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USEC Reports
$7.5 Million Net Income for 2010
� Net income declines compared
to 2009; net income of $9.0 million for 4th quarter
� Cash flow from operations of
$22.5 million exceeds guidance
�
American Centrifuge spending level in 2011 dependent
on clear path to DOE loan guarantee commitment and timely closing
BETHESDA, Md. - USEC
Inc. (NYSE:USU) today reported net income for 2010 of $7.5 million or 5 cents
per diluted share (7 cents per basic share) compared to
net income of $58.5 million or 37 cents per diluted share (53 cents per basic
share) for 2009.� For the fourth
quarter ended December 31, 2010, USEC earned $9 million or 5 cents per
diluted share (8 cents per basic share) compared to $49.5 million or 31 cents
per diluted share (44 cents per basic share) for the same quarter of 2009.
The financial results in the full year and fourth quarter of 2009 reflected
the receipt of approximately $70 million (pretax) related to a trade case
settlement with Eurodif S.A. and its affiliates.
Gross profit declined
due to lower volume of separative work units (SWU) sold, higher unit costs
for SWU and uranium, and lower average uranium selling price. These declines
were partially offset by higher average SWU selling prices and increased
revenue recognition of uranium sold in prior periods.� A 3 percent increase in the average price
of SWU billed to customers was more than offset by higher electricity costs
on a per SWU basis and higher purchase costs from Russia, squeezing gross
profit margins. In addition, USEC ended the year with a cash balance of
$151.0 million.
USEC is offering
limited guidance for financial results in 2011. We expect revenue to total
$1.7 billion as SWU sales volume is anticipated to decline 10 percent
compared to 2010 and we expect a significant decline in revenue in our
contract services segment as a result of the transition to a new
decontamination and decommissioning contractor at the Portsmouth site. Higher
cost of sales from prior periods imbedded in our SWU inventory will continue
to compress gross profit margins to an expected range of 4 to 5 percent.� Because our level of spending on the
American Centrifuge project continues to be uncertain, we are not offering
earnings or cash flow from operations guidance at this time, but we expect to
report a net loss for the year. More details on our guidance can be found on
page 4 of this news release.
"Efforts taken
during 2010 to increase sales and reduce costs resulted in a modest
profit," said John K. Welch, USEC president and chief executive officer.
"We improved the gross profit margin from our initial guidance, made
additional sales to our customers and adjusted delivery dates for some SWU
orders already under contract.
"In addition, we
had outstanding performance at the Paducah Gaseous Diffusion Plant. Employees
worked to improve electric power utilization, a key measure of production
efficiency, by 2 percent over 2009's outstanding performance. Paducah also
worked to keep the average number of production cells on line at its highest
level in 30 years," he said.
Revenue
Revenue
for the fourth quarter was $666.4 million, an increase of 43 percent compared
to the same quarter of 2009. Revenue from the sale of SWU for the quarter was
$519.6 million compared to $380.8 million in the same period of the prior
year. Revenue from the sale of uranium was $71.6 million, an increase of
$41.1 million from the same quarter last year. Revenue from our contract
services segment was $75.2 million compared to $56.3 million in the fourth
quarter last year.
For
the full year, revenue was $2.04 billion, nearly unchanged from 2009. SWU
volume declined 10 percent year over year due to the timing and mix of
customers refueling reactors in 2010. The average SWU prices billed to
customers increased 3 percent compared to 2009, reflecting the general trend
of higher prices under contracts signed in recent years. The volume of
uranium sold increased by 47 percent and the average price billed to
customers decreased 11 percent. Revenue from the contract services segment
was $277.9 million, a 33 percent increase year over year due primarily to an
acceleration of clean-up activities at the former Portsmouth Gaseous
Diffusion Plant.
In a
number of sales transactions, USEC transfers title and collects cash from
customers but does not recognize the revenue until low enriched uranium is
physically delivered.� At December 31,
2010, deferred revenue totaled $176.1 million, compared to $301.9 million at
December 31, 2009. The gross profit associated with deferred revenue as of
December 31, 2010, was $23.2 million.�
A
majority of reactors served by USEC are refueled on an 12-to-24-month cycle,
and this can lead to significant quarterly and annual swings in SWU sales
volume that reflects the mix of� refueling cycles.� Therefore, short-term comparisons of USEC's financial results are not
necessarily indicative of longer-term results.
Cost of Sales, Gross Profit
Margin and Expenses
Cost
of sales for 2010 for SWU and uranium was $1.62 billion, a decrease of $17.1
million compared to 2009. The 1 percent change is a result of the decline in
SWU sold, partially offset by higher uranium volume sold and higher unit
costs.. Production costs declined $13.4 million or 2
percent in 2010 compared to 2009. This was primarily a result of a 4 percent
reduction in overall production volume partially offset by a 2 percent
increase in unit production costs. We purchased 6 percent fewer megawatt
hours but the average cost per megawatt hour increased 4 percent due to
higher fuel cost adjustments charged by the Tennessee Valley Authority (TVA).
Purchase costs for the SWU component of LEU under the Russian Contract
increased $49.6 million in 2010 compared to 2009 due to an 8 percent increase in the
purchase cost per SWU. Purchase prices paid under the Russian Contract are
set by a pricing formula that includes market-based price points and have
increased as market prices have increased in recent years.
Cost
of sales for SWU and uranium reflects monthly moving average inventory costs
based on production and purchase costs. Cost of sales per SWU in 2010 was
negatively impacted by higher purchase costs under the Russian Contract,
higher production costs and the carry-forward effect of high costs in prior
periods..� In
the contract services segment, cost of sales was $253.8 million in 2010, an
increase of $62.0 million or 32 percent, in line with the additional work
performed in 2010.
The gross profit for 2010
was $158.4 million, a decrease of $46.3 million or 23 percent over the
previous year. The gross profit margin for the year was 7.8 percent compared
to 10.1 percent in 2009.� The lower
gross profit margin reflects lower margins in the LEU segment while the
profitability of the contract services segment improved $6.8 million,
primarily due to additional cold shutdown services performed at the
Portsmouth site and contract fee recognition on certain contracts.
The gross profit
margin in the fourth quarter of 2010 was 7.4 percent compared to 9.8 percent
in the same quarter of 2009, due primarily to higher costs rolling through
cost of sales from inventory in 2010 that offset higher prices invoiced to
customers. USEC's initial guidance for 2010 was for a gross profit margin in
the range of 5 to 6 percent, which was later adjusted to approximately 7
percent.
Selling, general and
administrative expenses in 2010 were $58.9 million, nearly unchanged compared
to 2009.� Salaries, other cash-based
compensation and employee benefits increased $4.2 million in 2010 and
stock-based compensation expense increased $0.4 million compared to 2009. Consulting expenses decreased
$4.0 million, as did other SG&A categories such as corporate facility
related costs.
Advanced technology
expenses, primarily related to the demonstration of the American Centrifuge
technology, were $29.9 million in the fourth quarter and $110.2 million for
the full year of 2010, an increase of $5.3 million quarter over quarter and a
decrease of $8.2 million compared to the full year of 2009.� The lower year over year expense reflects
the demobilization of the project in the second half of 2009. Advanced
technology costs include expenses of $2.4 million in 2010 by NAC to develop and
expand its MAGNASTORT technology and its transportation counterpart,
MAGNATRANT.
During
2010 we worked under a cooperative agreement entered into with DOE in March
2010 to provide for pro-rata cost sharing support for continued funding of American Centrifuge
activities with a total cost of $90 million. In
2010, USEC made qualifying American Centrifuge expenditures of $88.8 million,
and DOE's pro-rata share of 50 percent, or $44.4 million, is recognized as
other income. The program was completed in January 2011 when USEC made the
remaining expenditures.
Cash Flow
At December 31, 2010, USEC had a cash balance of $151.0 million compared to
$131.3 million at December 31, 2009. Cash flow from operations in 2010 was
$22.5 million, compared to cash flow from operations of $443.4 million in the
previous year. An increase in accounts receivable of $117.2 million in 2010
following strong sales in the fourth quarter of 2010 and decreased deferred
profits relating to uranium and LEU that were previously sold but not shipped
until 2010, was a timing-related use of cash flow.� Capital expenditures, primarily related to
construction of the American Centrifuge Plant, totaled $162.2 million during
2010 compared to $441.3 million in 2009.
Transition of Contract
Services Segment
In recent years a substantial portion of our contract services revenue
has been related to cold shutdown work at the Portsmouth site. During 2010,
we prepared leased facilities at the former Portsmouth GDP for accelerated
turnover to DOE for decontamination and decommissioning (D&D). DOE awarded
the D&D contract to a new contractor and USEC de-leased several large
facilities on September 30, 2010, including three production buildings with
approximately 75 acres under roof. We salvaged equipment and supplies that
may be used at our Paducah plant. We will continue work at the site through
March 2011 under a DOE contract but we anticipate transitioning the majority
of our employees at the site to the D&D contractor.
The
end of the cold shutdown contract could result in USEC incurring employee related
severance costs.. Our requirement to pay severance
is the result of obligations to our employees under our Collective Bargaining
Agreements and USEC's severance policy. Our severance liability could be up
to approximately $25 million, with DOE owing a portion of this amount,
estimated at $18.5 million. We are currently in discussions with DOE and the
D&D contractor concerning strategies to avoid or lessen the potential
severance liability for employees who may receive offers of employment from the
new D&D contractor. As of December 31, 2010, no amounts have been
recorded on our consolidated financial statements.
The
potential cessation of our U.S. government contract activities in Portsmouth
will also trigger closing adjustments to our pension and post-retirement
benefit. As a result, certain costs may be accelerated and we believe a
portion of such costs would be recoverable from DOE under our contract and
applicable cost accounting standards. Closing adjustments from our pension
plan could be up to approximately $32 million and for our post-retirement
benefit plan up to approximately $15 million, before cost recoveries from
DOE. We are currently in discussions with DOE and the D&D contractor
concerning strategies to avoid or lessen these potential closing adjustments
from our pension and post-retirement benefit plans.
2011 Outlook
We
expect total revenue for 2011 to be approximately $1.7 billion as revenue in
both business segments declines over 2010. Revenue from SWU sales is expected
to be approximately $1.4 billion or about $100 million less than 2010.� This assumes a 10 percent reduction in SWU
sales volume and an average price billed to customers that increases by
approximately 3 percent. Revenue from the sale of uranium is expected to be
approximately $150 million or about $85 million less than 2010. Uranium
revenue is expected to reflect 15 percent higher prices but a 45 percent
decline in uranium volume due to liquidation of inventory in 2010 and a
decline in deferred revenue for uranium delivered in prior periods.
After
a one-year accelerated cleanup contract at the former Portsmouth GDP, the
contract services segment is expected to see a significant decrease in
revenue to approximately $150 million largely due to the transition of the
clean-up project to the recipient of a decontamination and decommissioning
contract.� Most of the employees
performing the contract services work at the Portsmouth site are expected to
be hired by the D&D contractor, and the related costs for our work at the
site will decline proportionately.
On
the cost side of the LEU segment, electric power is expected to remain about
70 percent of the cost of SWU production, our largest production cost
component. We expect to buy less electricity in 2011 as our non-summer power
purchases under our contract with TVA were reduced by 350 megawatts to 1650
megawatts beginning September 1, 2010. We pay TVA a fixed base price plus an
adjustment to reflect the cost of fuel or purchased power above the cost
assumed in the base price. This fuel cost adjustment increased our costs
above the base price by 10 percent in 2010 compared to 6 percent in 2009 as
commodity prices for coal remained strong and availability of lower cost
hydropower within the TVA system was below average in 2010 due to weather
conditions. We produce approximately half of our SWU supply and purchase half
from Russia under the Megatons to Megawatts program. The purchase price in
2011 is 3 percent higher than in 2010. In 2010, the purchase price was 8
percent higher than in 2009.
Our
cost of sales continues to reflect higher production and purchase costs
rolling through our inventory from previous periods, and these costs are
increasing at a higher rate than our average price billed to customers. Thus,
the expected increase in the cost of sales is greater than the 3 percent
increase in average SWU prices billed to customers. We expect our gross
profit margin in 2011 to be 4 to 5 percent, compared to 7.8 percent in 2010.
Looking beyond 2011, we expect improvement in prices billed to customers in
future years to begin to reverse this trend and any future production from
the ACP will lower our cost of production. In the nearer term, however,
production costs will be subject to continued volatility in the fuel cost
adjustment. We continue to evaluate our TVA load profile and production
requirements through the end of our current power contract with a goal of
optimizing power purchases and decreasing our exposure to TVA fuel cost
volatility. In addition, we are negotiating with TVA and other suppliers
regarding the purchase price for power after the expiration of our current
power contract in May 2012.
Based
on our gross profit margin guidance, we expect gross profit in 2011 in a
range of $70 to $80 million. Below the gross profit line, we anticipate our
selling, general and administrative expense to be approximately $60 million.
The amount of spending related to the American Centrifuge will be a function
of our progress toward a conditional commitment and timely financial closing
on a DOE loan guarantee and related funding, and is also restricted by the
covenants in our revolving credit facility. We expect total spending, both
capitalized and expensed, to be approximately $50 million in the first
quarter of 2011.
We
expect to evaluate our spending plan on the American Centrifuge project
regularly in 2011 and we will not continue spending on the project without a
clear path to a DOE loan guarantee commitment. We are not offering annual
guidance for spending on the American Centrifuge project at this time because
the level of project spending continues to be uncertain. Project spending
will have a significant effect on net income and cash flow, and therefore
USEC is not providing guidance on net income or cash flow at this time.
However, taking into account our anticipated ACP spending of $50 million in
the first quarter and our anticipated gross profit margin, we do expect to
report a net loss for 2011. We also expect our current enrichment operations
will generate cash in 2011, but ACP spending and potential payments related
to the transition to the D&D contractor of our contract services work for
DOE will reduce our cash flow from operations.
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 substantial differences between our guidance and
ultimate results. Among the factors that could affect our results are:
- Changes
to the electric power fuel cost adjustment or changes to our power purchases
from our current projection;
- Recognition
of potential severance costs, pension and post-retirement benefit costs
and Portsmouth site costs related to the transition to the D&D
contractor of our contract services work for DOE;
- The
timing of recognition of previously deferred revenue, particularly
related to the sale of uranium;
- Movement
and timing of customer orders;
- Changes
to SWU and uranium price indicators, and changes in inflation that can
affect the price of SWU billed to customers; and
- Additional uranium sales made possible by
underfeeding the production process at the Paducah GDP.
USEC Inc., a global energy company, is a leading supplier of enriched
uranium fuel for commercial nuclear power plants.
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Forward-Looking Statements:
This
news release contains "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934 - that is,
statements related to future events. In this context, forward-looking
statements may address our expected future business and financial
performance, and often contain words such as "expects,"
"anticipates," "intends," "plans,"
"believes," "will" and other words of similar meaning.
Forward-looking statements by their nature address matters that are, to
different degrees, uncertain. For USEC, 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:
risks related to the deployment of the American Centrifuge technology,
including risks related to performance, cost, schedule and financing; our
success in obtaining a loan guarantee from DOE for the American Centrifuge
Plant, including our ability to address the technical and financial concerns
raised by DOE and the timing of any loan guarantee; our ability to reach
agreement with DOE on acceptable terms of a conditional commitment, including
credit subsidy cost, and our ability to meet any required conditions to
funding; our ability to obtain additional financing beyond the $2 billion of
DOE loan guarantee funding for which we have applied, including our success
in obtaining Japanese export credit agency financing of up to $1 billion; the
impact of the demobilization of the American Centrifuge project and uncertainty
regarding our ability to remobilize the project and the potential for
termination of the project; restrictions in our credit facility that may impact our operating and
financial flexibility and spending on the American Centrifuge project; risks
related to the completion of the remaining two phases of the three-phased
strategic investment by Toshiba Corporation and Babcock & Wilcox
Investment Company, including our ability to satisfy the significant closing
conditions in the securities purchase agreement governing the transactions
and the impact of a failure to consummate the transactions on our business
and prospects; uncertainty regarding the cost of
electric power used at our gaseous diffusion plant; the economics of extended
Paducah plant operations, including our ability to negotiate an acceptable
power arrangement and our ability to obtain a contract to enrich DOE's
depleted uranium; our dependence on
deliveries of LEU from Russia under the Russian Contract and on a single
production facility; our inability under many existing long-term contracts to
directly pass on to customers increases in our costs; the decrease or
elimination of duties charged on imports of foreign-produced low enriched
uranium; pricing trends and demand in the uranium and enrichment markets and
their impact on our profitability; changes to, or termination of, our
contracts with the U.S. government including uncertainty regarding the
impacts on our business of the transition of government services performed by
us at the former Portsmouth gaseous diffusion plant to the new
decontamination and decommissioning contractor; limitations on our ability to
compete for potential contracts with the U.S. government; changes in U.S.
government priorities and the availability of government funding, including
loan guarantees; the impact of government regulation by DOE and the U.S.
Nuclear Regulatory Commission; the outcome of legal proceedings and other
contingencies (including lawsuits and government investigations or audits);
the competitive environment for our products and services; changes in the
nuclear energy industry; and other risks and uncertainties discussed in our
filings with the Securities and Exchange Commission, including our annual
report on Form 10-K and quarterly reports on Form 10-Q, which are available
on our website at www.usec.com. Revenue and operating results can fluctuate significantly from quarter
to quarter, and in some cases, year to year. We do
not undertake to update our forward-looking statements except as required by
law.
Contacts:
Investors:������� Steven Wingfield (301) 564-3354
Media:����������� Paul Jacobson (301)
564-3399
The financial tables associated with this
news release are available for download at:
http://www.usec.com/NewsRoom/NewsReleases/USECInc/2011/USEC4Q2010Earnings.pdf
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