- Net income of $7.6 million from
gains on early extinguishment of long-term debt
- Debt securities exchange completed
in the first quarter reduced the face amount of outstanding
long-term debt by more than 50 percent
- Regained compliance with NYSE MKT
listing standards
- Reaffirming annual outlook of
$200-225 million in revenue and $150-175 million cash balance for
year-end 2017
Centrus Energy Corp. (NYSE MKT: LEU) today reported net income
of $7.6 million or $0.73 per common share (basic) and $0.72 per
common share (diluted) for the quarter ended March 31, 2017,
compared to a net loss of $14.6 million or $1.60 per basic and
diluted share for the first quarter of 2016. The company remains on
track to meet its annual guidance for nuclear fuel segment revenue,
total revenue, and year-end cash balance.
"This has been an important quarter for the company. During the
past three months, we substantially reduced our long-term debt
through our notes exchange, resolved our outstanding issues with
the PBGC, and continued to develop opportunities to support the
future growth of the company,” said Daniel B. Poneman, Centrus
president and chief executive officer. “As anticipated, we had a
slow quarter in our nuclear fuel segment because most of our
contracted annual deliveries are expected during the fourth quarter
of this year. We remain on track to achieve our revenue guidance
for the year.”
Revenue and Cost of Sales
Centrus’ annual revenue in the LEU segment comes from long-term
contracts that generally obligate customers to an annual purchase
commitment, but give the customers flexibility to determine the
delivery date within a given year. Revenue is recognized at the
time LEU or uranium is delivered under the terms of customer
contracts. As the Company noted in its recent 10-K filing and
annual guidance, Centrus expects that more than two-thirds of
annual revenue will be booked during the fourth quarter of 2017
based on the timing of contracted deliveries during the year,
similar to 2016. Accordingly, revenue for the first quarter of 2017
totaled $7.2 million, a decline of $82.8 million, or 92 percent,
from the same period in 2016 when more customers elected to take
their deliveries earlier in the year. In addition, SWU and uranium
volumes delivered are expected to decline in 2017 compared to 2016.
Centrus reaffirms its annual guidance for LEU revenues in the range
of $175 million to $200 million and total revenues in the range of
$200 to $225 million.
Revenue from the contract services segment was $6.4 million in
the first quarter of 2017, a decline of $10.0 million compared to
the corresponding period in 2016. Contract services revenue in the
first quarter of 2016 included $8.1 million for work performed and
expensed in the previous quarter prior to the signing of the
contract. In addition, the reduced scope of work under the current
contract resulted in a decline in contract services revenue of $1.8
million in the first quarter of 2017 compared to the corresponding
period in 2016.
Cost of sales for the first quarter of 2017 totaled $9.7
million, a decline of $64.5 million, or 87 percent, compared to the
2016 period. Cost of sales for the LEU segment totaled $2.3 million
for the first quarter and includes costs related to benefits for
former employees of the Paducah and Portsmouth Gaseous Diffusion
Plants and inventory storage costs totaling $2.0 million in the
three months ended March 31, 2017, and $4.0 million in the
corresponding period in 2016. Cost of sales for the contract
services segment declined $1.3 million in the three months ended
March 31, 2017, compared to the corresponding period in 2016, due
to the reduced scope of contract work.
Gross Loss
Centrus realized a gross loss of $2.5 million in the three
months ended March 31, 2017, a decline of $18.3 million compared to
the gross profit of $15.8 million in the corresponding period in
2016. The Company realized a decline in gross profit of $9.6
million for the LEU segment due to the decline in sales volume. The
gross loss of $1.5 million for the LEU segment reflects the legacy
costs and inventory storage costs of $2.0 million described
above.
Gross profit for the contract services segment declined $8.7
million in the three months ended March 31, 2017, due to $8.1
million of profit in the corresponding period in 2016 for work
performed and expensed in the fourth quarter of 2015 prior to the
signing of the contract. Centrus realized a gross loss of $1.0
million for the contract services segment in the three months ended
March 31, 2017, due to the timing of costs incurred and the
allocation of indirect corporate costs, which are not fully
recoverable from the revenue under the contract with
UT-Battelle.
Advanced Technology License and Decommissioning Costs
Advanced technology license and decommissioning costs consist of
American Centrifuge expenses that are outside of the contracts with
UT-Battelle, including ongoing costs to maintain the demobilized
Piketon facility and the Company’s U.S. Nuclear Regulatory
Commission licenses at that location. Costs declined $5.9 million,
or 49 percent, in the three months ended March 31, 2017, compared
to the corresponding period in 2016. Costs in the prior period
included demobilization costs in preparation for the
decontamination and decommissioning (D&D) of the Piketon
demonstration facility, which commenced in the second quarter of
2016.
In the three months ended March 31, 2017, D&D costs of $3.7
million were charged against the accrued D&D liability. The
D&D work is expected to extend through 2017 and be
substantially completed by year-end. As of March 31, 2017, the
Company has accrued $34.9 million for the estimated fair value of
the remaining costs to complete the D&D work.
SG&A and Special Charges
Selling, general and administrative (SG&A) expenses
increased $1.0 million, or 9 percent in the three months ended
March 31, 2017, compared to the corresponding period in 2016, of
which $0.4 million is attributable to increased consulting costs.
Special charges in the three months ended March 31, 2017, included
estimated employee termination benefits of $0.8 million and
advisory costs of $1.6 million related to the Company’s project to
align its corporate structure to the scale of its ongoing business
operations and to update related information technology.
Gain on Early Extinguishment of Debt
In the three months ended March 31, 2017, the Company recognized
a gain of $33.6 million related to the exchange of securities and
cash on February 14, 2017, which is net of transaction costs of
$9.0 million and previously deferred issuance costs related to the
8% PIK Toggle Notes of $0.4 million. Based on the success of the
exchange and prior note repurchase last year, Centrus has reduced
the total principal amount of debt outstanding by $143 million, a
58 percent reduction compared to December 31, 2015. Under the
accounting rules, the carrying value of the new debt includes the
principal amount of debt as well as future interest obligations of
$61.5 million. As a result, no interest expense will be recognized
for future interest payments on the new notes.
Cash Flow
Centrus ended the first quarter of 2017 with a consolidated cash
balance of $151.7 million. The net reduction of $59.5 million in
the SWU purchase payables balance, due to the timing of purchase
deliveries, was a significant use of cash in the three months ended
March 31, 2017. Other uses of cash are reflected in the reduction
of accounts payable and other liabilities of $18.4 million, as well
as the $27.6 million paid to noteholders in the notes exchange.
Sources of cash included the decline of accounts receivable of
$23.0 million due to collections from customers in the three-month
period. The operating loss of $23.6 million in the three months
ended March 31, 2017, net of non-cash expenses, was a use of
cash.
Regained Compliance with NYSE MKT
On April 28, 2017, Centrus received notification from the NYSE
MKT LLC that the Company had regained compliance with the NYSE
MKT’s continued listing standards. In accordance with NYSE MKT
regulations, Centrus will be subject to a 12-month follow-up review
period to ensure that the Company does not fall below any of the
NYSE MKT’s continued listing standards.
2017 Outlook
Centrus reaffirms its prior guidance that the Company
anticipates SWU and uranium revenue in 2017 in a range of $175
million to $200 million, reflecting an expected decline in SWU and
uranium volumes delivered compared to 2016. The Company anticipates
total revenue in a range of $200 million to $225 million. Centrus’
revenues continue to be most heavily weighted to the fourth
quarter, and the Company expects more than two-thirds of annual
revenue 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 this guidance and the ultimate results.
Among the factors that could affect the Company’s 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 ORNL, for the
continuation of American Centrifuge development and testing
activities in Oak Ridge 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.
About Centrus Energy Corp.
Centrus Energy Corp. is a trusted supplier of enriched uranium
fuel for commercial nuclear power plants in the United States and
around the world. Our mission is to provide reliable and
competitive fuel goods and services to meet the needs of our
customers, consistent with the highest levels of integrity, safety,
and security.
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 and our Series
B Senior Preferred Stock , including the potential termination of
the guarantee by United States Enrichment Corporation (“Enrichment
Corp.”) of the PIK Toggle Notes; risks related to the limited
trading markets in our securities; risks related to our ability to
maintain the listing of our common stock on the NYSE MKT LLC; 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 related to our ability to sell
the LEU we procure pursuant to our purchase obligations under our
supply agreements including 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; risks related to actions that may be
taken by the U.S. government, the Russian government or other
governments that could affect our ability or the ability of our
sources of supply to perform under their contract obligations to
us, including the imposition of sanctions, restrictions or other
requirements; the impact of government regulation including by the
U.S. Department of Energy and the U.S. Nuclear Regulatory
Commission; 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; the
potential for further demobilization or termination of the American
Centrifuge project; 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; potential strategic transactions, which could be
difficult to implement, disrupt our business or change our business
profile significantly; the outcome of legal proceedings and other
contingencies (including lawsuits and government investigations or
audits); 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 this
and our other filings with the Securities and Exchange
Commission.
CENTRUS ENERGY CORP. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited) (in millions, except
share and per share data)
Three Months Ended March
31,
2017 2016 Revenue: Separative work
units $ 0.8 $ 59.3 Uranium — 14.3 Contract services 6.4 16.4
Total revenue 7.2 90.0
Cost of Sales: Separative work
units and uranium 2.3 65.5 Contract services 7.4 8.7
Total cost of sales 9.7 74.2
Gross profit
(loss) (2.5 ) 15.8 Advanced technology license and
decommissioning costs 6.1 12.0 Selling, general and administrative
12.4 11.4 Amortization of intangible assets 1.2 3.2 Special charges
for workforce reductions and advisory costs 2.4 — Gains on sales of
assets (1.0 ) (0.3 ) Operating loss (23.6 ) (10.5 ) Gain on early
extinguishment of debt (33.6 ) — Interest expense 2.9 5.0
Investment income (0.3 ) (0.3 ) Income (loss) before income taxes
7.4 (15.2 ) Income tax benefit (0.2 ) (0.6 )
Net income
(loss) 7.6 (14.6 ) Preferred stock
dividends - undeclared and cumulative 1.0 —
Net
income (loss) allocable to common stockholders $
6.6 $ (14.6 ) Net income
(loss) per common share: – Basic $ 0.73 $ (1.60 ) – Diluted $ 0.72
$ (1.60 ) Average number of common shares outstanding (in
thousands): – Basic 9,063 9,063 – Diluted 9,174 9,063
CENTRUS ENERGY CORP. CONDENSED CONSOLIDATED BALANCE
SHEETS (Unaudited) (in millions, except share and per share
data)
March 31, 2017
December 31, 2016
ASSETS Current assets Cash and cash equivalents $
151.7 $ 260.7 Accounts receivable 5.8 19.9 Inventories 143.6 177.4
Deferred costs associated with deferred revenue 89.0 89.3 Other
current assets 14.7 13.3
Total current assets
404.8 560.6 Property, plant and equipment, net 5.6 6.0 Deposits for
surety bonds 29.6 29.5 Intangible assets, net 92.1 93.3 Other
long-term assets 15.5 24.1
Total assets
$ 547.6 $ 713.5
LIABILITIES AND STOCKHOLDERS’ DEFICIT Current
liabilities Accounts payable and accrued liabilities $ 46.8 $
46.4 Payables under SWU purchase agreements 0.1 59.6 Inventories
owed to customers and suppliers 22.8 57.5 Deferred revenue 123.3
123.6 Decontamination and decommissioning obligations 34.9
38.6
Total current liabilities 227.9 325.7 Long-term
debt 159.8 234.1 Postretirement health and life benefit obligations
169.4 171.3 Pension benefit liabilities 178.6 179.9 Other long-term
liabilities 35.8 38.6
Total liabilities 771.5
949.6 Commitments and contingencies
Stockholders’ deficit
Preferred stock, par value $1.00 per share, 20,000,000 shares
authorized Series A Participating Cumulative Preferred Stock, none
issued — — Series B Senior Preferred Stock, 7.5% cumulative,
104,574 shares issued and outstanding and an aggregate liquidation
preference of $105.6 million at March 31, 2017 4.6 — Class A Common
Stock, par value $0.10 per share, 70,000,000 shares authorized,
7,563,600 shares issued and outstanding at March 31, 2017 and
December 31, 2016 0.8 0.8 Class B Common Stock, par value $0.10 per
share, 30,000,000 shares authorized, 1,436,400 shares issued and
outstanding at March 31, 2017 and December 31, 2016 0.1 0.1 Excess
of capital over par value 59.6 59.5 Accumulated deficit (289.1 )
(296.7 ) Accumulated other comprehensive income, net of tax 0.1
0.2
Total stockholders’ deficit (223.9 )
(236.1 )
Total liabilities and stockholders’ deficit
$ 547.6 $ 713.5
CENTRUS ENERGY CORP. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited) (in millions)
Three Months Ended March
31,
2017 2016 Operating Activities Net
income (loss) $ 7.6 $ (14.6 ) Adjustments to reconcile net income
(loss) to cash used in operating activities: Depreciation and
amortization 1.4 3.6 PIK interest on paid-in-kind toggle notes 0.8
3.4 Gain on early extinguishment of debt (33.6 ) — Gain on sales of
assets (1.0 ) (0.3 ) Inventory valuation adjustments — 0.5 Changes
in operating assets and liabilities: Accounts receivable 23.0 (29.4
) Inventories, net (0.9 ) 48.5 Payables under SWU purchase
agreements (59.5 ) (61.0 ) Deferred revenue, net of deferred costs
— 4.2 Accounts payable and other liabilities (18.4 ) (9.8 ) Other,
net (1.4 ) — Cash used in operating activities (82.0 ) (54.9
)
Investing Activities Proceeds from sales of assets
0.6 0.6 Cash provided by investing activities 0.6
0.6
Financing Activities Repurchase of
debt (27.6 ) — Cash used in financing activities (27.6 ) —
Decrease in cash and cash equivalents (109.0 ) (54.3
) Cash and cash equivalents at beginning of period 260.7
234.0 Cash and cash equivalents at end of period
$
151.7 $ 179.7
Supplemental cash flow information: Interest paid in cash $ 0.4 $
3.1 Non-cash activities: Conversion of interest payable-in-kind to
long-term debt $ 0.8 $ 3.4
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version on businesswire.com: http://www.businesswire.com/news/home/20170509006799/en/
Centrus Energy Corp.Investors:Don Hatcher,
301-564-3460orMedia:Jeremy Derryberry, 301-564-3392
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