Centrus Energy Corp. (NYSE MKT: LEU) today reported results for
the fourth quarter 2016 and full year ended December 31, 2016.
2016 Summary:
- Gross profit of $45.1 million on
revenue of $311.3 million for full year
- Net loss of $67.0 million
- Cash balance increased to $260.7
million at year’s end
- Contract to advance U.S. uranium
enrichment technology extended through September 2017
- During 2016, repurchased $26.1 million
of PIK Notes and in February 2017 completed a private exchange
significantly reducing long-term debt and extending maturity
“Centrus had a successful year, exceeding our revenue and cash
targets, reducing our debt load, and making significant progress on
our major initiatives to become the world's most diversified
nuclear fuel supplier,” said Daniel B. Poneman, Centrus president
and chief executive officer.
“While the price for uranium enrichment is its lowest ever, we
believe that the current state of the fuel market presents
opportunities for Centrus. During 2016, we continued to position
ourselves for future growth by capitalizing on our market position
and industry relationships to lock in low-cost supply from
additional sources, by reducing our debt in 2016 through note
repurchases and in early 2017 through completion of our note
exchange, by advancing our leading enrichment technology for future
deployment, and by implementing the internal systems that will
improve our business processes and enable us to reduce our costs as
we look to grow our business,” Poneman said.
Financial Results
Centrus reported a net loss of $8.2 million, or $0.90 per share,
in the fourth quarter of 2016, compared to a net loss of $101.8
million, or $11.19 per share, in the fourth quarter of 2015. For
the full year, the Company reported a net loss of $67.0 million, or
$7.36 per share, compared to net loss of $187.4 million, or $20.82
per share, in 2015. The results in 2015 included the impairment of
excess reorganization value in the fourth quarter of $137.2
million.
Favorable factors in 2016 include a gain on the early
extinguishment of debt and an increase in gross profit for the
contract services segment. Partially offsetting the favorable
variance was an increase in advanced technology license and
decommissioning costs and a decline in gross profit for the LEU
segment due to differences in the impact of pension remeasurements
and other factors.
Revenue and Cost of Sales
Revenue for the fourth quarter of 2016 was $136.5 million, a
decrease of 14 percent compared to $157.9 million in the fourth
quarter of 2015. Revenue for 2016 was $311.3 million, a decrease of
26 percent compared to $418.2 million in the prior year.
For the full year, revenue for the LEU segment totaled $272.8
million, a decline of $82.6 million, or 23 percent in 2016 compared
to 2015. The volume of SWU sales increased 2 percent. The average
price billed to customers for sales of SWU declined 5 percent,
reflecting the particular contracts under which SWU were sold
during the periods and the trend of lower SWU market prices in
recent years. Uranium revenue declined $51.2 million, or 78
percent, in 2016 compared to 2015 reflecting particular
opportunities for uranium sales in 2015. The average sales price
increased 36 percent, reflecting the particular contracts under
which uranium was sold during the periods.
Revenue from the contract services segment was $38.5 million in
2016, a decline of $24.3 million or 39 percent, compared to 2015
due to the reduced scope of contract work for American Centrifuge
technology services performed for the U.S. government. As a result
of the contract signed with UT-Battelle in March 2016, revenue in
2016 included $30.4 million for work performed in 2016 as well as
$8.1 million for March 2016 reports for work performed in the
fourth quarter of 2015.
Cost of sales for the LEU segment declined $51.0 million, or 18
percent, for the full year compared to 2015. Valuation adjustments
for uranium inventory to reflect declines in uranium market price
indicators totaled $3.0 million in 2016. Paducah and Portsmouth
retiree benefit costs, including periodic remeasurements of pension
and postretirement benefit obligations, resulted in a charge to
cost of sales of $4.2 million in 2016 compared to a credit to cost
of sales of $24.7 million in 2015. Excluding direct charges for the
retiree benefit costs, the average cost of sales per SWU declined
14 percent, reflecting declines in the purchase costs per SWU in
recent periods.
Cost of sales for the contract services segment declined $32.1
million, or 50 percent, in 2016 compared to 2015 due to the reduced
scope of contract work for American Centrifuge technology services
performed for the U.S. government.
Gross Profit
Centrus recorded a gross profit of $45.1 million in 2016
compared to $68.9 million in 2015, with a gross profit margin of
14.5 percent in 2016 compared to 16.5 percent in 2015. The gross
profit for the LEU segment declined $31.6 million in 2016 compared
to 2015, primarily due to direct charges to cost of sales related
to retiree benefits and other legacy costs. The decline in gross
profit for the LEU segment was also affected by an inventory
valuation adjustment in 2016 and a contract termination fee of
$18.5 million received in 2015. The gross profit on uranium sales
in 2016 was comparable to 2015.
Advanced Technology License and Decommissioning Costs
Advanced technology license and decommissioning costs consist of
American Centrifuge expenses that are outside of the Company’s
contracts with UT-Battelle, including ongoing costs to maintain the
demobilized Piketon, Ohio, demonstration facility and to maintain
Centrus’ U.S. Nuclear Regulatory Commission (NRC) licenses at that
location. Costs increased $14.9 million in 2016 compared to 2015,
as the Piketon demonstration facility is no longer under contract
effective October 1, 2015, and is now undergoing decontamination
and decommissioning (D&D).
Charges include approximately $19 million in 2016 and
approximately $7 million in 2015 to increase the accrued D&D
liability based on updated cost estimates. Centrus began to incur
expenditures in the second quarter of 2016 associated with the
D&D of the Piketon facility in accordance with the requirements
of the NRC and the U.S. Department of Energy (DOE).
As of December 31, 2016, the Company has accrued $38.6 million
on the balance sheet as Decontamination and Decommissioning
Obligations for the estimated remaining costs to perform the
D&D work. Centrus has previously provided financial assurance
to the NRC and DOE for D&D and lease turnover costs in the form
of surety bonds of approximately $16 million and $13 million,
respectively, which are fully cash collateralized by Centrus.
Centrus expects to receive cash when surety bonds are reduced
and/or cancelled as the Company fulfills its D&D and lease
obligations.
In addition to expenditures for workforce reductions and
D&D, Centrus anticipates that it will incur ongoing costs of
approximately $40 million to maintain the facilities at Piketon and
its NRC licenses at that location through the current term of its
DOE lease, which will expire on June 30, 2019, unless extended.
Centrus plans to disclose in its 10-K as of and for the year
ended December 31, 2016, that the Company identified a material
weakness in its internal controls over financial reporting related
to the calculation of the decontamination and decommissioning
obligation at year end. A material adjustment was made
to the fourth quarter D&D obligation balance prior to reporting
these results. It does not affect any prior interim or
annual period and therefore did not result in a revision to
previous financial statements. Management is developing
a plan of remediation to strengthen the Company’s overall internal
control over accounting for the D&D obligation.
SG&A
Selling, general and administrative (SG&A) expenses
increased $3.6 million in 2016 compared to 2015, of which $4.0
million relates to the remeasurement of assets and obligations
under certain defined benefit pension plans. Overhead costs
allocated to SG&A increased $1.3 million in 2016 compared to
2015, as less overhead costs are allocated to the reduced scope of
work under the contract with UT-Battelle. Salaries and other
compensation increased $0.8 million. Recruiting costs declined $1.0
million and office lease expense declined $0.6 million in 2016
compared to 2015.
Cash Flow
Centrus ended 2016 with a consolidated cash balance of $260.7
million. During 2016, net cash provided by operating activities was
$37.7 million. Sources of cash included the monetization of
inventory purchased in prior periods. Inventories declined $89.5
million in 2016. Uses of cash include the net reduction of $25.8
million in the SWU purchase payables balance. The net loss of $67.0
million in 2016, net of non-cash expenses, was also a use of cash.
American Centrifuge expenses have been a major use of cash,
including demobilization expenses and D&D expenditures.
February 2017 Securities Exchange and PBGC Resolution
On February 14, 2017, Centrus exchanged $204.9 million of 8.0%
paid-in-kind (“PIK”) toggle notes for $74.3 million of 8.25% notes
due 2027, 104,574 shares of Series B Preferred Stock with
liquidation preference of $1,000 per share, and $27.6 million of
cash, leaving $29.6 million of PIK toggle notes remaining
outstanding. Based on the success of the exchange and the prior
note repurchase, Centrus has reduced the total principal amount of
debt outstanding by $143 million – a 58 percent reduction compared
to December 31, 2015.
The Company had been engaged in discussions with the Pension
Benefit Guaranty Corporation (PBGC) regarding the status of the
qualified pension plans, including potential liabilities under
ERISA Section 4062(e) related to employee reductions resulting from
ceasing enrichment operations at the Portsmouth and Paducah Gaseous
Diffusion Plant (GDP) facilities. In February 2017, the PBGC
confirmed that given changes to ERISA Section 4062(e) enacted by
Congress in recent years, the Company is able to waive liability
with respect to employee reductions at the Portsmouth and Paducah
GDP facilities. In addition, the PBGC stated that it agrees to
forbear from future action under ERISA Section 4062(e) related to
the American Centrifuge project. In its notification to the
Company, the PBGC cited the positive results of the Company’s
exchange offer and consent solicitation.
2017 Outlook
Centrus anticipates SWU and uranium revenue in 2017 in a range
of $175 million to $200 million, reflecting an expected decline in
SWU volume delivered compared to 2016, and total revenue in a range
of $200 million to $225 million. More than two-thirds of the
Company’s annual revenue is expected in the fourth quarter of 2017.
Centrus expects to end 2017 with a cash and cash equivalents
balance in a range of $150 million to $175 million.
The Company’s financial guidance is subject to a number of
assumptions and uncertainties that could affect results either
positively or negatively. Variations from these expectations could
cause differences between the Company’s guidance and its ultimate
results. Among the factors that could affect these results are:
- Additional short-term purchases or
sales of SWU and uranium;
- Timing of customer orders, related
deliveries, and purchases of LEU or components;
- The outcome of legal proceedings and
other contingencies;
- Execution and funding of a new
agreement with UT-Battelle, the operator of Oak Ridge National
Laboratory, for the continuation of American Centrifuge development
and testing activities following the expiration of the agreement on
September 30, 2017;
- Potential use of cash for strategic
initiatives; and
- Additional costs for decontamination
and decommissioning of the Company’s facility in Ohio.
Conference Call
Centrus Energy’s investor conference call to discuss the fourth
quarter and full year 2016 results is scheduled for March 29, 2017,
at 8:30 a.m. EDT. A live webcast of the conference call can be
accessed through the Investor Relations section of the Company’s
website at www.centrusenergy.com, and a recording of the call will
be available on the site through April 12, 2017.
About Centrus Energy Corp.
Centrus Energy is a trusted supplier of enriched uranium fuel
for commercial nuclear power plants in the United States and around
the world. With world-class technical and engineering capabilities,
Centrus is advancing the next generation of centrifuge technologies
so that America can restore its domestic uranium enrichment
capability in the future.
Forward-Looking Statements
This news release contains “forward-looking statements” within
the meaning of Section 21E of the Securities Exchange Act of 1934 -
that is, statements related to future events. In this context,
forward-looking statements may address our expected future business
and financial performance, and often contain words such as
“expects”, “anticipates”, “intends”, “plans”, “believes”, “will”,
“should”, “could”, “would” or “may” and other words of similar
meaning. Forward-looking statements by their nature address matters
that are, to different degrees, uncertain. For Centrus Energy
Corp., particular risks and uncertainties that could cause our
actual future results to differ materially from those expressed in
our forward-looking statements include, risks and uncertainties
related to the adoption of fresh start accounting; risks related to
our significant long-term liabilities, including material unfunded
defined benefit pension plan obligations and postretirement health
and life benefit obligations; risks relating to our outstanding
8.0% paid-in-kind (“PIK”) toggle notes (the “PIK Toggle Notes”)
maturing in September 2019, our 8.25% notes due 2027 (the “8.25%
Notes”) and our Series B Senior Preferred Stock (the Series B
Preferred Stock), including the potential termination of the
guarantee by United States Enrichment Corporation (“Enrichment
Corp.”) of the PIK Toggle Notes; risks related to our ability to
maintain the listing of our common stock on the NYSE MKT LLC; risks
related to the use of our net operating losses (“NOLs”) and net
unrealized built-in losses (“NUBILs”) to offset future taxable
income and the use of the rights plan to prevent an “ownership
change” as defined in Section 382 of the Internal Revenue Code and
our ability to generate taxable income to utilize all or a portion
of the NOLs and NUBILs prior to the expiration thereof; the
continued impact of the March 2011 earthquake and tsunami in Japan
on the nuclear industry and on our business, results of operations
and prospects; the impact and potential extended duration of the
current supply/demand imbalance in the market for low-enriched
uranium (“LEU”); our dependence on others for deliveries of LEU
including deliveries from the Russian government entity Joint Stock
Company “TENEX” (“TENEX”) under a commercial supply agreement with
TENEX (the “Russian Supply Agreement”); risks relating to our sales
order book, including uncertainty concerning customer actions under
current contracts and in future contracting due to market
conditions and lack of current production capability; risks
associated with our reliance on third-party suppliers to provide
essential services to us; pricing trends and demand in the uranium
and enrichment markets and their impact on our profitability;
movement and timing of customer orders; risks related to trade
barriers and contract terms that limit our ability to deliver LEU
to customers; the impact of government regulation including by the
U.S. Department of Energy and the U.S. Nuclear Regulatory
Commission; uncertainty regarding our ability to commercially
deploy competitive enrichment technology; risks and uncertainties
regarding funding for the American Centrifuge project and our
ability to perform under our agreement with UT-Battelle, LLC, the
management and operating contractor for Oak Ridge National
Laboratory, for continued research and development of the American
Centrifuge technology; risks related to the current demobilization
of portions of the American Centrifuge project, including risks
that the schedule could be delayed and costs could be higher than
expected; the competitive environment for our products and
services; changes in the nuclear energy industry; the impact of
financial market conditions on our business, liquidity, prospects,
pension assets and insurance facilities; revenue and operating
results can fluctuate significantly from quarter to quarter, and in
some cases, year to year; and other risks and uncertainties
discussed in our filings with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the fiscal
year ended December 31, 2016 and subsequent Quarterly Reports on
Form 10-Q, which are available on our website at
www.centrusenergy.com. We do not undertake to update our
forward-looking statements except as required by law.
CENTRUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in millions, except per share
data)
Year Ended December 31,
2016 2015 Revenue: Separative work
units $ 258.5 $ 289.9 Uranium 14.3 65.5 Contract services
38.5 62.8 Total revenue 311.3 418.2 Cost of
Sales: Separative work units and uranium 234.3 285.3 Contract
services 31.9 64.0 Total cost of sales
266.2 349.3 Gross profit 45.1 68.9
Advanced technology license and decommissioning costs 47.9 33.0
Selling, general and administrative 46.2 42.6 Amortization of
intangible assets 12.5 13.4 Impairment of excess reorganization
value — 137.2 Special charges for workforce reductions and advisory
costs 1.4 13.2 Gains on sales of assets (1.2 ) (2.1 )
Operating loss (61.7 ) (168.4 ) Gain on early extinguishment of
debt and debt restructuring costs (13.0 ) — Interest expense 19.7
19.6 Investment income (0.8 ) (0.3 ) Loss before
income taxes (67.6 ) (187.7 ) Provision (benefit) for income taxes
(0.6 ) (0.3 ) Net loss
$ (67.0 )
$ (187.4 ) Net loss per share - basic
and diluted $ (7.36 ) $ (20.82 ) Weighted-average number of shares
outstanding - basic and diluted 9.1 9.0
CENTRUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per
share data)
December 31, 2016
2015 ASSETS Current assets Cash and cash
equivalents $ 260.7 $ 234.0 Accounts receivable, net 19.9 26.5
Inventories 177.4 319.2 Deferred costs associated with deferred
revenue 89.3 63.1 Other current assets 13.3
15.2 Total current assets 560.6 658.0 Property, plant and
equipment, net 6.0 3.5 Deposits for surety bonds 29.5 29.8
Intangible assets, net 93.3 105.8 Other long-term assets
24.1 23.0 Total assets
$ 713.5
$ 820.1 LIABILITIES AND
STOCKHOLDERS’ DEFICIT Current liabilities Accounts payable and
accrued liabilities $ 46.4 $ 44.8 Payables under SWU purchase
agreements 59.6 85.4 Inventories owed to customers and suppliers
57.5 106.8 Deferred revenue 123.6 83.9 Decontamination and
decommissioning obligations 38.6 29.4
Total current liabilities 325.7 350.3 Long-term debt 234.1 247.0
Postretirement health and life benefit obligations 171.3 184.3
Pension benefit liabilities 179.9 172.3 Other long-term liabilities
38.6 31.9 Total liabilities 949.6 985.8
Stockholders’ deficit Preferred stock, par value $1.00 per share,
20,000,000 shares authorized, none issued — — Common stock, Class
A, par value $0.10 per share, 70,000,000 shares authorized,
7,563,600 shares issued and outstanding 0.8 0.8 Common stock, Class
B, par value $0.10 per share, 30,000,000 shares authorized,
1,436,400 shares issued and outstanding 0.1 0.1 Excess of capital
over par value 59.5 59.0 Accumulated deficit (296.7 ) (229.7 )
Accumulated other comprehensive income, net of tax 0.2
4.1 Total stockholders’ deficit (236.1
) (165.7 ) Total liabilities and stockholders’ deficit
$ 713.5 $ 820.1
CENTRUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in millions)
Year Ended December 31, 2016
2015 Operating Activities Net loss $ (67.0 ) $ (187.4
) Adjustments to reconcile net loss to cash provided by operating
activities: Depreciation and amortization 13.1 13.8 Impairment of
excess reorganization value — 137.2 Immediate recognition of net
actuarial losses (gains) 1.4 (29.6 ) PIK interest on paid-in-kind
toggle notes 9.7 5.4 Gain on early extinguishment of debt (16.7 ) —
Gain on sales of assets (1.2 ) (2.1 ) Inventory valuation
adjustments 3.0 — Changes in operating assets and liabilities:
Accounts receivable 6.5 29.3 Inventories, net 89.5 90.9 Payables
under SWU purchase agreements (25.8 ) (54.7 ) Deferred revenue, net
of deferred costs 13.4 2.6 Accounts payable and other liabilities
10.4 (1.8 ) Other, net 1.4 4.9 Cash
provided by operating activities 37.7 8.5
Investing Activities Capital expenditures (3.0
) (0.3 ) Proceeds from sales of assets 1.5 2.0 Deposits for surety
bonds - net decrease 0.3 5.0 Cash (used
in) provided by investing activities (1.2 ) 6.7
Financing Activities Repurchase of debt
(9.8 ) — Cash used in financing activities
(9.8 ) — Increase in cash and cash equivalents
26.7 15.2 Cash and cash equivalents at beginning of period
234.0 218.8 Cash and cash equivalents at end
of period
$ 260.7 $ 234.0
Supplemental cash flow information: Interest paid $ 6.5 $
12.2 Income taxes paid, net of refunds — 0.3 Non-cash activities:
Conversion of interest payable-in-kind to long-term debt $ 3.4 $
1.8
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Centrus Energy Corp.Investors:Don Hatcher (301)
564-3460orMedia:Jeremy Derryberry (301) 564-3392
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