not objectively verifiable. Centrus determined that the positive evidence outweighed the negative evidence and supported a release of the federal valuation allowance. However, due to lack of objectively verifiable information in later years, it was determined that forecasted future income was not sufficient to realize all the deferred tax assets. Therefore, Centrus recorded a $40.7 million partial release of its federal valuation allowance in the fourth quarter of 2021. In 2022, an analysis of the positive and negative evidence was performed to determine if a further change to the federal valuation allowance was necessary. Based on the analysis, it was determined that no change to the federal valuation allowance was necessary. As of December 31, 2022, the valuation allowance against the remaining federal and state net deferred tax assets was $414.1 million.

Going forward, Centrus will continue to evaluate both positive and negative evidence that would require changes to the remaining federal and state valuation allowances. Such evidence in our Technical Solutions segment may include events that could have a significant impact on pre-tax income, such as signing new contracts with significantly higher or lower margins than currently forecasted, follow-on work related to the HALEU program, or abandonment of the commercial deployment of the centrifuge technology. Refer to Part I, Item 1A, Risk Factors for more information. Such evidence in our LEU segment may include renewing SWU sales contracts with existing customers and/or signing new SWU sales or purchase contracts with significantly higher or lower margins than currently forecasted. Additional evidence in the LEU segment may include potential deferrals in the timing of deliveries requested by its customers, which could impact revenue recognition timing. The impact of these and other potential positive and negative events will be weighed and evaluated to determine if the valuation allowances should be increased or decreased in the future.

54

Results of Operations

Set forth below are our results of operations for the year ended December 31, 2022 compared with the year ended December 31, 2021. We have omitted discussion of 2020 results where it would be redundant to the discussion previously included in Item 7 of our 2021 Annual Report on Form 10-K, filed with the SEC on March 11, 2022.

Segment Information

The following tables present elements of the accompanying Consolidated Statements of Operations that are categorized by segment (dollar amounts in millions):

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","$ Change","","% Change"],["LEU segment"],["Revenue:"],["SWU revenue","$","196.2","","","$","163.3","","","$","32.9","","","20","%"],["Uranium revenue","39.4","","","22.8","","","16.6","","","73","%"],["Total","235.6","","","186.1","","","49.5","","","27","%"],["Cost of sales","105.0","","","113.1","","","(8.1)","","","(7)","%"],["Gross profit","$","130.6","","","$","73.0","","","$","57.6","","","79","%"],["Technical Solutions segment"],["Revenue","$","58.2","","","$","112.2","","","$","(54.0)","","","(48)","%"],["Cost of sales","70.9","","","70.7","","","0.2","","","\u2014","%"],["Gross profit (loss)","$","(12.7)","","","$","41.5","","","$","(54.2)","","","(131)","%"],["Total"],["Revenue","$","293.8","","","$","298.3","","","$","(4.5)","","","(2)","%"],["Cost of sales","175.9","","","183.8","","","(7.9)","","","(4)","%"],["Gross profit","$","117.9","","","$","114.5","","","$","3.4","","","3","%"]]
[[/GREPCENT_TABLE]]

Revenue

Revenue from the LEU segment was $235.6 million and $186.1 million for the year ended December 31, 2022 and 2021, respectively, an increase of $49.5 million (or 27%). SWU revenue increased $32.9 million (or 20%) due to an 11% increase in the average SWU price of SWU sold combined with a 9% increase in the volume of SWU sold.

Revenue from sales of uranium was $39.4 million and $22.8 million for the year ended December 31, 2022 and 2021, respectively, an increase of $16.6 million (or 73%). The average price of uranium (UF6 and U3O8 ) increased 83%, which was partially offset by a decrease in sales volume of 6%.

Revenue from the Technical Solutions segment was $58.2 million and $112.2 million for the year ended December 31, 2022 and 2021, respectively, a decrease of $54.0 million (or 48%). Revenue in 2021 included $43.5 million related to the settlement of the Company’s claims for reimbursements for certain pension and postretirement benefits costs incurred in connection with a past cost-reimbursable contract performed at the Portsmouth GDP. Excluding this payment, revenue from the Technical Solutions segment decreased $10.5 million (or 15%) in 2022,

55

driven by decreased work performed under the HALEU Demonstration Contract and X-energy contract of $11.3 million and $3.3 million, respectively, partially offset by increased work under the HALEU Operation Contract of $1.8 million and under other contracts of $2.3 million.

Cost of Sales

Cost of sales for the LEU segment was $105.0 million and $113.1 million for the year ended December 31, 2022 and 2021, respectively, a decrease of $8.1 million (or 7%). The volume of SWU and uranium (UF6 ) sold increased by 9% and 27%, respectively and the average SWU and uranium (UF6 ) unit cost decreased by 26% and increased by 30%, respectively.

Cost of sales for the Technical Solutions segment was $70.9 million and $70.7 million for the year ended December 31, 2022 and 2021, respectively, an increase of $0.2 million (or 0%), largely reflecting the increase in contract work performed. The increase consists of the $21.3 million accrued loss for Phase 1 of the HALEU Operation Contract plus $1.8 million of other costs relating to this contract. This was offset by decreased costs related to the HALEU Demonstration Contract and X-energy contract of $21.4 million and $3.5 million, respectively. For details on HALEU Operation and Demonstration Contract accounting, refer to Technical Solutions - Government Contracting above.

Gross Profit

The Company recognized a gross profit of $117.9 million and in $114.5 million for the year ended December 31, 2022 and 2021, respectively, an improvement of $3.4 million (or 3%).

Gross profit for the LEU segment was $130.6 million and $73.0 million for the year ended December 31, 2022 and 2021, respectively, an increase of $57.6 million (or 79%). The increase was primarily due to an increase in the average SWU and uranium sales price, an increase in SWU sales volume, and a reduction in the average unit cost of SWU.

Gross profit for the Technical Solutions segment netted to a loss of $12.7 million and profit of $41.5 million for the year ended December 31, 2022 and 2021, respectively, a decrease of $54.2 million (or 131%). Excluding the settlement with DOE, gross profit from the Technical Solutions segment decreased by $10.7 million (or 535%), mainly due to a $21.3 million decrease in gross profit generated for the accrued loss related to Phase 1 of the HALEU Operation Contract, partially offset by a $10.1 million increase in gross profit generated from the HALEU Demonstration Contract.

56

Non-Segment Information

The following tables present elements of the accompanying consolidated statements of operations that are not categorized by segment (dollar amounts in millions):

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","$ Change","","% Change"],["Gross profit","$","117.9","","","$","114.5","","","$","3.4","","","3","%"],["Advanced technology costs","14.8","","","2.1","","","12.7","","","605","%"],["Selling, general and administrative","33.9","","","36.0","","","(2.1)","","","(6)","%"],["Amortization of intangible assets","9.0","","","8.1","","","0.9","","","11","%"],["Special charges for workforce reductions","0.5","","","\u2014","","","0.5","","","n/a"],["Operating income","59.7","","","68.3","","","(8.6)","","","(13)","%"],["Nonoperating components of net periodic benefit income","(6.6)","","","(67.6)","","","61.0","","","90","%"],["Interest expense","0.5","","","0.1","","","0.4","","","400","%"],["Investment income","(2.0)","","","(0.1)","","","(1.9)","","","(1,900)","%"],["Income before income taxes","67.8","","","135.9","","","(68.1)","","","(50)","%"],["Income tax expense (benefit)","15.6","","","(39.1)","","","54.7","","","140","%"],["Net income","$","52.2","","","$","175.0","","","$","(122.8)","","","(70)","%"]]
[[/GREPCENT_TABLE]]

Advanced Technology Costs

Advanced technology costs were $14.8 million and $2.1 million for the year ended December 31, 2022 and 2021, respectively, an increase of $12.7 million (or 605%). Advanced technology costs consist of American Centrifuge work and related expenses that are outside of our customer contracts in the Technical Solutions segment, including bid and proposal activities and work to improve our centrifuge technology.

Amortization of Intangible Assets

Amortization of intangible assets was $9.0 million and $8.1 million for the year ended December 31, 2022 and 2021, respectively, an increase of $0.9 million (or 11%). Amortization expense for the intangible asset related to the September 2014 sales Order Book is a function of SWU sales volume under that Order Book, and amortization expense for the intangible asset related to customer relationships is amortized on a straight-line basis.

Nonoperating Components of Net Periodic Benefit Income

Nonoperating components of net periodic benefit income was ($6.6) million and ($67.6) million for the year ended December 31, 2022 and 2021, respectively, a decrease of $61.0 million (or 90%). For the year ended December 31, 2022, nonoperating components of net periodic benefit income consists primarily of ($164.1) million related to the increase in discount rates, offset by a loss of $137.0 million on plan assets and $20.5 million of additional costs which include interest costs amortized during the year. For the year ended December 31, 2021, nonoperating components of net periodic benefit income consists primarily of a return on plan assets of ($58.2) million and ($31.0) million related to an increase in discount rates, offset by $21.5 million of additional costs which include interest costs amortized during the year.

57

Income Tax Expense (Benefit)

Income tax expense (benefit) was $15.6 million and ($39.1) million for the year ended December 31, 2022 and 2021, respectively, an increase of $54.7 million (or 140%). For the year ended December 31, 2022, income tax expense consists of federal tax of $14.9 million, permanent differences of $3.5 million, and state income tax expense of $0.7 million. For the year ended December 31, 2021, the income tax benefit primarily related to the release of the federal valuation allowance of $40.7 million offset by the effect of state rate changes of $1.2 million and state income tax expense of $0.4 million. The state income tax expense for the year ended December 31, 2022 and 2021, primarily relates to an accrual for a current unrecognized tax benefit offset by the reversal of a previously accrued unrecognized tax benefit.

Net Income

Net income was $52.2 million and $175.0 million for the year ended December 31, 2022 and 2021, respectively, a decrease of $122.8 million (or 70%). The decrease was primarily driven by a decrease in nonoperating components of net periodic benefit income of $61.0 million and an increase of income tax expense of $54.7 million, partially offset by an increase in gross profit of $3.4 million.

58

Net Income per Share

Refer to Note 14, Net Income per Common Share, of the Consolidated Financial Statements in Part IV of this Annual Report.

The Company measures Net Income and Net Income per Share both on a GAAP basis and on an adjusted basis to exclude deemed dividends allocable to retired preferred stock shares and the warrant modification (“Adjusted Net Income” and “Adjusted Net Income per Share”). We believe Adjusted Net Income and Adjusted Net Income per Share, which are non-GAAP financial measures, provide investors with additional understanding of the Company’s financial performance as well as its strategic financial planning analysis and period-to-period comparability. These metrics are useful to investors because they reflect how management evaluates the Company’s ongoing operating performance from period-to-period after removing certain transactions and activities that affect comparability of the metrics and are not reflective of the Company’s core operations.

[[GREPCENT_TABLE]]
[["","Three Months Ended December 31,","","Year Ended December 31,"],["","2022","","2021","","2020","","2022","","2021","","2020"],["Numerator (in millions):"],["Net income","$","21.3","","","$","116.2","","","$","16.4","","","$","52.2","","","$","175.0","","","$","54.4"],["Less: Distributed earnings allocable to warrant modification","1.5","","","\u2014","","","\u2014","","","1.5","","","\u2014","","","\u2014"],["Less: Preferred stock dividends - undeclared and cumulative","\u2014","","","\u2014","","","0.8","","","\u2014","","","2.1","","","6.7"],["Less: Distributed earnings allocable to retired preferred shares","\u2014","","","31.0","","","41.9","","","\u2014","","","37.6","","","41.9"],["Net income (loss) allocable to common stockholders","$","19.8","","","$","85.2","","","$","(26.3)","","","$","50.7","","","$","135.3","","","$","5.8"],["Plus: Distributed earnings allocable to warrant modification","$","1.5","","","$","\u2014","","","$","\u2014","","","$","1.5","","","$","\u2014","","","$","\u2014"],["Plus: Distributed earnings allocable to retired preferred shares","\u2014","","","31.0","","","41.9","","","\u2014","","","37.6","","","41.9"],["Adjusted net income, including distributed earnings allocable to retired preferred shares (Non-GAAP)","$","21.3","","","$","116.2","","","$","15.6","","","$","52.2","","","$","172.9","","","$","47.7"],["Denominator (in thousands) (a):"],["Average common shares outstanding - basic","14,648","","","13,873","","","10,322","","","14,601","","","13,493","","","9,825"],["Average common shares outstanding - diluted (b)","15,029","","","14,278","","","10,322","","","14,988","","","13,879","","","10,123"],["Net Income (Loss) per Share (in dollars):"],["Basic","$","1.35","","","$","6.14","","","$","(2.55)","","","$","3.47","","","$","10.03","","","$","0.59"],["Diluted","$","1.32","","","$","5.97","","","$","(2.55)","","","$","3.38","","","$","9.75","","","$","0.57"],["Plus: Effect of distributed earnings allocable to retired preferred shares and warrant modification, per common share (in dollars):"],["Basic","$","0.10","","","$","2.24","","","$","4.06","","","$","0.11","","","$","2.78","","","$","4.26"],["Diluted","$","0.10","","","$","2.17","","","$","4.01","","","$","0.10","","","$","2.71","","","$","4.14"],["Adjusted Net Income per Share (Non-GAAP) (in dollars):"],["Basic","$","1.45","","","$","8.38","","","$","1.51","","","$","3.58","","","$","12.81","","","$","4.85"],["Diluted","$","1.42","","","$","8.14","","","$","1.46","","","$","3.48","","","$","12.46","","","$","4.71"]]
[[/GREPCENT_TABLE]]

(a) For details related to average shares outstanding, refer to Note 14, Net Income Per Common Share, of the Consolidated Financial Statements.

(b) For purposes of Adjusted Net Income per Share for the three months ended December 31, 2020, average common shares outstanding - diluted is 10,659,000 shares. No dilutive effect is recognized in a period in which a net loss has occurred.

59

Liquidity and Capital Resources

As of December 31, 2022, the Company had a consolidated cash balance of $179.9 million. In addition, there is $29.8 million of restricted cash related to three inventory loans, which required a cash deposit into an escrow fund. See Note 3, Cash, Cash Equivalents, Restricted Cash of the Consolidated Financial Statements in Part IV of this Annual Report. The Company anticipates having adequate liquidity to support our business operations for at least the next 12 months from the date of this report. Our view of liquidity is dependent on, among other things, conditions affecting our operations, including market, international trade restrictions, COVID-19 and other conditions, the level of expenditures and government funding for our services contracts, and the timing of customer payments. Liquidity requirements for our existing operations are affected primarily by the timing and amount of customer sales and our inventory purchases.

The Company believes our Order Book in our LEU segment is a source of stability for our liquidity position. Subject to market conditions, we see the potential for growing uncommitted demand for LEU during the next few years with accelerated open demand in 2025 and beyond.

Cash resources and net sales proceeds from our LEU segment fund technology costs that are outside of our customer contracts in the Technical Solutions segment and general corporate expenses, including cash interest payments on our debt. We believe our investment in advanced U.S. uranium enrichment technology will position the Company to meet the needs of our customers as they deploy advanced reactors and next generation fuels. We signed the three-year HALEU Demonstration Contract with DOE in October 2019. Under the HALEU Demonstration Contract, the Company contributed its required contribution through November 30, 2021. The program has been under way since May 31, 2019, when Centrus and the DOE signed a preliminary letter agreement that allowed work to begin while the full contract was being finalized.

The Company entered into this cost-share contract with the DOE as a critical first step on the road back to the commercial production of enriched uranium, which the Company had terminated in 2013 with the closure of the Paducah GDP. HALEU is expected to be required by many of the advanced reactor designs now under development, including nine out of the ten reactor designs that were selected in 2020 for the ARDP. Our HALEU Demonstration Contract period of performance ended in November 2022.

On November 10, 2022, the Company was awarded the HALEU Operation Contract. The HALEU Operation Contract provides for a 50/50 cost share contract for Phase 1 of the base contract to complete the cascade, begin operations and complete the initial, small quantity demonstration HALEU. Phase 2 includes continued operations and maintenance on a cost-plus-incentive-fee basis. Finally, the HALEU Operation Contract includes options for the government to unilaterally extend performance for up to an additional nine years comprised of three options of three years each, also on a cost-plus-incentive-fee basis. The Company’s goal is to modularly scale up the facility as demand for HALEU grows in the commercial and government sectors, subject to the availability of funding and/or contracts to purchase the output of the plant.

Although the Company believes demand for HALEU will emerge over the next several years, there are no guarantees about whether or when government or commercial demand for HALEU will materialize, and there are a number of technical, regulatory and economic hurdles that must be overcome for these fuels and reactors to come to the market. For further discussion, refer to Part I, Item 1A, Risk Factors.

If funding by the U.S. Government for research, development and demonstration of gas centrifuge technology is reduced or discontinued, or we are not awarded a future DOE contract to continue to operate the cascade, such actions may have a material adverse impact on our ability to deploy the American Centrifuge technology and on our liquidity.

Capital expenditures of approximately $1.0 million are anticipated over the next 12 months.

60

We are actively considering, and expect to consider from time to time in the future, potential strategic transactions, which at any given time may be in various stages of discussions, diligence, or negotiation. If we pursue opportunities that require capital, we believe we would seek to satisfy these needs through a combination of working capital, cash generated from operations or additional debt or equity financing.

The change in cash, cash equivalents and restricted cash from our Consolidated Statements of Cash Flows are as follows on a summarized basis (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["Cash provided by operating activities","$","20.6","","","$","50.0"],["Cash used in investing activities","(0.7)","","","(1.2)"],["Cash used in financing activities","(4.3)","","","(9.9)"],["Increase in cash, cash equivalents and restricted cash","$","15.6","","","$","38.9"]]
[[/GREPCENT_TABLE]]

Operating Activities

During 2022, net cash provided by operating activities was $20.6 million. The net decrease was primarily due to $252.0 million in cash collected from customers, offset by $159.1 million of payments for LEU inventory deliveries and cash outflows for the Technical Solutions segment. This remaining difference was primarily related to payments for benefit claims, corporate administration, and advance technology costs.

During 2021, net cash provided by operating activities was $50.0 million. Net income of $175.0 million for the year ended December 31, 2021, net of non-cash expenses, was a significant source of cash. Net income included the $43.5 million recovery of claims for reimbursement for costs related to past contract services performed. The net increase is also the result of a $16.6 million increase in accounts payable and other liabilities and a $13.2 million increase in deferred revenue and advances from customers. These increases were partially offset by a $57.0 million reduction in pension and postretirement benefit liabilities and a $10.7 million increase in inventories.

Investing Activities

For the year ended December 31, 2022 and 2021, investing activities consisted of capital expenditures of $0.7 million and $1.2 million, respectively.

Financing Activities

For the year ended December 31, 2022 and 2021, annual payments of $6.1 million of interest classified as debt are classified as a financing activity. Refer to Note 8, Debt, of the Consolidated Financial Statements in Part IV of this Annual Report regarding the accounting for the 8.25% Notes.

For the year ended December 31, 2021, net cash used in financing activities included the redemption of preferred stock for $44.4 million, net of direct costs, pursuant to a tender offer and net proceeds received of $42.1 million from the issuance of common stock pursuant to a Registration Statement on Form S-3.

61

Working Capital

The following table summarizes the Company’s working capital (in millions):

[[GREPCENT_TABLE]]
[["","December 31,"],["","2022","","2021"],["Cash and cash equivalents","$","179.9","","","$","193.8"],["Accounts receivable","38.1","","","29.1"],["Inventories, net","148.4","","","82.7"],["Current debt","(6.1)","","","(6.1)"],["Deferred revenue and advances from customers, net of deferred costs","(137.5)","","","(159.8)"],["Other current assets and liabilities, net","(84.9)","","","(67.1)"],["Working capital","$","137.9","","","$","72.6"]]
[[/GREPCENT_TABLE]]

We are managing our working capital to seek to improve the long-term value of our LEU and Technical Solutions businesses and are planning to continue funding the Company’s qualified pension plans in the ordinary course because we believe that is in the best interest of all stakeholders. We expect that any other uses of working capital will be undertaken in light of these strategic priorities and will be based on the Company’s determination as to the relative strength of its operating performance and prospects, financial position, and expected liquidity requirements. In addition, we expect that any such other uses of working capital will be subject to compliance with contractual restrictions to which the Company and its subsidiaries are subject, including the terms and conditions of our 8.25% Notes. We continually evaluate alternatives to manage our capital structure, and may opportunistically repurchase, exchange, or redeem Company securities from time to time.

Common Stock Issuance

The Company sold at the market price an aggregate of 99,090 shares and 1,516,467 shares of its Class A Common Stock for a total of $3.8 million and $44.2 million in 2022 and 2021, respectively. After expenses and commissions paid to the agents in 2022 and 2021, the Company’s proceeds total $3.6 million and $42.4 million, respectively. Additionally, in 2021, the Company recorded direct costs of $0.3 million related to the issuance. The shares of Class A Common Stock were issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-239242), which became effective on August 5, 2020, and a prospectus supplement dated December 31, 2020, to the prospectus. At present, the Company has $2.0 million remaining available for sale under the prospectus supplement dated December 31, 2020, and may from time to time sell additional shares through the sales agreement. The Company used the net proceeds from this offering for general working capital purposes, to invest in technology development, repay outstanding debt and retire shares of its Series B Senior Preferred Stock.

On February 2, 2021, the Company entered into the Voting Agreement Amendment to its existing Voting and Nomination Agreement with the MB Group and an Exchange Agreement, whereby the MB Group agreed to support management’s recommendation on certain matters at the Company’s 2021 Annual Meeting and Kulayba LLC agreed to exchange shares of Preferred Stock for shares of Class A Common Stock and a warrant to acquire additional shares of Class A Common Stock. Pursuant to the First Amendment to the Voting and Nomination Agreement, the MB Group agreed to cause all shares of Class A Common Stock owned of record or beneficially owned by the MB Group at the Annual Meeting to be voted in favor of (i) an amendment to extend the length of the term of the Company’s Section 382 Rights Agreement dated as of April 6, 2016, as amended to date, for two years from June 30, 2021, to June 30, 2023, and (ii) an increase of shares of Class A Common Stock reserved for delivery under the Company’s 2014 Equity Incentive Plan, as amended to date, of an additional 700,000 shares of Class A Common Stock.

62

In connection with the entry into the Voting Agreement Amendment, the Company and Kulayba LLC also entered into the Exchange Agreement, pursuant to which Kulayba LLC agreed to the Exchange, representing a $5,000,198 liquidation preference (including accrued and unpaid dividends), for (i) 231,276 shares of Class A Common Stock priced at the closing market price of $21.62 on the date the Exchange Agreement was signed and (ii) the Warrant, exercisable for 250,000 shares of Class A Common Stock at an exercise price of $21.62 per share, which was the closing market price on the date the Exchange Agreement was signed, subject to certain customary adjustments pursuant to the terms of the Warrant. The Warrant was exercisable by Kulayba LLC for a period commencing on the closing date of the Exchange and ending, unless sooner terminated as provided in the Warrant, on the first to occur of: (a) the second anniversary of the closing date of the Exchange or (b) the last business day immediately prior to the consummation of a Fundamental Transaction (as defined in the Warrant), which results in the shareholders of the Company immediately prior to such Fundamental Transaction owning less than 50% of the voting equity of the surviving entity immediately after the consummation of the Fundamental Transaction. The Company retired the 3,873 shares of Preferred Stock received by the Company under the Exchange Agreement.

On December 29, 2022, the Company amended and restated the Warrant, and entered into a Voting Rights Agreement with the MB Group. Pursuant to the terms of the Voting Rights Agreement, each member of the MB Group and each Permitted Transferee (as defined in the Voting Rights Agreement) agreed, at the Company’s 2023 and 2024 Annual Meetings and at any other vote by the holders of the Company’s Common Stock, to (i) cause, in the case of all Common Stock owned of record, and (ii) instruct and cause the record owner, in the case of all shares of Common Stock of which MB Group is a Beneficial Owner (as defined in the Voting Rights Agreement), but not owned of record, directly or indirectly, by it, or by any MB Affiliate (as defined in the Voting Rights Agreement), as of the applicable record date, in each case entitled to (i) be present for quorum purposes, and (ii) vote, as follows: (a) for all directors nominated by the Board for election, (b) for all other proposals, in accordance with the recommendation of the Board, and (c) for any Company proposed adjournments thereof. In addition, each member of the MB Group agreed to not directly or indirectly gift, sell, dispose or otherwise transfer any shares of Common Stock unless the transferee agreed to be bound to the same voting conditions at the 2023 and 2024 Annual Meetings, and other meetings in 2023 and 2024, except with respect to any sale or disposition of Common Stock on a national securities exchange or any sale or disposition of Common Stock underlying the New Warrant to any person that is not affiliated, associated or otherwise related to any member of the MB Group. In exchange, the Company agreed to amend and restate that Warrant, to extend the term of the Warrant to February 5, 2024, subject to the other terms of the Warrant (as so amended and restated, the New Warrant). Immaterial amendments were made on October 17, 2022.

On December 6, 2022, the Company filed a second prospectus supplement to the prospectus dated August 5, 2020, with the SEC. Under this prospectus supplement, the Company may offer and sell shares of its Class A Common Stock, having an aggregate offering price of up to $24.0 million, in accordance with the terms of the ATM sales agreement with its agents, as amended on December 5, 2022, or to the agents, acting as sales agent or principal. The Company intends to use the net proceeds from the sale of its common stock offered under this prospectus supplement for working capital and general corporate purposes including, but not limited to, capital expenditures, working capital, repayment of indebtedness, potential acquisitions and other business opportunities. Pending any specific application, the Company may initially invest funds in short-term marketable securities or apply them to the reduction of indebtedness. The Company has not sold any shares under this ATM offering.

Capital Structure and Financial Resources

Interest on the 8.25% Notes is payable semi-annually in arrears as of February 28 and August 31 based on a 360-day year consisting of twelve 30-day months. The 8.25% Notes are guaranteed on a subordinated and limited basis by, and secured by substantially all assets of, Enrichment Corp. The 8.25% Notes mature on February 28, 2027. Additional terms and conditions of the 8.25% Notes are described in Note 8, Debt, of the Consolidated Financial Statements in Part IV of this Annual Report.

63

2021 Tender Offer

On October 20, 2021, the Company announced the commencement of a tender offer to purchase all of its outstanding Series B Senior Preferred Stock, par value $1.00 per share (the “Series B Senior Preferred Stock”), at a price of $1,145.20 per Series B Senior Preferred Stock (inclusive of any rights to accrued but unpaid dividends), to the sellers in cash, less any applicable withholding taxes (the “Offer”). The Offer was made pursuant to the Tender Offer Statement on Schedule TO filed by the Company on October 20, 2021, with the SEC. The aggregate liquidation preference per Series B Senior Preferred Stock (including accrued but unpaid dividends) was $1,347.29 as of September 30, 2021.

On November 23, 2021, the Company announced the results of the tender offer and the related Consent Solicitation to amend the certificate of designation of the Series B Senior Preferred Stock (the “Series B Preferred Amendment”). 36,867 shares of the Series B Senior Preferred Stock were properly tendered and not properly withdrawn in the Offer, and corresponding consents have been delivered in the Consent Solicitation. Pursuant to the terms of the Offer and Consent Solicitation, the Company has accepted for purchase all of the Series B Senior Preferred Stock tendered in the Offer, for an aggregate purchase price of $42.2 million. The accepted shares represent 97.4% of the Company’s outstanding Series B Senior Preferred Stock as of September 30, 2021. Based on the final results, the requisite consent of at least 90% of the outstanding Series B Senior Preferred Stock required to approve the Series B Preferred Amendment was obtained. On November 23, 2021, the Company issued a Notice of Full Redemption providing for the redemption of any and all shares Series B Senior Preferred Stock outstanding after consummation of the Company’s tender offer to purchase all of its issued and outstanding Series B Senior Preferred Stock. On December 15, 2021, the Company completed the redemption of all 980 outstanding Series B Senior Preferred Stock for aggregate cash consideration of $1.1 million. The aggregate purchase price of $43.3 million was offset by direct costs totaling $0.9 million.

The effect of the Series B Preferred Amendment was to: (i) cease any obligation to pay dividends on Series B Senior Preferred Stock (other than the payment of accrued dividends in connection with a redemption or distribution of assets upon liquidation, dissolution or winding up), (ii) permit the Company to redeem Series B Senior Preferred Stock during the 90 days following the date of effectiveness of the Series B Preferred Amendment at a redemption price per share equal to $1,145.20 (plus any additional accrued dividends for the period from and including the date of effectiveness of the Series B Preferred Amendment to the date of redemption), (iii) remove the prohibition on the declaration and payment of dividends on junior stock of the Company, which includes all shares of the Company’s capital stock defined as “Common Stock” in the Company’s Amended and Restated Certificate of Incorporation, or the redemption, purchase or acquisition of such junior stock, and (iv) remove the restriction on redemption, purchase or acquisition of capital stock of the Company ranking on parity with the Series B Senior Preferred Stock.

On December 16, 2021, the Company filed a Certificate of Elimination of the Series B Senior Preferred Stock of Centrus Energy Corp. with the Secretary of State of Delaware to eliminate the designation of the Series B Senior Preferred Stock and to return all shares of preferred stock of the Company previously designated as Series B Senior Preferred Stock to authorized but unissued and undesignated shares of preferred stock of the Company.

2020 Tender Offer

On November 17, 2020, pursuant to a tender offer announced on October 19, 2020, the Company completed the purchase of 62,854 shares of its outstanding Series B Senior Preferred Stock at a price per share of $954.59, less any applicable withholding taxes, for an aggregate purchase price of approximately $60 million. The purchase price per share represented a 25% discount from the aggregate liquidation preference, including accrued but unpaid dividends, of $1,272.78 per share as of September 30, 2020. These shares represented approximately 60% of the Company's outstanding Series B Senior Preferred Stock as of September 30, 2020. The remaining Series B Senior Preferred Stock outstanding after the transaction was 41,720 shares.

64

Contractual Commitments

As of December 31, 2022, Centrus had contractual commitments to repay debt, make payments under operating leases, settle obligations related to agreements to purchase goods and services and settle tax and other liabilities.

Centrus has obligations related to our 8.25% Notes that mature in February 2027, as discussed above. We are also obligated to make payments under operating leases that expire at various dates through 2027. Refer to Note 9, Leases, of the Consolidated Financial Statements in Part IV of this Annual Report for further information.

In our Technical Solutions segment, the majority of our contractual commitments were entered into as a result of contracts we have with our U.S. Government customers. The U.S. Government generally would be required to pay us for any costs we incur relative to these commitments if they were to terminate the related contracts “for convenience” under the FAR, subject to available funding. This also would be true in cases where we perform subcontract work for a prime contractor under a U.S. Government contract. The termination for convenience language also may be included in contracts with foreign, state and local governments. We also have contracts with customers that do not include termination for convenience provisions, including contracts with commercial customers.

In our LEU segment, we have long-term inventory purchase agreements with TENEX and Orano that extend to 2028 and 2030, respectively. Refer to Note 16, Commitments and Contingencies, of the Consolidated Financial Statements in Part IV of this Annual Report for additional information. In addition, Centrus has entered into multiple inventory loans that we expect to repay from 2023 through 2025. Refer to Note 4, Inventories, of the Consolidated Financial Statements in Part IV of this Annual Report for additional information.

DOE Technology License

We have a non-exclusive license in DOE inventions that pertains to enriching uranium using gas centrifuge technology. The license agreement with the DOE provides for annual royalty payments based on a varying percentage (1% up to 2%) of our annual revenues from sales of the SWU component of LEU produced by the Company using DOE centrifuge technology. There is a minimum annual royalty payment of $100,000 and the maximum cumulative royalty over the life of the license is $100 million. There is currently no commercial enrichment facility producing LEU using DOE centrifuge technology. We are continuing to advance our U.S. centrifuge technology that has evolved from DOE inventions at specialized technology and manufacturing facilities in Oak Ridge with a view to deploying a commercial enrichment facility over the long term once market conditions recover.

Off-Balance Sheet Arrangements

Other than our SWU purchase commitments and the license agreement with the DOE relating to the American Centrifuge technology, there were no material off-balance sheet arrangements at December 31, 2022.

New Accounting Standards

Reference is made to New Accounting Standards in Note 1, Summary of Significant Accounting Policies, of the Consolidated Financial Statements in Part IV of this Annual Report for information on new accounting standards.

65