Market Overview

Centrus Energy Corp. Reports Financial Results for the Fourth Quarter and Full Year 2016

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Centrus Energy Corp. (NYSE MKT: LEU) today reported results for the
fourth quarter 2016 and full year ended December 31, 2016.

2016 Summary:

  • Gross profit of $45.1 million on revenue of $311.3 million for full
    year
  • Net loss of $67.0 million
  • Cash balance increased to $260.7 million at year's end
  • Contract to advance U.S. uranium enrichment technology extended
    through September 2017
  • During 2016, repurchased $26.1 million of PIK Notes and in February
    2017 completed a private exchange significantly reducing long-term
    debt and extending maturity

"Centrus had a successful year, exceeding our revenue and cash targets,
reducing our debt load, and making significant progress on our major
initiatives to become the world's most diversified nuclear fuel
supplier," said Daniel B. Poneman, Centrus president and chief executive
officer.

"While the price for uranium enrichment is its lowest ever, we believe
that the current state of the fuel market presents opportunities for
Centrus. During 2016, we continued to position ourselves for future
growth by capitalizing on our market position and industry relationships
to lock in low-cost supply from additional sources, by reducing our debt
in 2016 through note repurchases and in early 2017 through completion of
our note exchange, by advancing our leading enrichment technology for
future deployment, and by implementing the internal systems that will
improve our business processes and enable us to reduce our costs as we
look to grow our business," Poneman said.

Financial Results

Centrus reported a net loss of $8.2 million, or $0.90 per share, in the
fourth quarter of 2016, compared to a net loss of $101.8 million, or
$11.19 per share, in the fourth quarter of 2015. For the full year, the
Company reported a net loss of $67.0 million, or $7.36 per share,
compared to net loss of $187.4 million, or $20.82 per share, in 2015.
The results in 2015 included the impairment of excess reorganization
value in the fourth quarter of $137.2 million.

Favorable factors in 2016 include a gain on the early extinguishment of
debt and an increase in gross profit for the contract services segment.
Partially offsetting the favorable variance was an increase in advanced
technology license and decommissioning costs and a decline in gross
profit for the LEU segment due to differences in the impact of pension
remeasurements and other factors.

Revenue and Cost of Sales

Revenue for the fourth quarter of 2016 was $136.5 million, a decrease of
14 percent compared to $157.9 million in the fourth quarter of 2015.
Revenue for 2016 was $311.3 million, a decrease of 26 percent compared
to $418.2 million in the prior year.

For the full year, revenue for the LEU segment totaled $272.8 million, a
decline of $82.6 million, or 23 percent in 2016 compared to 2015. The
volume of SWU sales increased 2 percent. The average price billed to
customers for sales of SWU declined 5 percent, reflecting the particular
contracts under which SWU were sold during the periods and the trend of
lower SWU market prices in recent years. Uranium revenue declined $51.2
million, or 78 percent, in 2016 compared to 2015 reflecting particular
opportunities for uranium sales in 2015. The average sales price
increased 36 percent, reflecting the particular contracts under which
uranium was sold during the periods.

Revenue from the contract services segment was $38.5 million in 2016, a
decline of $24.3 million or 39 percent, compared to 2015 due to the
reduced scope of contract work for American Centrifuge technology
services performed for the U.S. government. As a result of the contract
signed with UT-Battelle in March 2016, revenue in 2016 included $30.4
million for work performed in 2016 as well as $8.1 million for March
2016 reports for work performed in the fourth quarter of 2015.

Cost of sales for the LEU segment declined $51.0 million, or 18 percent,
for the full year compared to 2015. Valuation adjustments for uranium
inventory to reflect declines in uranium market price indicators totaled
$3.0 million in 2016. Paducah and Portsmouth retiree benefit costs,
including periodic remeasurements of pension and postretirement benefit
obligations, resulted in a charge to cost of sales of $4.2 million in
2016 compared to a credit to cost of sales of $24.7 million in 2015.
Excluding direct charges for the retiree benefit costs, the average cost
of sales per SWU declined 14 percent, reflecting declines in the
purchase costs per SWU in recent periods.

Cost of sales for the contract services segment declined $32.1 million,
or 50 percent, in 2016 compared to 2015 due to the reduced scope of
contract work for American Centrifuge technology services performed for
the U.S. government.

Gross Profit

Centrus recorded a gross profit of $45.1 million in 2016 compared to
$68.9 million in 2015, with a gross profit margin of 14.5 percent in
2016 compared to 16.5 percent in 2015. The gross profit for the LEU
segment declined $31.6 million in 2016 compared to 2015, primarily due
to direct charges to cost of sales related to retiree benefits and other
legacy costs. The decline in gross profit for the LEU segment was also
affected by an inventory valuation adjustment in 2016 and a contract
termination fee of $18.5 million received in 2015. The gross profit on
uranium sales in 2016 was comparable to 2015.

Advanced Technology License and Decommissioning Costs

Advanced technology license and decommissioning costs consist of
American Centrifuge expenses that are outside of the Company's contracts
with UT-Battelle, including ongoing costs to maintain the demobilized
Piketon, Ohio, demonstration facility and to maintain Centrus' U.S.
Nuclear Regulatory Commission (NRC) licenses at that location. Costs
increased $14.9 million in 2016 compared to 2015, as the Piketon
demonstration facility is no longer under contract effective October 1,
2015, and is now undergoing decontamination and decommissioning (D&D).

Charges include approximately $19 million in 2016 and approximately $7
million in 2015 to increase the accrued D&D liability based on updated
cost estimates. Centrus began to incur expenditures in the second
quarter of 2016 associated with the D&D of the Piketon facility in
accordance with the requirements of the NRC and the U.S. Department of
Energy (DOE).

As of December 31, 2016, the Company has accrued $38.6 million on the
balance sheet as Decontamination and Decommissioning Obligations for the
estimated remaining costs to perform the D&D work. Centrus has
previously provided financial assurance to the NRC and DOE for D&D and
lease turnover costs in the form of surety bonds of approximately $16
million and $13 million, respectively, which are fully cash
collateralized by Centrus. Centrus expects to receive cash when surety
bonds are reduced and/or cancelled as the Company fulfills its D&D and
lease obligations.

In addition to expenditures for workforce reductions and D&D, Centrus
anticipates that it will incur ongoing costs of approximately $40
million to maintain the facilities at Piketon and its NRC licenses at
that location through the current term of its DOE lease, which will
expire on June 30, 2019, unless extended.

Centrus plans to disclose in its 10-K as of and for the year ended
December 31, 2016, that the Company identified a material weakness in
its internal controls over financial reporting related to the
calculation of the decontamination and decommissioning obligation at
year end.  A material adjustment was made to the fourth quarter D&D
obligation balance prior to reporting these results.  It does not affect
any prior interim or annual period and therefore did not result in a
revision to previous financial statements.  Management is developing a
plan of remediation to strengthen the Company's overall internal control
over accounting for the D&D obligation.

SG&A

Selling, general and administrative (SG&A) expenses increased $3.6
million in 2016 compared to 2015, of which $4.0 million relates to the
remeasurement of assets and obligations under certain defined benefit
pension plans. Overhead costs allocated to SG&A increased $1.3 million
in 2016 compared to 2015, as less overhead costs are allocated to the
reduced scope of work under the contract with UT-Battelle. Salaries and
other compensation increased $0.8 million. Recruiting costs declined
$1.0 million and office lease expense declined $0.6 million in 2016
compared to 2015.

Cash Flow

Centrus ended 2016 with a consolidated cash balance of $260.7 million.
During 2016, net cash provided by operating activities was $37.7
million. Sources of cash included the monetization of inventory
purchased in prior periods. Inventories declined $89.5 million in 2016.
Uses of cash include the net reduction of $25.8 million in the SWU
purchase payables balance. The net loss of $67.0 million in 2016, net of
non-cash expenses, was also a use of cash. American Centrifuge expenses
have been a major use of cash, including demobilization expenses and D&D
expenditures.

February 2017 Securities Exchange and PBGC Resolution

On February 14, 2017, Centrus exchanged $204.9 million of 8.0%
paid-in-kind ("PIK") toggle notes for $74.3 million of 8.25% notes due
2027, 104,574 shares of Series B Preferred Stock with liquidation
preference of $1,000 per share, and $27.6 million of cash, leaving $29.6
million of PIK toggle notes remaining outstanding. Based on the success
of the exchange and the prior note repurchase, Centrus has reduced the
total principal amount of debt outstanding by $143 million – a 58
percent reduction compared to December 31, 2015.

The Company had been engaged in discussions with the Pension Benefit
Guaranty Corporation (PBGC) regarding the status of the qualified
pension plans, including potential liabilities under ERISA Section
4062(e) related to employee reductions resulting from ceasing enrichment
operations at the Portsmouth and Paducah Gaseous Diffusion Plant (GDP)
facilities. In February 2017, the PBGC confirmed that given changes to
ERISA Section 4062(e) enacted by Congress in recent years, the Company
is able to waive liability with respect to employee reductions at the
Portsmouth and Paducah GDP facilities. In addition, the PBGC stated that
it agrees to forbear from future action under ERISA Section 4062(e)
related to the American Centrifuge project. In its notification to the
Company, the PBGC cited the positive results of the Company's exchange
offer and consent solicitation.

2017 Outlook

Centrus anticipates SWU and uranium revenue in 2017 in a range of $175
million to $200 million, reflecting an expected decline in SWU volume
delivered compared to 2016, and total revenue in a range of $200 million
to $225 million. More than two-thirds of the Company's annual revenue is
expected in the fourth quarter of 2017. Centrus expects to end 2017 with
a cash and cash equivalents balance in a range of $150 million to $175
million.

The Company's financial guidance is subject to a number of assumptions
and uncertainties that could affect results either positively or
negatively. Variations from these expectations could cause differences
between the Company's guidance and its ultimate results. Among the
factors that could affect these results are:

  • Additional short-term purchases or sales of SWU and uranium;
  • Timing of customer orders, related deliveries, and purchases of LEU or
    components;
  • The outcome of legal proceedings and other contingencies;
  • Execution and funding of a new agreement with UT-Battelle, the
    operator of Oak Ridge National Laboratory, for the continuation of
    American Centrifuge development and testing activities following the
    expiration of the agreement on September 30, 2017;
  • Potential use of cash for strategic initiatives; and
  • Additional costs for decontamination and decommissioning of the
    Company's facility in Ohio.

Conference Call

Centrus Energy's investor conference call to discuss the fourth quarter
and full year 2016 results is scheduled for March 29, 2017, at 8:30 a.m.
EDT. A live webcast of the conference call can be accessed through the
Investor Relations section of the Company's website at www.centrusenergy.com,
and a recording of the call will be available on the site through April
12, 2017.

About Centrus Energy Corp.

Centrus Energy is a trusted supplier of enriched uranium fuel for
commercial nuclear power plants in the United States and around the
world. With world-class technical and engineering capabilities, Centrus
is advancing the next generation of centrifuge technologies so that
America can restore its domestic uranium enrichment capability in the
future.

Forward-Looking Statements

This news release contains "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934 - that is,
statements related to future events. In this context, forward-looking
statements may address our expected future business and financial
performance, and often contain words such as "expects", "anticipates",
"intends", "plans", "believes", "will", "should", "could", "would" or
"may" and other words of similar meaning. Forward-looking statements by
their nature address matters that are, to different degrees, uncertain.
For Centrus Energy Corp., particular risks and uncertainties that could
cause our actual future results to differ materially from those
expressed in our forward-looking statements include, risks and
uncertainties related to the adoption of fresh start accounting; risks
related to our significant long-term liabilities, including material
unfunded defined benefit pension plan obligations and postretirement
health and life benefit obligations; risks relating to our outstanding
8.0% paid-in-kind ("PIK") toggle notes (the "PIK Toggle Notes") maturing
in September 2019, our 8.25% notes due 2027 (the "8.25% Notes") and our
Series B Senior Preferred Stock (the Series B Preferred Stock),
including the potential termination of the guarantee by United States
Enrichment Corporation ("Enrichment Corp.") of the PIK Toggle Notes;
risks related to our ability to maintain the listing of our common stock
on the NYSE MKT LLC; risks related to the use of our net operating
losses ("NOLs") and net unrealized built-in losses ("NUBILs") to offset
future taxable income and the use of the rights plan to prevent an
"ownership change" as defined in Section 382 of the Internal Revenue
Code and our ability to generate taxable income to utilize all or a
portion of the NOLs and NUBILs prior to the expiration thereof; the
continued impact of the March 2011 earthquake and tsunami in Japan on
the nuclear industry and on our business, results of operations and
prospects; the impact and potential extended duration of the current
supply/demand imbalance in the market for low-enriched uranium ("LEU");
our dependence on others for deliveries of LEU including deliveries from
the Russian government entity Joint Stock Company "TENEX" ("TENEX")
under a commercial supply agreement with TENEX (the "Russian Supply
Agreement"); risks relating to our sales order book, including
uncertainty concerning customer actions under current contracts and in
future contracting due to market conditions and lack of current
production capability; risks associated with our reliance on third-party
suppliers to provide essential services to us; pricing trends and demand
in the uranium and enrichment markets and their impact on our
profitability; movement and timing of customer orders; risks related to
trade barriers and contract terms that limit our ability to deliver LEU
to customers; the impact of government regulation including by the U.S.
Department of Energy and the U.S. Nuclear Regulatory Commission;
uncertainty regarding our ability to commercially deploy competitive
enrichment technology; risks and uncertainties regarding funding for the
American Centrifuge project and our ability to perform under our
agreement with UT-Battelle, LLC, the management and operating contractor
for Oak Ridge National Laboratory, for continued research and
development of the American Centrifuge technology; risks related to the
current demobilization of portions of the American Centrifuge project,
including risks that the schedule could be delayed and costs could be
higher than expected; the competitive environment for our products and
services; changes in the nuclear energy industry; the impact of
financial market conditions on our business, liquidity, prospects,
pension assets and insurance facilities; revenue and operating results
can fluctuate significantly from quarter to quarter, and in some cases,
year to year; and other risks and uncertainties discussed in our filings
with the Securities and Exchange Commission, including our Annual Report
on Form 10-K for the fiscal year ended December 31, 2016 and subsequent
Quarterly Reports on Form 10-Q, which are available on our website at www.centrusenergy.com.
We do not undertake to update our forward-looking statements except as
required by law.

 

CENTRUS ENERGY CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

 
 
    Year Ended December 31,
2016     2015
Revenue:
Separative work units $ 258.5 $ 289.9
Uranium 14.3 65.5
Contract services   38.5     62.8  
Total revenue 311.3 418.2
Cost of Sales:
Separative work units and uranium 234.3 285.3
Contract services   31.9     64.0  
Total cost of sales   266.2     349.3  
Gross profit 45.1 68.9
Advanced technology license and decommissioning costs 47.9 33.0
Selling, general and administrative 46.2 42.6
Amortization of intangible assets 12.5 13.4
Impairment of excess reorganization value 137.2
Special charges for workforce reductions and advisory costs 1.4 13.2
Gains on sales of assets   (1.2 )   (2.1 )
Operating loss (61.7 ) (168.4 )
Gain on early extinguishment of debt and debt restructuring costs (13.0 )
Interest expense 19.7 19.6
Investment income   (0.8 )   (0.3 )
Loss before income taxes (67.6 ) (187.7 )
Provision (benefit) for income taxes   (0.6 )   (0.3 )
Net loss $ (67.0 ) $ (187.4 )
 
Net loss per share - basic and diluted $ (7.36 ) $ (20.82 )
Weighted-average number of shares outstanding - basic and diluted 9.1 9.0
 
 

CENTRUS ENERGY CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

 
 
    December 31,
2016     2015
ASSETS
Current assets
Cash and cash equivalents $ 260.7 $ 234.0
Accounts receivable, net 19.9 26.5
Inventories 177.4 319.2
Deferred costs associated with deferred revenue 89.3 63.1
Other current assets   13.3     15.2  
Total current assets 560.6 658.0
Property, plant and equipment, net 6.0 3.5
Deposits for surety bonds 29.5 29.8
Intangible assets, net 93.3 105.8
Other long-term assets   24.1     23.0  
Total assets $ 713.5   $ 820.1  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 46.4 $ 44.8
Payables under SWU purchase agreements 59.6 85.4
Inventories owed to customers and suppliers 57.5 106.8
Deferred revenue 123.6 83.9
Decontamination and decommissioning obligations   38.6     29.4  
Total current liabilities 325.7 350.3
Long-term debt 234.1 247.0
Postretirement health and life benefit obligations 171.3 184.3
Pension benefit liabilities 179.9 172.3
Other long-term liabilities   38.6     31.9  
Total liabilities 949.6 985.8
Stockholders' deficit
Preferred stock, par value $1.00 per share, 20,000,000 shares
authorized, none issued
Common stock, Class A, par value $0.10 per share, 70,000,000 shares
authorized, 7,563,600 shares issued and outstanding
0.8 0.8
Common stock, Class B, par value $0.10 per share, 30,000,000 shares
authorized, 1,436,400 shares issued and outstanding
0.1 0.1
Excess of capital over par value 59.5 59.0
Accumulated deficit (296.7 ) (229.7 )
Accumulated other comprehensive income, net of tax   0.2     4.1  
Total stockholders' deficit   (236.1 )   (165.7 )
Total liabilities and stockholders' deficit $ 713.5   $ 820.1  
 
       

CENTRUS ENERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 
 
Year Ended December 31,
2016 2015
Operating Activities
Net loss $ (67.0 ) $ (187.4 )
Adjustments to reconcile net loss to cash provided by operating
activities:
Depreciation and amortization 13.1 13.8
Impairment of excess reorganization value 137.2
Immediate recognition of net actuarial losses (gains) 1.4 (29.6 )
PIK interest on paid-in-kind toggle notes 9.7 5.4
Gain on early extinguishment of debt (16.7 )
Gain on sales of assets (1.2 ) (2.1 )
Inventory valuation adjustments 3.0
Changes in operating assets and liabilities:
Accounts receivable 6.5 29.3
Inventories, net 89.5 90.9
Payables under SWU purchase agreements (25.8 ) (54.7 )
Deferred revenue, net of deferred costs 13.4 2.6
Accounts payable and other liabilities 10.4 (1.8 )
Other, net   1.4     4.9  
Cash provided by operating activities   37.7     8.5  
 
Investing Activities
Capital expenditures (3.0 ) (0.3 )
Proceeds from sales of assets 1.5 2.0
Deposits for surety bonds - net decrease   0.3     5.0  
Cash (used in) provided by investing activities   (1.2 )   6.7  
 
Financing Activities
Repurchase of debt   (9.8 )    
Cash used in financing activities   (9.8 )    
 
Increase in cash and cash equivalents 26.7 15.2
Cash and cash equivalents at beginning of period   234.0     218.8  
Cash and cash equivalents at end of period $ 260.7   $ 234.0  
 
Supplemental cash flow information:
Interest paid $ 6.5 $ 12.2
Income taxes paid, net of refunds 0.3
Non-cash activities:
Conversion of interest payable-in-kind to long-term debt $ 3.4 $ 1.8
 

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