BETHESDA, Md.--(BUSINESS WIRE)--
USEC Inc. (NYSE: USU):
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ACP spending growth to be moderated until Loan Guarantee timing
becomes clear
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Project will continue to move forward, focused on critical path
activities
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Net income for 2008 is above expectations at approximately $49
million, 2009 gross profit margins will be under pressure
USEC Inc. (NYSE: USU) today provided an update regarding its efforts to
finance and build the American Centrifuge Plant (ACP) in Piketon, Ohio.
This state-of-the-art uranium enrichment facility has been under
construction for almost two years, and the Company has applied for a
loan guarantee from the U.S. Department of Energy (DOE) to complete
construction. However, due to a lack of visibility into timing for the
potential selection of the project and a funding commitment, USEC is
initiating immediate steps to conserve cash and reduce the planned
escalation of project construction and machine manufacturing activities.
The ACP represents the early commercial use of an advanced enrichment
technology that will significantly reduce emissions of air pollutants
and greenhouse gases. USEC has invested approximately $1.2 billion to
move this important project forward, including hundreds of millions of
dollars to help America rebuild portions of its nuclear industrial
manufacturing base. The project is expected to create over 6,000 new
jobs as manufacturers and construction firms add new employees in Ohio
and across the United States.
“Because our full application had been before DOE since August 2008, we
were hopeful that DOE would make a selection before the change in
administration,” said John K. Welch, USEC president and chief executive
officer. “The characteristics of our project are in close alignment with
the objectives and regulations of the Loan Guarantee Program, but the
Bush administration did not make any project selections. We are strongly
encouraged that the Obama administration intends to accelerate the
approval process for the Loan Guarantee Program.
“We are committed to the project and will continue moving forward with
its deployment because we believe this project can build shareholder
value. This is a first step, intended to conserve cash while seeking to
minimize the impact on the project and the hundreds of jobs we expected
to create in 2009,” Welch said. “However, if the project is not selected
by the Loan Guarantee Program for funding in the near future or if we
determine funding will not be available to us in the timeframe we need,
we will have to take additional steps to reduce our spending profile on
ACP.”
ACP project management will continue to focus on value engineering the
AC100 centrifuge machine to lower its capital cost, building and
operating a cascade of AC100 machines as part of the Lead Cascade test
program, and advancing the engineering design of the commercial plant
infrastructure. USEC will initially slow the growth of project spending
in 2009 by sharply reducing the ramp up in hiring construction and craft
workers, and deferring select procurements. The Company will also plan
and coordinate with its strategic suppliers regarding various scenarios
based on availability of DOE funding, which could include additional
reductions in spending. The Company would be prepared to quickly resume
its ramp up in hiring and spending as funding becomes available.
USEC applied to the DOE Loan Guarantee Program during the summer of 2008
for $2 billion in funds that had been set aside for advanced “front-end”
nuclear fuel projects. The Loan Guarantee Program was established under
the Energy Policy Act of 2005, and the $2 billion funding appropriated
by Congress is available until September 30, 2009. Areva, a company
majority owned by the French government, has also applied for this
funding for a proposed plant with announced initial production in 2014.
The centrifuges for the proposed Areva plant would be supplied from
Europe.
USEC has said that it would need to slow spending on the project if DOE
funding or third-party financing were not available in the timeframe
required. Under our deployment schedule for ACP, spending was expected
to peak in 2009, including a substantial ramp up in coming months with
the hiring of plant construction workers and preparing new facilities
that would provide key components for the AC100 centrifuge machines. By
conserving cash resources now, USEC believes it can continue moving the
project forward while working to obtain a loan guarantee from DOE. The
Company’s effort to conserve cash until a funding decision is made by
the DOE Loan Guarantee Program will affect ACP’s overall deployment cost
and schedule. As greater clarity is gained on potential funding through
that program and USEC creates a more detailed plan with respect to the
slowdown of spending, the Company will be better able to quantify
changes to cost and schedule.
“Under our financing plan for the ACP, our investors provided
approximately $800 million of new capital in 2007, which was to be
followed in 2008 by debt financing for the remainder of the project’s
capital requirements,” Welch said. “We look forward to working closely
with the Loan Guarantee Program staff to provide whatever information
they need to select this important energy and national security project.
In the meantime, we believe it’s prudent to conserve our resources.”
In addition to the steps to moderate the planned increase in ACP
spending in 2009, USEC management will recommend to its board of
directors aggressive action to control corporate overhead. These actions
include reducing cash bonuses for 2008, freezing compensation for senior
officers, limiting merit increases for employees and halting additional
hiring at the corporate level for all but strategic positions. While
individual employees throughout the organization will be affected by
these actions, our core enrichment operations, government contract
services and subsidiary NAC will not be affected.
“As we look at the extraordinary challenges in today’s economy and the
uncertainty surrounding the financing of the ACP, we must be vigilant
about expense levels. While we do not expect corporate employee
headcount to grow in 2009, we are mindful of maintaining sufficient
resources to ensure our core business meets customer service
requirements,” Welch said.
USEC is deploying the American Centrifuge technology to provide the
dependable, long-term, U.S.-owned nuclear fuel production capability
needed to support the country’s nuclear power plants. The American
Centrifuge technology is based on U.S. gas centrifuge technology
originally developed by DOE but with significant design, material and
manufacturing improvements incorporated by USEC.
The company received a license from the U.S. Nuclear Regulatory
Commission to construct and operate the ACP in April 2007 and commenced
construction shortly thereafter. The plant is expected to produce 3.8
million separative work units (SWU) a year of low enriched uranium fuel
for commercial nuclear power plants. As America’s only commercial
uranium enrichment facility using U.S.-owned centrifuge technology, the
ACP will play an important role in America’s energy security and
national security.
USEC Pre-announces 2008 Earnings, Provides 2009 Outlook
The Company also pre-announced 2008 earnings, which exceed previous
guidance. USEC expects net income to be approximately $25 million for
the fourth quarter 2008 and approximately $49 million for the full year.
Revenue from all segments totaled $1.6 billion, which was in line with
guidance. Cash flows used in operations for 2008 are expected to be
approximately $106 million, which is at the low end of guidance. USEC
expects to issue an earnings news release in late February, coinciding
with the filing of its Annual Report on Form 10-K.
The earnings news release will provide an outlook for 2009 financial
results. Consistent with prior guidance, USEC continues to expect
revenue to improve substantially in 2009 due to increased deliveries of
low enriched uranium at a higher average price billed to customers. Cash
flows from operations are expected to be significantly positive as USEC
draws down inventories increased in 2008 to meet higher sales in 2009.
However, the cost of electricity from our power supplier is expected to
be well above the base rates established in our five-year contract due
to anticipated fuel cost adjustments. USEC also expects the price it
pays Russia for low enriched uranium under the Megatons to Megawatts
program to increase at a rate similar to the 11 percent seen in 2008.
Together, these costs are expected to reduce gross profit margins in
2009.
Forward-Looking Statements
This news release contains “forward-looking statements” – 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: the success of the demonstration and
deployment of our American Centrifuge technology including our ability
to meet our performance targets and schedule for the American Centrifuge
Plant; the cost of the American Centrifuge Plant and our ability to
timely secure a loan guarantee or other financing; the cost of electric
power used at our gaseous diffusion plant; our dependence on deliveries
under the Russian Contract and on a single production facility; our
inability under most existing long-term contracts to pass on to
customers increases in SWU prices under the Russian Contract resulting
from significant increases in market prices; changes in existing
restrictions on imports of Russian enriched uranium; the elimination of
duties charged on imports of foreign-produced low enriched uranium;
pricing trends in the uranium and enrichment markets and their impact on
our profitability; changes to, or termination of, our contracts with the
U.S. government and changes in U.S. government priorities and the
availability of government funding, including loan guarantees; the
impact of government regulation; 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; the potential impact of volatile
financial market conditions on our pension assets and credit and
insurance facilities; and other risks and uncertainties discussed in our
filings with the Securities and Exchange Commission, including our
Annual Report on Form 10-K/A and subsequent quarterly Form 10-Qs.
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.
USEC Inc., a global energy company, is a leading supplier of enriched
uranium fuel for commercial nuclear power plants.
Source: USEC Inc.
USEC Inc.
Investors: Steven Wingfield (301) 564-3354
Media:
Elizabeth Stuckle (301) 564-3399
