-- Third Quarter Net Income Totals $4.3 Million; Earnings from Operations Breakeven --
--New Russian Agreement to Provide Strong Future Benefits --
-- FY 2002 Earnings from Operations of $9 to $12 Million; Cash Flow of
$150 Million --
USEC Inc. (NYSE:USU) today reported net income for its third quarter ended March
31, 2002, of $4.3 million or $.05 per share after a special credit of $4.2
million or $.05 per share (after tax) from a change in cost estimate for
consolidating operations. For the quarter, net income before the special credit
was $.1 million. In the quarter ended March 31, 2001, the Company reported net
income of $45.4 million or $.56 per share, and net income before a special tax
credit of $8.1 million or $.10 per share.
For the nine months ended March 31, 2002, net income was $9.1 million or $.11 per share, and net income before the special credit was $4.9 million or $.06 per share. In the nine-month period in fiscal 2001, net income was $70.9 million or $.88 per share. Net income before the special credit in that period totaled $33.6 million or $.42 per share.
The special credit in the third quarter of fiscal 2002 was based on USEC's review of its cost estimate for consolidating operations and its decision to consolidate the shipping and transfer function at the Paducah plant, the cold standby status of the Portsmouth plant, and a payment from the Department of Energy (DOE) of its pro rata share of severance benefits.
Revenue and Cost of Sales
Despite higher revenue, margins continued to tighten in the quarter and the nine-month period due to lower than planned Russian SWU purchases and high average inventory costs. Russian SWU purchases are lower because new terms agreed to by USEC and its Russian partner have yet to be approved by the U.S. and Russian governments and implemented. Average inventory costs remain high as historic higher unit costs work their way through USEC's inventory. The favorable impact of cost reduction actions and Russian SWU purchases under the new, market-based agreement over time will lower USEC's inventory cost and improve cost of sales.
Revenue for the third quarter totaled $249.4 million, compared to $243.1 million in the third quarter of fiscal 2001, a 3 percent increase. Revenue for the nine-month period ended March 31, 2002, was $1,110.0 million, compared to $857.0 million in the same period last year. The 30 percent increase in the nine-month period is mainly a result of timing and movement of customer orders, partly offset by a 2 percent decline in the average price billed to customers. Sales of natural uranium totaled $93.9 million compared to $60.4 million in the same nine-month period of fiscal 2001. This increase is due to higher volumes and prices. These higher uranium sales have a much greater impact on USEC's cash flow than on its earnings due to the relatively high book cost of USEC's uranium inventory, for which there is no cash investment. USEC expects full-year revenue from enrichment and uranium sales to total approximately $1.4 billion.
Cost of sales for the quarter and nine-month period were $229.0 million and $1,035.7 million, compared to $211.5 million and $743.7 million in the previous fiscal year, respectively. Cost of sales for SWU is determined by a combination of the beginning inventory level and its cost, production costs and purchase costs from Russia. The increase in cost of sales in the nine-month period reflects a 30 percent increase in volume of SWU sold, lower Russian SWU purchases and higher unit production costs. Unit production costs continued to be higher, as previously reported, due to lower production levels as the Company transitioned to a single plant operation in June 2001, combined with the carry-over effect (reflected in beginning inventory costs) of less than optimal two-plant operations in fiscal 2001.
Status of Russian HEU Contract
In November 2001, the U.S. government authorized USEC to conclude contract negotiations with the Russian executive agent under the Russian HEU Agreement. The two sides held numerous negotiations regarding pricing mechanisms and delivery schedules for calendar 2002 and beyond, and reached agreement in February.
The contract amendment includes a market-based pricing mechanism for the remaining term of the contract through 2013. Beginning in calendar year 2003, the price will be determined using a discount to a market-based price calculated as a basket of U.S. and international SWU market indices. The positive impact on earnings of this pricing arrangement will begin to be seen in the latter half of fiscal year 2003 and continue through 2013. However, in consideration for this stable and economic structure for the future, USEC agreed to extend the existing higher, fixed-price methodology for one more year. Therefore, the calendar year 2001 purchase price of $90.42 will be applicable for calendar year 2002 (i.e., the last two quarters of fiscal year 2002, and the first two quarters of fiscal year 2003). This one-year concession should clearly benefit the Company in the mid- to long-term.
The contract amendment is subject to approval by the U.S. and Russian governments and that review process continues. USEC has ordered the first two shipments for calendar year 2002 and began taking deliveries from Russia this week. When the governments give their approval, USEC will order additional shipments and provide further details of the contract amendment.
Fiscal 2002 Earnings and Cash Flow Update
Based on financial performance to date and the outlook for the remainder of the fiscal year, USEC anticipates earnings before a special credit in a range of $9 million to $12 million. USEC's financial results are lower than initially forecast because of the one-time confluence of the new pricing provisions under the Russian contract not being implemented before January 2002, a lower than normal quantity of Russian SWU delivered so far this calendar year because of the delay through 2001 in the authorization of Russian negotiations, and the absence in this calendar year of any purchases of Russian commercial SWU as had originally been planned. Additionally, consultants involved in the now completed negotiations on the Russian contract and related negotiations with the U.S. government, which are close to being completed, and the recently concluded trade case, increased selling, general and administrative expenses.
USEC also considered a change to its inventory costing methodology to better match its sales and production profiles. In its continuing effort to reduce inventory, however, the Company plans to operate at production levels higher this summer than last. This will result in better alignment of sales and production. As a result, the impetus for making the accounting change has decreased, and the change has not been implemented. As the Company has previously disclosed, the positive impact of this non-cash change was included in USEC's initial forecast of fiscal 2002 earnings.
USEC expects cash flow from operations, after capital expenditures, for fiscal 2002 to be approximately $150 million, a significant improvement over the original guidance of negative cash flow. The improvement is due to a substantial reduction in inventories from lower Russian deliveries while maintaining constant production levels. As a result, USEC anticipates that its inventories at the end of fiscal 2002 will be approximately $200 million or about 13 percent lower than at the end of fiscal 2001.
Assuming that the two governments approve the Russian contract pricing amendment and that purchases in calendar year 2002 from Russia will be at $90.42 per SWU, the Company expects earnings in fiscal 2003 to be roughly the same as fiscal 2002. USEC intends to provide additional guidance for fiscal 2003 later this fiscal year following approval by the two governments of the Russian contract and the conclusion of USEC's budgeting process.
Commenting on the quarter and the Company's outlook, William H. Timbers, USEC president and chief executive officer, said, "As a result of the recent completion of the new long-term competitive HEU Agreement with our Russian partner, USEC has put in place the most critical building block for a stronger financial future and the transition over the next decade to a new more efficient technology. While the fallout from the delay through 2001 in engaging the Russians leaves us with lower earnings than we would like to see through the second half of fiscal 2003, the mid- to long-term prospects are now solid and our cash position will be strong in the interim. Management's vision for enhancing long-term shareholder value, even in view of the difficult market and political circumstances of the last several years, will be firmly implemented when the government acts in the near future to approve the long-term Russian Agreement."
SWU and Uranium Price Update
SWU prices are reported to have been above $100 for the past year and at the end of March, the spot SWU price was quoted at $107 and the long-term price at $105. Natural uranium in the form of UF6 is currently quoted at just over $31 per kilogram, or about 20 percent higher than a year ago.
Much of the price improvement for SWU is related to USEC's decision to end enrichment operations at its Portsmouth, Ohio plant and to pursue a trade case against unfair pricing by its European competitors. The Portsmouth plant has been in cold standby mode since May 2001, which reduced global excess capacity for enriching uranium. The U.S. Department of Commerce and International Trade Commission found that USEC's competitors had dumped enriched uranium in the United States and had improper subsidies from their home governments. As a result, tariffs have been levied on imports from Europe.
Shareholder Lawsuit Dismissed
A U.S. District Court dismissed a federal securities lawsuit on March 25 that was related to the Company's IPO in July 1998. The Court found that USEC's prospectus contained detailed and meaningful cautionary language tailored to the specific risks the Company faced. The Court also found that the lawsuit was filed after the statute of limitations had expired.
This news release contains forward-looking information that involves risk and uncertainty, including certain assumptions regarding the future performance of the Company. Actual results and trends may differ materially depending upon a variety of factors, including, without limitation, market demand for USEC's products, pricing trends in the uranium and enrichment markets, completion of a market-based pricing agreement and deliveries under the Russian contract, the availability and cost of electric power, implementing necessary agreements with the DOE regarding use of advanced technology and facilities, satisfactory performance of the technology at various stages of demonstration, USEC's ability to successfully execute its internal performance plans and maintain access to short-term funding, the refueling cycles of USEC's customers, resolving inventory issues with DOE, and the impact of any government regulation. Revenue and operating results can fluctuate significantly from quarter to quarter, and in some cases, year to year.
USEC Inc., a global energy company, is the world's leading supplier of enriched uranium fuel for commercial nuclear power plants.
USEC Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(millions, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------- -----------------
2002 2001 2002 2001
---- ---- ---- ----
Revenue:
Separative work
units $ 240.3 $ 221.9 $1,016.1 $ 796.6
Uranium 9.1 21.2 93.9 60.4
-------- -------- -------- --------
Total revenue 249.4 243.1 1,110.0 857.0
Cost of sales 229.0 211.5 1,035.7 743.7
-------- -------- -------- --------
Gross profit 20.4 31.6 74.3 113.3
Special charge
(credit) for
consolidating
operations (6.7)(a) - (6.7)(a) -
Advanced technology
development costs 2.4 2.9 8.1 8.0
Selling, general
and administrative 11.7 11.2 35.9 35.3
-------- -------- -------- --------
Operating income 13.0 17.5 37.0 70.0
Interest expense 8.9 8.6 27.3 26.0
Other (income)
expense, net (1.3) (2.2) (3.3) (6.9)
-------- -------- -------- --------
Income before
income taxes 5.4 11.1 13.0 50.9
Provision (credit)
for income taxes 1.1 (34.3) 3.9 (20.0)
-------- -------- -------- --------
Net income $ 4.3 $ 45.4 $ 9.1 $ 70.9
======== ======== ======== ========
Net income per
share - basic and
diluted $ .05 $ .56 $ .11 $ .88
Dividends per share $ .1375 $ .1375 $ .4125 $ .4125
Average number of
shares outstanding 80.9 80.4 80.8 80.8
--------------
(a) In the three and nine months ended March 31, 2002, USEC
recorded a special credit of $6.7 million ($4.2 million or $.05 per
share after tax) representing a change in estimate of costs for
consolidating operations.
The special credit includes a cost reduction of $19.3 million for
workforce reductions, primarily reflecting receipt of $12.5 million
from DOE representing recovery of DOE's pro rata share of severance
benefits, and a cost reduction of $3.8 million for other exit costs.
The cost reductions were partly offset by charges of $16.4 million for
asset impairments relating to transfer and shipping facilities at the
Portsmouth plant. In February 2002, USEC announced plans to
consolidate the transfer and shipping operations this summer that will
result in workforce reductions at Portsmouth. Plans for workforce
reductions at Portsmouth announced in June 2000 have changed as a
result of DOE's program to maintain the plant in cold standby.
USEC Inc.
CONSOLIDATED BALANCE SHEETS
(millions)
(Unaudited)
March 31, June 30,
2002 2001
---------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 219.3 $ 122.5
Accounts receivable - trade 159.3 175.8
Inventories 835.5 1,137.5
Other 20.1 15.6
---------- ---------
Total Current Assets 1,234.2 1,451.4
Property, Plant and Equipment, net 185.3 189.8
Other Assets
Deferred income taxes 48.2 42.1
Prepayments and deposits for depleted
uranium 42.2 27.1
Prepaid pension costs 81.1 76.9
Inventories 423.4 420.2
---------- ---------
Total Other Assets 594.9 566.3
---------- ---------
Total Assets $ 2,014.4 $ 2,207.5
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
liabilities $ 164.7 $ 160.9
Payables under Russian contract - 100.3
Deferred revenue and advances from
customers 52.7 91.0
Liabilities accrued for
consolidating operations 25.8 53.3
Uranium owed to customers 19.6 21.6
---------- ---------
Total Current Liabilities 262.8 427.1
Long-Term Debt 500.0 500.0
Other Liabilities
Deferred revenue and advances from
customers 31.3 57.5
Depleted uranium disposition 71.9 66.2
Postretirement health and life
benefit obligations 134.5 124.7
Other liabilities 61.8 59.2
---------- ---------
Total Other Liabilities 299.5 307.6
Stockholders' Equity 952.1 972.8
---------- ---------
Total Liabilities and Stockholders'
Equity $ 2,014.4 $ 2,207.5
========== =========
USEC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(millions)
Nine Months Ended
March 31,
--------------------
2002 2001
-------- --------
Cash Flows from Operating Activities
Net income $ 9.1 $ 70.9
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 17.8 16.5
Depleted uranium disposition 12.0 22.1
Deferred revenue and advances from
customers (64.5) 35.2
Deferred income taxes (6.1) (30.6)
Liabilities accrued for consolidating
operations (27.5) (8.6)
Changes in operating assets and
liabilities:
Accounts receivable - decrease 16.5 245.3
Inventories - (increase) decrease 296.8 (229.4)
Payables under Russian contract -
(decrease) (100.3) (6.9)
Accounts payable and other - net 24.2 14.1
-------- --------
Net Cash Provided by Operating
Activities 178.0 128.6
-------- --------
Cash Flows Used in Investing Activities
Capital expenditures (28.6) (40.8)
Insurance deposit (21.4) -
-------- --------
Net Cash (Used In) Investing Activities (50.0) (40.8)
-------- --------
Cash Flows from Financing Activities
Repurchase of common stock - (13.0)
Dividends paid to stockholders (33.4) (33.2)
Repayment of short-term debt - (50.0)
Common stock issued 2.2 -
-------- --------
Net Cash (Used in) Financing Activities (31.2) (96.2)
-------- --------
Net Increase (Decrease) 96.8 (8.4)
Cash and Cash Equivalents at Beginning
of Period 122.5 73.0
-------- --------
Cash and Cash Equivalents at End of
Period $ 219.3 $ 64.6
======== ========
Supplemental Cash Flow Information:
Interest paid $ 33.1 $ 34.4
Income taxes paid 18.2 3.1
CONTACT:
USEC Inc.
Steven Wingfield, 301/564-3354
Charles Yulish, 301/564-3391