Quarterly Report (10-q)

Date : 08/12/2019 @ 10:29PM
Source : Edgar (US Regulatory)
Stock : Centrus Energy Corporation (LEU)
Quote : 3.85  0.0 (0.00%) @ 11:59AM

Quarterly Report (10-q)




 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the quarterly period ended June 30, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 1-14287
Centrus Energy Corp.
Delaware
52-2107911
(State of incorporation)
(I.R.S. Employer Identification No.)
 
6901 Rockledge Drive, Suite 800, Bethesda, Maryland 20817
(301) 564-3200
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ý    No o
 
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes ý    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
 
Non-accelerated filer
ý
Smaller reporting company
ý
 
Emerging growth company
o
 
 
 
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No ý
  
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ý      No o
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Class A Common Stock, par value $0.10 per share
LEU
NYSE American
Rights to purchase Series A Participating Cumulative Preferred Stock, par value $1.00 per share
LEU*
Not applicable
*The rights currently transfer with the shares of Common Stock
 
As of August 1, 2019, there were 8,051,307 shares of the registrant’s Class A Common Stock, par value $0.10 per share, and 1,406,082 shares of the registrant’s Class B Common Stock, par value $0.10 per share, outstanding.





TABLE OF CONTENTS
 
 
Page
 
PART I – FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II – OTHER INFORMATION
 

 
FORWARD-LOOKING STATEMENTS
  
This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2, 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 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 “8% PIK Toggle Notes”) maturing in September 2019, our 8.25% notes (the “8.25% Notes”) maturing in February 2027 and our Series B Senior Preferred Stock, including the potential termination of the guarantee by our principal subsidiary United States Enrichment Corporation (“Enrichment Corp.”) of the 8% PIK Toggle Notes; risks related to the use of our net operating loss (“NOLs”) carryforwards and net unrealized built-in losses (“NUBILs”) to offset future taxable income and the use of the Rights Agreement (as defined herein) to prevent an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) and our ability to generate taxable income to utilize all or a portion of the NOLs and NUBILs prior to the expiration thereof; risks related to the limited trading markets in our securities; risks related to our ability to maintain the listing of our Class A Common Stock on the NYSE American LLC (the “NYSE American”); risks related to decisions made by our Class B stockholders regarding their investment in the Company based upon factors that are unrelated to the Company’s performance; risks related to the Company’s capital concentration; 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-owned entity Joint Stock Company “TENEX” (“TENEX”) under a commercial supply agreement with TENEX and deliveries under a long-term supply agreement with Orano Cycle (“Orano”); risks related to our ability to sell the LEU we procure pursuant to our purchase obligations under our supply agreements; 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 related to financial difficulties experienced by

2



customers, including possible bankruptcies, insolvencies or any other inability to pay for our products or services; 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 the value of our intangible assets related to the sales order book and customer relationships; risks associated with our reliance on third-party suppliers to provide essential products and services to us; risks related to existing or new trade barriers and contract terms that limit our ability to deliver LEU to customers; risks related to actions, including government reviews, that may be taken by the U.S. government, the Russian government or other governments that could affect our ability to perform under our contract obligations 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 (“DOE”) 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 DOE to demonstrate the capability to produce high assay low enriched uranium (“HALEU”) and our ability to obtain and/or perform under our future agreements with the DOE, UT-Battelle, LLC (“UT-Battelle”), the management and operating contractor for Oak Ridge National Laboratory (“ORNL”), 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 our ability to perform and receive timely payment under agreements with the DOE, including risk and uncertainties related to the ongoing funding of the government and potential audits; the competitive bidding process associated with obtaining a federal contract; risks related to our ability to perform fixed-price contracts, including the risk that costs could be higher than expected; risks that we will be unable to obtain new business opportunities, achieve market acceptance of our products and services or that products or services provided by others will render our goods or services obsolete or noncompetitive; risks that we will not be able to timely complete the work that we are obligated to perform; failures or security breaches of our information technology systems; 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; risks related to the identification of a material weakness in our internal controls over financial reporting; the risks of revenue and operating results fluctuating 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, including under Part 1. Item1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

These factors may not constitute all factors that could cause actual results to differ from those discussed in any forward-looking statement. Accordingly, forward-looking statements should be not be relied upon as a predictor of actual results. Readers are urged to carefully review and consider the various disclosures made in this report and in our other filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business. We do not undertake to update our forward-looking statements to reflect events or circumstances that may arise after the date of this Quarterly Report on Form 10-Q, except as required by law.

3



 
CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share and per share data)
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
88.3

 
$
123.1

Accounts receivable
30.2

 
60.2

Inventories
141.7

 
129.7

Deferred costs associated with deferred revenue
138.7

 
134.9

Deposits for financial assurance
18.0

 
30.3

Other current assets
7.4

 
6.3

Total current assets
424.3

 
484.5

Property, plant and equipment, net of accumulated depreciation of $1.9 as of June 30, 2019 and $1.6 as of December 31, 2018
3.9

 
4.2

Deposits for financial assurance
5.7

 
6.3

Intangible assets, net
73.7

 
76.0

Other long-term assets
7.7

 
0.7

Total assets
$
515.3

 
$
571.7

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
37.9

 
$
52.4

Payables under SWU purchase agreements
14.9

 
46.0

Inventories owed to customers and suppliers
59.0

 
103.0

Deferred revenue and advances from customers
267.2

 
204.5

Current debt
33.6

 
32.8

Total current liabilities
412.6

 
438.7

Long-term debt
117.1

 
120.2

Postretirement health and life benefit obligations
132.6

 
136.2

Pension benefit liabilities
161.5

 
168.9

Advances from customers
29.4

 
15.0

Other long-term liabilities
20.4

 
14.6

Total liabilities
873.6

 
893.6

Commitments and contingencies (Note 12)


 


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 $123.2 as of June 30, 2019 and $119.3 as of December 31, 2018
4.6

 
4.6

Class A Common Stock, par value $0.10 per share, 70,000,000 shares authorized, 8,051,307 shares issued and outstanding as of June 30, 2019 and 8,031,307 as of December 31, 2018
0.8

 
0.8

Class B Common Stock, par value $0.10 per share, 30,000,000 shares authorized, 1,406,082 shares issued and outstanding as of June 30, 2019 and December 31, 2018
0.1

 
0.1

Excess of capital over par value
61.3

 
61.2

Accumulated deficit
(425.0
)
 
(388.5
)
Accumulated other comprehensive income, net of tax
(0.1
)
 
(0.1
)
Total stockholders’ deficit
(358.3
)
 
(321.9
)
Total liabilities and stockholders’ deficit
$
515.3

 
$
571.7


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4




CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( Unaudited; in millions, except share and per share data)

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Separative work units
$

 
$
32.9

 
$
12.4

 
$
50.6

Uranium
2.6

 

 
25.3

 
3.6

Contract services
8.0

 
6.5

 
11.6

 
20.9

Total revenue
10.6

 
39.4

 
49.3

 
75.1

Cost of Sales:
 
 
 
 
 
 
 
Separative work units and uranium
7.7

 
42.9

 
46.0

 
77.7

Contract services
7.2

 
7.2

 
13.1

 
13.4

Total cost of sales
14.9

 
50.1

 
59.1

 
91.1

Gross loss
(4.3
)
 
(10.7
)
 
(9.8
)
 
(16.0
)
Advanced technology costs
5.1

 
5.4

 
11.7

 
13.4

Selling, general and administrative
7.7

 
9.7

 
15.8

 
20.9

Amortization of intangible assets
1.2

 
1.5

 
2.3

 
2.8

Special charges (credits) for workforce reductions and advisory costs
(2.9
)
 
0.3

 
(3.0
)
 
0.9

Gain on sales of assets
(0.1
)
 
(0.2
)
 
(0.5
)
 
(0.3
)
Operating loss
(15.3
)
 
(27.4
)
 
(36.1
)
 
(53.7
)
Nonoperating components of net periodic benefit expense (income)

 
(1.7
)
 
(0.1
)
 
(3.3
)
Interest expense
1.0

 
1.0

 
2.0

 
2.0

Investment income
(0.7
)
 
(0.6
)
 
(1.4
)
 
(1.2
)
Loss before income taxes
(15.6
)
 
(26.1
)
 
(36.6
)
 
(51.2
)
Income tax benefit

 

 
(0.1
)
 
(0.1
)
Net loss and comprehensive loss
(15.6
)
 
(26.1
)
 
(36.5
)
 
(51.1
)
Preferred stock dividends - undeclared and cumulative
2.0

 
2.0

 
4.0

 
4.0

Net loss allocable to common stockholders
$
(17.6
)
 
$
(28.1
)
 
$
(40.5
)
 
$
(55.1
)
 
 
 
 
 
 
 
 
Net loss per common share - basic and diluted
$
(1.84
)
 
$
(3.08
)
 
$
(4.24
)
 
$
(6.05
)
Average number of common shares outstanding - basic and diluted (in thousands)
9,565

 
9,118

 
9,549

 
9,111



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


5




CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
( Unaudited; in millions)
 
Six Months Ended 
 June 30,
 
2019
 
2018
OPERATING
 
 
 
Net loss
$
(36.5
)
 
$
(51.1
)
Adjustments to reconcile net loss to cash used in operating activities:
 
 
 
Depreciation and amortization
2.6

 
3.3

PIK interest on paid-in-kind toggle notes
0.7

 
0.9

Gain on sales of assets
(0.5
)
 
(0.3
)
Inventory valuation adjustments
2.3

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
24.6

 
32.1

Inventories, net
(6.6
)
 
20.4

Payables under SWU purchase agreements
(31.1
)
 
(59.9
)
Deferred revenue and advances from customers, net of deferred costs
27.0

 
9.8

Accounts payable and other liabilities
(15.8
)
 
(12.5
)
Pension and postretirement liabilities
(11.1
)
 
(9.0
)
Other, net
(0.7
)
 
0.6

Cash used in operating activities
(45.1
)
 
(65.7
)
 
 
 
 
INVESTING
 
 
 
Capital expenditures

 
(0.1
)
Proceeds from sales of assets
0.5

 
0.3

Cash provided by investing activities
0.5

 
0.2

 
 
 
 
FINANCING
 
 
 
Payment of interest classified as debt
(3.1
)
 
(3.0
)
Cash used in financing activities
(3.1
)
 
(3.0
)
 
 
 
 
Decrease in cash, cash equivalents and restricted cash
(47.7
)
 
(68.5
)
Cash, cash equivalents and restricted cash, beginning of period  (1)
159.7

 
244.8

Cash, cash equivalents and restricted cash, end of period  (1)
$
112.0

 
$
176.3

 
 
 
 
Supplemental cash flow information:
 
 
 
Interest paid in cash
$
0.4

 
$
0.4

Non-cash activities:
 
 
 
Conversion of interest payable-in-kind to debt
$
0.7

 
$
0.9

_______________
 
(1) Refer to Note 4, Cash, Cash Equivalents and Restricted Cash.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


6




CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
( Unaudited; in millions, except per share data)

 
Preferred Stock,
Series B
 
Common Stock,
Class A,
Par Value
$.10 per Share
 
Common Stock,
Class B,
Par Value
$.10 per Share
 
Excess of
Capital Over
Par Value
 
Accumulated Deficit
 
Accumulated
Other Comprehensive Income
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
4.6

 
$
0.8

 
$
0.1

 
$
61.2

 
$
(388.5
)
 
$
(0.1
)
 
$
(321.9
)
Net loss for the three months ended March 31, 2019

 

 

 

 
(20.9
)
 

 
(20.9
)
Issuance and amortization of restricted stock units and stock options

 

 

 
0.1

 

 

 
0.1

Balance at March 31, 2019
4.6

 
0.8

 
0.1

 
61.3

 
(409.4
)
 
(0.1
)
 
(342.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss for the three months ended June 30, 2019

 

 

 

 
(15.6
)
 

 
(15.6
)
Balance at June 30, 2019
$
4.6

 
$
0.8

 
$
0.1

 
$
61.3

 
$
(425.0
)
 
$
(0.1
)
 
$
(358.3
)


 
Preferred Stock,
Series B
 
Common Stock,
Class A,
Par Value
$.10 per Share
 
Common Stock,
Class B,
Par Value
$.10 per Share
 
Excess of
Capital Over
Par Value
 
Accumulated Deficit
 
Accumulated
Other Comprehensive Income
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
4.6

 
$
0.8

 
$
0.1

 
$
60.0

 
$
(284.5
)
 
$
0.1

 
$
(218.9
)
Adoption of Accounting Standards Codification 606 as of January 1, 2018

 

 

 

 
0.1

 

 
0.1

Net loss for the three months ended March 31, 2018

 

 

 

 
(25.0
)
 

 
(25.0
)
Issuance and amortization of restricted stock units and stock options

 

 

 
0.1

 

 

 
0.1

Balance at March 31, 2018
4.6

 
0.8

 
0.1

 
60.1

 
(309.4
)
 
0.1

 
(243.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss for the three months ended June 30, 2018

 

 

 

 
(26.1
)
 

 
(26.1
)
Other comprehensive loss, net of tax benefit

 

 

 

 

 
(0.1
)
 
(0.1
)
Issuance and amortization of restricted stock units and stock options

 

 

 
0.1

 

 

 
0.1

Balance at June 30, 2018
$
4.6

 
$
0.8

 
$
0.1

 
$
60.2

 
$
(335.5
)
 
$

 
$
(269.8
)


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


7



CENTRUS ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements of Centrus Energy Corp. (“Centrus” or the “Company”), which include the accounts of the Company, its principal subsidiary, United States Enrichment Corporation, and its other subsidiaries, as of June 30, 2019, and for the three and six months ended June 30, 2019 and 2018, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet as of December 31, 2018, was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary for a fair statement of the financial results for the interim period. Certain prior year amounts have been reclassified for consistency with the current year presentation. Certain information and notes normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. All material intercompany transactions have been eliminated. The Company’s components of comprehensive income for the three and six months ended June 30, 2019 and 2018 are insignificant.

Operating results for the three and six months ended June 30, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K for the year ended December 31, 2018.

New Accounting Standards

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,  Leases (Topic 842) (“Topic 842”) , which requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company adopted this standard on January 1, 2019, using the modified transition method which provides for recognition of existing leases as of the adoption date without requiring comparable presentation for the prior period. Lease assets and liabilities are recognized based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit interest rate. The Company uses an estimated incremental borrowing rate based on the term of the lease using information available at the adoption date or the lease commencement, if later, including the yield on the Company’s collateralized debt. The Company has elected to adopt the package of practical expedients provided under Topic 842, which allowed the Company to not apply a reassessment of whether any existing or expired contracts contain leases, reassessment of lease classification for existing or expired leases and reassessment of initial direct costs for leases. The adoption of this standard had no impact on the Company’s consolidated statement of operations or statement of cash flows. Refer to Note 8, Leases , for additional information.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cut and Jobs Act of 2017 (the “Tax Act”). However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The Company adopted the new standard effective January 1, 2019, and elected not to reclassify the stranded tax effect resulting from the 2017 Tax Act to retained earnings.

8



 
Accounting Standards Effective in Future Periods

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which modifies the disclosure requirements for employers that sponsor defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The standard is to be applied on a retrospective basis to all periods presented and early adoption is permitted. The Company is evaluating the effect that the provisions of ASU 2018-14 will have on its consolidated financial statements.

Significant Accounting Policies

The accounting policies of the Company are set forth in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Updates to those policies as a result of the adoption of ASC 842 have been included in Note 8, Leases .


9



2. REVENUE AND CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table presents revenue from separative work units (“SWU”) and uranium sales disaggregated by geographical region based on the billing addresses of customers (in millions):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
United States
$
2.6

 
$
32.9

 
$
37.7

 
$
54.0

Foreign

 

 

 
0.2

Revenue - SWU and uranium
$
2.6

 
$
32.9

 
$
37.7

 
$
54.2


Refer to Note 13, Segment Information, for disaggregation of revenue by segment. Disaggregation by end-market is provided in Note 13 and the condensed consolidated statements of operations. SWU and uranium sales are made primarily to electric utility customers. Contract services revenue resulted primarily from services provided to government contractors and, in the first quarter of 2018, the settlement with DOE and the U.S. government. SWU and uranium revenue is recognized at point of sale and contract services revenue is generally recognized over time.

Contract Balances

The following table represents changes in contract assets and contract liabilities balances (in millions):
 
 
June 30,
2019
 
December 31, 2018
 
Year-To-Date Change
Contract assets
 
 
 
 
 
 
Accounts receivable:
 
 
 
 
 
 
Billed
 
$
20.1

 
$
50.4

 
$
(30.3
)
Unbilled
 
5.6

 

 
5.6

Uranium feed receivable
 
4.5

 
9.8

 
(5.3
)
Accounts receivable
 
$
30.2

 
$
60.2

 
$
(30.0
)
 
 
 
 
 
 
 
Deferred costs associated with deferred revenue
 
$
138.7

 
$
134.9

 
$
3.8

 
 
 
 
 
 
 
Contract liabilities
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
0.5

 
$

 
$
0.5

Deferred revenue - current
 
$
220.5

 
$
204.5

 
$
16.0

Advances from customers - current
 
$
46.7

 
$

 
$
46.7

Advances from customers - noncurrent
 
$
29.4

 
$
15.0

 
$
14.4


Deferred cost and deferred revenue activity in the six months ended June 30, 2019, follows (in millions):
 
Deferred Sales in the Period
 
Previously Deferred Sales Recognized in the Period
 
Year-To-Date Change
Deferred costs associated with deferred revenue
$
3.8

 
$

 
$
3.8

Deferred revenue
16.0

 

 
16.0



10



LEU Segment

Under the terms of certain contracts with customers in the low-enriched uranium (“LEU”) segment, the Company will accept payment in the form of 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 uranium at contract inception, or as the quantity of uranium is finalized, if variable.

In the three months ended June 30, 2019, the Company received uranium from customers valued at $61.1 million as advance payments for the future sales of SWU. The advance payments are included in either Advances from Customers, Current or Advances from Customers, Noncurrent, based on the anticipated SWU sales period.

In the three months ended June 30, 2018, the Company received uranium from customers valued at $14.5 million as advance payments for the future sales of SWU. The advance payments are included in Advances from Customers, Noncurrent, based on the anticipated SWU sales period.
 
In the three months ended December 2018, the Company borrowed SWU inventory valued at $7.3 million from a customer under terms that require repayment within 48 months. The Company recorded the SWU and the related liability for the borrowing using an average purchase price over the borrowing period. The liability to the customer is included in Other Liabilities, which is included in noncurrent liabilities.

Contract Services Segment

Revenue for the contract services segment, representing the Company’s technical, manufacturing, engineering and operations services offered to public and private sector customers, is recognized over the contractual period as services are rendered.

On May 31, 2019, the Company entered in a letter agreement with DOE (“the HALEU Letter Agreement”) for the Company to demonstrate the ability to produce high assay, low-enriched uranium (“HALEU”) with existing United States origin enrichment technology and provide DOE with HALEU for near term use in its research and development for the advancement of civilian nuclear energy and security, and other programmatic missions. HALEU is an advanced nuclear reactor fuel that is not commercially available today. The Company commenced work pursuant to the letter agreement on June 1, 2019, and will work with DOE to enter into a definitive contract by October 31, 2019. According to the letter agreement, the definitive contract is anticipated to be an incrementally funded, cost reimbursable contract with DOE reimbursing up to 80% of costs and the Company incurring 20% of costs. Allocable costs include project costs, classified as Cost of Sales, and an allocation of corporate costs classified as Selling, General and Administrative Expenses . It is anticipated that the definitive contract will run through May 31, 2022, and the total amount of DOE’s share will be capped at $115 million. However, the Company has no assurance that a definitive contract will be executed. Based upon the anticipated cost share described above, and the total amount of DOE’s share of $115 million , the Company’s cost share would be approximately $29 million . Any costs incurred above these amounts would be borne by the Company. The HALEU Letter Agreement obligates DOE for costs up to $18.6 million of the $115 million and currently authorizes up to $6.4 million in payments to the Company.

Services to be provided over the anticipated three-year contract involve constructing and assembling centrifuge machines and related infrastructure in a cascade formation. When estimates of total project costs to be incurred for such an integrated, construction-type contract exceed estimates of total revenue to be earned, a provision for the entire loss on the contract is recorded to Cost of Sales in the period the loss is determined, and is reflected in Current Liabilities . For the quarter ended June 30, 2019, the Company recorded a loss provision of $0.5 million which represents the anticipated gross loss for the remaining initial phase of contract work performed under the HALEU Letter Agreement as the parties work to enter into a definitive contract.


11



On January 11, 2018, the Company entered into a settlement agreement with DOE and the U.S. government regarding breach of contract claims brought by the Company relating to work performed by the Company under contracts with DOE and subcontracts with DOE contractors. In connection with the settlement, the Company (a) received $4.7 million from the U.S. government, (b) applied approximately $19.3 million of advances from the U.S. government received in prior years against the receivables balance, and (c) recorded additional revenue of $9.5 million .

Centrus and DOE have yet to fully settle the Company’s claims for reimbursements for certain pension and postretirement benefits costs related to past contract work performed for DOE. There is the potential for additional revenue to be recognized for this work pending the outcome of legal proceedings related to the Company’s claims for payment and the potential release of previously established valuation allowances on receivables. As a result of the application of fresh start accounting following the Company’s emergence from Chapter 11 bankruptcy on September 30, 2014, the receivables related to the Company’s claims for payment are carried at fair value as of September 30, 2014, which is net of the valuation allowances. Refer to Note 12, Commitments and Contingencies .

LEU Segment Order Book

The SWU component of LEU is typically bought and sold under long-term contracts with deliveries over several years. The Company’s agreements for natural uranium sales are generally shorter-term, fixed-commitment contracts. The Company’s order book sales under contract in the LEU segment (“order book”) extends to 2030. The order book represents the Company’s remaining performance obligations under these contracts and includes the Deferred Revenue and Advances from Customers amounts in the Contract Balances table above. As of June 30, 2019, the order book was $1.1 billion , compared to $1.0 billion at December 31, 2018, reflecting completed deliveries and new contracts signed in the six months ended June 30, 2019.

Most of the Company’s contracts provide for fixed purchases of SWU during a given year. T he Company’s estimate of the aggregate dollar amount of future SWU and uranium sales is partially based on customers’ estimates of the timing and size of their fuel requirements and other assumptions that are subject to change. For example, depending on the terms of specific contracts, the customer may be able to increase or decrease the quantity delivered within an agreed range. T he Company’s order book estimate is also based on the Company’s estimates of selling prices, which are subject to change. For example, depending on the terms of specific contracts, prices may be adjusted based on escalation using a general inflation index, published SWU price indicators prevailing at the time of delivery, and other factors, all of which are variable. T he Company uses external composite forecasts of future market prices and inflation rates in its pricing estimates.


12



3. SPECIAL CHARGES

As a result of the HALEU Letter Agreement, special charges in the three and six months ended June 30, 2019, included a credit of $2.9 million for the reversal of accrued termination benefits for employees who were retained at the Company’s facility in Piketon, Ohio. For the six months ended June 30, 2018, special charges totaled $0.9 million , consisting of estimated employee termination benefits related to corporate functions of $0.8 million and advisory costs related to updating the Company’s information technology systems of $0.1 million . The remaining balance of termination benefits of $0.6 million is expected to be paid within twelve months and is classified in Accounts Payable and Accrued Liabilities in the condensed consolidated balance sheet.

A summary of termination benefit activity an d the accrued liability follows (in millions):
 
 
Liability
December 31,
2018
 
Six Months Ended 
 June 30, 2019
 
Liability
June 30,
2019
 
 
 
Charges (Credits) for Termination Benefits
 
Paid/
Settled
 
Workforce reductions:
 
 
 
 
 
 
 
 
Corporate functions
 
$
0.9

 
$

 
$
(0.7
)
 
$
0.2

Piketon facility
 
3.2

 
(2.9
)
 
0.1

 
0.4

Total
 
$
4.1

 
$
(2.9
)
 
$
(0.6
)
 
$
0.6




13



4. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The following table summarizes the Company’s cash, cash equivalents and restricted cash as presented on the condensed consolidated balance sheet to amounts on the condensed consolidated statement of cash flows (in millions):
 
June 30,
2019
 
December 31, 2018
 
 
 
 
Cash and cash equivalents
$
88.3

 
$
123.1

Deposits for financial assurance - current
18.0

 
30.3

Deposits for financial assurance - noncurrent
5.7

 
6.3

Total cash, cash equivalents and restricted cash
$
112.0

 
$
159.7


The following table provides additional detail regarding the Company’s deposits for financial assurance (in millions):
 
June 30, 2019
 
December 31, 2018
 
Current
 
Long-Term
 
Current
 
Long-Term
NRC license
$
16.9

 
$

 
$
16.6

 
$

DOE lease

 

 
13.5

 

Workers compensation
0.6

 
5.4

 

 
6.0

Other
0.5

 
0.3

 
0.2

 
0.3

Total deposits for financial assurance
$
18.0

 
$
5.7

 
$
30.3

 
$
6.3


Piketon Facility Obligations and Surety Bonds

Centrus leases gas centrifuge enrichment plant facilities and related personal property in Piketon, Ohio from DOE. Centrus previously provided financial assurance to DOE for lease turnover obligations in the form of surety bonds that were fully cash collateralized. On May 31, 2019, DOE and Centrus amended the lease agreement, which was scheduled to expire by its terms on June 30, 2019. In the second quarter of 2019, Centrus completed its lease turnover obligations related to the term ended June 30, 2019. DOE released the bonds and Centrus received the cash collateral of $13.5 million . In addition, Centrus has previously provided financial assurance to the U.S. Nuclear Regulatory Commission (“NRC”) for the decontamination and decommissioning (“D&D”) of the facility in the form of surety bonds that are fully cash collateralized by Centrus for $16.9 million . The Company has completed the D&D work required for elimination of financial assurance under NRC license requirements and is working with the NRC to have the surety bonds cancelled, which would permit the Company to receive the cash collateral.

Financial Assurance for Workers’ Compensation

The Company has provided financial assurance to states in which it was previously self-insured for workers’ compensation in accordance with each state’s requirements in the form of a surety bond and a letter of credit that are fully cash collateralized by Centrus. When each state determines that Centrus is likely to have no further workers’ compensation obligations related to the period of self-insurance, the surety bond and letter of credit will be cancelled and the Company expects to receive the cash collateral. Of the $6.0 million in cash collateral as of June 30, 2019, $0.6 million relates to a letter of credit that is cancelling within 12 months.


14



5. INVENTORIES

Centrus holds uranium at licensed locations in the form of natural uranium and as the uranium component of LEU. Centrus also holds SWU as the SWU component of LEU at licensed locations (e.g., fabricators) to meet book transfer requests by customers. Fabricators process LEU into fuel for use in nuclear reactors. Components of inventories are as follows (in millions):
 
June 30, 2019
 
December 31, 2018
 
Current
Assets
 
Current
Liabilities
(a)
 
Inventories, Net
 
Current
Assets
 
Current
Liabilities
(a)
 
Inventories, Net
Separative work units
$
18.4

 
$
0.5

 
$
17.9

 
$
20.1

 
$
3.6

 
$
16.5

Uranium
123.3

 
58.5

 
64.8

 
109.6

 
99.4

 
10.2

Total
$
141.7

 
$
59.0

 
$
82.7

 
$
129.7

 
$
103.0

 
$
26.7


(a)
Inventories owed to customers and suppliers, included in current liabilities, include SWU and uranium inventories owed to fabricators.

Inventories are valued at the lower of cost or net realizable value. Valuation adjustments for uranium inventory to reflect declines in uranium market price indicators totaled $2.3 million in the six months ended June 30, 2019, including $2.0 million in the second quarter of 2019.

6. INTANGIBLE ASSETS

Intangible assets originated from the Company’s reorganization and application of fresh start accounting as of the date the Company emerged from bankruptcy, September 30, 2014, and reflect the conditions at that time. The intangible asset related to the sales order book is amortized as the order book existing at emergence is reduced, principally as a result of deliveries to customers. The intangible asset related to customer relationships is amortized using the straight-line method over the estimated average useful life of 15 years. Amortization expense is presented below gross profit on the consolidated statements of operations. Intangible asset balances are as follows (in millions):
 
June 30, 2019
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Amount
Sales order book
$
54.6

 
$
28.0

 
$
26.6

 
$
54.6

 
$
28.0

 
$
26.6

Customer relationships
68.9

 
21.8

 
47.1

 
68.9

 
19.5

 
49.4

Total
$
123.5

 
$
49.8

 
$
73.7

 
$
123.5

 
$
47.5

 
$
76.0




15



7. DEBT

A summary of debt is as follows (in millions):
 
 
 
June 30, 2019
 
December 31, 2018
 
Maturity
 
Current
 
Long-Term
 
Current
 
Long-Term
8.25% Notes:
Feb. 2027
 
 
 
 
 
 
 
 
Principal
 
 
$

 
$
74.3

 
$

 
$
74.3

Interest
 
 
6.1

 
42.8

 
6.1

 
45.9

8.25% Notes
 
 
$
6.1

 
$
117.1

 
$
6.1

 
$
120.2

 
 
 
 
 
 
 
 
 
 
8% PIK Toggle Notes
Sep. 2019  (a)
 
$
27.5

 
$

 
$
26.7

 
$

Less deferred issuance costs
 
 

 

 

 

8% PIK Toggle Notes
 
 
$
27.5

 
$

 
$
26.7

 
$

 
 
 
 
 
 
 
 
 
 
Total
 
 
$
33.6

 
$
117.1

 
$
32.8

 
$
120.2

 
(a) Maturity can be extended to September 2024 upon the satisfaction of certain funding conditions described in the applicable indenture.

8.25% Notes

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 mature on February 28, 2027. As described above, all future interest payment obligations on the 8.25% Notes are included in the carrying value of the 8.25% Notes. As a result, the Company’s reported interest expense will be less than its contractual interest payments throughout the term of the 8.25% Notes. As of June 30, 2019, and December 31, 2018, $6.1 million of interest is recorded as current and classified as Current Debt in the condensed consolidated balance sheet.
 
8% PIK Toggle Notes

Interest on the 8% PIK Toggle Notes is payable semi-annually in arrears on March 31 and September 30 based on a 360-day year consisting of twelve 30-day months. The principal amount is increased by any payment of interest in the form of PIK payments. The Company has the option to pay up to 5.5% per annum of interest due on the 8% PIK Toggle Notes in the form of in-kind PIK payments. For the semi-annual interest periods in 2018 and 2019, the Company elected to pay interest in the form of PIK payments at 5.5% per annum. Financing costs for the issuance of the 8% PIK Toggle Notes were deferred and are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the 8% PIK Toggle Notes. The 8% PIK Toggle Notes mature on September 30, 2019.

Additional terms and conditions of the 8.25% Notes and the 8% PIK Toggle Notes are described in Note 9, Debt , of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.



16



8. LEASES

Centrus leases facilities and equipment under operating leases. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company has facility leases with terms greater than 12 months, and the Company records the related asset and obligation at the present value of lease payments over the term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Refer to Note 1, Basis of Presentation , for information regarding the Company’s adoption of Topic 842 on January 1, 2019.

Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets exclude lease incentives. Lease terms reflect options to extend or terminate the lease when it is reasonably certain that those options will be exercised. The depreciable life of lease assets and leasehold improvements is limited by the expected lease term. The weighted-average remaining lease term was 3.9 years at June 30, 2019, with maturity dates ranging from June 2019 to September 2027, and the weighted-average discount rate was 12.1% . Lease expense amounted to $0.3 million in the three months ended June 30, 2019 and $0.9 million in the three months ended June 30, 2018. Expense for the three months ended June 30, 2019 was primarily related to operating leases and includes a $0.5 million credit from DOE for true up of prior year lease expense. Other amounts related to short-term lease expense were insignificant. Operating lease expense is included in Cost of Sales, Selling, General and Administrative Expenses and Advance Technology Costs on the Statement of Operations. Cash paid for amounts included in operating cash flows for operating leases was $0.8 million in the six months ended June 30, 2019.

The Company leases gas centrifuge enrichment plant facilities and related personal property in Piketon, Ohio from DOE. On May 31, 2019, in connection with the HALEU Letter Agreement, DOE and the Company amended the lease agreement, which was scheduled to expire by its terms on June 30, 2019. The lease was renewed and extended until May 31, 2022, provided, however, that DOE has the right to terminate the lease if the parties do not enter into a definitive contract as contemplated by the HALEU Letter Agreement. Any facilities or equipment constructed or installed under contract with DOE will be owned by DOE, may be returned to DOE in an “as is” condition at the end of the lease term, and DOE would be responsible for its decontamination and decommissioning. The Company accounted for the amendment as a modification and reassessed its classification. The Company classified the lease as an operating lease as the lease does not contain a transfer of ownership or purchase option, the fair value of the underlying asset cannot be practicably determined and the economic life of the asset is indeterminate. The remeasurement of the remaining consideration resulted in $2.9 million of additional lease assets and liabilities related to the modification. The modification resulted in an insignificant impact on the consolidated statement of operations.

Operating Lease Assets and Liabilities

The table below presents the lease-related assets and liabilities recorded on the balance sheet (in millions).
 
June 30, 2019
 
Classification on the Balance Sheet
Lease assets
$
7.3

 
Other long-term assets
Lease liabilities:
 
 
 
Current
2.4

 
Accounts payable and accrued liabilities
Noncurrent
7.3

 
Other long-term liabilities
Total lease liabilities
$
9.7

 




17



Maturity of Operating Lease Liabilities

The table below reconciles undiscounted payments for operating leases with terms greater than 12 months to the operating lease liabilities recorded on the balance sheet (in millions).
Remainder of 2019
$
1.8

2020
2.6

2021
2.6

2022
1.7

2023
1.0

Thereafter
3.8

Total lease payments
13.5

Less imputed interest
3.8

Present value of lease payments
$
9.7


Minimum Lease Payments

Prior to the adoption of Topic 842, future estimated minimum lease payments as of December 31, 2018 for leases with remaining terms in excess of one year were as follows (in millions):
2019
$
0.9

2020
0.9

2021
0.9

2022
1.0

2023
1.0

Thereafter
3.8

 
$
8.5



18



9. FAIR VALUE

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value of assets and liabilities, the following hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
Level 1 – quoted prices for identical instruments in active markets.
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 – valuations derived using one or more significant inputs that are not observable.

Financial Instruments Recorded at Fair Value (in millions):
 
June 30, 2019
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
88.3

 
$

 
$

 
$
88.3

 
$
123.1

 
$

 
$

 
$
123.1

Deferred compensation asset (a)
1.7

 

 

 
1.7

 
1.4

 

 

 
1.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

Deferred compensation obligation (a)
$
1.7

 
$

 
$

 
$
1.7

 
$
1.4

 
$

 
$

 
$
1.4

 
(a)
The deferred compensation obligation represents the balance of deferred compensation plus net investment earnings. The deferred compensation plan is funded through a rabbi trust. Trust funds are invested in mutual funds for which unit prices are quoted in active markets and are classified within Level 1 of the valuation hierarchy.

There were no transfers between Level 1, 2 or 3 during the periods presented.

Other Financial Instruments

As of June 30, 2019 , and December 31, 2018, the balance sheet carrying amounts for Accounts Receivable , Accounts Payable and Accrued Liabilities (excluding the deferred compensation obligation described above), and Payables under SWU Purchase Agreements approximate fair value because of their short-term nature.

The carrying value and estimated fair value of long-term debt are as follows (in millions):
 
June 30, 2019
 
December 31, 2018
 
Carrying Value
 
Estimated Fair Value (a)
 
Carrying Value
 
Estimated Fair Value (a)
8.25% Notes
$
123.2

(b)  
$
61.1

 
$
126.3

(b)  
$
57.9

8% PIK Toggle Notes
27.5

 
23.4

 
26.7

 
21.8

(a) Based on recent trading prices and bid/ask quotes as of or near the balance sheet date, which are considered Level 2 inputs based on the frequency of trading.
(b)  
The carrying value of the 8.25% Notes consists of the principal balance of $74.3 million and the sum of current and noncurrent interest payment obligations until maturity. Refer to Note 7, Debt .


19



10. PENSION AND POSTRETIREMENT HEALTH AND LIFE BENEFITS

The components of net periodic benefit (credits) for the defined benefit pension plans were as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Service costs
$
0.8

 
$
0.9

 
$
1.6

 
$
1.7

Interest costs
7.6

 
7.2

 
15.2

 
14.4

Expected return on plan assets (gains)
(9.1
)
 
(10.3
)
 
(18.2
)
 
(20.5
)
Net periodic benefit (credits)
$
(0.7
)
 
$
(2.2
)
 
$
(1.4
)
 
$
(4.4
)


The components of net periodic benefit costs for the postretirement health and life benefit plans were as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Interest costs
$
1.5

 
$
1.5

 
$
3.0

 
$
2.9

Amortization of prior service costs (credits), net

 
(0.1
)
 
(0.1
)
 
(0.1
)
Net periodic benefit costs
$
1.5

 
$
1.4

 
$
2.9

 
$
2.8


 
The Company reports service costs for its defined benefit pension plans and its postretirement health and life benefit plans in Cost of Sales and Selling, General and Administrative Expenses . The remaining components of net periodic benefit (credits) costs are reported as Nonoperating Components of Net Periodic Benefit Expense (Income).


20



11. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share is calculated by dividing income (loss) allocable to common stockholders by the weighted average number of shares of common stock outstanding during the period. In calculating diluted net income (loss) per common share, the number of shares is increased by the weighted average number of potential shares related to stock compensation awards. No dilutive effect is recognized in a period in which a net loss has occurred. The weighted average number of common and common equivalent shares used in the calculation of basic and diluted income (loss) per common share are as follows:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Numerator (in millions):
 
 
 
 
 
 
 
Net loss
$
(15.6
)
 
$
(26.1
)
 
$
(36.5
)
 
$
(51.1
)
Preferred stock dividends - undeclared and cumulative
2.0

 
2.0

 
4.0

 
4.0

Net loss allocable to common stockholders
$
(17.6
)
 
$
(28.1
)
 
$
(40.5
)
 
$
(55.1
)
 
 
 
 
 
 
 
 
Denominator (in thousands):
 
 
 
 
 
 
 
Average common shares outstanding - basic
9,565

 
9,118

 
9,549

 
9,111

Potentially dilutive shares related to stock options and restricted stock units  (a)

 

 

 

Average common shares outstanding - diluted
9,565

 
9,118

 
9,549

 
9,111

 
 
 
 
 
 
 
 
Net loss per common share (in dollars) - basic and diluted:
$
(1.84
)
 
$
(3.08
)
 
$
(4.24
)
 
$
(6.05
)
 
 
 
 
 
 
 
 
(a) Common stock equivalents excluded from the diluted calculation as a result of a net loss in the period (in thousands)
77

 
3

 
80

 
10

 
 
 
 
 
 
 
 
Options outstanding and considered anti-dilutive as their exercise price exceeded the average share market price (in thousands)
360

 
360

 
360

 
360



21



12. COMMITMENTS AND CONTINGENCIES

Commitments under SWU Purchase Agreements

TENEX

A major supplier of SWU to the Company is the Russian government entity Joint Stock Company “TENEX” (“TENEX”). Under a 2011 agreement with TENEX, as amended, (the “Russian Supply Agreement”), the Company purchases SWU contained in LEU received from TENEX, and the Company delivers natural uranium to TENEX for the LEU’s uranium component. The LEU that the Company obtains from TENEX under the agreement is subject to quotas and other restrictions applicable to commercial Russian LEU.

The Russian Supply Agreement was originally signed with commitments through 2022 but was modified in 2015 to give the Company the right to reschedule certain quantities of SWU of the original commitments into the period 2023 and beyond, in return for the purchase of additional SWU in those years. The Company has exercised this right to reschedule in each year through December 31, 2018. If the Company exercises this right to reschedule in full during the remaining years of the contract’s original term, the Company will have a rescheduled post-2022 purchase commitment through 2028.

The Russian Supply Agreement provides that the Company must pay for all SWU in its minimum purchase obligation each year, even if it fails to submit orders for such SWU. The Company would then have the right to take the unordered SWU in the following year.

Pricing terms for SWU under the Russian Supply Agreement are based on a combination of market-related price points and other factors. This formula was subject to an adjustment at the end of 2018 that will reduce the unit costs of SWU under this contract for the duration of the contract.

Orano

On April 27, 2018, the Company entered into an agreement (the “Orano Supply Agreement”) with Orano Cycle (formerly, AREVA NC) (“Orano”) for the long-term supply to the Company of SWU contained in LEU, nominally commencing in 2023. Under the Orano Supply Agreement, the Company purchases SWU contained in LEU received from Orano, and the Company delivers natural uranium to Orano for the natural uranium feed material component of LEU. The Company may elect to begin to accept deliveries as early as 2021 or to defer the commencement of purchases until 2024 and has the option to extend the six-year purchase period for an additional two years. The Orano Supply Agreement provides significant flexibility to adjust purchase volumes, subject to annual minimums and maximums in fixed amounts that vary year by year. The pricing for the SWU purchased by the Company is determined by a formula that uses a combination of market-related price points and other factors, and is subject to certain floors and ceilings. Prices are payable in a combination of U.S. dollars and euros.

Milestones Under the 2002 DOE-USEC Agreement

The Company and DOE signed an agreement dated June 17, 2002, as amended (the “2002 DOE-USEC Agreement”), pursuant to which the parties made long-term commitments directed at resolving issues related to the stability and security of the domestic uranium enrichment industry. DOE consented to the assumption by Centrus of the 2002 DOE-USEC Agreement and other agreements between the Company and DOE subject to an express reservation of all rights, remedies and defenses by DOE and the Company under those agreements as part of the Company’s Chapter 11 bankruptcy process. The 2002 DOE-USEC Agreement requires Centrus to 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.


22



DOE has specific remedies under the 2002 DOE-USEC Agreement if Centrus fails to meet a milestone that would adversely impact its ability to begin commercial operations of the American Centrifuge Plant on schedule, and such delay was within Centrus’ control or was due to its fault or negligence or if Centrus abandons or constructively abandons the commercial deployment of an advanced enrichment technology. These remedies include terminating the 2002 DOE-USEC Agreement, revoking Centrus’ access to DOE’s centrifuge technology that is required for the success of the American Centrifuge project, requiring Centrus to transfer certain rights in the American Centrifuge technology and facilities to DOE, and requiring Centrus to reimburse DOE for certain costs associated with the American Centrifuge project.

The 2002 DOE-USEC Agreement provides that if a delaying event beyond the control and without the fault or negligence of Centrus occurs that could affect Centrus’ ability to meet an American Centrifuge Plant milestone, DOE and the Company will jointly meet to discuss in good faith possible adjustments to the milestones as appropriate to accommodate the delaying event. The Company notified DOE that it had not met the June 2014 milestone within the time period 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 affect 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 the Company 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.

Legal Matters

On August 30, 2013, the Company submitted a claim to DOE under the Contract Disputes Act for payment of $42.8 million , representing DOE’s share of pension and postretirement benefits costs related to the transition of Portsmouth site employees to DOE’s D&D contractor. On August 27, 2014, the DOE contracting officer denied the Company’s claim. As a result, the Company filed an appeal of the decision in the U.S. Court of Federal Claims in January 2015. Centrus believes that DOE is responsible for a significant portion of any pension and postretirement benefit costs associated with the transition of employees at Portsmouth. The receivable for DOE’s share of pension and postretirement benefits costs has a full valuation allowance due to the lack of a resolution with DOE and uncertainty regarding the amounts owed and the timing of collection. The parties filed cross motions for partial summary judgment to seek a judicial determination of two issues related to the calculation of the pension liability and the entitlement of Centrus to reimbursement for postretirement benefit costs. The Court ruled on the pension calculation methodology and ruled Centrus was entitled to recover costs associated with postretirement benefits for employees afforded protection under the USEC Privatization Act. At the Government’s request, the Court has issued a revised scheduling order providing for fact discovery to close on August 30, 2019, expert opinions to be disclosed by October 25, 2019 and expert discovery to close on November 22, 2019. A status report is due by December 2, 2019. The Company is still pursuing settlement.

On May 26, 2019, the Company, its subsidiary United States Enrichment Corp. (“Enrichment Corp.”), and five other DOE contractors who have operated facilities at the Portsmouth Gaseous Diffusion Plant (“GDP”) site were named as defendants in a class action complaint filed by Ursula McGlone, Jason McGlone, Julia Dunham, and K.D. and C.D., minor children by and through their parent and natural guardian Julia Dunham (collectively, the “Plaintiffs”) in the U.S. District Court in the Southern District of Ohio, Eastern Division.   The complaint seeks damages for alleged off-site contamination allegedly resulting from activities on the Portsmouth GDP site.   The Plaintiffs are seeking to represent a class of (i) all current or former residents within a 7-mile radius of the Portsmouth GDP site and (ii) all students and their parents at the Zahn’s Corner Middle School from 1993-present. The Company and Enrichment Corp. have not been served with the complaint. The Company believes that its operations at the Portsmouth GDP site and American Centrifuge Plant site were fully in compliance with the Nuclear Regulatory Commission’s regulations. Further the Company believes that any such liability should be covered by our indemnification under the Price-Anderson Act. The Company and Enrichment Corp. has provided

23



notifications to DOE required to invoke indemnification under the Price-Anderson Act and other contractual provisions. 

On June 28, 2019, the Company, Enrichment Corp., and four other Department of Energy (“DOE”) contractors who have operated facilities at the Portsmouth GDP site were named as defendants in a class action complaint filed by Ray Pritchard and Sharon Melick (collectively, the “Plaintiffs”) in the U.S. District Court in the Southern District of Ohio, Eastern Division. The complaint seeks damages for alleged off-site contamination allegedly resulting from activities on the Portsmouth GDP site.   The Plaintiffs are seeking to represent a class of all current or former residents within a 7-mile radius of the Portsmouth GDP site.  The Company and Enrichment Corp. have not been served with the complaint. The Company believes that its operations at the Portsmouth GDP site and American Centrifuge Plant site were fully in compliance with the Nuclear Regulatory Commission’s regulations. Further the Company believes that any such liability should be covered by our indemnification under the Price-Anderson Act. The Company and Enrichment Corp. has provided notifications to DOE required to invoke indemnification under the Price-Anderson Act and other contractual provisions. 

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, other than the above, Centrus does not believe that the outcome of any of these legal matters, individually and in the aggregate, will have a material adverse effect on its cash flows, results of operations or consolidated financial condition.


24



13. SEGMENT INFORMATION

Gross profit is Centrus’ measure for segment reporting. There were no intersegment sales in the periods presented. Refer to Note 2, Revenue and Contracts with Customers, for additional details on revenue for each segment. The following table presents the Company’s segment information (in millions):

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
LEU segment:
 
 
 
 
 
 
 
Separative work units
$

 
$
32.9

 
$
12.4

 
$
50.6

Uranium
2.6

 

 
25.3

 
3.6

Total
2.6

 
32.9

 
37.7

 
54.2

Contract services segment
8.0

 
6.5

 
11.6

 
20.9

Total revenue
$
10.6

 
$
39.4

 
$
49.3

 
$
75.1

 
 
 
 
 
 
 
 
Segment Gross Profit (Loss)
 
 
 
 
 
 
 
LEU segment
$
(5.1
)
 
$
(10.0
)
 
$
(8.3
)
 
$
(23.5
)
Contract services segment
0.8

 
(0.7
)
 
(1.5
)
 
7.5

Gross loss
$
(4.3
)
 
$
(10.7
)
 
$
(9.8
)
 
$
(16.0
)


Revenue from Major Customers (10% or More of Total Revenue)

In the three months ended June 30, 2019, one customer in the LEU segment represented $2.6 million of revenue and one customer in the contract services segment represented $6.3 million of revenue. In the six months ended June 30, 2019, one customer in the LEU segment represented $35.0 million of revenue and one customer in the contract services segment represented $8.7 million of revenue.

In the three months ended June 30, 2018, individual customers in the LEU segment represented $18.6 million and $14.3 million of revenue, and one customer in the contract services segment represented $4.5 million of revenue. In the six months ended June 30, 2018, individual customers in the LEU segment represented $30.7 million and $14.4 million of revenue, and individual customers in the contract services segment represented $9.9 million and $9.2 million of revenue.


25



 
Item 2. 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 unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report.

Overview

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

Centrus operates two business segments: low-enriched uranium (“LEU”), which supplies various components of nuclear fuel to utilities, and contract services, which provides advanced engineering, design, and manufacturing services to government and private sector customers.

Our LEU segment involves the sale of LEU, its components, and natural uranium to utilities operating commercial nuclear power plants. LEU is a critical component in the production of nuclear fuel for reactors that produce electricity. We supply LEU to both domestic and international utilities for use in nuclear reactors worldwide. We provide LEU from multiple sources including our inventory, medium- and long- term supply contracts and spot purchases. As a long-term supplier of LEU to our customers, our objective is to provide value through the reliability and diversity of our supply sources. Our long-term goal is to resume commercial enrichment production, and we are exploring approaches to that end.

Our contract services segment utilizes the unique technical expertise, operational experience and specialized facilities that we developed over nearly two decades as part of our uranium enrichment technology program. We are leveraging these capabilities to expand and diversify our business, offering new services to existing and new customers in complementary markets.

With the specialized capabilities and workforce at our Technology and Manufacturing Center in Oak Ridge, Tennessee, we are performing technical, engineering and manufacturing services for a range of commercial and government customers and actively working to secure new customers. Our experience developing, licensing and manufacturing advanced nuclear fuels and technologies positions us to provide critical design, engineering, manufacturing and other services to a broad range of potential clients, including those involving sensitive or classified technologies. This work includes design, engineering, manufacturing and licensing services support for advanced reactor and fuel fabrication projects. Based on our experience at our uranium enrichment facilities, we are also performing decontamination and decommissioning (“D&D”) work for the U.S. government in Oak Ridge, Tennessee.

With several decades of experience in enrichment, we also continue to be a leader in the development of an advanced U.S. uranium enrichment technology, which we believe could play a critical role in supplying fuel for advanced reactors, meeting U.S. national and energy security needs, and achieving our nation’s nonproliferation objectives.


26



On May 31, 2019, the Company entered in a letter agreement with DOE (“the HALEU Letter Agreement”) for the Company to demonstrate the ability to produce high assay, low-enriched uranium (“HALEU”) with existing United States origin enrichment technology and provide DOE with HALEU for near term use in its research and development for the advancement of civilian nuclear energy and security, and other programmatic missions. HALEU is an advanced nuclear reactor fuel that is not commercially available today.

While existing reactors currently in operation typically operate on LEU enriched so that the uranium-235 isotope concentration is just below 5%, HALEU has a uranium-235 concentration of up to 20%. HALEU may be required in the future for a number of advanced reactor designs currently under development, both commercial and in support of United States government activities. 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.

As described below under Revenue - Contract Services , the Company contributes toward the costs of the HALEU program. The Company continues to invest in advanced U.S. uranium enrichment technology to meet the anticipated needs of the commercial advanced reactor market and U.S. government national security requirements as they develop.

We lease gas centrifuge enrichment plant facilities and related personal property in Piketon, Ohio from DOE. In connection with the letter agreement, DOE and Centrus amended the lease agreement, which was scheduled to expire by its terms on June 30, 2019. The lease was renewed and extended until May 31, 2022, provided, however, that DOE has the right to terminate the lease if the parties do not enter into a definitive contract as contemplated by the letter agreement. Any facilities or equipment constructed or installed under contract with DOE will be owned by DOE, may be returned to DOE in an “as is” condition at the end of the lease term, and DOE would be responsible for its decontamination and decommissioning.

The nuclear industry in general, and the nuclear fuel industry in particular, is in a period of significant change, which continues to affect the competitive landscape. In the seven years following the 2011 Fukushima accident, the published market prices for uranium enrichment declined more than 75 percent. While the monthly price indicators have gradually increased since August 2018, 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 and may seek further adjustments to our cost structure and operations and to 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. 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.


27



Competition and Foreign Trade

Russian Suspension Agreement

Imports into the United States of LEU and other uranium products produced in the Russian Federation, including LEU imported by Centrus under the long-term supply agreement we signed with the Russian government entity Joint Stock Company “TENEX” (“TENEX”) in 2011, as amended, are subject, through 2020, to quotas imposed under legislation enacted into law in September 2008 and under the 1992 Russian Suspension Agreement (“RSA”), as amended in 2008. These quotas limit the amount of Russian LEU that can be imported into the United States for U.S. consumption.

On December 7, 2017, at the request of Louisiana Energy Services (“LES”), a U.S. subsidiary of Urenco Ltd., a competitor of Centrus owned by two foreign governments and two German utilities, the U.S. Department of Commerce (“DOC”) initiated an administrative review of the RSA for the period October 2016 through September 2017 (the “First Administrative Review”). On December 11, 2018, the DOC initiated a second administrative review for the period October 2017 through September 2018 (the “Second Administrative Review”).

On June 24, 2019, the DOC issued its final determination in the First Administrative Review. The DOC held that there was no evidence of any violation of the RSA during the period of review for the First Administrative Review. However, the DOC also stated that it had not yet determined whether the RSA continues to prevent the suppression or undercutting of price levels of domestic uranium products or continues to be in the public interest. Instead, the DOC stated that it would make determinations on those issues in the Second Administrative Review. A final determination in the Second Administrative Review is not due until 2020.

Imposition of additional restrictions as a result of an adverse final determination in the Second Administrative Review, or through an extension of the RSA on terms that do not ensure that we can meet our purchase obligations under the Russian Supply Agreement and our existing and future supply commitments to customers, could adversely affect our financial condition and operations.

Other Trade Actions

On January 16, 2018, two U.S. mining companies submitted a request to the DOC to investigate the impact of uranium imports on national security under Section 232 of the Trade Expansion Act of 1962 and to impose quotas on imports of uranium in order to protect the U.S. mining industry The Commerce Department conducted an investigation pursuant to Section 232 into the effects of uranium imports on the national security of the United States, and, on April 14, 2019, the Secretary of Commerce transmitted his report and finding to the President.

On July 12, 2019, the President rejected the finding of the Secretary of Commerce that uranium was being imported in such quantities and under such circumstances that it threatened to impair the national security of the United States, as defined in Section 232, and accordingly, the remedies sought by the two U.S. mining companies were not granted. However, the President agreed that the Secretary’s findings raised significant concerns regarding the impact of uranium imports on national security with respect to natural uranium, and directed that a high-level U.S. government working group be formed to develop recommendations for reviving and expanding domestic nuclear fuel production within 90 days.

On March 15, 2019, the Commerce Department revoked the antidumping order on French LEU that was imposed on 2002. Accordingly, LEU produced by Orano Cycle in France, including LEU that we procure from Orano, will no longer be subject to antidumping dumping duties when imported into the United States.



28



Revenue

We have two reportable segments: the LEU segment and the contract services segment.
Revenue from our LEU segment is derived primarily from: 
sales of the SWU component of LEU;
sales of both the SWU and uranium components of LEU; and
sales of natural uranium.

Our contract services 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.

SWU and Uranium Sales

Revenue from our LEU segment accounted for approximately 85% of our total revenue in 2018. The majority of our customers are domestic and international utilities that operate nuclear power plants, with international sales constituting approximately 31% of revenue from our LEU segment in recent years. Our agreements with electric utilities are primarily long-term, fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of the SWU component of LEU (or the SWU and uranium components of LEU) from us. Our agreements for natural uranium and enriched uranium product sales, where we sell both the SWU and uranium component of LEU, are generally shorter-term, fixed-commitment contracts.

Our revenues, operating results and cash flows can fluctuate significantly from quarter to quarter and year to year. Revenue is recognized at the time LEU or uranium is delivered under the terms of our contracts. The timing of customer demand is affected by, among other things, electricity markets, reactor operations, maintenance and refueling outages, and customer inventories. In the current market environment, some customers are building inventories and may choose to take deliveries under annual purchase obligations later in the year. Customer payments for the SWU component of LEU average roughly $10 million per order. As a result, a relatively small change in the timing of customer orders for LEU may cause significant variability in operating results.

Utility customers in general have the option to defer receipt of LEU or uranium 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 condensed consolidated financial statements for further details.

Our financial performance over time can be significantly affected by changes in prices for SWU and uranium. Since 2011, market prices for SWU and uranium have significantly declined. Since our sales order book includes contracts awarded to us in previous years, the average SWU price billed to customers typically lags behind published price indicators by several years, which means that average prices under contract today exceed current market prices.

The long-term SWU price indicator, as published by TradeTech, LLC in Nuclear Market Review , is an indication of base-year prices under new long-term enrichment contracts in our primary markets. The following chart summarizes TradeTech’s long-term and spot SWU price indicators, and TradeTech’s spot price indicator for natural uranium hexafluoride (“UF6”):

29




SWU and Uranium Market Price Indicators*

CHART-2E95942A160C57AF9B6.JPG
* Source: Nuclear Market Review , a TradeTech publication, www.uranium.com

Our contracts with customers are primarily denominated in U.S. dollars, and although revenue has not been directly 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. Costs of our primary competitors are denominated in other currencies. Our contracts with suppliers have historically been denominated in U.S. dollars. In April 2018, however, we entered into an agreement with Orano Cycle (formerly, AREVA NC) (“Orano”) for the long-term supply of SWU. We may elect to begin deliveries as early as 2021. Purchases under the contract with Orano will be payable in a combination of U.S dollars and euros and we may be subject to exchange rate risk for the portion of purchases payable in euros.

On occasion, we will accept payment in the form of 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 uranium at contract inception, or as the quantity of uranium is finalized, if variable.

Cost of sales for SWU and uranium is based on the amount of SWU and 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 over current and future periods. 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 and Paducah Gaseous Diffusion Plants.


30



Contract Services

Our contract services segment reflects our technical, manufacturing, engineering and operations services offered to public and private sector customers, including the American Centrifuge engineering and testing activities we have performed as a contractor for UT-Battelle and the engineering, procurement, construction, manufacturing and operations services being performed under the HALEU Letter Agreement. With our private sector customers, we seek to leverage our domestic enrichment experience, engineering know-how, and precision manufacturing facility to assist customers with a range of engineering, design, and advanced manufacturing projects including the production of fuel for next-generation nuclear reactors and the development of related facilities.

Government Contracting

The Company commenced work pursuant to the HALEU Letter Agreement on June 1, 2019, and will work with DOE to enter into a definitive contract by October 31, 2019. According to the letter agreement, the definitive contract is anticipated to be an incrementally funded, cost reimbursable contract with DOE reimbursing up to 80% of costs and the Company incurring 20% of costs. Allocable costs include project costs, classified as Cost of Sales , and an allocation of corporate costs classified as Selling, General and Administrative Expenses . It is anticipated that the definitive contract will run through May 31, 2022, and the total amount of DOE’s share will be capped at $115 million. However, the Company has no assurance that a definitive contract will be executed. Based upon the anticipated cost share described above, and the total amount of DOE’s share of $115 million, the Company’s cost share would be approximately $29 million. Any costs incurred above these amounts would be borne by the Company. The HALEU Letter Agreement obligates DOE for costs up to $18.6 million of the $115 million and currently authorizes up to $6.4 million in payments to the Company.

Services to be provided over the anticipated three-year contract involve constructing and assembling centrifuge machines and related infrastructure in a cascade formation. When estimates of total project costs to be incurred for such an integrated, construction-type contract exceed estimates of total revenue to be earned, a provision for the entire loss on the contract is recorded to Cost of Sales in the period the loss is determined, and is reflected in Current Liabilities . For the quarter ended June 30, 2019, the Company recorded a loss provision of $0.5 million which represents the anticipated gross loss for the remaining initial phase of contract work performed under the HALEU Letter Agreement as the parties work to enter into a definitive contract.

Effective June 1, 2019 with the commencement of the HALEU work, ongoing costs of the Piketon facility that were included in Advanced Technology Costs on the condensed consolidated statement of operations prior to June 1, 2019, are included in Cost of Sales of the contract services segment.

Over the past five years, our government contracts with UT-Battelle have provided for engineering and testing work on the American Centrifuge technology at our facilities in Oak Ridge, Tennessee. Our most recently completed contract with UT-Battelle was for the period from October 1, 2017, through September 30, 2018, and generated total revenue of approximately $16.0 million upon completion of defined milestones. Although the most recent contract expired September 30, 2018, we have continued to perform work towards the expected milestones as the parties worked toward a successor agreement. Costs for work performed in the three months ended March 31, 2019 have been classified as Cost of Sales . While the Company still anticipates entering into an agreement with UT-Battelle, no successor agreement has been reached to date and the scope of work may be more limited than originally anticipated. Accordingly, for the three months ended June 30, 2019, costs for work performed are classified as Advanced Technology Costs. We have no assurance that a successor agreement will be executed.

We continue to invest in advanced technology because of the potential for future growth into new areas of business for the Company, while also preserving our unique workforce at the Technology and Manufacturing Center in Oak Ridge, Tennessee.


31



On September 27, 2018, we leveraged our D&D experience and entered into an agreement with DOE to decontaminate and decommission the K-1600 facility located at the East Tennessee Technology Park. Under the terms of the agreement, pursuant to a work authorization under our lease with DOE, we will remove and dispose of government owned materials and equipment in order to render the facility non-contaminated and unclassified. The work to be performed is expected to be completed by September 30, 2019. The contract is a cost-plus fixed fee contract totaling approximately $15 million. The contract is incrementally funded and subject to appropriations by the federal government.

In addition, we have entered into other contracts with DOE, other agencies and their contractors to provide engineering, design and manufacturing services.
 
Commercial Contracting

On March 26, 2018, we entered into a services agreement with X Energy, LLC (“X-energy”). Under the terms of the services agreement, we provided (i) technical and resource support to X-energy for criticality safety evaluation of processing equipment, design of fresh fuel transport packages, and conceptual mock-up of a nuclear fuel production facility and (ii) non-cash in-kind contributions to X-energy subject to a cooperative agreement between X-energy and the U.S. government. The technical and resource support provided by us to X-energy was performed pursuant to separate task orders issued under and pursuant to the services agreement. The initial task orders ran through December 31, 2018. Depending upon the pricing outlined in the task orders, payment for work performed by us pursuant to the services agreement was either fixed price based or time-and-materials based. The initial task orders in 2018 provided for time-and-materials based pricing with payments to us totaling approximately $4.4 million. In addition, we contributed non-cash in-kind contributions with a value of approximately $2.5 million.

On November 29, 2018, we entered into a second services agreement with X-energy. Under the terms of the second services agreement, we will provide (i) technical and resource support to the design and license application development of X-energy’s nuclear fuel production facility and (ii) non-cash in-kind contributions to X-energy subject to a cooperative agreement between X-energy and the United States government. The technical and resource support provided by us to X-energy will be performed pursuant to separate task orders issued under and pursuant to the second services agreement. The initial task orders run through September 30, 2019 with deliverables to be completed through November 30, 2019. The awarding of any additional task orders to us will be dependent upon the receipt of additional funding. Depending upon the pricing outlined in the task orders, payment for work performed by us pursuant to the services agreement will either be fixed-price based or time-and-materials based. The initial task orders provide for time-and-materials based pricing with payments to be made to us totaling approximately $4.2 million. In addition, we have agreed to provide non-cash in-kind contributions with a value of approximately $2.4 million.

In addition, we have entered into other contracts for the engineering, design, and advanced manufacturing services with other commercial entities.

Prior Site Services Work

We formerly performed sites services work under contracts with DOE and its contractors at the former Portsmouth (Ohio) and Paducah (Kentucky) Gaseous Diffusion Plants. On January 11, 2018, we entered into a settlement agreement with DOE and the U.S. government regarding breach of contract claims relating to this work. Refer to Note 2, Revenue and Contracts with Customers.

The Company and DOE have yet to fully settle the Company’s claims for reimbursements for certain pension and postretirement benefits costs related to past contract work performed at the Portsmouth and Paducah plant sites. There is the potential for additional revenue to be recognized for this work pending the outcome of legal proceedings related to the Company’s claims for payment and the potential release of previously established valuation allowances on receivables. Refer to Part II, Item 1, Legal Proceedings, for additional information.


32



2019 Outlook Update

We anticipate 2019 SWU and uranium revenue to be in the range of $155 million to $180 million and total revenue to be in a range of $205 million to $230 million. Consistent with prior years, revenue continues to be most heavily weighted to the second half of the year. We expect to end 2019 with a cash and cash equivalents balance in a range of $105 million to $125 million.

Our financial guidance is subject to a number of assumptions and uncertainties that could affect results either positively or negatively. Variations from our expectations could cause differences between our guidance and our ultimate results. Among the factors that could affect our results are:
Additional purchases or sales of SWU and uranium;
Conditions in the LEU and energy markets, including pricing, demand, operations, and regulations;
Timing of customer orders, related deliveries, and purchases of LEU or components;
Timing of execution of agreements for HALEU and with UT-Battelle, and terms established in the final definitized contracts;
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 initiatives;
Actions taken by customers, including actions that might affect existing contracts, as a result of market, trade and other conditions impacting Centrus’ customers and the industry; and
Timing of return of cash collateral supporting financial assurance for the Piketon facility.

See also “Forward Looking Statements ” earlier in this report for additional information.


33



Results of Operations

Segment Information

The following tables present elements of the accompanying condensed consolidated statements of operations that are categorized by segment (dollar amounts in millions):
 
Three Months Ended 
 June 30,
 
 
 
 
 
2019
 
2018
 
$ Change
 
% Change
LEU segment
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
SWU revenue
$

 
$
32.9

 
$
(32.9
)
 
(100
)%
Uranium revenue
2.6

 

 
2.6

 
 %
Total
2.6

 
32.9

 
(30.3
)
 
(92
)%
Cost of sales
7.7

 
42.9

 
35.2

 
82
 %
Gross loss
$
(5.1
)
 
$
(10.0
)
 
$
4.9

 
 
 
 
 
 
 
 
 
 
Contract services segment
 
 
 
 
 

 
 

Revenue
$
8.0

 
$
6.5

 
$
1.5

 
23
 %
Cost of sales
7.2

 
7.2

 

 
 %
Gross profit (loss)
$
0.8

 
$
(0.7
)
 
$
1.5

 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 

 
 

Revenue
$
10.6

 
$
39.4

 
$
(28.8
)
 
(73
)%
Cost of sales
14.9

 
50.1

 
35.2

 
70
 %
Gross loss
$
(4.3
)
 
$
(10.7
)
 
$
6.4

 
 

 
Six Months Ended 
 June 30,
 
 
 
 
 
2019
 
2018
 
$ Change
 
% Change
LEU segment
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
SWU revenue
$
12.4

 
$
50.6

 
$
(38.2
)
 
(75
)%
Uranium revenue
25.3

 
3.6

 
21.7

 
603
 %
Total
37.7

 
54.2

 
(16.5
)
 
(30
)%
Cost of sales
46.0

 
77.7

 
31.7

 
41
 %
Gross loss
$
(8.3
)
 
$
(23.5
)
 
$
15.2

 
 
 
 
 
 
 
 
 
 
Contract services segment
 
 
 
 
 

 
 

Revenue
$
11.6

 
$
20.9

 
$
(9.3
)
 
(44
)%
Cost of sales
13.1

 
13.4

 
0.3

 
2
 %
Gross profit
$
(1.5
)
 
$
7.5

 
$
(9.0
)
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 

 
 

Revenue
$
49.3

 
$
75.1

 
$
(25.8
)
 
(34
)%
Cost of sales
59.1

 
91.1

 
32.0

 
35