UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
centruslogocolora14.jpg
 
FORM 10-Q
 
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the quarterly period ended September 30, 2017March 31, 2020
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 1-14287
Centrus Energy Corp.
Delaware52-2107911
(State of incorporation)(I.R.S. Employer Identification No.)
 
6901 Rockledge Drive, Suite 800, Bethesda, Maryland 20817
(301) 564-3200
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Class A Common Stock, par value $0.10 per shareLEUNYSE American

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, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 filero Smaller reporting companyý
Accelerated filero Non-accelerated filerý
Smaller reporting companyýEmerging growth companyo
Non-accelerated filero   
  
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 ýNo o
As of November 1, 2017,April 20, 2020, there were 7,632,6698,783,189 shares of the registrant’s Class A Common Stock, par value $0.10 per share, and 1,406,082719,200 shares of the registrant’s Class B Common Stock, par value $0.10 per share, outstanding.




TABLE OF CONTENTS
  Page
 PART I – FINANCIAL INFORMATION 
  
Item 1.
Financial Statements (Unaudited):
 
 
Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2020 and December 31, 20162019
4
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019
5
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2017 and 2016
6
 
Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019
76
 
Condensed Consolidated Statements of Stockholders’ Deficit for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019
87
 
Notes to Condensed Consolidated Financial Statements
98
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
25
Liquidity and Capital Resources
3521
Item 4.
Controls and Procedures
3935
   
 PART II – OTHER INFORMATION 
Item 1.
Legal Proceedings
4036
Item 1A.
Risk Factors
4038
Item 6.
Exhibits
4038
Signatures
4139

 
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.1934. In this context, forward-looking statements mean statements related to future events,
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 but are not limited to the following, which may be amplified by the novel coronavirus (COVID-19) pandemic: 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”) toggle8.25% notes (the “8% PIK Toggle“8.25% Notes”) maturing in September 2019, our 8.25% notes maturing in February 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 8% PIK Toggle Notes; 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; 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;Stock; risks related to the use of our net operating lossesloss (“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 and our Series B Senior Preferred 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; risks related to natural and other disasters, including 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 fordeliveries of LEU including deliveries from the Russian governmentgovernment-owned entity Joint StockTENEX, 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 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 United States 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, and risks relating to the potential expiration of the 1992 Russian Suspension Agreement (“RSA”) and/or a renewal of the RSA on


TENEX (the “Russian Supply Agreement”);terms not favorable to us or legislation imposing new or increased limits on imports of Russian LEU; risks related to our ability to sell the LEU we procure pursuant to our purchase obligations under our supply agreements, including the Russian Supply Agreement;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 customers, including possible bankruptcies, insolvencies or any other inability to pay for our products or services or delays in making timely payment; 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; pricing trends and demand in the uranium and enrichment markets and their impact on our profitability; movement and timing of customer orders; risks related to trade barriers and contract terms that limit our ability to deliver LEU to customers; risks related to actions that may be taken by the U.S. government, the Russian government or other governments that could affect our ability or the ability of our sources of supply to perform under their contract obligations to us, including the imposition of sanctions, restrictions or other requirements; the impact of government regulation including by the U.S. Department of Energy (“DOE”) and the U.S. Nuclear Regulatory Commission; uncertainty regarding our ability to commercially deploy competitive enrichment technology; risks and uncertainties regarding funding for deployment of the American Centrifuge projecttechnology and our ability to perform and absorb costs under our agreement with UT-Battelle, LLC,DOE to demonstrate the managementcapability to produce high assay low enriched uranium (“HALEU”) and operating contractorour ability to obtain and/or perform under other agreements; risks relating to whether or when government or commercial demand for Oak Ridge National Laboratory, for continued research and development of the American Centrifuge technology;HALEU will materialize; the potential for further demobilization or termination of theour American Centrifuge project;work; risks related to our ability to perform and receive timely payment under agreements with DOE or other government agencies, including risk and uncertainties related to the current demobilization of portionsongoing funding of the American Centrifuge project,government and potential audits; the competitive bidding process associated with obtaining a federal contract; risks related to our ability to perform fixed-price and cost-share contracts, including risksthe risk that the schedule could be delayed and costs could be higher than expected; risks that we will be unable to obtain new business opportunities or achieve market acceptance of our products and services or that products or services provided by others will render our products 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; risks related to pandemics and other health crises, such as the global COVID-19 pandemic; 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); thecompetitive 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; the risks of revenue and operating results can fluctuatefluctuating 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, 2016.2019.

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.



 
CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Unaudited; in millions, except share and per share data)
September 30,
2017		 December 31,
2016		March 31,
2020		 December 31,
2019
ASSETS      
Current assets   
Current assets:   
Cash and cash equivalents$135.9
 $260.7
$109.2
 $130.7
Accounts receivable14.2
 19.9
17.5
 21.1
Inventories124.1
 177.4
67.9
 64.5
Deferred costs associated with deferred revenue94.5
 89.3
144.1
 144.1
Other current assets15.6
 13.3
7.8
 9.2
Total current assets384.3
 560.6
346.5
 369.6
Property, plant and equipment, net5.2
 6.0
Deposits for surety bonds29.6
 29.5
Property, plant and equipment, net of accumulated depreciation of $2.3 as of March 31, 2020 and $2.2 as of December 31, 20193.6
 3.7
Deposits for financial assurance5.7
 5.7
Intangible assets, net87.6
 93.3
68.1
 69.5
Other long-term assets15.2
 24.1
6.9
 7.4
Total assets$521.9
 $713.5
$430.8
 $455.9
      
LIABILITIES AND STOCKHOLDERS’ DEFICIT 
  
 
  
Current liabilities 
  
Current liabilities: 
  
Accounts payable and accrued liabilities$50.7
 $46.4
$50.7
 $50.7
Payables under SWU purchase agreements17.3
 59.6
6.1
 8.1
Inventories owed to customers and suppliers22.1
 57.5
7.4
 5.6
Deferred revenue131.7
 123.6
Decontamination and decommissioning obligations16.6
 38.6
Deferred revenue and advances from customers243.0
 266.3
Current debt6.1
 6.1
Total current liabilities238.4
 325.7
313.3
 336.8
Long-term debt157.5
 234.1
111.0
 114.1
Postretirement health and life benefit obligations170.0
 171.3
134.7
 138.6
Pension benefit liabilities175.0
 179.9
137.2
 141.8
Advances from customers29.4
 29.4
Other long-term liabilities35.6
 38.6
30.6
 32.1
Total liabilities776.5
 949.6
756.2
 792.8
Commitments and contingencies (Note 12)

 

Stockholders’ deficit   
Commitments and contingencies (Note 11)

 

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 $109.6 million as of September 30, 20174.6
 —
Class A Common Stock, par value $0.10 per share, 70,000,000 shares authorized, 7,632,669 and 7,563,600 shares issued and outstanding as of September 30, 2017 and December 31, 20160.8
 0.8
Class B Common Stock, par value $0.10 per share, 30,000,000 shares authorized, 1,406,082 and 1,436,400 shares issued and outstanding as of September 30, 2017 and December 31, 20160.1
 0.1
Series B Senior Preferred Stock, 7.5% cumulative, 104,574 shares issued and outstanding and an aggregate liquidation preference of $129.2 as of March 31, 2020 and $127.2 as of December 31, 20194.6
 4.6
Class A Common Stock, par value $0.10 per share, 70,000,000 shares authorized, 8,783,189 and 8,347,427 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively0.8
 0.8
Class B Common Stock, par value $0.10 per share, 30,000,000 shares authorized, 719,200 and 1,117,462 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively0.1
 0.1
Excess of capital over par value59.8
 59.5
61.8
 61.5
Accumulated deficit(320.0) (296.7)(393.7) (405.0)
Accumulated other comprehensive income, net of tax0.1
 0.2
1.0
 1.1
Total stockholders’ deficit(254.6) (236.1)(325.4) (336.9)
Total liabilities and stockholders’ deficit$521.9
 $713.5
$430.8
 $455.9

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



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

Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended 
 March 31,
2017 2016 2017 20162020 2019
Revenue:          
Separative work units$43.5
 $14.1
 $82.2
 $128.3
$30.7
 $12.4
Uranium—
 —
 —
 14.3
—
 22.7
Contract services6.8
 7.3
 19.3
 32.2
Technical solutions14.3
 3.6
Total revenue50.3
 21.4
 101.5
 174.8
45.0
 38.7
Cost of Sales:          
Separative work units and uranium32.4
 15.9
 76.8
 130.7
13.3
 38.3
Contract services6.3
 7.6
 19.9
 24.9
Technical solutions12.1
 5.9
Total cost of sales38.7
 23.5
 96.7
 155.6
25.4
 44.2
Gross profit (loss)11.6
 (2.1) 4.8
 19.2
19.6
 (5.5)
Advanced technology license and decommissioning costs4.5
 21.9
 15.0
 38.6
Advanced technology costs0.9
 6.6
Selling, general and administrative11.0
 10.7
 33.1
 34.6
8.5
 8.1
Amortization of intangible assets2.5
 1.7
 5.7
 7.6
1.4
 1.1
Special charges for workforce reductions and advisory costs2.4
 0.6
 7.1
 1.2
Gains on sales of assets(0.6) (0.3) (2.3) (1.0)
Operating loss(8.2) (36.7) (53.8) (61.8)
Gain on early extinguishment of debt—
 —
 (33.6) (16.7)
Special charges (credits) for workforce reductions(0.1) (0.1)
Gain on sales of assets—
 (0.4)
Operating income (loss)8.9
 (20.8)
Nonoperating components of net periodic benefit expense (income)(2.2) (0.1)
Interest expense0.7
 4.7
 4.3
 14.8
0.1
 1.0
Investment income(0.4) (0.1) (1.0) (0.5)(0.4) (0.7)
Loss before income taxes(8.5) (41.3) (23.5) (59.4)
Income tax benefit—
 —
 (0.2) (0.6)
Net loss(8.5) (41.3) (23.3) (58.8)
Income (loss) before income taxes11.4
 (21.0)
Income tax expense (benefit)0.1
 (0.1)
Net income (loss) and comprehensive income (loss)11.3
 (20.9)
Preferred stock dividends - undeclared and cumulative2.0
 —
 5.0
 —
2.0
 2.0
Net loss allocable to common stockholders$(10.5) $(41.3) $(28.3) $(58.8)
Net income (loss) allocable to common stockholders$9.3
 $(22.9)
          
Net loss per common share – basic and diluted$(1.15) $(4.54) $(3.12) $(6.46)
Average number of common shares outstanding – basic and diluted (in thousands)9,103
 9,096
 9,081
 9,102
Net income (loss) per common share:

 

Basic$0.97
 $(2.40)
Diluted$0.95
 $(2.40)
Average number of common shares outstanding (in thousands):

 

Basic9,619
 9,532
Diluted9,839
 9,532


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




CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)CASH FLOWS
(Unaudited; in millions)

 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Net loss$(8.5) $(41.3) $(23.3) $(58.8)
Other comprehensive loss, before tax (Note 13):       
Amortization of prior service credits, net—
 (0.1) (0.1) (0.2)
Other comprehensive loss, before tax—
 (0.1) (0.1) (0.2)
Income tax benefit related to items of other comprehensive income—
 —
 —
 —
Other comprehensive loss, net of tax benefit—
 (0.1) (0.1) (0.2)
Comprehensive loss$(8.5) $(41.4) $(23.4) $(59.0)
 Three Months Ended 
 March 31,
 2020 2019
OPERATING   
Net income (loss)$11.3
 $(20.9)
Adjustments to reconcile net loss to cash used in operating activities:   
Depreciation and amortization1.5
 1.3
PIK interest on paid-in-kind toggle notes—
 0.4
Gain on sales of assets—
 (0.4)
Changes in operating assets and liabilities:   
Accounts receivable3.6
 11.2
Inventories, net0.1
 25.6
Accounts payable and other liabilities1.3
 1.2
Payables under SWU purchase agreements(1.9) (46.0)
Deferred revenue and advances from customers, net of deferred costs(23.3) —
Accrued loss on long-term contract(3.5) —
Pension and postretirement benefit liabilities(8.6) (4.2)
Other, net1.0
 (0.1)
Cash used in operating activities(18.5) (31.9)
    
INVESTING—
 —
    
FINANCING   
Payments for deferred financing costs(0.1) —
Exercise of stock options0.2
 —
Payment of interest classified as debt(3.1) (3.1)
Cash used in financing activities(3.0) (3.1)
    
Decrease in cash, cash equivalents and restricted cash(21.5) (35.0)
Cash, cash equivalents and restricted cash, beginning of period (Note 4)136.6
 159.7
Cash, cash equivalents and restricted cash, end of period (Note 4)$115.1
 $124.7
    
Supplemental cash flow information:   
Interest paid in cash$—
 $0.4
Non-cash activities:   
Conversion of interest payable-in-kind to debt$—
 $0.7
Deferred financing costs included in accounts payable and accrued liabilities$(0.5) $—


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





CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)STOCKHOLDERS’ DEFICIT
(Unaudited; in millions)millions, except per share data)
 Nine Months Ended 
 September 30,
 2017 2016
Operating Activities   
Net loss$(23.3) $(58.8)
Adjustments to reconcile net loss to cash used in operating activities:   
Depreciation and amortization6.6
 8.1
PIK interest on paid-in-kind toggle notes1.2
 9.7
Gain on early extinguishment of debt(33.6) (16.7)
Gain on sales of assets(2.3) (1.0)
Inventory valuation adjustments—
 3.0
Changes in operating assets and liabilities:   
Accounts receivable14.5
 18.4
Inventories, net17.9
 45.8
Payables under SWU purchase agreements(42.3) (68.9)
Deferred revenue, net of deferred costs2.9
 5.8
Accounts payable and other liabilities(35.3) 2.2
Other, net(1.9) 0.5
Cash used in operating activities(95.6) (51.9)
    
Investing Activities   
Capital expenditures(0.3) (3.0)
Proceeds from sales of assets2.1
 1.2
Deposits for surety bonds - net decrease—
 0.3
Cash provided by (used in) investing activities1.8
 (1.5)
    
Financing Activities   
Payment of interest classified as debt(3.4) —
Repurchase of debt(27.6) (9.8)
Cash used in financing activities(31.0) (9.8)
    
Decrease in cash and cash equivalents(124.8) (63.2)
Cash and cash equivalents at beginning of period260.7
 234.0
Cash and cash equivalents at end of period$135.9
 $170.8
    
Supplemental cash flow information:   
Interest paid in cash$4.2
 $6.5
Non-cash activities:   
Conversion of interest payable-in-kind to long-term debt$0.4
 $3.4
 
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 (Loss)
 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, 20194.6
 0.8
 0.1
 61.3
 (409.4) (0.1) (342.7)

Balance at December 31, 2019$4.6
 $0.8
 $0.1
 $61.5
 $(405.0) $1.1
 $(336.9)
Net income for the three months ended March 31, 2020—
 —
 —
 —
 11.3
 —
 11.3
Issuance and amortization of restricted stock units and stock options—
 —
 —
 0.3
 —
 (0.1) 0.2
Balance at March 31, 20204.6
 0.8
 0.1
 61.8
 (393.7) 1.0
 $(325.4)

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



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, 2015$—
 $0.8
 $0.1
 $59.0
 $(229.7) $4.1
 $(165.7)
Net loss—
 —
 —
 —
 (58.8) —
 (58.8)
Other comprehensive loss, net of tax benefit (Note 13)—
 —
 —
 —
 —
 (0.2) (0.2)
Restricted stock units and stock options issued, net of amortization—
 —
 —
 0.4
 —
 —
 0.4
Balance at September 30, 2016$—
 $0.8
 $0.1
 $59.4
 $(288.5) $3.9
 $(224.3)
              
Balance at December 31, 2016$—
 $0.8
 $0.1
 $59.5
 $(296.7) $0.2
 $(236.1)
Net loss—
 —
 —
 —
 (23.3) —
 (23.3)
Issuance of preferred stock4.6
 —
 —
 —
 —
 —
 4.6
Other comprehensive loss, net of tax benefit (Note 13)—
 —
 —
 —
 —
 (0.1) (0.1)
Restricted stock units and stock options issued, net of amortization—
 —
 —
 0.3
 —
 —
 0.3
Balance at September 30, 2017$4.6
 $0.8
 $0.1
 $59.8
 $(320.0) $0.1
 $(254.6)


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



CENTRUS ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, (“Enrichment Corp.”) and its other subsidiaries, as of September 30, 2017,March 31, 2020, and for the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, 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, 2016,2019, was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”). TheIn the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, that are, in the opinion of management,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 months ended March 31, 2020 and 2019 are insignificant.

Operating results for the three and nine months ended September 30, 2017,March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2020. 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, 2016.2019.

New Accounting Standards

Recently Adopted Accounting Standards

In May 2014,June 2016, the Financial Accounting StandardsStandard Board (the “FASB”(“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,2016-13, Revenue from Contracts with Customers (Topic 606)Measurement of Credit Losses on Financial Instruments., which requires estimating all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2014-09 introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The FASB has since issued amendments that clarify a number of specific issues as well as require additional disclosures. The revenue recognition standard will become2016-13 is effective for the Companyfiscal years beginning with the first quarter of 2018.after December 15, 2019, including interim periods within those fiscal years. The Company has started an implementation process, including a review of customer contracts, to evaluate the effectadopted this standard will have on its consolidated financial statements and related disclosures.  The Company continues to assess the potential impacts of the new standard on its consolidated financial statements, including substantive new disclosures. The Company plans to select the modified retrospective transition method upon adoption effective January 1, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting expense recognition in the statement of operations. ASU 2016-02 will become effective for the Company beginning in the first quarter of 2019, with early adoption permitted,fiscal 2020 and is to be applied using a modified retrospective approach. The Company is evaluating the effect that the provisions of ASU 2016-02 will have on its consolidated financial statements.there was no material impact.



In March 2016, the FASB issued ASU 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 became effective for the CompanyStandards Effective in the first quarter of 2017. Under ASU 2016-09, entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. The Company has elected to recognize forfeitures as they occur. The adoption of ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements.Future Periods

In August 2016,2018, the FASB issued ASU 2016-15,2018-14, Statement of Cash Flows (Topic 230): Classification of Certain Cash ReceiptsCompensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which modifies the disclosure requirements for employers that sponsor defined benefit pension plans and Cash Payments.other postretirement plans. ASU 2016-15 addresses the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. It2018-14 is intended to reduce diversity in practice by providing guidance on eight specific cash flow issues. ASU 2016-15 will become effective for the Companypublic companies for fiscal years, and interim periods within those fiscal years, beginning in the first quarter of 2018, with early adoption permitted, andafter December 15, 2020. The standard is to be applied usingon a retrospective approach. The Company is evaluating the effect that the provisions of ASU 2016-15 will have on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, requiring an entitybasis to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 will become effective for the Company beginning in the first quarter of 2018, withall periods presented and early adoption is permitted. The Company is evaluating the effect that the provisions of ASU 2016-162018-14 will have on its consolidated financial statements.

In November 2016,Significant Accounting Policies

The accounting policies of the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires thatCompany are set forth in Note 1 to the statement of cash flows explain the change during the periodConsolidated Financial Statements contained in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is to be applied retrospectively for each period presented, and will become effectiveCompany’s Annual Report on Form 10-K for the Company beginning in the first quarter of 2018, with early adoption permitted. The Company is evaluating the effect that the provisions of ASU 2016-18 will have on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  ASU 2017-07 requires changes to the presentation of the components of net periodic benefit cost on the statement of operations by requiring service cost to be presented with other employee compensation costs and other components of net periodic benefit cost to be presented outside of any subtotal of operating income. ASU 2017-07 also stipulates that only the service cost component of net benefit cost is eligible for capitalization in assets. The guidance will become effective for the Company beginning in the first quarter of 2018, with early adoption permitted. The Company is evaluating the effect that the provisions of ASU 2017-07 will have on its consolidated financial statements.year ended December 31, 2019.



2. SPECIAL CHARGESREVENUE AND CONTRACTS WITH CUSTOMERS

Evolving Business NeedsDisaggregation of Revenue

Evolving business needs haveThe 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 
 March 31,
 2020 2019
United States$7.3
 $35.1
Foreign23.4
 —
Revenue - SWU and uranium$30.7
 $35.1

Refer to Note 12, Segment Information, for disaggregation of revenue by segment. Disaggregation by end-market is provided in Note 12 and the condensed consolidated statements of operations. SWU sales are made primarily to electric utility customers and uranium sales are primarily made to other nuclear fuel related companies. Technical solutions revenue resulted primarily from services provided to the government and its contractors. SWU and uranium revenue is recognized at point of sale and technical solutions revenue is generally recognized over time.

Accounts Receivable
  March 31, 2020 
December 31,
2019
  ($ millions)
Accounts receivable:    
Billed $7.5
 $13.2
Unbilled * 10.0
 7.9
Accounts receivable $17.5
 $21.1
     
* Billings under certain contracts in the technical services segment are invoiced based on approved provisional billing rates. Unbilled revenue represents the difference between actual costs incurred and invoiced amounts. The Company expects to invoice and collect the unbilled amounts after actual rates are submitted to the customer and approved. Unbilled revenue also includes unconditional rights to revenue that are not yet billable under applicable contracts pending the compilation of supporting documentation.

Contract Liabilities

The following table presents changes in workforce reductions since 2013.contract liability balances (in millions):
  
March 31,
2020
 December 31, 2019 Year-To-Date Change
Accrued loss on HALEU Contract:      
Current - Accounts payable and accrued liabilities
 $9.7
 $10.0
 $(0.3)
Noncurrent - Other long-term liabilities
 $5.6
 $8.3
 $(2.7)
Deferred revenue - current $243.0
 $243.0
 $—
Advances from customers - current $—
 $23.3
 $(23.3)
Advances from customers - noncurrent $29.4
 $29.4
 $—




LEU Segment

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 of sales under contract in the low-enriched uranium (“LEU”) segment (“order book”) extends to 2030. As of March 31, 2020, and December 31, 2019, the order book was $1.0 billion. The order book represents the estimated aggregate dollar amount of revenue for future SWU and uranium deliveries under contract and includes $0.3 billion of Deferred Revenue and Advances from Customers. Refer to Contract Liabilities table above.

Most of the Company’s contracts provide for fixed purchases of SWU during a given year. The Company’s order book 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. The Company’s order book estimate is also based on the Company’s estimates of selling prices, which may be 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. The Company uses external composite forecasts of future market prices and inflation rates in its pricing estimates.

Under the terms of certain contracts with customers in the 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 nine months ended September 30, 2017, special charges included estimated employee termination benefits of $2.2 million, including $0.7 million in the three months ended September 30, 2017. Centrus expects to makeMarch 31, 2020, SWU revenue of $23.4 million was recognized under such contracts based on the fair market value of uranium acquired in exchange for SWU delivered. Uranium received from customers as advance payments primarilyfor the future sales of SWU totaled $29.4 million as of March 31, 2020. The advance payments are included in Advances from Customers, Noncurrent, based on the fourth quarter of 2017anticipated SWU sales period.
In the three months ended March 31, 2020, the Company borrowed SWU inventory valued at $1.7 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 cumulative liability to the $1.4customer of $10.8 million balance payable at September 30, 2017.for borrowed inventory is included in Other Liabilities, which is included in noncurrent liabilities.

InTechnical Solutions Segment

Revenue for the second quarter of 2016,technical solutions segment, representing the Company’s technical, manufacturing, engineering, procurement, construction and operations services offered to public and private sector customers, is recognized over the contractual period as services are rendered.

On October 31, 2019, the Company commencedsigned a projectthree-year cost-share contract with the U.S. Department of Energy (“DOE”) (“the HALEU Contract”) to align its corporate structuredeploy a cascade of centrifuges to demonstrate production of high-assay, low-enriched uranium (“HALEU”) for advanced reactors. HALEU is a component of an advanced nuclear reactor fuel that is not commercially available today and may be required for a number of advanced reactor and fuel designs currently under development in both the scale of its ongoing business operationscommercial and government sectors. The program has been under way since May 31, 2019, when the Company and DOE signed a preliminary letter agreement that allowed work to update related information technology systems. The Company incurred advisory costs of $0.3 million and $0.8 million related tobegin while the reengineering project in the three and nine months ended September 30, 2016, respectively. The Company incurred advisory costs of $1.7 million and $5.0 million in the three and nine months ended September 30, 2017, respectively.

Piketon Demonstration Facilityfull contract was being finalized.

In September 2015, Centrus completed a successful three-year demonstrationUnder the HALEU Contract, DOE agreed to reimburse the Company for 80% of its American Centrifuge technology at its facilitycosts incurred in Piketon, Ohio.performing the contract, up to a maximum of $115 million. The demonstration effort was primarily funded byCompany’s cost share is the U.S. government. Ascorresponding 20% and any costs incurred above these amounts. Costs under the HALEU Contract include program costs, including direct labor and materials and associated indirect costs that are classified as Cost of Sales, and an allocation of corporate costs supporting the program that are classified as Selling, General and Administrative Expenses. Services to be provided


over the three-year contract include constructing and assembling centrifuge machines and related infrastructure in a resultcascade formation. When estimates of reducedremaining program funding, Centruscosts to be incurred for such an integrated, construction-type contract exceed estimates of total revenue to be earned, a special chargeprovision for the remaining loss on the contract is recorded to Cost of Sales in the third quarterperiod the loss is determined. The Company’s corporate costs supporting the program are recognized as expense as incurred over the duration of 2015 for estimated employee termination benefits. Ofthe contract term. As of December 31, 2019, the portion of the Company’s anticipated cost share under the HALEU Contract representing the Company’s share of remaining projected program costs was recognized in Cost of Sales as an accrued loss of $18.3 million. The accrued loss on the contract is being adjusted over the remaining $4.9contract term based on actual results and remaining program cost projections. As of March 31, 2020, the accrued contract loss balance was $15.3 million, liability asconsisting of September 30, 2017, $2.8$9.7 million is classified as current and included in Accounts Payable and Accrued Liabilitiesin the condensed consolidated balance sheet. The remaining $2.1 million is included in Other Long-Term Liabilities and is expected to be paid through 2019.

A summary of termination benefit activity and related liabilities follows (in millions):
  
Liability
December 31,
2016
 Nine Months Ended
September 30, 2017		 Liability
September 30,
2017		 
   Charges for Termination Benefits Paid/ Settled  
Workforce reductions:         
Evolving business needs $0.1
 $2.2
 $(0.9) $1.4
 
Piketon demonstration facility 5.4
 0.1
 (0.6) 4.9
 
  $5.5
 $2.3
 $(1.5) $6.3
 


3. CONTRACT SERVICES AND ADVANCED TECHNOLOGY LICENSE AND DECOMMISSIONING COSTS

The contract services segment includes Revenue and Cost of Sales for engineering and testing work Centrus performs on the American Centrifuge technology under a government contract with UT-Battelle, LLC (“UT-Battelle”), the operator of Oak Ridge National Laboratory (“ORNL”). The recently completed fixed priced contract between Centrus and UT-Battelle (the “2017 ORNL Contract”) was for the period from October 1, 2016, through September 30, 2017 and generated revenue of approximately $25 million. On October 26, 2017, the parties executed a new fixed priced contract for the period from October 1, 2017, through September 30, 2018, that is expected to generate total revenue of approximately $16$5.6 million upon completion of defined milestones. The ORNL contracts have been funded incrementally. Funding for the program is provided to UT-Battelle by the U.S. government which is currently operating under a continuing resolution.

The 2017 ORNL Contract provided for payments for monthly reports of deliverables of approximately $2.0 million per month and additional aggregate payments of $1.0 million based on completion of defined milestones.


The Company’s contract with UT-Battelle that ended September 30, 2016 (the “2016 ORNL Contract”), provided for payments for monthly reports of deliverables of approximately $2.7 million per month. The 2016 ORNL Contract, which was signed in March 2016, provided for payments for reports related to work performed since October 1, 2015. Revenue in the nine months ended September 30, 2016, includes $24.2 million for reports on work performed in the nine months ended September 30, 2016, and $8.1 million for March 2016 reports on work performed in the three months ended December 31, 2015. Expenses for contract work performed in the nine months ended September 30, 2016, are included in Cost of Sales. Expenses for work performed in the three months ended December 31, 2015, before entering into the 2016 ORNL Contract, were included in Advanced Technology License and Decommissioning Costs in 2015.

American Centrifuge expenses that are outside of the Company’s contracts with UT-Battelle are included in Advanced Technology License and Decommissioning Costs, including ongoing costs to maintain the demobilized Piketon facility and our licenses from the U.S. Nuclear Regulatory Commission (“NRC”) at that location. In the second quarter of 2016, the Company commenced the decontamination and decommissioning (“D&D”) of the Piketon facility in accordance with the requirements of NRC and the U.S. Department of Energy (“DOE”). Refer to Note 12, Commitments and Contingencies, for additional details.
4.  RECEIVABLES
 September 30,
2017		 December 31,
2016
 (in millions)
Utility customers and other$9.1
 $15.3
Contract services, primarily DOE5.1
 4.6
Accounts receivable$14.2
 $19.9
Centrus formerly performed site services work under contracts with DOE at the former Portsmouth and Paducah gaseous diffusion plants. Overdue receivables from DOE of $14.2 million as of September 30, 2017, and $22.8 million as of December 31, 2016, are included in Other Long-Term Assets based on the extended timeframe expected to resolve the Company’s claims for payment.

Centrus has unapplied payments from DOE that may be used, at DOE’s direction, (a) to pay for future services provided by the Company, or (b) to reduce outstanding receivables balances due from DOE. The balance of unapplied payments of $19.3 million as of September 30, 2017, and December 31, 2016, is included in Other Long-Term Liabilities pending resolution. Cost of sales in the three months ended March 31, 2020 was reduced by $3.0 million for previously accrued contract losses attributable to work performed in the first quarter of 2020.

The HALEU Contract is incrementally funded and DOE is currently obligated for costs up to approximately $53.2 million of the long-term$115 million. The Company has received aggregate cash payments of $19.0 million through March 31, 2020.

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 income 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 from DOE described above.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 11, Commitments and Contingencies.

3. SPECIAL CHARGES (CREDITS)

Special charges (credits) in both the three months ended March 31, 2020 and 2019 consisted of income of $0.1 million for the reversal of accrued termination benefits related to unvested employee departures. The remaining balance of termination benefits of $0.2 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 and the accrued liability follows (in millions):
  
Liability
December 31,
2019
 Three Months Ended 
 March 31, 2020		 
Liability
March 31,
2020
   Charges (Credits) for Termination Benefits 
Paid/
Settled
 
Workforce reductions:        
Corporate functions $1.2
 $(0.1) $(1.1) $—
Piketon facility 0.2
 —
 —
 0.2
Total $1.4
 $(0.1) $(1.1) $0.2




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):
 
March 31,
2020
 December 31, 2019
    
Cash and cash equivalents$109.2
 $130.7
Deposits for financial assurance - current0.2
 0.2
Deposits for financial assurance - noncurrent5.7
 5.7
Total cash, cash equivalents and restricted cash$115.1
 $136.6

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 or deposit that are fully cash collateralized by Centrus. As each state determines that the likelihood of further workers’ compensation obligations related to the period of self-insurance is reduced, the surety bond or deposit are subject to reduction and/or cancellation and the Company would receive the cash collateral.

5. INVENTORIES

Centrus holds uranium at licensed locations in the form of natural uranium and as the uranium component of low enriched uranium (“LEU”).LEU. Centrus also holds separative work units (“SWU”)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 followare as follows (in millions):
September 30, 2017 December 31, 2016March 31, 2020 December 31, 2019
Current
Assets
 
Current
Liabilities
(a)
 Inventories, Net 
Current
Assets
 
Current
Liabilities
(a)
 Inventories, Net
Current
Assets
 
Current
Liabilities
(a)
 Inventories, Net 
Current
Assets
 
Current
Liabilities
(a)
 Inventories, Net
Separative work units$73.7
 $3.2
 $70.5
 $115.8
 $15.2
 $100.6
$9.2
 $2.8
 $6.4
 $7.8
 $—
 $7.8
Uranium50.2
 18.9
 31.3
 61.4
 42.3
 19.1
58.7
 4.6
 54.1
 56.7
 5.6
 51.1
Materials and supplies0.2
 —
 0.2
 0.2
 —
 0.2
$124.1
 $22.1
 $102.0
 $177.4
 $57.5
 $119.9
Total$67.9
 $7.4
 $60.5
 $64.5
 $5.6
 $58.9

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


6. PROPERTY, PLANT AND EQUIPMENT
 September 30,
2017		 December 31,
2016
 (in millions)
Property, plant and equipment, gross6.9
 6.8
Accumulated depreciation(1.7) (0.8)
Property, plant and equipment, net$5.2
 $6.0


7.6. 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 condensed consolidated statements of operations. Intangible asset balances are as follows (in millions):
September 30, 2017 December 31, 2016
           
    (in millions)    March 31, 2020 December 31, 2019
Gross Carrying Amount Accumulated Amortization Net Amount Gross Carrying Amount Accumulated Amortization Net AmountGross Carrying Amount Accumulated Amortization Net Amount Gross Carrying Amount Accumulated Amortization Net Amount
Sales order book$54.6
 $22.1
 $32.5
 $54.6
 $19.9
 $34.7
$54.6
 $30.1
 $24.5
 $54.6
 $29.9
 $24.7
Customer relationships68.9
 13.8
 55.1
 68.9
 10.3
 58.6
68.9
 25.3
 43.6
 68.9
 24.1
 44.8
Total$123.5
 $35.9
 $87.6
 $123.5
 $30.2
 $93.3
$123.5
 $55.4
 $68.1
 $123.5
 $54.0
 $69.5



8.
7. DEBT

A summary of long-term debt is as follows (in millions):
 Maturity 
September 30,
2017
 December 31, 2016
8.25% Notes:Feb. 2027    
Principal  $74.3
 $—
Interest  58.1
 —
8.25% Notes  132.4
 —
8% PIK Toggle Notes
Sep. 2019 (a)
 31.3
 234.6
Subtotal  163.7
 234.6
Less deferred issuance costs  0.1
 0.5
Total debt  163.6
 234.1
Less current portion  6.1
 —
Long-term debt  $157.5
 $234.1

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

Note Exchange

On February 14, 2017, pursuant to an exchange offer and consent solicitation, Centrus exchanged $204.9 million principal amount of the Company’s 8% paid-in-kind (“PIK”) toggle notes (the “8% PIK Toggle Notes”) for $74.3 million principal amount of 8.25% notes due February 2027 (the “8.25% Notes”), 104,574 shares of Series B Preferred Stock with a liquidation preference of $1,000 per share, and $27.6 million of cash. The exchange is accounted for as a troubled debt restructuring (a “TDR”) under Accounting Standards Codification Subtopic 470-60, Debt-Troubled Debt Restructurings by Debtors. For an exchange classified as a TDR, if the future undiscounted cash flows of the newly issued debt and other consideration are less than the net carrying value of the original debt, a gain is recorded for the difference and the carrying value of the newly issued debt is adjusted to the future undiscounted cash flow amount and no future interest expense is recorded. All future interest payments on the newly issued debt reduce the carrying value. Accordingly, the Company recognizes the 8.25% Notes on the condensed consolidated balance sheet as the sum of the principal balance and all future interest payments. The Company recognized a gain of $33.6 million related to the note exchange for the quarter ended March 31, 2017, which is net of transaction costs of $9.0 million and previously deferred issuance costs related to the 8% PIK Toggle Notes of $0.4 million. Refer to Note 13, Stockholders’ Equity for details related to the newly issued preferred stock.

8.25% Notes
   March 31, 2020 December 31, 2019
 Maturity Current Long-Term Current Long-Term
8.25% Notes:Feb. 2027        
Principal  $—
 $74.3
 $—
 $74.3
Interest  6.1
 36.7
 6.1
 39.8
Total  $6.1
 $111.0
 $6.1
 $114.1

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 describedshown in the table 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 September 30, 2017,March 31, 2020, and December 31, 2019, $6.1 million of interest is recorded as current and classified as Accounts Payable and Accrued LiabilitiesCurrent Debt in the condensed consolidated balance sheet.

The 8.25% Notes rank equally in right of payment with all of our existing Additional terms and future unsubordinated indebtedness other than our Issuer Senior Debt and our Limited Secured Acquisition Debt (each as defined below). The 8.25% Notes rank senior in right of payment to all of our existing and future subordinated indebtedness and to certain limited secured acquisition indebtedness of the Company (the “Limited Secured Acquisition Debt”). The Limited Secured Acquisition Debt includes (i) any indebtedness, the proceeds of which are used to finance all or a portion of an acquisition or similar transaction if any lender’s lien is solely limited to the assets acquired in such a transaction and (ii) any indebtedness, the proceeds of which are used to finance all or a portion of the American Centrifuge project or another next generation enrichment technology if any lender’s lien is solely limited to such


assets, provided that a lien securing the 8.25% Notes that is junior with respect to the lien securing such indebtedness, will be effected for the 8.25% Notes, which will be limited to the assets acquired with such Limited Secured Acquisition Debt.

The 8.25% Notes are subordinated in right of payment to certain indebtedness and obligations of the Company, as described in the 8.25% Notes Indenture (the “Issuer Senior Debt”), including (i) any indebtedness of the Company (inclusive of any indebtedness of Enrichment Corp.) under a future credit facility up to $50 million with a maximum net borrowing of $40 million after taking into account any minimum cash balance (unless a higher amount is approved with the consent of the holders of a majority of the aggregate principal amountconditions of the 8.25% Notes then outstanding)are described in Note 9, Debt, (ii) any revolving credit facility to finance inventory purchases and related working capital needs, and (iii) any indebtedness of the Company to Enrichment Corp. under the secured intercompany notes.

The 8.25% Notes are guaranteed on a subordinated and limited basis by, and secured by substantially all of the assets of, Enrichment Corp. The Enrichment Corp. guarantee is a secured obligation and ranks equally in right of payment with all existing and future unsubordinated indebtedness of Enrichment Corp. (other than Designated Senior Claims (as defined below) and Limited Secured Acquisition Debt) and senior in right of payment to all existing and future subordinated indebtedness of Enrichment Corp. and Limited Secured Acquisition Debt. The Enrichment Corp. guarantee is subordinated in right of payment to certain obligations of, and claims against, Enrichment Corp. describedconsolidated financial statements in the 8.25% Notes Indenture (collectively, the “Designated Senior Claims”), including obligations and claims:
under a future credit facility up to $50 million with a maximum net borrowing of $40 million after taking into account any minimum cash balance;
under any revolving credit facility to finance inventory purchases and related working capital needs;
held by orCompany’s Annual Report on Form 10-K for the benefit of the Pension Benefit Guaranty Corporation (“PBGC”) pursuant to any settlement (including any required funding of pension plans); and
under surety bonds or similar obligations held by or on behalf of the U.S. government pursuant to regulatory requirements.

The liens securing the Enrichment Corp. guarantee of the 8% PIK Toggle Notes and the 8.25% Notes are pari passu with each other, and are junior in priority with respect to the lien securing Limited Secured Acquisition Debt, which is limited to the assets acquired with such Limited Secured Acquisition Debt.

8% PIK Toggle Notes

Interest on the 8% PIK Toggle Notes is payable semi-annually in arrears on Marchyear ended December 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 PIK payments. For the semi-annual interest periods ended March 31, 2017, and September 30, 2017, 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. However, the maturity date can be extended to September 30, 2024, upon the satisfaction of certain funding conditions described in the Indenture relating to the funding, under binding agreements, of (i) the American Centrifuge project or (ii) the implementation and deployment of a National Security Train Program utilizing American Centrifuge technology.

The 8% PIK Toggle Notes rank equally in right of payment with all existing and future unsubordinated indebtedness of the Company (other than the Issuer Senior Debt) and are senior in right of payment to all existing and future subordinated indebtedness of the Company. The 8% PIK Toggle Notes are subordinated in right of payment to the Issuer Senior Debt.



The 8% PIK Toggle Notes are guaranteed and secured on a subordinated, conditional, and limited basis by Enrichment Corp. Enrichment Corp. will be released from its guarantee without the consent of the holders of the 8% PIK Toggle Notes upon the occurrence of certain termination events (other than with respect to an unconditional interest claim), including (i) the involuntary termination by the PBGC of any of the qualified pension plans of the Company or Enrichment Corp., (ii) the cessation of funding prior to completion of our ongoing American Centrifuge test programs or (iii) both a decision by the Company to abandon American Centrifuge technology and either (1) the efforts by the Company to commercialize another next generation enrichment technology funded at least in part by new capital provided or to be provided by Enrichment Corp. have been terminated or are no longer being pursued or (2) the attainment of capital necessary to commercialize another next generation enrichment technology with respect to which the Company is involved which does not include new capital provided or to be provided by Enrichment Corp.

The Enrichment Corp. guarantee ranks equally in right of payment with all existing and future unsubordinated indebtedness of Enrichment Corp. (other than Designated Senior Claims and Limited Secured Acquisition Debt) and senior in right of payment to all existing and future subordinated indebtedness of Enrichment Corp. and Limited Secured Acquisition Debt. The Enrichment Corp. guarantee is subordinated in right of payment to Designated Senior Claims.

As explained above, the liens securing the Enrichment Corp. guarantee of the 8% PIK Toggle Notes and the 8.25% Notes are pari passu with each other, and are junior in priority with respect to the lien securing Limited Secured Acquisition Debt, which is limited to the assets acquired with such Limited Secured Acquisition Debt.



9.8. 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)millions):
September 30, 2017 December 31, 2016March 31, 2020 December 31, 2019
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets:                              
Cash and cash equivalents$135.9
 $—
 $—
 $135.9
 $260.7
 $—
 $—
 $260.7
$109.2
 $—
 $—
 $109.2
 $130.7
 $—
 $—
 $130.7
Deferred compensation asset (a)1.3
 —
 —
 1.3
 1.1
 —
 —
 1.1
1.5
 —
 —
 1.5
 1.8
 —
 —
 1.8
                              
Liabilities:   
    
    
    
   
    
    
    
Deferred compensation obligation (a)1.3
 —
 —
 1.3
 1.1
 —
 —
 1.1
$1.5
 $—
 $—
 $1.5
 $1.8
 $—
 $—
 $1.8
 
(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 September 30, 2017March 31, 2020, and December 31, 2016,2019, the balance sheet carrying amounts for Accounts Receivable, Accounts Payable and Accrued Liabilities (excluding the deferred compensation obligation described above), and payablesPayables under SWU purchase agreementsPurchase Agreements approximate fair value because of thetheir short-term nature of the instruments.nature.

The carrying value and estimated fair value of long-term debt followare as follows (in millions):
 September 30, 2017 December 31, 2016
 Carrying Value 
Estimated Fair Value (a)
 Carrying Value 
Estimated Fair Value (a)
8.25% Notes$138.5
(b) 
$59.7
 -
 -
8% PIK Toggle Notes31.3
 24.0
 234.6
 107.4
 March 31, 2020 December 31, 2019
 Carrying Value 
Estimated Fair Value (a)
 Carrying Value 
Estimated Fair Value (a)
8.25% Notes$117.1
(b) 
$54.7
 $120.2
(b) 
$61.5
(a) Based on the most recent trading priceprices and bid/ask quotes as of or near the balance sheet date, which isare considered a Level 2 input as of September 30, 2017, and a Level 1 input as of December 31, 2016,inputs based on the frequency of trading.
(b) 
The carrying value of the 8.25% Notes as of September 30, 2017, consists of the principal balance of $74.3 million and the sum of current and noncurrent interest payment obligations until maturity. Refer to Note 8,7, Debt.



10.9. PENSION AND POSTRETIREMENT HEALTH AND LIFE BENEFITS

The components of net periodic benefit cost (credit)(credits) for the defined benefit pension plans were as follows (in millions):
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Service costs$0.9
 $1.0
 $2.8
 $2.9
Interest costs8.0
 8.9
 24.1
 26.6
Expected gains on plan assets(10.1) (10.6) (30.5) (31.6)
Actuarial loss from remeasurement—
 —
 —
 0.8
Net periodic benefit credit$(1.2) $(0.7) $(3.6) $(1.3)
 Three Months Ended 
 March 31,
 2020 2019
Service costs$0.9
 $0.8
Interest costs6.1
 7.6
Amortization of prior service costs (credits), net(0.1) —
Expected return on plan assets (gains)(9.4) (9.1)
Net periodic benefit (credits)$(2.5) $(0.7)

In the second quarter of 2016, the level of lump-sum payments under the non-qualified defined benefit pension plans resulted in the remeasurement of pension obligations under settlement accounting rules. The remeasurement resulted in a loss of $0.8 million included in Selling, General and Administrative Expenses in the second quarter of 2016. The loss includes the effect of a decrease in the discount rate used in the remeasurement of pension obligations from approximately 4.5% as of December 31, 2015, to approximately 3.7% as of June 30, 2016.

The components of net periodic benefit costcosts for the postretirement health and life benefit plans were as follows (in millions):
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Interest costs$1.8
 $2.1
 $5.4
 $6.1
Expected gains on plan assets—
 (0.1) —
 (0.2)
Amortization of prior service credits, net—
 (0.1) (0.1) (0.2)
Net periodic benefit cost$1.8
 $1.9
 $5.3
 $5.7
 Three Months Ended 
 March 31,
 2020 2019
Interest costs$1.2
 $1.5
Net periodic benefit costs$1.2
 $1.5

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).



11.10. 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 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended 
 March 31,
2017 2016 2017 20162020 2019
Net loss allocable to common stockholders (in millions)$(10.5) $(41.3) $(28.3) $(58.8)
Numerator (in millions):   
Net income (loss)$11.3
 $(20.9)
Preferred stock dividends - undeclared and cumulative2.0
 2.0
Net income (loss) allocable to common stockholders$9.3
 $(22.9)
          
Shares in thousands:       
Denominator (in thousands):   
Average common shares outstanding - basic9,103
 9,096
 9,081
 9,102
9,619
 9,532
Potentially dilutive shares related to stock options (a)—
 —
 —
 —
Potentially dilutive shares related to stock options and restricted stock units (a)
220
 —
Average common shares outstanding - diluted9,103
 9,096
 9,081
 9,102
9,839
 9,532
          
Net loss per common share – basic and diluted$(1.15) $(4.54) $(3.12) $(6.46)
Net income (loss) per common share (in dollars):

 

Basic$0.97
 $(2.40)
Diluted$0.95
 $(2.40)
          
(a) Common stock equivalents excluded from the diluted calculation as a result of a net loss in the period (in thousands)13
 14
 60
 7
—
 41
          
Options outstanding and considered anti-dilutive as their exercise price exceeded the average share market price (in thousands)327
 375
 30
 490
—
 360



12.11. COMMITMENTS AND CONTINGENCIES

American CentrifugeCommitments under SWU Purchase Agreements

TENEX

A major supplier of SWU to the Company is the Russian government entity TENEX, Joint-Stock Company (“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, 2019. 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. In such a case, the Company would pay for the SWU but have 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 reduced the unit costs of SWU under this contract in 2019 and for the duration of the contract.

Orano

On April 27, 2018, the Company entered into an agreement (the “Orano Supply Agreement”) with Orano Cycle (“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 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 Centrusthe Company under those agreements as part of the Company’s Chapter 11 bankruptcy process.agreements. The 2002 DOE-USEC Agreement requires Centrus to develop, demonstrate and deploy advanced enrichment technology in accordance with milestones, including the deployment of a commercial American Centrifuge Plant, and provides for remedies in the event of a failure to meet a milestone under certain circumstances.

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 includecircumstances, including terminating the 2002 DOE-USEC Agreement, revoking Centrus’ access to DOE’s centrifuge technology that is required for the success of the Company’s ongoing work with the American Centrifuge project,technology, 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.



technology. 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 anthe American Centrifuge Plant milestone under the 2002 DOE-USEC Agreement, DOE and Centrusthe 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 underin the Planplan of Reorganizationreorganization in the Company’s 2014 Chapter 11 bankruptcy (now completed) 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 timeall-time limits tolled expressly including all rights, remedies and defenses and time limits relating to any missed milestones. DOE and Centrusthe 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 continuedcontinue to be preserved, and that the time limits for each party to respond to any missed milestones continue to be tolled.

Piketon Facility Costs and D&D ObligationsLegal Matters

Effective October 1, 2015,From time to time, the Company is involved in various pending legal proceedings, including the pending legal proceedings described below.

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 employees at the former Portsmouth, Ohio, Gaseous Diffusion Plant (the “Portsmouth GDP”) to DOE’s decontamination and decommissioning 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. government discontinued fundingCourt 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. While proceeding with litigation, the Company is still pursuing settlement.

On May 26, 2019, the Company, Enrichment Corp., and five other DOE contractors who have operated facilities at the Portsmouth GDP site (including, in the case of the Company, the American Centrifuge demonstration cascadePlant site located on the premises) 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 “McGlone 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 McGlone Plaintiffs are seeking to represent a class of (i) all current or former residents within a seven-mile radius of the Portsmouth GDP site and (ii) all students and their parents at Piketon. Fundingthe Zahn’s Corner Middle School from 1993-present. The Company believes that its operations at the Portsmouth GDP site were fully in compliance with the Nuclear Regulatory Commission’s regulations. Further, the Company believes that any such liability should be covered by indemnification under the Price-Anderson Nuclear Industries Indemnity Act (“Price-Anderson Act”). The Company and Enrichment Corp. have provided 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 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 “Pritchard 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 Pritchard Plaintiffs are seeking to represent a class of all current or former residents within a seven-mile radius of the Portsmouth GDP site. The Company believes that its operations at the Portsmouth GDP site were fully in compliance with the Nuclear Regulatory Commission’s regulations. Further, the Company believes that any such liability should be covered by indemnification under the Price-Anderson Act. The Company and Enrichment Corp. have provided notifications to DOE required to invoke indemnification under the Price-Anderson Act and other contractual provisions.



On November 27, 2019, the Company, Enrichment Corp. and six other DOE contractors who have operated facilities at the Portsmouth GDP site were named as defendants in a class action complaint filed by James Matthews, Jennifer Brownfield Clark, Joanne Ross, the Estate of A.R., and others similarly situated (the “Matthews Plaintiffs”), in the Common Pleas Court of Pike County, Ohio. The complaint seeks injunctive relief, compensatory damages, statutory damages, and any other relief allowed by law for alleged off-site contamination allegedly resulting from activities on the Portsmouth GDP site. The Matthews Plaintiffs expressly contend that the ongoing and continuous releases that injured the Plaintiffs and Class Members are not “nuclear incidents” as that term is defined in the Price-Anderson Act, but rather “freestanding state law claims concerning traditional-style state regulation.” The Company believes that its operations at the Portsmouth GDP site were fully in compliance with the Nuclear Regulatory Commission’s regulations. Further, the Company believes that any such liability should be covered by indemnification under the Price-Anderson Act. The Company and Enrichment Corp. have provided notifications to DOE required to invoke indemnification under the Price-Anderson Act and other contractual provisions.

On October 11, 2018, the Company’s subsidiaries, Enrichment Corp. and American Centrifuge is now limited to research and development work atEnrichment, LLC (“ACE”, together with Enrichment Corp., the Company’s facilities in Oak Ridge, Tennessee. As a result“Company Subsidiaries”) filed proofs of reduced program funding, Centrus incurred a special chargeclaim in the third quarterU.S. Bankruptcy Court for the Northern District of 2015 for estimated employee termination benefits,Ohio (the “Bankruptcy Court”) against each of FirstEnergy Nuclear Operating Company (“FENOC”), FirstEnergy Nuclear Generation, LLC (“FENG,” and began reductions in force. Refertogether with FENOC, the “FirstEnergy Contract Parties”), FirstEnergy Solutions Corp. (“FES”) and FirstEnergy Generation, LLC (“FG”). The claims relate to Note 2, Special Charges, for details. Centrus begandamages arising from the rejection and breach of a long-term contract between the Company Subsidiaries and the FirstEnergy Contract Parties that was approved by the Bankruptcy Court and made effective as of July 26, 2018. The proofs of claim filed by the Company Subsidiaries include claims against the FirstEnergy Contract Parties based on their liability as parties to incur expendituresthe contract that was rejected and breached. The proofs of claim filed by the Company Subsidiaries also included claims against FES and FG based on their liability under guaranties they issued that may obligate FES and FG to satisfy the rejection and breach of contract damages claims.

On November 15, 2019, FENOC, FENG, FES and FG filed objections to the Company Subsidiaries’ claims in the second quarter of 2016 associated withBankruptcy Court. No decision on the D&D of the Piketon facility in accordance with the requirements of the NRCclaims against FENOC and DOE. Centrus leases the Piketon facility from DOE. At the conclusion of the lease on June 30, 2019, without mutual agreement between Centrus and DOE regarding other possible uses for the facility, Centrus is obligated to return the facility to DOE in a condition that meets NRC requirements and in the same condition as the facility was in when it was leased to Centrus (other than due to normal wear and tear). Centrus must remove all Company-owned capital improvements at the Piketon facility, unless otherwise consented to by DOE,FENG has yet been reached by the conclusion of the lease term.Bankruptcy Court. The D&D work is expected to extend through 2017Company Subsidiaries and be substantially completed by year-end. As of September 30, 2017, Centrus has accrued $16.6 millionFES and FG submitted cross motions for summary judgment on the balance sheet as Decontaminationissue of whether the guaranties of FES and Decommissioning Obligations forFG apply. On March 13, 2020, the estimated fair valueBankruptcy Court ruled in favor of FES and FG on their motion, finding that the remaining costsguaranties did not apply to complete the D&D work.Company Subsidiaries’ claims. The Company Subsidiaries have filed a notice of appeal of this decision. The ruling does not apply to the Company Subsidiaries’ claims against the FirstEnergy Contract Parties.

Centrus is requiredsubject to provide financial assurance to the NRCvarious legal proceedings and DOE for D&D costs under a regulatorily-prescribed methodology that includes potential contingent costs and reserves. As of September 30, 2017, Centrus has provided financial assurance to the NRC and DOEclaims, either asserted or unasserted, which arise in the formordinary course of surety bondsbusiness. While the outcome of these claims cannot be predicted with certainty, other than the above, Centrus does not believe that are fullythe outcome of any of these legal matters, individually and in the aggregate, will have a material adverse effect on its cash collateralized by Centrus for $29.6 million. Centrus expects to receive cash when surety bonds are reduced and/flows, results of operations or cancelled as the Company fulfills its D&D and lease obligations.

Centrus has received state economic incentives in exchange for commitments by the Company to make investments in capital improvements and employee training. Should the commitments under the incentive agreements not be met, the Company may be required to repay a portion of the state incentives.consolidated financial condition.



13.  STOCKHOLDERS’ EQUITY

Series B Preferred Stock

On February 14, 2017, Centrus issued 104,574 shares of Series B Preferred Stock as part of the securities exchange described in Note 8, Debt. The issuance of the Series B Preferred Stock was a non-cash financing transaction. The Series B Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share (the “Liquidation Preference”). The Series B Preferred Stock is recorded on the condensed consolidated balance sheet at fair value less transaction costs, or $4.6 million as of September 30, 2017.

Holders of the Series B Preferred Stock are entitled to cumulative dividends of 7.5% per annum of the Liquidation Preference. Centrus is obligated to pay cash dividends on the Series B Preferred Stock in an amount equal to the Liquidation Preference to the extent that dividends are declared by the Board and:
(a)its pension plans and Enrichment Corp.’s pension plans are at least 90% funded on a variable rate premium calculation in the current plan year;
(b)its net income calculated in accordance with GAAP (excluding the effect of pension remeasurement) for the immediately preceding fiscal quarter exceeds $7.5 million;
(c)its free cash flow (defined as the sum of cash provided by (used in) operating activities and cash provided by (used in) investing activities) for the immediately preceding four fiscal quarters exceeds $35 million;
(d)the balance of cash and cash equivalents calculated in accordance with GAAP on the last day of the immediately preceding quarter would exceed $150 million after pro forma application of the dividend payment; and
(e)dividends may be legally paid under Delaware law.

Centrus has not met these criteria for the periods from issuance through September 30, 2017, and has not declared, accrued or paid dividends on the Series B Preferred Stock as of September 30, 2017. Dividends on the Series B Preferred Stock are cumulative to the extent not paid at any quarter-end, whether or not declared and whether or not there are assets of the Company legally available for the payment of such dividends in whole or in part. As of September 30, 2017, the Series B Preferred Stock has an aggregate liquidation preference of $109.6 million, including accumulated dividends of $5.0 million.

Outstanding shares of the Series B Senior Preferred Stock are redeemable at the Company’s option, in whole or in part, for an amount of cash equal to the Liquidation Preference, plus an amount equal to the accrued and unpaid dividends, if any, whether or not declared, through date of redemption.

Rights Agreement

On April 6, 2016 (the “Effective Date”), the Company’s Board of Directors (the “Board”) adopted a Section 382 Rights Agreement (the “Rights Agreement”). The Board adopted the Rights Agreement in an effort to protect shareholder value by, among other things, attempting to protect against a possible limitation on the Company’s ability to use its net operating loss carryforwards and other tax benefits, which may be used to reduce potential future income tax obligations. As reported on the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, the Company had federal net operating losses of $725.8 million as of December 31, 2016, that currently expire through 2036.

In connection with the adoption of the Rights Agreement, the Board declared a dividend of one preferred-share-purchase-right for each share of the Company’s Class A Common Stock and Class B Common Stock outstanding as of the Effective Date. The rights initially trade together with the common stock and are not exercisable. In the absence of further action by the Board, the rights would generally become exercisable and allow a holder to acquire shares of a new series of the Company’s preferred stock if any person or group acquires 4.99% or more of the outstanding shares of the Company’s common stock, or if a person or group that already owns 4.99% or more of the


Company’s Class A Common Stock acquires additional shares representing 0.5% or more of the outstanding shares of the Company’s Class A Common Stock. The rights beneficially owned by the acquirer would become null and void, resulting in significant dilution in the ownership interest of such acquirer.

The Board may exempt any acquisition of the Company’s common stock from the provisions of the Rights Agreement if it determines that doing so would not jeopardize or endanger the Company’s use of its tax assets or is otherwise in the best interests of the Company. The Board also has the ability to amend or terminate the Rights Agreement prior to a triggering event.

Effective on February 14, 2017, in connection with the settlement and completion of the exchange offer and consent solicitation, the Company amended the Rights Agreement solely to exclude acquisitions of the Series B Preferred Stock issued as part of the exchange offer and consent solicitation from the definition of “Common Shares.”

The Company’s stockholders approved the Rights Agreement at the 2017 annual meeting of stockholders on May 31, 2017. Unless earlier terminated in accordance with the Rights Agreement, the rights issued under the Rights Agreement expire on April 6, 2019.

Stock-Based Compensation

A summary of stock-based compensation costs follows (in millions):
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
        
Total stock-based compensation costs:       
Restricted stock units$—
 $—
 $—
 $0.1
Stock options0.1
 0.1
 0.3
 0.3
Expense included in selling, general and administrative expense$0.1
 $0.1
 $0.3
 $0.4
        
Total recognized tax benefit$—
 $—
 $—
 $—

As of September 30, 2017, there was $0.5 million of unrecognized compensation cost related to unvested stock-based payments granted, of which $0.4 million relates to stock options and $0.1 million relates to unvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.2 years.

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized on a straight-line basis over the requisite service period. Stock options vest and become exercisable in equal annual installments over a three- or four-year period and expire 10 years from the date of grant.

Assumptions used in the Black-Scholes option pricing model to value option grants follow. There were no option grants in the nine months ended September 30, 2017.
Nine Months Ended
September 30, 2016
Risk-free interest rate1.9%
Expected volatility75%
Expected option life (years)6
Weighted-average grant date fair value$1.77
Options granted (in thousands)15


A total of 30,000 restricted stock units were issued to non-employee, independent members of the Board of Directors in the nine months ended September 30, 2017, including 5,000 restricted stock units in the three months ended September 30, 2017. The restricted stock units vest on the earlier of May 31, 2018, or the date of the 2018 Annual Meeting, absent a defined event that would accelerate vesting. Settlement of restricted stock units is made in shares of Class A Common Stock only upon the director’s retirement or other end of service.

Shares Outstanding

A total of 38,751 shares of Class A Common Stock were issued in settlement of vested restricted stock units to three former members of the Board of Directors following the end of their service on May 31, 2017.

Shares of Class B Common Stock that are sold in the market are converted to shares of Class A Common Stock. In the nine months ended September 30, 2017, a total of 30,318 shares of Class B Common Stock were sold in the market and converted to shares of Class A Common Stock as of September 30, 2017.

Changes in the number of shares outstanding follow:
 
Preferred Stock,
Series B
 
Common Stock,
Class A
 
Common Stock,
Class B
      
Balance at December 31, 2015—
 7,563,600
 1,436,400
Balance at September 30, 2016—
 7,563,600
 1,436,400
      
Balance at December 31, 2016—
 7,563,600
 1,436,400
Issuance of Preferred Stock104,574
 —
 —
Issuance of Class A Common Stock—
 38,751
 —
Conversion of Common Stock from Class B to Class A—
 30,318
 (30,318)
Balance at September 30, 2017104,574
 7,632,669
 1,406,082


Accumulated Other Comprehensive Income (Loss)

The sole component of accumulated other comprehensive income (loss) (“AOCI”) relates to activity in the accounting for pension and postretirement health and life benefit plans. Amortization of prior service credits is reclassified from AOCI and included in the computation of net periodic benefit cost as detailed in Note 10, Pension and Post-Retirement Health and Life Benefits.



14.12. SEGMENT INFORMATION

Centrus has two reportable segments: the LEU segment with two components, SWU and uranium, and the contract services segment. The LEU segment includes sales of the SWU component of LEU, sales of both the SWU and uranium components of LEU, and sales of uranium. The contract services segment includes revenue and cost of sales for work that Centrus performs under a fixed-price agreement as a contractor to UT-Battelle. The contract services segment also includes limited services provided by Centrus to DOE and its contractors at the Piketon facility. Gross profit is Centrus’ measure for segment reporting. There were no intersegment sales in the periods presented. ForRefer to Note 2, Revenue and Contracts with Customers, for additional details on revenue for each segment. The following table presents the Company’s segment refer to Item 2, information (in millions):Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
2017 2016 2017 2016Three Months Ended 
 March 31,
(in millions)2020 2019
Revenue          
LEU segment:          
Separative work units$43.5
 $14.1
 $82.2
 $128.3
$30.7
 $12.4
Uranium—
 —
 —
 14.3
—
 22.7
43.5
 14.1
 82.2
 142.6
Contract services segment6.8
 7.3
 19.3
 32.2
Revenue$50.3
 $21.4
 $101.5
 $174.8
Total30.7
 35.1
Technical solutions segment14.3
 3.6
Total revenue$45.0
 $38.7
          
Segment Gross Profit (Loss)     
  
   
LEU segment$11.1
 $(1.8) $5.4
 $11.9
$17.4
 $(3.2)
Contract services segment0.5
 (0.3) (0.6) 7.3
Technical solutions segment2.2
 (2.3)
Gross profit (loss)$11.6
 $(2.1) $4.8

$19.2
$19.6
 $(5.5)


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

In the three months ended March 31, 2020, two customers in the LEU segment represented $23.4 million and $7.3 million, respectively, of revenue and one customer in the technical solutions segment represented $9.7 million of revenue.

In the three months ended March 31, 2019, one customer in the LEU segment represented $35.0 million of revenue.



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.

This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from the results discussed in the forward-looking statements particularly in light of the economic, social and market uncertainty created by the COVID-19 pandemic. See “Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q.

Overview

Centrus Energy Corp., a Delaware corporation (“Centrus” or the “Company”), is a trusted supplier of low-enriched uranium (“LEU”)nuclear fuel and services for commercialthe nuclear power plants.industry. References to “Centrus”, the “Company”, “our”, 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: (a) low-enriched uranium (“LEU”), which supplies various components of nuclear fuel to utilities, and (b) technical solutions, which provides advanced engineering, design, and manufacturing services to government and private sector customers.

Our LEU segment provides most of the Company’s revenue and involves the sale of separative work units (“SWU”) and occasionally LEU to utilities operating commercial nuclear power plants. The company also sells natural uranium to other nuclear fuel related companies.

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 are a leader in the development of advanced uranium enrichment technologyprovide LEU from multiple sources including our inventory, medium- and are performing researchlong- term supply contracts and demonstration work to support U.S. energy and national security through our contract with UT-Battelle, LLC (“UT-Battelle”), the operator of Oak Ridge National Laboratory (“ORNL”).

spot purchases. As a long-term supplier of LEU to our customers, our goalobjective is to provide value through the reliability and diversity of our supply sources. We provide LEU from multiple sources including our inventory, long- and mid-term supply contracts and spot purchases. Our long-term objectivegoal is to resume commercial enrichment production, and we are exploring alternative approaches to that end.

Our technical solutions 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 haveare leveraging these capabilities to expand and diversify our business beyond uranium enrichment, 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 contract with UT-Battellerange of commercial and government customers and actively working to conduct researchsecure new customers. Our experience developing, licensing, manufacturing and operating advanced nuclear components and systems 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 as well as decontamination and decommissioning (“D&D”) work.

With several decades of experience in enrichment, we continue to be a leader in the development of ouran advanced centrifugeU.S. uranium enrichment technology, for the U.S. government. Wewhich we believe that this technology could play a critical role in supplying fuel for advanced reactors, meeting ourU.S. national and energy security needs, and achieving our nation’s non-proliferationnonproliferation objectives.



In April 2020, Centrus signed a nonbinding Letter of Intent with Advanced Reactor Concepts (“ARC”), reflecting the parties’ long-term commitment to enter into a purchase agreement that would enable Centrus to supply commercial high-assay, low-enriched uranium (“HALEU”) fuel that ARC needs to deploy its reactor technology in the late 2020s. In other recent developments, DOE released the Nuclear Fuel Working Group report, which called for “immediate action to support domestic uranium miners and restore the viability of the entire front-end of the nuclear fuel cycle”.  

In October 2019, we signed a three-year cost-share contract (the “HALEU Contract”) with DOE to deploy a cascade of centrifuges to demonstrate production of HALEU fuel 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 national security, as well as other programmatic missions. The program has been under way since May 31, 2019, when the Company and DOE signed a preliminary agreement that allowed work to begin while the HALEU Contract was being finalized.

Under the HALEU Contract, DOE agreed to reimburse the Company for 80% of its costs incurred in performing the contract, up to a maximum of $115 million. The Company’s cost share is the corresponding 20% and any costs incurred above these amounts. Services to be provided over the three-year contract include constructing and assembling centrifuge machines and related infrastructure in a cascade formation. When estimates of remaining program costs to be incurred for such an integrated, construction-type contract exceed estimates of total revenue to be earned, a provision for the remaining loss on the contract is recorded. A loss provision of $18.3 million was recognized in the fourth quarter of 2019. The accrued loss on the contract is being adjusted over the remaining contract term based on actual results and remaining program cost projections. As of March 31, 2020, the accrued contract loss balance was $15.3 million, and Cost of Sales in the three months ended March 31, 2020 was reduced by $3.0 million for previously accrued contract losses attributable to work performed in the first quarter of 2020. Refer to “Technical Solutions - Government Contracting” below for additional details. The HALEU Contract is incrementally funded and DOE is currently obligated for costs up to approximately $53.2 million of the $115 million. The Company has received aggregate cash payments of $19.0 million through March 31, 2020.

HALEU is a component of an advanced nuclear reactor fuel that is not commercially available today and may be required for a number of advanced reactor and fuel designs currently under development in both the commercial and government sectors. Existing reactors typically operate on LEU with the uranium-235 isotope concentration below 5%. HALEU has a uranium-235 concentration ranging from 5% to 20%, giving it several potential technical and economic advantages. For example, the higher concentration of uranium-235 means that fuel assemblies and reactors can be smaller and reactors will require less frequent refueling. Reactors can also achieve higher “burnup” rates, meaning a smaller volume of fuel will be required overall and less waste will be produced. HALEU may also be used in the future to fabricate next-generation fuel forms for the existing fleet of reactors in the United States and around the world. These new HALEU-based fuels could improve the economics of nuclear reactors and inherent safety features while increasing the amount of electricity that can be generated at existing reactors. HALEU fuel may also ultimately be used in new commercial and government applications in the future, such as reactors for the military.
We believe our investment in the HALEU technology will position the Company to meet the needs of our customers in the future as they deploy advanced reactors and next generation fuels. By investing in HALEU technology now, and as the only domestically-owned company with HALEU enrichment capability, we believe the Company could be well positioned to capitalize on a potential new market as the demand for HALEU-based fuels increases with the development of advanced reactors. 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.



The nuclear industry in general, and the nuclear fuel industry in particular, is in a period of significant change, which could significantly transformcontinues to affect the competitive landscape Centrus faces. Thelandscape. In the years following the 2011 Fukushima accident, the published market prices for uranium enrichment declined more than 75% through mid-2018. While the monthly price indicators have since gradually started to increase, the uranium enrichment segment of the nuclear fuel cycle industrymarket remains oversupplied, creating downward pressures on commodity pricing, withincluding because foreign-owned enrichers continued to expand even as demand fell, and faces uncertainty regarding the timing of industry expansion globally. Nuclear generators in some parts of the world, including the U.S., are under pressure from changes in electricityabout future demand and the effects of new, lower cost sources of electricity generation in their markets.for nuclear power generation. Changes in the competitive landscape may adversely affect pricing trends, change customer spending patterns, demand for fuel, and financial conditions, and otherwise create uncertainty. These changes may affect the company’s existing contracts and its ability to obtain new contracts. To address these changes, we have taken steps to adjust our cost structure; we may seek further adjustments to adjust our cost structure and operations and 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.technologies or changes to our capital structure. 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.

COVID-19 Update

Business SegmentsOn March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The Company has taken actions to protect its workforce and to maintain critical operations. Travel, operational and other restrictions imposed by the U.S. and foreign governments may impact our ability to make future sales and may impact the ability of our suppliers, including our suppliers of low enriched uranium, to perform under their contracts. As of the date of this filing, our LEU segment operations have not been materially affected by the pandemic and we are working with our suppliers, fabricators and customers to monitor the situation closely.

CentrusFurther, the governments of states and counties in which we operate have issued orders prohibiting holding gatherings and closing nonessential businesses. As a result, the Company has instituted measures such as expanded telework to protect our workforce, to comply with government orders, and to maintain critical operations. Not all work, however, can be performed remotely. Consequently, we have instituted limited operations for personnel working on the HALEU program to maintain critical systems and security. Further, the actions taken by government regulatory agencies to protect their workforce may impact our ability to obtain the necessary reviews and approvals to complete the project. At this time, other than the restrictions on a limited number of our employees, our technical solutions segment’s operations have not been significantly affected.

We are working closely with DOE and we are continuing to work to make progress while implementing measures to protect our workforce. To date, there has been minimal impact to our financial results; however, we cannot reasonably estimate the length or severity of this pandemic, or the extent to which the disruption may materially impact our consolidated financial position, consolidated results of operations, and consolidated cash flows in fiscal 2020 at this time.

For further discussion, refer to Part I, Item 1A, Risk Factors - The effects of the COVID-19 pandemic could adversely affect our business, operations, financial condition and results of operations, and the extent to which the effects of the pandemic will impact our business, operations, financial condition and results of operations remains uncertain, in our Annual Report on Form 10-K for the year ended December 31, 2019.



Quarterly Operating Results

Our revenues, operating results and cash flows can fluctuate significantly from quarter to quarter and year to year.Operating results for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. Our future operating results are subject to a number of uncertainties that could affect results either positively or negatively. 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;
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 or financial initiatives;
Actions taken by customers, including actions that might affect existing contracts;
Market, international trade and other conditions impacting Centrus’ customers and the industry; and
The length and severity of the COVID-19 pandemic and its impact on our operations.

Revenue

We have two reportable segments: the LEU segment with two components, separative work units (“SWU”) and uranium, and the contract servicestechnical solutions segment.

LEU Segment

Revenue from Sales of SWU and Uranium

The LEU segment is currently our primary business focus. Revenue from our LEU segment is derived primarily from:


sales of the SWU component of LEU,LEU;
sales of both the SWU and uranium components of LEU,LEU; and
sales of natural uranium.

Our technical solutions 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. This includes the HALEU Contract and a variety of other contracts with public and private sector customers.

SWU and Uranium Sales

Revenue forfrom our LEU segment accounted for approximately 88%81% of our total revenue in 2016.2019. The majority of our customers are domestic and international utilities that operate nuclear power plants, with international sales constituting approximately 25-40%one-third 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 (orfrom us. Contracts where we sell both the SWU and uranium componentscomponent of LEU) from us. Our agreements forLEU to utilities or where we sell natural uranium salestoother nuclear fuel related companies 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 demanddeliveries 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 $10-15$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 physical receipt of LEU or uranium products purchased from Centrus beyond the contractual sale period. In such cases, title to LEU or uranium is transferred to the customer and a performance obligation for Centrus is created and a receivable is recorded. Cash is collected for the receivable under normal credit terms. The performance obligation is represented as Deferred Revenue on the balance sheet and the customer-titled product is classified as Deferred Costs Associated with Deferred Revenue. Risk of loss remains with Centrus until physical delivery occurs. The recognition of revenue and related cost of sales occurs at the time physical delivery occurs and risk of loss transfers to the customer. The timing of physical delivery, subject to notice period, requirements, is at the option of the customer. Deferred revenue and deferred cost activityresulting in the nine months ended September 30, 2017, follows:deferral of costs and revenue recognition. Refer to
(in millions) Deferred Revenue Deferred Cost Gross Profit Deferred or (Recognized) Margin
     
Balance at December 31, 2016 $123.6
 $89.3
 $34.3
 28%
Deferred sales in the period 66.4
 44.9
 21.5
 32%
Previously deferred sales recognized in the period (58.3) (39.7) (18.6) 32%
Balance at September 30, 2017 $131.7
 $94.5
 $37.2
 28%
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. While newer sales reflect the low prices prevalent in recent years, which meanscertain contracts included in our order book have sales prices that average prices under contract today exceedare significantly above current market prices.

The following chart summarizes long-term and spot SWU price indicators, and a spot price indicator for natural uranium hexafluoride (“UF6”), 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:
SWU and spot SWU price indicators, the long-term price for uranium hexafluoride (“UF6”), as calculated by Centrus using indicators published inUranium Market Price Indicators*
chart-e2a6e6926caa585f96a.jpg
* Source: Nuclear Market Review, and TradeTech’s spot price indicator for UF6:a TradeTech publication, www.uranium.info



SWU and Uranium Market Price Indicators
leu-2016093_chartx39098a03.jpg

Our contracts with customers and suppliers 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 2018, however, we entered into an agreement with Orano Cycle (“Orano”) for the long-term supply of SWU. 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, Centruswe 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 received in exchange forat contract inception, or as the SWU.quantity of uranium is finalized, if variable.

Cost of Sales for SWU and Uranium

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 monthly moving 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. Actuarial gains

Market Uncertainties

Imports into the United States of LEU and losses relatedother uranium products produced in the Russian Federation, including LEU imported by Centrus under the Russian Supply Agreement, are subject, through December 31, 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.

The U.S. Department of Commerce (“DOC”) is currently conducting an administrative review of the current status of, and compliance with, the RSA during the period October 2017 through September 2018 (the “Second Administrative Review”) and in December 2019, initiated another review of the period October 2018 through September 2019 (the “Third Administrative Review”). In an earlier review (the “First Administrative Review”), which covered the period October 2016 through September 2017 and was completed in December 2017, the DOC found that TENEX, Centrus and others had complied with the terms of the RSA during the period of review, but deferred until the Second Administrative Review any decision on whether the RSA continues to meet the statutory requirements that the RSA (i) prevent the suppression or undercutting of price levels of domestic uranium products and (ii) continue to be in the public interest. In a preliminary determination in the Second Administrative Review, issued in December 2019, the DOC again found that Centrus and others had complied with the RSA, but again deferred making a determination on the statutory requirements, which it said would be addressed in a post-preliminary analysis, which has yet to be issued. A final determination in the Second Administrative Review was due to be issued in June 2020. On April 24, 2020, the DOC announced that in response to operational adjustments due to the retiree benefit plans are recognized immediatelyCOVID-19 pandemic, it was tolling the deadlines for all administrative reviews currently pending with the DOC for 50 days, which means that the final determination could be issued in early August 2020.

If, in the statementsfinal determination of operationsthe Second Administrative Review, the DOC finds evidence either of non-compliance with the RSA, or that the statutory requirements are no longer being met, it could terminate the RSA, reinitiate the antidumping investigation that the RSA suspended, and begin collecting duties in excess of 115% of the value of imports of Russian uranium products, including the LEU that the Company imports under the Russian Supply Agreement.

In February 2019, the DOC formally opened negotiations with the Russian Federation State Atomic Energy Corporation (Rosatom) with respect to a possible extension of the term of the RSA. In connection with these negotiations, the DOC is seeking a significant extension of the RSA. We are working with industry stakeholders and others to ensure that the extension will include sufficient quota to allow all existing contracts with TENEX, including the Russian Supply Agreement, to be fully implemented, but it is possible that the terms of the extension will not expressly protect our ability to import LEU under the Russian Supply Agreement or require that available quota be allocated to those imports.

An extension of the RSA would continue the existing suspension of the antidumping investigation and therefore not require payment of the duties or duty deposits described above, as long as the suspension remained in place. Centrus does not currently have in place any agreement with TENEX to share quotas that may apply after 2020, when plan obligationsthe existing quotas terminate. Unless the RSA extension provides for sufficient quota or other relief that would allow Centrus to deliver in the United States all the Russian LEU that we procure under the Russian Supply Agreement, (i) our ability to meet our commitments under our order book and to obtain new sales commitments would be substantially jeopardized, and (ii) our ability to earn revenues with the Russian LEU we are remeasured at year-end or when lump-sum payments reach certain levels.required to procure under the Russian Supply Agreement would be substantially reduced. As a result, we could lose both revenue and market share to our competitors.



Contract Services SegmentIf, instead of an extension of the RSA, the DOC reached an adverse final determination in the Second Administrative Review and elected to restart the antidumping investigation of Russian uranium products, including LEU, we would be obligated to deposit funds with the U.S. government to cover potential duties (and potentially pay antidumping duties on a going-forward basis if the antidumping investigation resulted in an antidumping order) that would render the LEU containing the SWU that we purchase under the Russian Supply Agreement too expensive to place into the market. Such an outcome would cause us to incur significant losses in fulfilling our existing contracts, and make it commercially challenging to win new contracts.

TheAs a result of the uncertainty regarding the outcome of the pending trade matter, customers may be reluctant to contract long-term for material from the Company and the Company may not be able to secure adequate alternative supplies. Further, the outcome of the pending trade matter could materially impact future demand and market prices. For further details, refer to Part I, Item 1A, Risk Factors - Restrictions on imports or sales of LEU or SWU that we buy could adversely affect profitability and the viability of our business, in our Annual Report on Form 10-K for the year ended December 31, 2019.

Technical Solutions

Our technical solutions segment reflects our technical, manufacturing, engineering and operations services segment includes revenueoffered to public and cost of sales forprivate sector customers, including the American Centrifuge workengineering and testing activities we performhave performed as a contractor for UT-Battelle and the engineering, procurement, construction, manufacturing and operations services being performed under the HALEU Contract. With our private sector customers, we seek to UT-Battelle. Directleverage 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

On October 31, 2019, we signed the three-year cost-share HALEU Contract with DOE to deploy a cascade of centrifuges to demonstrate production of HALEU for advanced reactors. The program has been under way since May 31, 2019, when the Company and DOE signed an interim HALEU letter agreement that allowed work to begin while the full contract was being finalized.

Under the HALEU Contract, DOE agreed to reimburse the Company for 80% of its costs incurred in performing the contract, workup to a maximum of $115 million. The Company’s cost share is the corresponding 20% and any costs incurred above these amounts. Costs under the HALEU Contract include program costs, including direct labor and materials and associated indirect costs that are consistent withclassified as Cost of Sales, and an allocation of corporate costs supporting the funding levels. Centrus records an unbilled receivableprogram that are classified as Selling, General and revenue based onAdministrative Expenses. Services to be provided over the progress towards the achievement of monthly deliverables. Monthly reportsthree-year contract include constructing and invoices affirming the achievement of monthly deliverables are submitted shortly following each month. The achievement of monthly deliverables has resulted in revenue consistent with the funding levels. The contract services segment also includes limited services provided by Centrus to the U.S. Department of Energy (“DOE”)assembling centrifuge machines and its contractors at the Piketon facility.  

American Centrifuge

The Company has a long record as a global leader in advanced technology, manufacturing and engineering. Our manufacturing, engineering and testing facilities and our highly-trained workforce are deeply engaged in advancing the next generation of uranium enrichment technology. We are exploring a number of options for returning to domestic production in the future.

In September 2015, Centrus completed a successful three-year demonstration of the existing American Centrifuge technology at its facility in Piketon, Ohio, with 120 machines linked togetherrelated infrastructure in a cascade formation. When estimates of remaining program costs to simulate industrial operating conditions. Since thenbe incurred for such an integrated, construction-type contract exceed estimates of total revenue to be earned, a provision for the remaining loss on the contract is recorded to Cost of Sales in the period the loss is determined. Our corporate costs supporting the program are recognized as expense as incurred over the duration of the contract term. As of December 31, 2019, the portion of our anticipated cost share under the HALEU Contract representing our share of remaining projected program costs was recognized in Cost of Sales as an accrued loss of $18.3 million. The accrued loss on the contract will be adjusted over the remaining contract term based on actual results and remaining program cost projections. As of March 31, 2020, the accrued contract loss balance was $15.3 million, and Cost of Sales in the three months ended March 31, 2020 was reduced by $3.0 million for previously accrued contract losses attributable to work performed in the first quarter of 2020.

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 consolidated statement of operations prior to June 1, 2019, are included in Cost of Sales of the technical solutions segment with the exception of costs for two minor items that must be repaired under a previous agreement with DOE.


Over the past five years, our government contracts with UT-Battelle have provided for continued engineering and testing work on the American Centrifuge technology at the Company’sour facilities in Oak Ridge, Tennessee. Our recently completed fixed-price contract with UT-Battelle (the “2017 ORNL Contract”) was for the period from October 1, 2016,2017 through September 30, 2017, and2018 generated revenue of approximately $25 million. On October 26, 2017, the parties executed a new fixed priced contract for the period from October 1, 2017, through September 30, 2018, that is expected to generate total revenue of approximately $16$16.0 million upon completion of defined milestones. The ORNL contracts have been funded incrementally. FundingAlthough the contract expired September 30, 2018, we continued to perform work towards the expected milestones as the parties worked toward a successor agreement. Costs for work performed in the program is provided to UT-Battelle byfirst quarter of 2019 were classified as Cost of Sales. As the U.S. government which is currently operating under a continuing resolution.

American Centrifuge expenses that are outsidescope of our contracts with UT-Battelle are includedwork became more limited than originally anticipated, costs for work performed in the second quarter and most of the third quarter of 2019 were classified as Advanced Technology LicenseCosts. A successor fixed-price agreement was entered into with UT-Battelle in September 2019 and Decommissioning Costs, including ongoing costs to maintain the demobilized Piketon facility and our NRC licenses at that location.was completed in 2019 resulting in revenue of $1.2 million. In February 2020, an additional $4.4 million fixed-price agreement was entered into with UT-Battelle with scheduled completion in the second quarter of 2016,2020. The Company began this scope of work in 2019. Revenue was $3.5 million in the Company commencedfirst quarter of 2020, with approximately 70% of associated costs recognized in 2019 and 30% in the decontamination and decommissioning (“D&D”)first quarter of the Piketon facility in accordance with the requirements of the NRC and DOE. For additional details on costs, schedule and accrued liabilities related to the D&D of the Piketon facility, refer to 2020.Results of Operations below and American Centrifuge - Piketon Facility Costs and D&D Obligations in Note 12, Commitments and Contingencies, of the condensed consolidated financial statements.

Site Services Work and Related Receivables

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 our Technology and Manufacturing Center in Oak Ridge, Tennessee.

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

In March 2018, we entered into a services agreement with X Energy, LLC (“X-energy”) to provide X-energy with technical and resource support for criticality safety evaluation of processing equipment, design of fresh fuel transport packages, and conceptual mock-up of a nuclear fuel production facility. In November 2018, we entered into a second services agreement with X-energy to provide technical and resource support to the design and license application development of its nuclear fuel production facility. Under both agreements, we provide X-energy with non-cash in-kind contributions subject to a cooperative agreement between X-energy and the United States government. In November 2019, the parties extended the period of performance through June 30, 2020.

Under the X-energy agreements, services are performed pursuant to separate task orders issued and provide for time-and-materials based pricing. The cumulative value of task orders issued provides for payments to us of $11.9 million and in-kind contributions to be provided by us of $6.5 million. Revenue in 2018-2019 for payments received or pending totaled $9.1 million, and in-kind contributions provided by us totaled $5.0 million.

In addition, we have entered into other contracts for 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 to maintain and prepareat the former Portsmouth (Ohio) and Paducah (Kentucky) Gaseous Diffusion Plant (the “Portsmouth GDP”)Plants. The Company and DOE have yet to fully settle the Company’s claims for D&D. In September 2011, our contractsreimbursements for maintainingcertain pension and postretirement benefits costs related to past contract work performed at the Portsmouth facilities and performing services for DOE at Portsmouth expired and we completed the transition of facilities to DOE’s D&D contractor for the Portsmouth site. Additionally, we provided limited services to DOE and its contractors at the Paducah Gaseous Diffusion Plant (the “Paducah GDP”) until the leased portions of the Paducah GDP were returned to DOE on October 21, 2014.

plant sites. There is the potential to recognize additional income for additional revenue to be recognized, based onthis work pending the outcome of DOE reviewslegal proceedings related to the Company’s claims for payment and audits, as the result of thepotential release of previously established receivable related reserves. However, uncertainty exists because contract billing periods since June 2002 have not been finalized with DOE, and we have not yet recognized thisvaluation allowances on receivables. Refer to Part II, Item 1, Legal Proceedings, for additional revenue. Certain receivables from DOE are included in other long-term assets based on the extended timeframe expected to resolve claims for payment. Additional details are provided in information.Note 4, Receivables to the condensed consolidated financial statements.


2017 Outlook

We anticipate SWU and uranium revenue in 2017 in a range of $175 million to $200 million, reflecting an expected decline in SWU and uranium volumes delivered compared to 2016. We anticipate total revenue in a range of $200 million to $225 million. Our revenues continue to be most heavily weighted to the fourth quarter, and we expect more than one-half of our annual revenue in the fourth quarter of 2017, compared to 44% in the fourth quarter of 2016. We expect to end 2017 with a cash and cash equivalents balance in a range of $150 million to $175 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 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;
Potential use of cash for strategic initiatives;
Actions taken by our customers, including actions that might affect our existing contracts, as a result of market and other conditions impacting our customers and the industry; and
Additional costs for decontamination and decommissioning of the Company’s facility in Ohio.



Results of Operations

Segment Information

The following tables presenttable presents elements of the accompanying condensed consolidated statements of operations that are categorized by segment (dollar amounts in millions):
 Three Months Ended 
 September 30,		    
 2017 2016 $ Change % Change
LEU segment       
Revenue:       
SWU revenue$43.5
 $14.1
 $29.4
 209 %
Uranium revenue—
 —
 —
 –
Total43.5
 14.1
 29.4
 209 %
Cost of sales32.4
 15.9
 (16.5) (104)%
Gross profit (loss)$11.1
 $(1.8) $12.9
 717 %
        
Contract services segment     
  
Revenue$6.8
 $7.3
 $(0.5) (7)%
Cost of sales6.3
 7.6
 1.3
 17 %
Gross profit (loss)$0.5
 $(0.3) $0.8
 267 %
        
Total     
  
Revenue$50.3
 $21.4
 $28.9
 135 %
Cost of sales38.7
 23.5
 (15.2) (65)%
Gross profit (loss)$11.6
 $(2.1) $13.7
 652 %


 Nine Months Ended 
 September 30,		    
 2017 2016 $ Change % Change
LEU segment       
Revenue:       
SWU revenue$82.2
 $128.3
 $(46.1) (36)%
Uranium revenue—
 14.3
 (14.3) (100)%
Total82.2
 142.6
 (60.4) (42)%
Cost of sales76.8
 130.7
 53.9
 41 %
Gross profit$5.4
 $11.9
 $(6.5) (55)%
        
Contract services segment     
  
Revenue$19.3
 $32.2
 $(12.9) (40)%
Cost of sales19.9
 24.9
 5.0
 20 %
Gross profit (loss)$(0.6) $7.3
 $(7.9) (108)%
        
Total     
  
Revenue$101.5
 $174.8
 $(73.3) (42)%
Cost of sales96.7
 155.6
 58.9
 38 %
Gross profit$4.8
 $19.2
 $(14.4) (75)%




 Three Months Ended 
 March 31,		    
 2020 2019 $ Change % Change
LEU segment       
Revenue:       
SWU revenue$30.7
 $12.4
 $18.3
 148 %
Uranium revenue—
 22.7
 (22.7) (100)%
Total30.7
 35.1
 (4.4) (13)%
Cost of sales13.3
 38.3
 25.0
 65 %
Gross profit (loss)$17.4
 $(3.2) $20.6
  
        
Technical solutions segment     
  
Revenue$14.3
 $3.6
 $10.7
 297 %
Cost of sales12.1
 5.9
 (6.2) (105)%
Gross profit (loss)$2.2
 $(2.3) $4.5
  
        
Total     
  
Revenue$45.0
 $38.7
 $6.3
 16 %
Cost of sales25.4
 44.2
 18.8
 43 %
Gross profit (loss)$19.6
 $(5.5) $25.1
  

Revenue

Revenue from the LEU segment increased $29.4declined $4.4 million (or 209%13%) in the three months and declined $60.4 million (or 42%) in the nine months ended September 30, 2017,March 31, 2020, compared to the corresponding periodsperiod in 2016. The volume2019. Revenue from the sales of SWU sales increased 178%$18.3 million (or 148%), reflecting an increase in the three-month period and declined 30% in the nine-month period. We expect more than one-half of our annual revenue in the fourth quarter of 2017. We expectaverage SWU volumes delivered willselling price partially offset by a 7% decline in 2017 compared to 2016. Refer to 2017 Outlook above.sales volume. The average price billed to customers for sales of SWU increased 11% in the three-month period and declined 8% in the nine-month period,166%, reflecting the particular contracts under which SWU were sold during the periods. We expectThere were no uranium sales in the average SWU price for sales during the full year 2017 will be approximately 3% lower than in 2016.three months ended March 31, 2020.

Revenue from the contract servicestechnical solutions segment declined $0.5increased $10.7 million (or 7%297%) in the three months ended September 30, 2017,March 31, 2020, compared to the corresponding period in 2016, reflecting2019. The increase was primarily the reduced scoperesult of contract work for American Centrifuge technology servicesperformed under the HALEU Contract. Revenue in the current period. Revenue fromperiod included work performed under the UT-Battelle contract services segment declined $12.9 million (or 40%) in the nine months ended September 30, 2017, compared to the corresponding period in 2016, due to the reduced scope of work and the timing of revenue recognition in the prior period. As a result of the contract signed with UT-Battelle in March 2016, revenue in the nine months ended September 30, 2016,period included $24.2 million for work in the nine months ended September 30, 2016, as well as $8.1 million for March 2016 reports on work performed under an agreement with DOE to decontaminate and decommission its K-1600 facility in the fourth quarter of 2015.Tennessee. The K-1600 contract was completed in October 2019.

Cost of Sales

Cost of sales for the LEU segment increased $16.5declined $25.0 million (or 104%65%) in the three months and declined $53.9 million (or 41%) in the nine months ended September 30, 2017,March 31, 2020, compared to the corresponding period in 2019, reflecting declines in SWU and uranium sales volumes and a decline in the average cost of sales per SWU. The average cost of sales per SWU declined approximately 26% in the three months ended March 31, 2020, compared to the corresponding period in 2019, primarily due to lower pricing in supply contracts. Cost of sales includes legacy costs related to former employees of the Portsmouth and Paducah Gaseous Diffusion Plants of $0.9 million in the three months ended March 31, 2020 and $1.0 million in the three months ended March 31, 2019.


Cost of sales for the technical solutions segment increased $6.2 million (or 105%) in the three months ended March 31, 2020, compared to the corresponding period in 2019, reflecting in part the mix of technical solutions work performed in each of the periods including work performed under the HALEU Contract in 2016,the current period. Cost of sales in the current period was reduced by $3.0 million for previously accrued contract losses attributable to work performed under the HALEU Contract in the first quarter of 2020. For details on HALEU Contract accounting, refer to “Technical Solutions - Government Contracting” above.

Gross Profit (Loss)

We realized a gross profit of $19.6 million in the three months ended March 31, 2020, compared to a gross loss of $5.5 million in the corresponding period in 2019.

The gross profit for the LEU segment was $17.4 million in the three months ended March 31, 2020, compared to a gross loss of $3.2 million in the corresponding period in 2019. The improvement for the LEU segment was primarily due to the changesincrease in average SWU sales volumes noted aboveselling price and declinesthe decline in the average cost of sales per SWU.

Cost of sales is affected by sales volumes, unit costs of inventory, and direct charges to cost of sales such as inventory valuation adjustments and legacy costs related to former GDP employees and other residual costs related toFor the Paducah GDP. Refer to Impact of Legacy Costs below.

Our inventories are valued at the lower of cost or net realizable value. Valuation adjustments for our uranium inventory to reflect declines in uranium market price indicators totaled $3.0 million in the nine months ended September 30, 2016, including $2.3 million in third quarter of 2016.

Cost of sales for the contract servicestechnical solutions segment, declined $1.3 million (or 17%) in the three months and $5.0 million (or 20%) in the nine months ended September 30, 2017, compared to the corresponding periods in 2016, due to the reduced scope of contract work.
Gross Profit

Wewe realized a gross profit of $11.6$2.2 million infor the three months ended September 30, 2017, an increase of $13.7 millionMarch 31, 2020, compared to thea gross loss of $2.1$2.3 million in the corresponding period in 2016. We realized an increase in2019. The gross profit of $12.9 million for the LEU segment primarily due to increases in the average SWU sales price and SWU sales volume, and a decline in the average SWU cost.

We realized a gross profit of $4.8 million in the nine months ended September 30, 2017, a decline of $14.4 million comparedcurrent period was primarily attributable to the gross profitUT-Battelle contract awarded in February 2020. The Company began this scope of $19.2 millionwork in the corresponding period2019 and associated costs were recognized in 2016. We realized a decline in gross profit of $6.5 million for the LEU segment primarily due to the decline in the average SWU sales priceboth 2019 and the decline in SWU sales volume for the nine months compared to the prior period, partially offset by a decline in the average SWU cost.



We realized a decline in gross profit of $7.9 million for the contract services segment in the nine months ended September 30, 2017, compared to the corresponding period in 2016. Revenue for the contract services segment in the nine months ended September 30, 2016, included a billing for March 2016 reports on work performed in the fourthfirst quarter of 2015. Related expenses were included in Advanced Technology License and Decommissioning Costs in 2015 as they were incurred before a contract was in place. We realized a gross loss of $0.6 million for the contract services segment in the nine months ended September 30, 2017, due to costs incurred which are not fully recoverable from the revenue under the contract with UT-Battelle.

Impact of Legacy Costs

The Company ceased uranium enrichment at the Portsmouth GDP in 2001 and the Paducah GDP in 2013. Included in cost of sales are costs related to benefits for former GDP employees and other residual costs related to the Paducah GDP. These legacy costs are distinct from the Company’s current costs of acquiring SWU and uranium for sale. The following table presents the impact of legacy costs on gross profit for the LEU segment (dollar amounts in millions):
 Nine Months Ended 
 September 30,
 2017 2016
LEU segment (GAAP)   
Gross profit$5.4
 $11.9
Gross margin6.6% 8.3%
    
Legacy costs included in cost of sales:   
Pension and postretirement health and life benefits$2.2
 $3.2
Disability obligations and other0.4
 3.9
Legacy costs$2.6
 $7.1
    
LEU segment excluding legacy costs (non-GAAP)   
Gross profit excluding legacy costs$8.0
 $19.0
Gross margin excluding legacy costs9.7% 13.3%

We believe the non-GAAP financial measures above, when considered together with the corresponding GAAP measures and the reconciliation above, can provide additional understanding of the Company’s financial performance and underlying profitability. Management uses the non-GAAP financial measures to provide investors with a more complete understanding of the Company’s historical results and trends.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with our GAAP results. The non-GAAP financial measures should be viewed in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies.

2020.

Non-Segment Information

The following tables presenttable presents elements of the accompanying condensed consolidated statements of operations that are not categorized by segment (dollar amounts in millions):
 Three Months Ended 
 September 30,		    
 2017 2016 $ Change % Change
Gross profit (loss)$11.6
 $(2.1) $13.7
 652 %
Advanced technology license and decommissioning costs4.5
 21.9
 17.4
 79 %
Selling, general and administrative11.0
 10.7
 (0.3) (3)%
Amortization of intangible assets2.5
 1.7
 (0.8) (47)%
Special charges for workforce reductions and advisory costs2.4
 0.6
 (1.8) (300)%
Gains on sales of assets(0.6) (0.3) 0.3
 100 %
Operating loss(8.2) (36.7) 28.5
 78 %
Interest expense0.7
 4.7
 4.0
 85 %
Investment income(0.4) (0.1) 0.3
 300 %
Loss before income taxes(8.5) (41.3) 32.8
 79 %
Income tax benefit—
 —
 —
 –
Net loss(8.5) (41.3) 32.8
 79 %
Preferred stock dividends - undeclared and cumulative2.0
 —
 2.0
 –
Net loss allocable to common stockholders$(10.5) $(41.3) $30.8
 75 %


 Nine Months Ended 
 September 30,		    
 2017 2016 $ Change % Change
Gross profit$4.8
 $19.2
 $(14.4) (75)%
Advanced technology license and decommissioning costs15.0
 38.6
 23.6
 61 %
Selling, general and administrative33.1
 34.6
 1.5
 4 %
Amortization of intangible assets5.7
 7.6
 1.9
 25 %
Special charges for workforce reductions and advisory costs7.1
 1.2
 (5.9) (492)%
Gains on sales of assets(2.3) (1.0) 1.3
 130 %
Operating loss(53.8) (61.8) 8.0
 13 %
Gain on early extinguishment of debt(33.6) (16.7) 16.9
 101 %
Interest expense4.3
 14.8
 10.5
 71 %
Investment income(1.0) (0.5) 0.5
 100 %
Loss before income taxes(23.5) (59.4) 35.9
 60 %
Income tax benefit(0.2) (0.6) (0.4) (67)%
Net loss(23.3) (58.8) 35.5
 60 %
Preferred stock dividends - undeclared and cumulative5.0
 —
 5.0
 –
Net loss allocable to common stockholders$(28.3) $(58.8) $30.5
 52 %


 Three Months Ended 
 March 31,		    
 2020 2019 $ Change % Change
Gross profit (loss)$19.6
 (5.5) $25.1
 456 %
Advanced technology costs0.9
 6.6
 5.7
 86 %
Selling, general and administrative8.5
 8.1
 (0.4) (5)%
Amortization of intangible assets1.4
 1.1
 (0.3) (27)%
Special charges (credits) for workforce reductions(0.1) (0.1) —
 — %
Gain on sales of assets—
 (0.4) (0.4) (100)%
Operating income (loss)8.9
 (20.8) 29.7
 143 %
Nonoperating components of net periodic benefit expense (income)(2.2) (0.1) 2.1
 2,100 %
Interest expense0.1
 1.0
 0.9
 90 %
Investment income(0.4) (0.7) (0.3) (43)%
Income (loss) before income taxes11.4
 (21.0) 32.4
 154 %
Income tax expense (benefit)0.1
 (0.1) (0.2) (200)%
Net income (loss)11.3
 (20.9) 32.2
 154 %
Preferred stock dividends - undeclared and cumulative2.0
 2.0
 —
 — %
Net income (loss) allocable to common stockholders$9.3
 $(22.9) $32.2
 141 %



Advanced Technology License and Decommissioning Costs

Advanced technology license and decommissioning costs consist of American Centrifuge expenses that are outside of our customer contracts with UT-Battelle,in the technical solutions segment, including ongoing costs to maintainfor work at the demobilized Piketon facility and our NRC licenses at that location.prior to the commencement of the HALEU work in June 2019. Costs declined $17.4$5.7 million (or 79%86%) in the three months ended September 30, 2017,March 31, 2020, compared to the corresponding period in 2016. The prior period included a $15.0 million charge to increase the accrued D&D liability for the Piketon demonstration facility based on updated cost estimates. Costs declined $23.6 million (or 61%) in the nine months ended September 30, 2017, compared to the corresponding period in 2016, due to the $15.0 million increase in the D&D liability in the prior period and demobilization costs incurred in early 2016 in preparation for the D&D of the Piketon facility. D&D costs commenced in the second quarter of 2016 and are charged against the D&D liability. For additional details on the D&D of the Piketon facility, refer to American Centrifuge - Piketon Facility Costs and D&D Obligations in Note 12, Commitments and Contingencies, of the condensed consolidated financial statements.2019.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses increased $0.3$0.4 million (or 3%5%) in the three months and declined $1.5 million (or 4%) in the nine months ended September 30, 2017,March 31, 2020, compared to the corresponding periodsperiod in 2016.2019. Consulting costs declined $0.3increased $0.8 million in the three-month period and $1.4 million in the nine-month period. Compensationcompensation and benefit costs were flat in the three-month period and declined $0.3 million in the nine-month period ended September 30, 2017, including the effect of an $0.8 million loss in the prior period related to the remeasurement of pension obligations.$0.4 million.

Amortization of Intangible Assets

Amortization expense for the intangible asset related to the September 2014 sales order book is a function of SWU sales volume under that order book, which increased $0.3 million in the three-month period and declined in the ninethree months ended September 30, 2017,March 31, 2020, compared to the corresponding periodsperiod in 2016.2019. Amortization expense for the intangible asset related to customer relationships is amortized on a straight-line basis.

Special Charges (Credits) for Workforce Reductions and Advisory Costs

Special charges (credits) in both the ninethree months ended September 30, 2017, included estimated employeeMarch 31, 2020 and 2019 consisted of income of $0.1 million for the reversal of accrued termination benefits related to unvested employee departures.

Nonoperating Components of $2.3 million, including $0.7 million in the third quarter, less $0.2Net Periodic Benefit Expense (Income)

Nonoperating components of net periodic benefit expense (income) netted to income of $2.2 million for unvested employee departures. Advisory costs related to the Company’s project to align its corporate structure to the scale of its ongoing business operations and to update related information technology were $1.7 million and $5.0 million in the three and nine months ended September 30, 2017, respectively,March 31, 2020, compared to $0.3 million and $0.8income of $0.1 million in the corresponding periodsperiod in 2019. Nonoperating components of 2016.

Gain on Early Extinguishment of Debt

In the first quarter of 2017, the Company recognized a gain of $33.6 million related to the exchange of securities and cash on February 14, 2017, which is net of transaction costs of $9.0 million and previously deferred issuance costs related to the 8% PIK Toggle Notes of $0.4 million. Refer to Note 8, Debtperiodic benefit expense (income) consist primarily of the condensed consolidated financial statements.

In June 2016, we repurchased 8% PIK Toggle Notes having an aggregate principal and accruedexpected return on plan assets, offset by interest balancecost as the discounted present value of $26.6 million for cash paymentsbenefit obligations nears payment. Interest cost declined in 2020 as a result of $9.8 million. The gain on the early extinguishment of the notes was $16.7 million, net of commissions and unamortized deferred issuance costs totaling $0.1 million.



Interest Expense

Interest expense declined $4.0 million (or 85%) in the three months and $10.5 million (or 71%) in the nine months ended September 30, 2017, compared to the corresponding periods in 2016, due to the early extinguishment of 87% of the outstanding principal amount of the 8% PIK Toggle Notes on February 14, 2017. Nolower market interest expense is recognized on the new 8.25% Notes as described in Note 8, Debt, of the condensed consolidated financial statements.rates.

Income Tax BenefitExpense (Benefit)

The income tax benefitexpense was $0 in the three months and $0.2 million in the nine months ended September 30, 2017. The income tax benefit was $0 in the three months and $0.6 million in the nine months ended September 30, 2016. The income tax benefit in both nine-month periods resulted from discrete items for reversals of previously accrued amounts associated with liabilities for unrecognized benefits.

Net Loss

Our net loss was $8.5$0.1 million in the three months ended September 30, 2017,March 31, 2020, and the income tax benefit was $0.1 million in the three months ended March 31, 2019. The 2020 income tax expense resulted primarily from an accrual for a current unrecognized tax benefit.  The 2019 income tax benefit resulted from discrete items to reverse previously accrued liabilities for unrecognized tax benefits.

Net Income (Loss)

Our net income was $11.3 million in the three months ended March 31, 2020, compared to a net loss of $41.3$20.9 million in the three months ended September 30, 2016.March 31, 2019. The favorable variance of $32.8$32.2 million was primarily thea result of the $13.7a $25.1 million improvementincrease in gross profit, $15.0 million of accrued D&D costs in the prior period, and the $4.0 million decline in interest expense.

Our net loss was $23.3 million in the nine months ended September 30, 2017, compared to a net loss of $58.8 million in the nine months ended September 30, 2016. The favorable variance of $35.5 million was primarily the result of the $23.6$5.7 million decline in advanced technology licensecosts, and decommissioning costs, including D&D cost accruals, the $16.9a $2.1 million increase in gains on the early extinguishmentnonoperating components of debt, and the $10.5 million decline in interest expense, partially offset by the $14.4 million decline in gross profit and the $5.9 million increase in special charges.net periodic benefit income.



Preferred Stock Dividends - Undeclared and Cumulative

Holders of the Series B Preferred Stock are entitled to cumulative dividends of 7.5% per annum of the aggregate liquidation preference at origination of $104.6 million. We did not meet the criteria for a dividend payment obligation for the quarterthree months ended September 30, 2017,March 31, 2020 and the corresponding period in 2019, and we have not declared, accrued or paid dividends on the Series B Preferred Stock since issuance on February 14, 2017. Dividends on the Series B Preferred Stock are cumulative to the extent not paid at any quarter-end, whether or not declared and whether or not there are assets of the Company legally available for the payment of such dividends in whole or in part.

Liquidity and Capital Resources

We ended the thirdfirst quarter of 20172020 with a consolidated cash balance of $135.9$109.2 million. We anticipate having adequate liquidity to support our business operations for at least the next 12 months from the date of this report. Our view of liquidity is dependent on, among other things, conditions affecting our operations, including market, international trade, COVID-19 and other conditions and the level of expenditures and government funding for our services contracts and the American Centrifuge program.timing of customer payments. Liquidity requirements for our existing operations are affected primarily by the timing and amount of customer sales and our inventory purchases.

We believe our sales order book in our LEU segment is a source of stability for our liquidity position. Centrus’ sales order book extends for more than a decade. Although, based on currentSubject to market conditions, we see limitedthe potential for growing uncommitted demand for LEU forduring the remainder of this decade before an anticipated rise in uncommittednext few years with accelerated open demand in the 2020s, we continue to seek2025 and make additional sales, including sales for delivery during that time period.beyond.



Substantially all revenue-generating operations of the Company are conducted at the subsidiary level. Centrus’ principal source of funding for American Centrifuge activities is provided: (i) under the contract with UT-Battelle, the operator of ORNL;Cash resources and (ii)net sales proceeds from Centrus’ wholly owned subsidiary United States Enrichment Corporation (“Enrichment Corp.”) to Centrus and its 100% indirectly owned subsidiary American Centrifuge Operating, LLC pursuant to two secured intercompany financing notes. The financing obtained from Enrichment Corp. funds American Centrifuge activities pending receipt of payments related to work performed under the contract with UT-Battelle, American Centrifugeour LEU segment fund technology costs that are outside of our customer contracts in the scope of work under the contract with UT-Battelle, including D&D costs and ongoing costs to maintain the Piketon facility and our NRC licenses at that location,technical solutions segment and general corporate expenses, including cash interest payments on our debt. We believe our investment in advanced U.S. uranium enrichment technology will position the Company to meet the needs of our customers as they deploy advanced reactors and next generation fuels. We signed the three-year HALEU Contract with DOE in October 2019 to deploy a cascade of centrifuges to demonstrate production of HALEU for advanced reactors. Under the agreement, the Company is contributing a portion of the program costs. The program has been under way since May 31, 2019, when Centrus and DOE signed a preliminary letter agreement that allowed work to begin while the full contract was being finalized.

Capital expenditures are expectedUnder the HALEU Contract, DOE agreed to be insignificantreimburse the Company for at least80% of its costs incurred in performing the next 12 months.contract, up to a maximum of $115 million. The Company’s cost share is the corresponding 20% and any costs incurred above these amounts. The HALEU Contract is incrementally funded and DOE is currently obligated for costs up to approximately $53.2 million of the $115 million. The Company has received aggregate cash payments of $19.0 million through March 31, 2020.

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.

We lease facilities and related personal property in Piketon, Ohio from DOE. In September 2015,connection with the HALEU program, DOE and Centrus completed a successful three-year demonstrationrenewed the lease agreement in 2019 and extended the lease term through May 31, 2022. 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 American Centrifuge technology atlease term, and DOE would be responsible for its facility in Piketon, Ohio. U.S. government funding for American Centrifuge is now limited to researchD&D. If we determine the equipment and development work at our facilities in Oak Ridge, Tennessee. As a result of reduced program funding, workforce reductions commenced in the fourth quarter of 2015 and we expect to make payments of $4.9 million for remaining workforce reductions through 2019.

may benefit Centrus began to incur expenditures in the second quarter of 2016 associated with the D&Dafter completion of the PiketonHALEU program, we can extend the facility in accordance with the requirementslease and ownership of the NRC and DOE. In the nine months ended September 30, 2017, D&D costs of $22.1 million were charged against the accrued D&D liability. The D&D work is expectedequipment will be transferred to be substantially completed by year-end. As of September 30, 2017, we have accrued $16.6 million for the estimated fair value of the remaining costsus, subject to complete the D&D work.
Centrus has previously provided financial assurance to the NRC and DOE formutual agreement regarding 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.other issues.

In the event that funding by the U.S. government for research, development and demonstration of gas centrifuge technology is further reduced or discontinued, the American Centrifuge project may be subject to further demobilization, costs, delays and termination. Any such actions may have a material adverse impact on our ability to deploy the American Centrifuge technology and on our liquidity.



Capital expenditures of approximately $2 to $3 million are anticipated over the next 12 months.

The change in cash, and cash equivalents and restricted cash from our condensed consolidated statements of cash flows are as follows on a summarized basis (in millions):
Nine Months Ended 
 September 30,		Three Months Ended 
 March 31,
2017 20162020 2019
Cash used in operating activities$(95.6) $(51.9)$(18.5) $(31.9)
Cash provided by (used in) investing activities1.8
 (1.5)
Cash provided by investing activities—
 —
Cash used in financing activities(31.0) (9.8)(3.0) (3.1)
Decrease in cash and cash equivalents$(124.8) $(63.2)
Decrease in cash, cash equivalents and restricted cash$(21.5) $(35.0)

Operating Activities

In the three months ended March 31, 2020, net cash used in operating activities was $18.5 million. The net reduction of $42.3$23.3 million in deferred revenue and advances from customers reflects revenue recognized in the current period related to payments received in advance in a prior period. Uses of cash are reflected in the decrease in pension and postretirement benefit liabilities of $8.6 million. The uses of cash were partially offset by net income of $11.3 million in the quarter, net of non-cash expenses.
In the corresponding period in 2019, net cash used in operating activities was $31.9 million. Sources of cash included the monetization of inventory purchased in prior periods, with inventories declining $25.6 million in the three-month period and the net reduction in receivables from utility customers of $22.4 million. The net reduction of $46.0 million in the SWU purchase payables balance, due to the timing of purchase deliveries, was a significant use of cash in the nine months ended September 30, 2017. Other major usesperiod. Uses of cash were corporate costs including benefits funding and costs for D&D of the American Centrifuge demonstration cascade. Sources of cashalso included the monetizationnet loss of inventory as inventories declined $17.9$20.9 million in the nine-month period and receivables from utility customers declined $6.2 million.quarter, net of non-cash expenses.
 


In the corresponding period in 2016, the net reduction of $68.9 million in the SWU purchase payables balance, due to the timing of purchase deliveries, was a significant use of cash. Other major uses of cash were corporate costs including benefits funding and costs for D&D of the American Centrifuge demonstration cascade. Sources of cash included the monetization of inventory as inventories declined $45.8 million in the nine-month period and receivables from utility customers declined $18.4 million.

Investing Activities

CapitalThere were no significant capital expenditures were $0.3 millionor other investing activities in either of the ninethree months ended September 30, 2017,March 31, 2020 and $3.0 million in the corresponding period of 2016.2019.

Financing Activities

In February 2017, Centrus exchanged $204.9 million principal amountboth the three months ended March 31, 2020 and 2019, payments of the Company’s 8% paid-in-kind (“PIK”) toggle notes (“8% PIK Toggle Notes”) for $74.3 million principal amount of 8.25% notes maturing in February 2027 (the “8.25% Notes”), 104,574 shares of Series B Preferred Stock and $27.6$3.1 million of cash.interest classified as debt are classified as a financing activity. Refer to Note 8,7, Debt, of the condensed consolidated financial statements.

In June 2016, Centrus repurchased 8% PIK Toggle Notes having an aggregate principal balance of $26.1 million and accrued interest payable balance of $0.5 millionstatements regarding the accounting for cash payments of $9.8 million.the 8.25% Notes.

Working Capital

The following table summarizes the Company’s working capital (in millions):
September 30,
2017		 
December 31,
2016
(in millions)March 31,
2020		 December 31,
2019
Cash and cash equivalents$135.9
 $260.7
$109.2
 $130.7
Accounts receivable14.2
 19.9
17.5
 21.1
Inventories, net102.0
 119.9
60.5
 58.9
Current debt(6.1) (6.1)
Deferred revenue and advances from customers, net of deferred costs(98.9) (122.2)
Other current assets and liabilities, net(106.2) (165.6)(49.0) (49.6)
Working capital$145.9
 $234.9
$33.2
 $32.8


Capital Structure and Financial Resources

On February 14, 2017, pursuant to an exchange offer and consent solicitation, we exchanged $204.9 million principal amount of our 8% PIK Toggle Notes for $74.3 million principal amount of the 8.25% Notes, 104,574 shares of Series B Preferred Stock with liquidation preference of $1,000 per share, and $27.6 million of cash. Following the exchange offer, $29.6 million principal amount of 8% PIK Toggle Notes remained outstanding. The Company recognized a gain related to the note exchange of $33.6 million in the first quarter of 2017, which is net of transaction costs of $9.0 million and previously deferred issuance costs related to the 8% PIK Toggle Notes of $0.4 million.

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 are guaranteed on a subordinated and limited basis by, and secured by substantially all assets of, Enrichment Corp. The 8.25% Notes mature on February 28, 2027. Additional terms and conditions of the 8.25% Notes and the Enrichment Corp. guarantee are described in Note 8,7, Debt,of the condensed consolidated financial statements.

The principal amount of the 8% PIK Toggle Notes 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 PIK payments. For the semi-annual interest periods ended March 31, 2017,statements and September 30, 2017, the Company elected to pay interest in the form of cash payments at 2.5% per annum and PIK payments at 5.5% per annum. The principal amount of the 8% PIK Toggle Notes was $31.3 million as of September 30, 2017. The 8%


PIK Toggle Notes are guaranteed and secured on a subordinated, conditional, and limited basis by Enrichment Corp. Enrichment Corp. will be released from its guarantee without the consent of the holders of the 8% PIK Toggle Notes upon the occurrence of certain termination events (other than with respect to an unconditional interest claim). Additional terms and conditions of the 8% PIK Toggle Notes and the Enrichment Corp. guarantee are described in Note 8,9, Debt, of the condensed consolidated financial statements.statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Holders of the Series B Preferred Stock are entitled to cumulative dividends of 7.5% per annum of the Liquidation Preference.liquidation preference at origination of $104.6 million. We are obligated to pay cash dividends on our Series B Preferred Stock to the extent that: our pension plans and Enrichment Corp.’s pension planscertain criteria are at least 90% funded on a variable rate premium calculation in the current plan year; our net income calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) (excluding the effect of pension remeasurement) for the immediately preceding fiscal quarter exceeds $7.5 million; our free cash flow (defined as the sum of cash provided by (used in) operating activities and cash provided by (used in) investing activities) for the immediately preceding four fiscal quarters exceeds $35 million; the balance of cash and cash equivalents calculated in accordance with GAAP on the last day of the immediately preceding quarter would exceed $150 million after pro forma application of the dividend payment;met and dividends may be legally paid under Delaware law. Centrus hasare declared by the Board of Directors. We have not met these criteria for the periods from issuance through September 30, 2017,March 31, 2020, and hashave not declared, accrued or paid dividends on the Series B Preferred Stock as of September 30, 2017.March 31, 2020. Additional terms and conditions of the Series B Preferred Stock, including the criteria that must be met for the payment of dividends, are described in Note 16, Stockholders’ Equity, of the consolidated financial statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The nuclear industry in general, and the nuclear fuel industry in particular, are in a period of significant change. We are actively considering, and expect to consider from time to time in the future, potential strategic transactions, which at any given time may be in various stages of discussions, diligence or negotiation with respect to a number of potential acquisitions.negotiation. If we pursue opportunities that require capital, we believe we would seek to satisfy these needs through a combination of working capital, cash generated from operations or additional debt or equity financing.

We are managing our working capital to seek to improve the long-term value of our LEU businessand technical solutions businesses and are planning to continue funding the Company’s qualified pension plans in the ordinary course because we believe that is in the best interest of all stakeholders. We expect that any other uses of working capital will be undertaken in light of these strategic priorities and will be based on the Company’s determination as to the relative strength of its operating performance and prospects, financial position and expected liquidity requirements. In addition, we expect that any such other uses of working capital will be subject to compliance with contractual restrictions to which the Company and its subsidiaries are subject, including the terms and conditions of their debt securities and credit facilities. The CompanyWe continually evaluatesevaluate alternatives to manage our capital structure, and may opportunistically repurchase, exchange or redeem Company securities from time to time.

Commitments under Long-Term SWU Purchase Agreements

The Company purchases SWU contained in LEU from Russia supplied to us under a long-term agreement, as amended, signed in 2011 with the Russian government owned entity TENEX. Under a 2018 agreement, the Company will purchase SWU contained in LEU from Orano. Refer to Note 11,Commitments and Contingencies, of the condensed consolidated financial statements for additional information.

DOE Technology License

We have a non-exclusive license in DOE inventions that pertain to enriching uranium using gas centrifuge technology. The license agreement with DOE provides for annual royalty payments based on a varying percentage (1% up to 2%) of our annual revenues from sales of the SWU component of LEU produced by us using DOE centrifuge technology. There is a minimum annual royalty payment of $100,000 and the maximum cumulative royalty over the life of the license is $100 million. There is currently no commercial enrichment facility producing LEU using DOE centrifuge technology. We are continuing to advance our U.S. centrifuge technology that has evolved from DOE inventions at specialized facilities in Oak Ridge, Tennessee, with a view to deploying a commercial enrichment facility over the long term once market conditions recover.



Off-Balance Sheet Arrangements

Other than outstanding letters of credit and surety bonds, our SWU purchase commitments and the license agreement with DOE relating to the American Centrifuge technology, disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016, there were no material off-balance sheet arrangements at September 30, 2017,March 31, 2020, or December 31, 2016.2019.

New Accounting Standards Not Yet Implemented

Reference is made to New Accounting Standards in Note 1, Basis of Presentation, of the unaudited condensed consolidated financial statements for information on new accounting standards.



Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Centrus maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by Centrus in reports it files or submits under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported on a timely basisin the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures.

As previously disclosed in Part II, Item 9A, Controls and Procedures of our Annual Report on Form 10-K for the year ended December 31, 2016, management identified a material weakness in the Company’s internal control over financial reporting. Because of this material weakness, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2016.

As of September 30, 2017,March 31, 2020, the end of the period covered by this report, our management performed an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective due to the previously identified material weakness in internal control over financial reporting, which continued to exist as of September 30, 2017.

Notwithstanding the material weakness described below, our management concluded that the condensed consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in accordance with GAAP.

Efforts to Address Material Weakness

The Company has made, and expects to continue to make, progress in improving internal control over accounting for our D&D obligation. Management has enhanced its review process of D&D costs incurred and projected costs remaining to complete the D&D work and has formalized applicable procedures as remedial controls and has begun related controls testing. The material weakness will not be considered remediated until the remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed by the end of 2017.effective.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2017, the Company implemented a new enterprise resource planning (ERP) system in which a significant portion of our business transactions originate and are processed and recorded. The implementation included the outsourcing of payroll functions. As a result of the ERP system implementation, we modified certain existing controls as well as implemented new controls to adapt to changes in our processes. We concluded, as part of our evaluation described in the above paragraphs, that the implementation of the ERP system has not materially affected our internal control over financial reporting. Other than the ERP system implementation and steps taken to work towards the remediation of the material weakness identified above, thereThere were no changes in our internal control over financial reporting during the quarter ended September 30, 2017,March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





PART II

Item 1. Legal Proceedings

There have been no material changesFrom time to time, we are involved in various pending legal proceedings, including the pending legal proceedings described below.

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 Legal Proceedings set forthtransition of employees at the former Portsmouth, Ohio, Gaseous Diffusion Plant (the “Portsmouth GDP”) to DOE’s decontamination and decommissioning 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. While proceeding with litigation, the Company is still pursuing settlement.

On May 26, 2019, the Company, Enrichment Corp., and five other DOE contractors who have operated facilities at the Portsmouth GDP site (including, in the case of the Company, the American Centrifuge Plant site located on the premises) 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 “McGlone 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 McGlone Plaintiffs are seeking to represent a class of (i) all current or former residents within a seven-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 believes that its operations at the Portsmouth GDP site were fully in compliance with the Nuclear Regulatory Commission’s regulations. Further, the Company believes that any such liability should be covered by indemnification under Part I, Item 3, Legal Proceedings,the Price-Anderson Nuclear Industries Indemnity Act (“Price-Anderson Act”). The Company and Enrichment Corp. have provided 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 DOE contractors who have operated facilities at the Portsmouth GDP site were named as defendants in our Annual Reporta class action complaint filed by Ray Pritchard and Sharon Melick (collectively, the “Pritchard 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 Form 10-Kthe Portsmouth GDP site. The Pritchard Plaintiffs are seeking to represent a class of all current or former residents within a seven-mile radius of the Portsmouth GDP site. The Company believes that its operations at the Portsmouth GDP site were fully in compliance with the Nuclear Regulatory Commission’s regulations. Further, the Company believes that any such liability should be covered by indemnification under the Price-Anderson Act. The Company and Enrichment Corp. have provided notifications to DOE required to invoke indemnification under the Price-Anderson Act and other contractual provisions.

On November 27, 2019, the Company, Enrichment Corp. and six other DOE contractors who have operated facilities at the Portsmouth GDP site were named as defendants in a class action complaint filed by James Matthews, Jennifer Brownfield Clark, Joanne Ross, the Estate of A.R., and others similarly situated (the “Matthews Plaintiffs”), in the Common Pleas Court of Pike County, Ohio. The complaint seeks injunctive relief, compensatory damages, statutory damages, and any other relief allowed by law for alleged off-site contamination allegedly resulting from activities on the Portsmouth GDP site. The Matthews Plaintiffs expressly contend that the ongoing and continuous releases that injured the Plaintiffs and Class Members are not “nuclear incidents” as that term is defined in the Price-Anderson Act, but rather “freestanding state law claims concerning traditional-style state regulation.” The Company believes that its operations at the Portsmouth GDP site were fully in compliance with the Nuclear Regulatory Commission’s regulations. Further, the Company believes that any such liability should be


covered by indemnification under the Price-Anderson Act. The Company and Enrichment Corp. have provided notifications to DOE required to invoke indemnification under the Price-Anderson Act and other contractual provisions.

On October 11, 2018, the Company’s subsidiaries, Enrichment Corp. and American Centrifuge Enrichment, LLC (“ACE”, together with Enrichment Corp., the “Company Subsidiaries”) filed proofs of claim in the U.S. Bankruptcy Court for the year ended December 31, 2016.Northern District of Ohio (the “Bankruptcy Court”) against each of FirstEnergy Nuclear Operating Company (“FENOC”), FirstEnergy Nuclear Generation, LLC (“FENG,” and together with FENOC, the “FirstEnergy Contract Parties”), FirstEnergy Solutions Corp. (“FES”) and FirstEnergy Generation, LLC (“FG”). The claims relate to damages arising from the rejection and breach of a long-term contract between the Company Subsidiaries and the FirstEnergy Contract Parties that was approved by the Bankruptcy Court and made effective as of July 26, 2018. The proofs of claim filed by the Company Subsidiaries include claims against the FirstEnergy Contract Parties based on their liability as parties to the contract that was rejected and breached. The proofs of claim filed by the Company Subsidiaries also included claims against FES and FG based on their liability under guaranties they issued that may obligate FES and FG to satisfy the rejection and breach of contract damages claims.

Centrus isOn November 15, 2019, FENOC, FENG, FES and FG filed objections to the Company Subsidiaries’ claims in the Bankruptcy Court. No decision on the claims against FENOC and FENG has yet been reached by the Bankruptcy Court. The Company Subsidiaries and FES and FG submitted cross motions for summary judgment on the issue of whether the guaranties of FES and FG apply. On March 13, 2020, the Bankruptcy Court ruled in favor of FES and FG on their motion, finding that the guaranties did not apply to the Company Subsidiaries’ claims. The Company Subsidiaries have filed a notice of appeal of this decision. The ruling does not apply to the Company Subsidiaries’ claims against the “FirstEnergy Contract Parties.

We are 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, we do not believe that the outcome of any of these legal matters, individually andor in the aggregate, will have a material adverse effect on our cash flows, results of operations or consolidated financial condition.



Item 1A. Risk Factors

There have been no material changes to the Risk Factors described in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2016.2019.


Item 6. Exhibits
Exhibit No.Description
4.1Third Amendment to the Section 382 Rights Agreement, dated as of April 13, 2020, by and among Centrus Energy Corp., Computershare Trust Company N.A. and Computershare Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 14, 2020).
10.1Voting and Nomination Agreement, dated April 13, 2020, by and among Centrus Energy Corp. and the MB Group (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 14, 2020).
10.2Consulting Agreement dated January 2, 2020 between the Company and Stephen S. Greene (certain personally identifiable information has been omitted) (incorporated by reference to Exhibit 10.62 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 27, 2020). (b)
10.3
Form of Employee Stock Appreciation Right Award Notice. (a)(b)
10.4
Form of Employee Notional Stock Unit Award Notice. (a)(b)
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.. (a)
  
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. (a).
  
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. (a)
  
101CondensedUnaudited condensed consolidated financial statements from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,March 31, 2020, filed in interactive data file (XBRL) format.
 




(a)Filed herewith.
(b)Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 6 of this report.


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 Centrus Energy Corp.
  
Date:November 14, 2017By:May 12, 2020/s/ Stephen S. GreenePhilip O. Strawbridge
 Stephen S. GreenePhilip O. Strawbridge
 Senior Vice President, Chief Financial Officer,
Chief Administrative Officer and Treasurer
 (Duly Authorized Officer and Principal Financial Officer)





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