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Fresh Start Accounting (Notes) | 9 Months Ended
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Sep. 30, 2014
Fresh Start Accounting [Abstract] |
Fresh Start Accounting [Text Block] | FRESH START ACCOUNTING Upon the Company’s emergence from Chapter 11 bankruptcy, Centrus applied the provisions of fresh start accounting to its financial statements as (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the emerging entity and (ii) the reorganization value of Centrus’ assets immediately prior to confirmation was less than the post-petition liabilities and allowed claims. Centrus applied fresh start accounting as of September 30, 2014, with results of operations and cash flows in the period ending September 30, 2014 attributed to the Predecessor Company. Upon the application of fresh start accounting, Centrus allocated the reorganization value to its individual assets based on their estimated fair values. Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities, and the excess of reorganization value over the fair value of identified tangible and intangible assets is reported separately on the Condensed Consolidated Balance Sheet. Centrus, with the assistance of external valuation specialists, has estimated the enterprise value of the Company to be in a range of $294 million to $306 million. Based on the estimates and assumptions used in determining the enterprise value, as further discussed below, Centrus estimated the enterprise value to be $299.7 million as of September 30, 2014. Enterprise value is defined as the total invested capital which includes cash and cash equivalents. The estimate is based on a calculation of the present value of the future cash flows of the Company based on its projections from October 1, 2014 through the year ending December 31, 2022, including a projected December 31, 2022 net asset value. The Company’s future cash flow projections included a variety of estimates and assumptions that had a significant effect on the determination of the Company’s enterprise value. While the Company considers such estimates and assumptions reasonable, they are inherently subject to significant business, economic and competitive uncertainties, many of which are beyond the Company’s control and, therefore, may not be realized. The assumptions used in the calculations for the discounted cash flow analysis included the following: forecasted revenue, costs and free cash flows through 2022, and a discount rate of 9.0% that considered various factors, including bonds yields, risk premiums and tax rates to determine a weighted-average cost of capital. For purposes of the enterprise valuation, no terminal value was used. Rather, the present value of the net asset value at December 31, 2022 was determined using the discount rate of 10.0%. The four-column condensed consolidated balance sheet provided below applies the effects of the Plan and fresh start accounting to the carrying values and classifications of assets or liabilities as of September 30, 2014. Upon adoption of fresh start accounting, the recorded amounts of assets and liabilities were adjusted to reflect their estimated fair values. Accordingly, the reported historical financial statements of the Predecessor Company prior to the adoption of fresh start accounting for periods ended on or prior to September 30, 2014 are not comparable to those of the Successor Company. In applying fresh start accounting, the Company followed these principles:
• | The reorganization value, which represents the enterprise value and non-interest bearing liabilities, was allocated to the Successor Company's assets based on their estimated fair values. The reorganization value exceeded the sum of the fair value assigned to assets. This excess reorganization value was recorded as part of the Successor Company assets at September 30, 2014.
• | Each liability existing as of the fresh start accounting date, other than deferred taxes and pension and other postretirement benefit obligations, has been stated at the fair value, and determined at appropriate risk adjusted interest rates.
• | Deferred taxes were reported in conformity with applicable income tax accounting standards. Deferred tax assets and liabilities have been recognized for differences between the assigned values and the tax basis of the recognized assets and liabilities.
• | The actuarial value of pension and other postretirement benefit obligations were determined based on applicable retirement benefits standards.
The following table reconciles the enterprise value to the estimated fair value of Successor Company's New Common Stock as of the Effective Date (in millions, except per share data):
Enterprise value | $ | 299.7 |
Less: Fair value of debt | 240.4 |
Fair value of Successor common stock | $ | 59.3 |
Shares outstanding at September 30, 2014 | 9.0 |
Per share value | $ | 6.59 |
The following table reconciles the enterprise value to the estimated reorganization value as of the Effective Date (in millions):
Enterprise value | $ | 299.7 |
Plus non-debt liabilities | 763.9 |
Reorganization value of Successor assets | $ | 1,063.6 |
The fair value of non-debt liabilities represents the total assumed liabilities of the Successor Company on the Effective Date less the fair value of the debt. Upon the adoption of fresh start accounting, the Successor Company adopted the significant accounting policies of the Predecessor Company, as disclosed in the Predecessor Company’s audited financial statements for the year ended December 31, 2013, with the exception of its accounting policy for pension and postretirement benefit plans. Historically, the Company recognized the actuarial gains and losses as a component of stockholders’ equity on an annual basis and generally amortized them into operating results over the average future service period of the active employees of these plans. On a prospective basis, the Successor Company has modified its accounting policy to immediately recognize the actuarial gains and losses in the statement of operations in the period in which they arise, and the Successor Company expects to report such actuarial gains and losses on a separate line item. The immediate recognition in the statement of operations is intended to increase transparency into how movements in plan assets and benefit obligations impact financial results. Gains or losses different than annual expectations will be measured annually and recorded in the fourth quarter. The adjustments set forth in the following condensed consolidated balance sheet reflect the effect of the consummation of the transactions contemplated by the Plan (reflected in the column "Reorganization Adjustments") as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column "Fresh Start Adjustments").
(in millions) | Predecessor Company, September 30, 2014 |  | Reorganization Adjustments |  | Fresh Start Adjustments |  | Successor Company, September 30, 2014
ASSETS |  |  |  |  |  |  |
Current Assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 124.4 |  |  | $ | (19.0 | ) | (a) | $ | — |  |  | $ | 105.4 |
Accounts receivable | 90.0 |  |  | — |  |  | — |  |  | 90.0 |
Inventories | 464.0 |  |  | — |  |  | 35.4 |  | (k) | 499.4 |
Deferred costs associated with deferred revenue | 73.9 |  |  | — |  |  | (73.9 | ) | (l) | — |
Other current assets | 21.5 |  |  | 0.1 |  | (b) | — |  |  | 21.6 |
Total current assets | 773.8 |  |  | (18.9 | ) |  | (38.5 | ) |  | 716.4 |
Property, plant and equipment | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
Deferred taxes | — |  |  | — |  |  | 26.4 |  | (m) | 26.4 |
Deposits for surety bonds | 35.9 |  |  | — |  |  | — |  |  | 35.9 |
Intangible assets | — |  |  | — |  |  | 123.5 |  | (n) | 123.5 |
Excess reorganization value | — |  |  | — |  |  | 137.2 |  | (o) | 137.2 |
Other long-term assets | 19.8 |  |  | 0.7 |  | (c) | — |  |  | 20.5 |
Total Assets | $ | 833.2 |  |  | $ | (18.2 | ) |  | $ | 248.6 |  |  | $ | 1,063.6 |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |  |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities | $ | 67.3 |  |  | $ | 4.9 |  | (d) | $ | 7.3 |  | (p) | $ | 79.5 |
Payables under Russian Contract | 47.3 |  |  | — |  |  | — |  |  | 47.3 |
Deferred taxes | — |  |  | — |  |  | 26.4 |  | (m) | 26.4 |
Inventories owed to customers and suppliers | 173.1 |  |  | — |  |  | — |  |  | 173.1 |
Deferred revenue | 94.7 |  |  | — |  |  | (94.0 | ) | (l) | 0.7 |
Total current liabilities | 382.4 |  |  | 4.9 |  |  | (60.3 | ) |  | 327.0 |
Long-term debt | — |  |  | 240.4 |  | (e) | — |  |  | 240.4 |
Postretirement health and life benefit obligations | 202.4 |  |  | — |  |  | 9.2 |  | (p) | 211.6 |
Pension benefit liabilities | 95.9 |  |  | — |  |  | 78.2 |  | (p) | 174.1 |
Other long-term liabilities | 51.2 |  |  | — |  |  | — |  |  | 51.2 |
Total liabilities not subject to compromise | 731.9 |  |  | 245.3 |  |  | 27.1 |  |  | 1,004.3 |
Liabilities subject to compromise |  |  |  |  |  |  |
Convertible senior notes and accrued interest | 547.4 |  |  | (547.4 | ) | (f) | — |  |  | — |
Convertible preferred stock and PIK dividends payable | 113.9 |  |  | (113.9 | ) | (f) | — |  |  | — |
Accounts payable | 1.6 |  |  | (1.6 | ) | (f) | — |  |  | — |
Total liabilities subject to compromise | 662.9 |  |  | (662.9 | ) |  | — |  |  | — |
Total liabilities | 1,394.8 |  |  | (417.6 | ) |  | 27.1 |  |  | 1,004.3 |
Stockholders’ Equity (Deficit) |  |  |  |  |  |  |
Common stock (Predecessor) | 0.5 |  |  | — |  |  | (0.5 | ) | (q) | — |
Excess of capital over par value (Predecessor) | 1,221.5 |  |  | 0.4 |  | (g) | (1,221.9 | ) | (q) | — |
Treasury stock (Predecessor) | (38.8 | ) |  | — |  |  | 38.8 |  | (q) | — |
Accumulated other comprehensive loss, net of tax (Predecessor) | (119.5 | ) |  | (2.2 | ) | (h) | 121.7 |  | (q) | — |
Common stock (Successor) | — |  |  | 0.9 |  | (i) | — |  |  | 0.9 |
Excess of capital over par value (Successor) | — |  |  | 58.4 |  | (i) | — |  |  | 58.4 |
Retained earnings (deficit) | (1,625.3 | ) |  | 341.9 |  | (j) | 1,283.4 |  | (q) | — |
Total stockholders’ equity (deficit) | (561.6 | ) |  | 399.4 |  |  | 221.5 |  |  | 59.3 |
Total Liabilities and Stockholders’ Equity (Deficit) | $ | 833.2 |  |  | $ | (18.2 | ) |  | $ | 248.6 |  |  | $ | 1,063.6 |
Reorganization Adjustments
(a) | The cash payments recorded on the Effective Date from implementation of the Plan include the following (in millions):
Payment of claims for interest payable on the Old Notes at the non-default rate | $ | 15.9 |
Payment of professional fees | 1.5 |
Payment of unsecured pre-petition claims | 1.6 |
Net decrease in cash | $ | 19.0 |
(b) | Represents payment in advance of the fees and expenses for the trustee and collateral agent for the New Notes issued at the Effective Date.
(c) | Represents $0.7 million of debt issuance cost incurred on the New Notes. These costs will be amortized using the straight-line method, which approximates the effective interest method, over the life of the New Notes.
(d) | Primarily represents success fees accrued upon emergence from Chapter 11 bankruptcy that have been included in Reorganization Items, Net in the Condensed Consolidated Statements of Operations.
(e) | Adjustment reflects the issuance of the $240.4 million in New Notes to holders of the Old Notes and Old Preferred Stock.
(f) | The adjustment to liabilities subject to compromise relates to the extinguishment of the Old Notes, the Old Preferred Stock and unsecured general claims. The holders of Old Notes received New Notes, cash on interest accrued at the non-default rate to the Effective Date and New Common Stock. The holders of Old Preferred Stock received New Notes and Class B Common Stock. The holders of unsecured general claims received cash outlays on the Effective Date.
(g) | Represents the cancellation of the unamortized restricted stock and restricted stock units of the Predecessor Company.
(h) | Upon the Effective Date, the Company froze benefit accruals under the supplemental executive retirement plans (“SERP”). The $2.2 million adjustment reflects the curtailment related to the freeze of the benefits under these plans.
(i) | Pursuant to the Plan, the Company issued 9 million shares of New Common Stock. This adjustment records the Successor Company’s New Common Stock and additional paid in capital of $59.3 million, which represents the fair value of the New Common Stock for financial statement reporting purposes.
(j) | As a result of the Plan, the adjustment to the accumulated deficit equaled the gain on extinguishment of debt, offset by the issuance of the Successor Company’s New Notes, New Common Stock and cash payments as follows (in millions):
Extinguishment of Predecessor claims pursuant to the Plan: |
Convertible senior notes and accrued interest | $ | 547.4 |
Convertible preferred stock and PIK dividends payable | 113.9 |
Accounts payable | 1.6 |
Total liabilities subject to compromise | $ | 662.9 |
Total consideration given pursuant to the Plan: |
New Notes | $ | (240.4 | )
Issuance of 95% of New Common Stock to holders of Old Notes and Old Preferred Stock | (56.4 | )
Cash payments for interest payable on Old Notes at the non-default rate | (15.9 | )
Cash payments to holders of unsecured claims | (1.6 | )
Total settlements on liabilities subject to compromise | $ | (314.3 | )
Gain on extinguishment of pre-petition liabilities | $ | 348.6 |
Other adjustments to accumulated deficit: |
Benefit accrual freeze on SERP plans | $ | 2.2 |
Cancellation of restricted stock and restricted stock units | (0.4 | )
Deferred financing costs | 0.7 |
Professional fees accrued at the emergence | (6.3 | )
Total other reorganization expenses | $ | (3.8 | )
Issuance of 5% of New Common Stock to holders of Old Common Stock | (2.9 | )
Total adjustment to retained deficit (earnings) | $ | 341.9 |
Fresh Start Adjustments
(k) | Inventories were mainly valued using a net realizable value method which utilizes the expected selling prices to customers as a basis for valuing finished goods. An adjustment of $35.4 million was recorded to increase the book value of SWU inventories to fair value.
(l) | The adjustment reflects the elimination of deferred costs associated with deferred revenue and of the deferred revenue of $73.9 million and $94.0 million, respectively, resulting in a gain of $20.1 million recorded in Reorganization Items, Net, and the establishment of the remaining performance obligation of the Successor Company.
(m) | Reflects the tax effects of the fresh start adjustments at statutory tax rates applicable to such adjustments, net of adjustments to the valuation allowance.
(n) | The adjustment reflects the fair value of identifiable intangible assets of $123.5 million, determined as follows:
Backlog intangibles of $54.6 million were valued using the income approach, specifically the multi-period excess earnings approach based on the following significant assumptions:
• | Forecasted sales and profit margins associated with contracts in place for the period ranging from October 1, 2014 to December 31, 2022; and
• | Discount rate of 9.0%, based on the after-tax weighted-average cost of capital.
Customer relationships of $68.9 million were valued using the income approach, specifically the multi-period excess earnings approach based on the following significant assumptions:
• | Estimate of sales from existing customers representing 65% of projected non-contractual sales over the remaining economic life of the existing customers, which was comprised of a discrete forecast from October 1, 2014 to December 31, 2022 and an expectation of sales beyond 2022, in consideration of the identifiable customer base, sales experience, and forecast market demand;
• | Forecasted profit margins associated with the existing customer base for the period ranging from October 1, 2014 to December 31, 2022; and
• | Discount rate of 10.0%, based on the after-tax weighted-average cost of capital, adjusted for perceived business risk associated with this intangible asset.
(o) | The adjustment records the reorganization value of assets in excess of amounts allocated to identified tangible and intangible assets as follows (in millions).
Enterprise value | $ | 299.7 |
Add: Fair value of liabilities excluded from enterprise value | 763.9 |
Less: Fair value of tangible assets | (802.9 | )
Less: Fair value of identified intangible assets | (123.5 | )
Reorganization value of Successor assets in excess of amounts allocated to identified tangible and intangible assets | $ | 137.2 |
(p) | The adjustment reflects an aggregate increase of $94.7 million in pension and postretirement benefit obligations based on a remeasurement at the Effective Date. The remeasurement of plan obligations include revised mortality rate and discount rate assumptions. Further details are provided in Note 14.
(q) | The Predecessor Company’s accumulated deficit and accumulated other comprehensive income is eliminated in conjunction with the adoption of fresh start accounting. Also, pursuant to the Plan, the Old Common Stock and related additional paid in capital were eliminated to retained earnings as all of the Predecessor Company equity interests were cancelled. The Predecessor Company recognized a gain of $99.8 million related to the fresh start accounting adjustments as follows (in millions):
Establishment of Successor Company’s excess reorganization value | $ | 137.2 |
Establishment of Successor Company’s other intangible assets | 123.5 |
Inventory fair value adjustments | 35.4 |
Deferred costs and deferred revenue fair value adjustments | 20.1 |
Pension and postretirement remeasurement | (94.7 | )
Gain on revaluation of assets and liabilities | $ | 221.5 |
Cancellation of accumulated other comprehensive income | (121.7 | )
Total gain on fresh start accounting adjustments | $ | 99.8 |
Cancellation of Predecessor Company equity | 1,183.6 |
Total adjustment to retained deficit (earnings) | $ | 1,283.4 |

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