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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2015
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Lease Commitment Update In October 2015, Centrus signed a lease amendment that will reduce its office space at its corporate headquarters in Bethesda, Maryland. Under the amended lease, half of the lease payments for the Company’s current office space are abated until the Company moves into its new space in the first quarter of 2016, at which time the remaining lease commitment on the current space is fully abated. All of the lease payments on the new space are abated for the first fourteen months after occupation. The amended lease runs through October 2027 with an option to extend for five years. Future minimum lease payments through October 2027 under the amended lease follow (in millions):
2016 | $ | 0.2 |
2017 | 0.5 |
2018 | 0.8 |
2019 | 0.9 |
2020 | 0.9 |
Thereafter | 6.6 |
| $ | 9.9 |
American Centrifuge Project Funding The economics for commercial deployment of the American Centrifuge technology are severely challenged by the current supply/demand imbalance in the market for LEU and related downward pressure on market prices for SWU that are now at their lowest levels in more than a decade. Under current market conditions, Centrus does not believe that its previous plans for commercialization of the American Centrifuge project are economically feasible. Although the economics of the American Centrifuge project are severely challenged under current nuclear fuel market conditions, market conditions are expected to improve in the long term and Centrus continues to take steps to maintain its options to deploy the American Centrifuge technology as a long-term, direct source of domestic enrichment production. From May 2014 through September 2015, Centrus performed continued research, development and demonstration of the American Centrifuge technology under the ACTDO Agreement. As Centrus reported on September 11, 2015, ORNL informed Centrus that DOE had decided to reduce funding for the American Centrifuge program and therefore ORNL intended to contract with the Company at a reduced level for the period from October 1, 2015 to September 30, 2016, with the possibility for additional extensions. The reduced scope excludes continued cascade operations at the Company’s Piketon, Ohio facility. Funding would be reduced by approximately 60% to $35 million per year, and the scope of activities would be limited to development and testing activities in Oak Ridge, Tennessee. The new contract is anticipated to be a firm fixed-price contract that would provide for payments on a monthly basis of approximately $2.9 million per month effective October 2015, down from approximately $6.9 million per month through September 2015. Centrus has no assurance that a final contract will be executed or that the amount and scope of the contract will be at the $2.9 million per month level. Centrus has been in discussions with DOE concerning obtaining additional funding to permit operations at Piketon to continue but has no assurance that additional funding will be provided. Centrus notified its American Centrifuge employees in September 2015 of possible layoffs beginning in November 2015 as a result of DOE’s decision to reduce funding under the contract with ORNL. Based on the level of funding reduction, Centrus incurred a special charge of $8.7 million in the third quarter of 2015 for estimated termination benefits consisting primarily of payments under its severance plan. The Company initiated a voluntary workforce reduction opportunity in October 2015 that is subject to management acceptance of volunteers. The voluntary selection process will be followed by an involuntary workforce reduction if funding for Piketon operations is not restored. The Company expects to make payments for these workforce reductions over the next 18 months. While Centrus is moving forward with actions to reduce costs and demobilize Piketon operations, the Company is doing so in a manner that preserves its ability to restore operations should funding be provided. Unless funding for Piketon operations is restored, Centrus may begin to take actions in the first quarter of 2016, including beginning to dismantle installed equipment and machines, that would increase the cost, time and difficulty of restoring operations at the Piketon facility. Should funding not be restored for operations at the Piketon, Ohio, facility, Centrus would incur costs associated with the reduction in scope. These costs could commence in the fourth quarter of 2015 as the Piketon workforce shifted to demobilization efforts and could extend into 2016. Demobilization costs are included in advanced technology costs. Refer to Note 3, Advanced Technology Costs and Other Income, regarding demobilization costs and maintenance costs related to prior reductions in scope. In addition to severance and demobilization costs, Centrus ultimately will have costs associated with the decontamination and decommissioning (“D&D”) of the Piketon facility in accordance with the requirements of the U.S. Nuclear Regulatory Commission (“NRC”) and DOE. Estimates for such costs have been included in the liability for D&D of the Piketon facility. The balance of this liability, included in other long-term liabilities, was $22.6 million as of September 30, 2015 and December 31, 2014 based on cost projections. DOE has title to certain American Centrifuge equipment. In the event Centrus returns the Piketon facility to DOE pursuant to its lease, DOE retains title to and responsibility for disposition of this equipment, and Centrus would seek reimbursement for any D&D costs the Company incurred related to this equipment. Centrus is required to provide financial assurance to the NRC and DOE for D&D and lease turnover costs under a regulatory-prescribed methodology that includes potential contingent costs and reserves. As of September 30, 2015 and December 31, 2014, Centrus has provided financial assurance to the NRC and DOE in the form of surety bonds totaling $29.4 million, which are fully cash collateralized by Centrus. Centrus expects to receive cash as surety bonds are cancelled following the Company’s performance of D&D. Milestones under the 2002 DOE-USEC Agreement The Company and DOE are parties to an agreement dated June 17, 2002, as amended (the “2002 DOE-USEC Agreement”), pursuant to which the Company and DOE made long-term commitments directed at resolving issues related to the stability and security of the domestic uranium enrichment industry. Pursuant to the Plan of Reorganization and with the consent of DOE, Centrus assumed the 2002 DOE-USEC Agreement subject to the parties reserving all rights under the agreement. The agreement provides that Centrus will develop, demonstrate and deploy advanced enrichment technology in accordance with milestones and provides for remedies in the event of a failure to meet a milestone under certain circumstances. The 2002 DOE-USEC Agreement provides DOE with specific remedies if Centrus fails to meet a milestone that would materially impact Centrus’ ability to begin commercial operations of the American Centrifuge Plant on schedule and such delay was within Centrus’ control or was due to Centrus’ fault or negligence. These remedies could include terminating the 2002 DOE-USEC Agreement, revoking Centrus’ access to DOE’s U.S. centrifuge technology that Centrus requires for the success of the American Centrifuge project and requiring Centrus to transfer certain of its rights in the American Centrifuge technology and facilities to DOE, and to reimburse DOE for certain costs associated with the American Centrifuge project. Any of these remedies under the 2002 DOE-USEC Agreement could have a material adverse impact on Centrus’ business. The 2002 DOE-USEC Agreement provides that if a delaying event beyond the control and without the fault or negligence of Centrus occurs that would affect Centrus’ ability to meet an American Centrifuge project milestone, DOE and Centrus will jointly meet to discuss in good faith possible adjustments to the milestones as appropriate to accommodate the delaying event. Centrus has notified DOE that it has not met the June 2014 milestone “Commitment to proceed with commercial operation” within the time period currently provided due to events beyond its control and without the fault or negligence of the Company. The assumption of the 2002 DOE-USEC Agreement provided for under the Plan of Reorganization did not impact the ability of either party to assert all rights, remedies and defenses under the agreement and all such rights, remedies and defenses are specifically preserved and all time limits tolled expressly including all rights, remedies and defenses and time limits relating to any missed milestones. DOE and Centrus have agreed that all rights, remedies and defenses of the parties with respect to any missed milestones since March 5, 2014, including the June 2014 and November 2014 milestones, and all other matters under the 2002 DOE-USEC Agreement continue to be preserved, and that the time limits for each party to respond to any missed milestones continue to be tolled. Potential ERISA Section 4062(e) Liability The Company has been in discussion with the PBGC and its financial advisor regarding the status of the qualified pension plans, including with respect to potential liability under ERISA Section 4062(e). On September 30, 2011, Enrichment Corp. completed the de-lease to DOE of the Portsmouth GDP and transition of employees performing government services work to DOE’s decontamination and decommissioning contractor. Enrichment Corp. notified the PBGC of this occurrence at that time. Further, at the end of May 2013, Enrichment Corp. ceased enrichment at the Paducah GDP and on October 21, 2014, completed the de-lease and return of the facility to DOE. In connection with the de-lease and return of the Paducah GDP to DOE, most of the remaining employees at the Paducah GDP were terminated. After receiving the Company’s notification of the transition of employees at the Portsmouth GDP in 2011, the PBGC staff at that time informally advised Enrichment Corp. of its preliminary view that the Portsmouth GDP transition was a cessation of operations that triggered liability under ERISA Section 4062(e) and that its preliminary estimate was that the ERISA Section 4062(e) liability (computed by taking into account the plan’s underfunding on a “termination basis,” which amount differs from that computed for GAAP purposes) for the Portsmouth GDP transition was approximately $130 million. At that time, Enrichment Corp. informed the PBGC that it did not agree with the PBGC staff’s view that ERISA Section 4062(e) liability was triggered in 2011, and also disputed the amount of the preliminary PBGC calculation of the potential ERISA Section 4062(e) liability. At the end of May 2013, the PBGC staff also informally advised Enrichment Corp. that the Paducah de-lease would be a cessation of operations under section 4062(e) when more than 20% of the Enrichment Corp.’s employees who are participants in a PBGC-covered pension plan were separated. The 20% reduction to the active plan participant threshold was reached at Paducah in April 2014. Subsequently, on December 16, 2014, the President signed into law the Consolidated and Further Continuing Appropriations Act, 2015 (the “CFCAA”), which made major changes to ERISA section 4062(e). The CFCAA changes the criteria for triggering liability under section 4062(e); provides certain exemptions from the applicability of section 4062(e) to certain events; permits companies to satisfy the liability by making payments into the pension over seven years, but ceases once the pension reaches a 90% funding level as calculated under the method provided in the CFCAA; subject to an exception not applicable here, prohibits the PBGC from taking any enforcement, administrative or other action under section 4062(e) that is inconsistent with the amendments made by the CFCAA based on events that occurred before the date of enactment (December 16, 2014); and permits companies to elect to satisfy any liability under section 4062(e) as provided in the CFCAA for an event that had occurred prior to date of enactment as if such cessation had occurred on such date of enactment. While the PBGC has not issued any guidance or rules regarding the implementation of the changes to section 4062(e), we believe that in the event the PBGC were to determine that a cessation of operations had occurred under section 4062(e) as a result of the Portsmouth GDP transition or the Paducah GDP transition (events that occurred before enactment of the CFCAA), the Company could elect to satisfy any section 4062(e) liability under the provisions of the CFCAA. As of January 1, 2014, (the first plan year for which payments would otherwise be required) the Enrichment Corp. pension plan was over 90% funded under the method used in the CFCAA. Consequently the Company believes that any such liability would be fully satisfied under the method provided in the CFCAA. The PBGC, however, has other authorities under ERISA that it may consider to address the Portsmouth and Paducah GDP transitions or otherwise in connection with the Company’s qualified defined benefit pension plans. These authorities include, but are not limited to, initiating involuntary termination of underfunded plans and seeking liens or additional funding. The Company would seek to defend against the assertion by the PBGC of any such authorities based on the facts and circumstances at the time. The involuntary termination by the PBGC of any of the qualified pension plans of Centrus or Enrichment Corp. would result in the termination of the limited, conditional guaranty by Enrichment Corp. of the PIK Toggle Notes (other than with respect to the unconditional interest claim). The Company has been engaged in discussions with the PBGC since the Portsmouth GDP transition. In 2014, prior to enactment of the CFCAA, the PBGC informed the Company that the PBGC had retained an outside financial advisor to advise the PBGC on the Company’s business and the need for and advisability of any actions that may be taken by the PBGC. The Company has continued discussions with PBGC and its financial advisor and has engaged a financial advisor on this matter. The PBGC has indicated it would like to discuss the potential for the Company to make contributions to the pension in advance of statutory funding requirements as amended by the Highway and Transportation Funding Act of 2014. The Company believes it is in the best interest of all stakeholders, including the PBGC, the covered plan participants and the Company, to continue funding of the qualified pension plans in the ordinary course and expects to do so, but there is no assurance that the PBGC will agree with that approach. Legal Matters On December 31, 2014, our subsidiary, Enrichment Corp., submitted a demand for binding arbitration to Entergy Services, Inc. and Entergy Nuclear Fuels Company (together with Entergy Services, Inc., “Entergy”) to resolve a dispute regarding their alleged repudiation of two sales contracts (the “Contracts”) with Enrichment Corp. On July 29, 2015, Enrichment Corp. and Entergy entered into a mutually acceptable Confidential Settlement Agreement (the “Settlement Agreement”) that resolved the arbitration through modifications to the Contracts. No monetary awards or payments will be made with respect to the Settlement Agreement. The Settlement Agreement represents a full and final resolution of the dispute related to the Contracts. A settlement was anticipated during the establishment of the non-cash intangible assets recorded through the application of fresh-start accounting on September 30, 2014. The Company concluded that the modifications made to the contracts with Entergy do not indicate that the related backlog intangible assets are no longer recoverable, and did not result in an impact to the balance of backlog intangible assets as of September 30, 2015. Centrus is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, Centrus does not believe that the outcome of any of these legal matters will have a material adverse effect on its results of operations or financial condition.

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