Centrus Energy Corp. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Centrus supplies low-enriched uranium (LEU) to utilities and provides engineering, manufacturing, and other contract services.
Financial performance
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $193.0 million | $218.4 million |
| Gross profit (loss) | $(17.9) million | $30.2 million |
| Operating income (loss) | $(92.4) million | $(44.7) million |
| Net income (loss) | $(104.1) million | $12.2 million |
| Net income (loss) attributable to common shareholders | $(111.9) million | $5.3 million |
| Basic and diluted EPS | $(12.23) | $0.58 |
| Cash used in operating activities | $(74.4) million | $(16.1) million |
- LEU revenue was $164.4 million, down 16%; contract-services revenue rose 24% to $28.6 million. LEU represented approximately 85% of total revenue.
- SWU revenue declined 33% to $130.6 million; uranium revenue was $33.8 million versus none in 2017. Management attributed the LEU gross loss of $23.3 million mainly to lower average SWU selling prices and the mix of contracts delivered.
- Cash and cash equivalents were $123.1 million at year-end, down from $208.8 million. Working capital fell to $45.8 million from $163.5 million. Total assets were $571.7 million and total liabilities $893.6 million, leaving a stockholders’ deficit of $321.9 million.
- Debt at carrying value totaled $153.0 million: $32.8 million current and $120.2 million long-term. The 8% PIK Toggle Notes had $26.7 million outstanding and mature in September 2019 unless conditional extension requirements are met. The 8.25% Notes mature in 2027; their $126.3 million carrying value includes future interest obligations.
- Defined-benefit pension and postretirement obligations remained significant. The filing reports an unfunded pension position of $170.3 million and postretirement health and life obligations of $151.6 million.
Changes, outlook, and management commentary
- Revenue declined 12% year over year, while gross profit swung to a loss. Management cited lower SWU selling prices and legacy inventory costs that had not yet fully reflected lower-priced supply contracts.
- The LEU sales order book was $1.0 billion at year-end, down from $1.3 billion in 2017; it extends to 2030. Management estimated approximately 4% was at risk due to customer financial or operating conditions, versus an estimated 14% at risk in 2017.
- For 2019, management forecast SWU and uranium revenue of $85–$120 million, total revenue of $125–$160 million, and year-end cash and cash equivalents of $120–$140 million. Revenue was expected to be weighted toward the second half. Management anticipated a return to profitability in 2020 as lower supply costs increasingly flow through results; this is an expectation, not a guarantee.
- Published enrichment prices had fallen more than 75% in the seven years after Fukushima, reaching a historic low in August 2018; management reported price indicators improving from September. The market nevertheless remained oversupplied, with uncertain nuclear fuel demand.
- Centrus signed a long-term Orano supply agreement in 2018, with deliveries nominally beginning in 2023 and flexibility to start earlier or defer. The Russian supply agreement’s pricing reset was expected to lower unit costs on purchases from 2019 onward. Actual benefits depend on market prices, delivery and import restrictions, and the company’s ability to sell purchased material.
- DOE issued a January 2019 notice of intent to contract for a HALEU demonstration at Piketon, but a definitive contract was not assured. The prior UT-Battelle contract expired in September 2018; Centrus continued milestone work while seeking a successor agreement.
Risks, contingencies, and unusual items
- Liquidity and refinancing: The 8% PIK Toggle Notes’ September 2019 maturity is a near-term financing risk. Cash declined substantially, operating cash use increased, and pension contributions and other obligations compete for liquidity.
- Supply, trade, and market exposure: Centrus relies on TENEX, Orano, inventory, and other suppliers. Russian LEU quotas and possible U.S. trade actions could constrain imports or sales; supply commitments may exceed the current order book in later years.
- Customer concentration and contract risk: The ten largest customers generated about 85% of 2018 revenue and the three largest about 52%. A customer in bankruptcy rejected a long-term contract; Centrus filed approximately $314 million in claims, for which no amount was recorded in the financial statements.
- DOE and other claims: A $24 million DOE settlement in January 2018 resolved specified past contract claims, including $9.5 million of additional revenue recorded in 2018. Separate pension and postretirement reimbursement claims, including a $42.8 million claim, remained unresolved; the receivable had a full valuation allowance and no revenue was recognized.
- Piketon obligations: The DOE lease was scheduled to end June 30, 2019 absent an agreement for other uses. The filing identified $1.6 million of accrued lease-turnover obligations, $3.2 million of termination benefits, and approximately $6 million of expected first-half 2019 maintenance costs. Cash collateral for financial assurance was $16.3 million for the NRC license and $13.8 million for the DOE lease; release depended on satisfying requirements.
- Internal controls: Management identified a material weakness in controls over accounting assessments for customer arrangements that could modify sales contracts. It reported no resulting material misstatement but concluded disclosure controls and internal control over financial reporting were ineffective at year-end. The financial statement auditor gave an unqualified opinion on the statements; it did not audit internal control effectiveness.
- Other notable items: The company recorded $17.3 million of net actuarial losses on retiree benefit plans, compared with $25.8 million of gains in 2017. The Series B Preferred Stock carries cumulative 7.5% dividends; $7.8 million was allocated to undeclared cumulative preferred dividends in 2018. The company reported no cash dividends on common stock.
Most important facts for investors to verify
- How Centrus plans to address the $26.7 million PIK Notes due in September 2019, and whether extension conditions or refinancing are available.
- Whether 2019 revenue and year-end cash guidance is being met, including the timing of customer deliveries and cash collections.
- Whether reduced-cost supply actually improves LEU margins, and whether purchase commitments can be matched with customer demand and permitted sales destinations.
- Progress on the DOE HALEU contract, a successor UT-Battelle agreement, and the Piketon lease and collateral releases.
- Developments in the $314 million FirstEnergy claims and DOE pension-related litigation, noting that these claims are not recorded as assets or expected recoveries in the presented financial statements.
- Remediation and testing of the customer-contract accounting control weakness, and the funding needs associated with pension and postretirement obligations.