BETHESDA, Md. (Business Wire) -- USEC Inc. (NYSE:USU) today reported a net loss of $28.8 million or 24 cents per share for the quarter ended March 31, 2012, compared to a net loss of $16.6 million or 14 cents per share for the first quarter of 2011.
The financial results for the first quarter reflect a 74 percent increase in separative work unit (SWU) revenue and a 179 percent increase in overall gross profit as a result of a higher gross profit margin. The gross profit margin was 6.9 percent in the first quarter of 2012 compared to 3.7 percent in the same quarter last year. Offsetting this improvement was higher advanced technology expense related to the research, development and demonstration (RD&D) program for the American Centrifuge technology proposed by the Department of Energy (DOE). Since the fourth quarter of 2011, USEC has expensed all American Centrifuge project costs, including interest expense that was previously capitalized.
“Although we recorded a net loss in the first quarter, we are pleased to report higher revenue, a higher gross profit and gross profit margin, and positive cash flow from operations in the quarter compared to the first quarter of 2011,” said John K. Welch, USEC president and chief executive officer.
“We have continued working toward the goals of the RD&D program with USEC funding, but to achieve the program's goals, we need federal funds through 2013. We are pleased with the strong support and progress by House and Senate appropriators in the past week on fiscal 2013 funding. But, we are quickly running out of time to obtain the necessary fiscal 2012 funding. Our credit facility severely limits spending on the American Centrifuge project after May 31 unless we have federal RD&D funding in place. That means we need action this month, or we will be forced to demobilize the project,” Welch said.
“We continue to be in discussions regarding a multi-party arrangement to produce U.S.-origin low enriched uranium by enriching a portion of DOE's depleted uranium tails inventory at Paducah. If we are successful, we expect the agreement to support operating Paducah for another year through May 31, 2013, as we work with DOE on the longer term transition plan for the plant,” he said. “However, as with any transaction, a deal is not final until all approvals have been provided and final agreements signed.”
Revenue
Revenue for the first quarter of 2012 was $561.5 million, an increase of $181.0 million compared to the same quarter of 2011. Revenue from the sale of SWU for the quarter was $537.9 million compared to $308.5 million in the same period last year. The volume of SWU sales increased 73 percent in the quarter reflecting the variability in timing of utility customer orders, including orders that USEC and its customers have advanced from later in 2012 and from 2013. The average price billed to customers increased 1 percent. There was no revenue from the sale of uranium in the first quarter of 2012 compared to $14.0 million in the first quarter of 2011. Revenue from the contract services segment was $23.6 million in the first quarter of 2012 compared to $58.0 million in the same period of 2011. The decrease was due to a 98 percent reduction in contract services revenue at the Portsmouth site as work was transferred to a decontamination and decommissioning contractor for DOE over the course of 2011. Revenue by subsidiary NAC International increased $11.9 million or 157 percent in the three-month period primarily as a result of increased sales of dry cask storage systems.
In a number of sales transactions, USEC transfers title and collects cash from customers but does not recognize the revenue until the low enriched uranium is physically delivered. At March 31, 2012, deferred revenue totaled $146.8 million compared to $181.5 million at December 31, 2011. The gross profit associated with deferred revenue as of March 31, 2012, was $7.1 million.
A majority of reactors served by USEC are refueled on an 18-to-24-month cycle, which 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 and Gross Profit Margin
Cost of sales for the quarter ended March 31, 2012, for SWU and uranium was $501.2 million, an increase of $194.0 million or 63 percent, compared to the corresponding period in 2011 due to the associated increase in SWU sales volume. Cost of sales per SWU was 2 percent lower in the quarter compared to the first quarter of 2011 due to revisions to prior accrued amounts associated with estimated disposal costs for depleted uranium and property taxes related to enrichment operations. Excluding the effect of these items, cost of sales per SWU was approximately 1 percent higher than the first quarter of 2011. Cost of sales for SWU reflects monthly moving average inventory costs based on production and purchase costs.
Production costs increased $3.2 million, or 2 percent, as production volume increased 4 percent in the three months ended March 31, 2012, compared to the corresponding period in 2011. The unit production cost, however, declined 3 percent in the first quarter of 2012 compared to the corresponding period in 2011. USEC purchased supplemental power during the first quarter of 2012 from the Tennessee Valley Authority (TVA) that had been deferred from 2011 due to regional flood conditions. The average cost per megawatt hour declined 5 percent reflecting lower TVA fuel cost adjustments, partially offset by the fixed, annual increase in the TVA contract price. Although the unit cost of production declined, the SWU unit cost of sales was negatively affected by higher production and purchase costs embedded in our inventory costs from prior periods.
We purchase approximately 5.5 million SWU per year under the Megatons to Megawatts program, but under our agreed upon shipping schedule, there were no deliveries in the first quarter of either 2011 or 2012.
Cost of sales for contract services was $21.5 million in the first quarter, a decrease of $37.9 million or 64 percent over the same period last year, reflecting the transition of contract services work at the Portsmouth site, partially offset by increased sales by NAC.
The gross profit for the first quarter was $38.8 million, an increase of $24.9 million over the same period in 2011. The gross profit margin for the 2012 period was 6.9 percent compared to 3.7 percent in the first quarter of 2011. Gross profit for the LEU segment was $21.4 million higher due to higher SWU sales volume and lower costs. Gross profit for the contract services segment increased $3.5 million in the three months compared to the corresponding period in 2011, reflecting increased gross profit for NAC and a $3.2 million pension curtailment charge in the prior period related to the transition of Portsmouth site contract service workers to DOE's decontamination and decommissioning contractor.
Advanced Technology, Special Charges and Interest
Advanced technology expense, primarily related to the demonstration of the American Centrifuge technology, was $36.8 million in the quarter compared to $26.7 million in the first quarter of 2011. As previously noted, beginning in the fourth quarter 2011, all American Centrifuge project costs incurred have been expensed. Although overall project spending has been reduced, costs charged to expense were greater in 2012. Advanced technology expense includes expenses by NAC to develop and expand its MAGNASTOR™ storage and transportation technology of
.1 million during the first quarter 2012 compared to
.4 million in the same period of 2011.
Selling, general and administrative expenses in the first quarter were $14.9 million, a decrease of
.6 million over the same period in 2011, primarily due to slightly lower salary, employee benefit costs and other small expense reductions.
USEC's business is in a state of significant transition, and in early 2012 we initiated an internal review of our organizational structure. We engaged a management consulting firm to support this review, and costs for the management consulting firm and other advisors totaled $4.5 million in the first quarter of 2012.
Initial actions taken related to our organizational structure resulted in workforce reductions at our American Centrifuge design and engineering operations in Oak Ridge, Tenn., and at our headquarters operations located in Bethesda, Md. The reductions involved 25 employees, including two senior corporate officers. A charge of $1.9 million was incurred in the first quarter of 2012 for one-time termination benefits consisting of severance payments and short-term health care coverage. Related cash expenditures of
.7 million were incurred in the first quarter of 2012, and most of the remainder is expected to be incurred in the second quarter of 2012.
In April, we took additional action to reduce costs with a focus on headquarters operations in Bethesda and central services located in Piketon, Ohio. Approximately 20 positions were eliminated and related severance costs of $1.1 million are expected in the second quarter 2012.
Interest expense was $12.7 million in the three months ended March 31, 2012. As noted above, all American Centrifuge related project costs incurred have been expensed, including interest expense that previously would have been capitalized. For comparison, in the three months ended March 31, 2011, interest costs of $11.0 million were capitalized. Interest expense in the first quarter of 2012 included $1.4 million of previously deferred financing costs related to the former credit facility that were expensed in connection with the amended and restated credit facility obtained in March 2012.
Cash Flow
At March 31, 2012, USEC had a cash balance of $72.3 million compared to $37.6 million at December 31, 2011. Cash flow provided by operations in the first quarter of 2012 was $47.7 million, compared to cash flow provided by operations of $51.3 million in the previous year. Inventories declined $347.8 million in the three-month period due to monetization of inventory produced in the prior year. The increase in accounts receivable of $36.0 million reflects the lag in some inventory monetization. Payment of the Russian Contract payables balance of $206.9 million, due to the timing of deliveries, was a significant use of cash flow in the three months ended March 31, 2012. The decrease in accrued depleted uranium disposition in the first quarter associated with the $44.0 million uranium transfer agreement with DOE will not generate cash flow until surety bonds can be modified and cash collateral returned. Capital expenditures were significantly reduced due to our decision to expense all costs related to the American Centrifuge project. In the same period of 2011, capital expenditures totaled $50.7 million.
On March 13, 2012, USEC amended and restated its existing $310.0 million credit facility, scheduled to mature on May 31, 2012, to a $235.0 million credit facility that matures on May 31, 2013. The amended and restated credit facility includes a revolving credit facility of $150.0 million (including up to $75.0 million in letters of credit) and a term loan of $85.0 million. Under the amended and restated credit facility, commencing December 3, 2012, the aggregate revolving commitments and term loan principal will be reduced by $5.0 million per month through the expiration of the credit facility. As with the former facility, the credit facility is secured by the assets of USEC Inc. and its subsidiaries. Borrowings under the credit facility are subject to limitations based on established percentages of eligible accounts receivable and USEC-owned inventory pledged as collateral to the lenders.
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