BETHESDA, Md. – USEC Inc. (NYSE:USU) reported a net loss of $158.9 million or $32.43 per share for the year ended December 31, 2013. This compares to a net loss of $1.2 billion or $245.02 per share for the year ended December 31, 2012, which reflected the impact of $1.1 billion expense of previously capitalized costs associated with the American Centrifuge project in 2012. For the fourth quarter of 2013, USEC reported a net loss of $71.7 million compared to a net loss of $1,084.3 million in the fourth quarter of 2012.
Revenue for 2013 declined by $554.6 million to $1.31 billion or 30 percent compared to 2012 as deliveries of separative work units (SWU) declined following the cessation of enrichment at the Paducah Gaseous Diffusion Plant (GDP) in May 2013. Although production costs in the first half of 2013 declined 5 percent compared to the corresponding period of 2012, non-production expenses related to the cessation of enrichment and transition of leased facilities back to the Department of Energy (DOE) totaled $194.2 million for the full year in 2013. Purchase costs for SWU from Russia increased $43 million, primarily due to a 6 percent per SWU year over year increase under the contract with Russia (Russian Contract) under the 20-year Megatons to Megawatts program that ended in 2013. Together, these factors resulted in a gross loss for the year of $94.9 million. The consolidated financial statements include the accounts of USEC Inc., its principal subsidiary United States Enrichment Corporation, and its other subsidiaries.
“With the cessation of enrichment at the Paducah GDP, we have entered a transition period where the non-production costs of preparing this vast facility for turnover to the Department of Energy are affecting our gross profit,” said John K. Welch, USEC president and CEO. “These costs and related employee severance costs will continue to reduce our profitability in 2014 until the facilities are returned to DOE.
“Despite the net loss for 2013, the results were an improvement over 2012. We had positive cash flow from operations and ended the year with a cash balance of $314.2 million,” Welch said.
“We filed a pre-arranged Chapter 11 bankruptcy petition in March, and we are working with various stakeholders to emerge from the court process this summer. We undertook this restructuring to strengthen USEC’s balance sheet, enhance our ability to sponsor the American Centrifuge technology and improve our long-term business opportunities. During this process we expect our operations to continue unaffected by the bankruptcy. ”
Special Charges for Workforce Reductions and Advisory Costs
The cessation of enrichment at the Paducah GDP has resulted in charges of $24.0 million in 2013 for termination benefits consisting primarily of severance payments. USEC initiated an initial workforce reduction of 140 employees that was substantially completed in August 2013. On September 30, 2013, USEC’s senior management authorized an additional workforce reduction of approximately 90 Paducah employees. This workforce reduction occurred between October 2013 and January 2014. Between June and December 2013, the Paducah GDP workforce has been reduced by 202 employees through layoffs. Severance payments of $3.2 million were charged to expense in 2013 for these workforce reductions, which is net of $1.2 million of severance paid by USEC and invoiced to DOE. Layoffs of the remaining Paducah workforce are expected to occur in stages through 2014, but no later than the lease termination date of August 1, 2015. We believe it is now probable that severance costs for the remaining Paducah GDP workforce will be incurred. We estimate that cost to be $20.8 million in the event of a full termination of activities at the site without a transfer of employees to another employer, with DOE owing a portion of this amount estimated to be up to $5 million. DOE’s liability for its share of severance paid is pursuant to the USEC Privatization Act.
In early 2012, we initiated an internal review of our organizational structure and engaged a management consulting firm to support this review. Since late 2012, we also have been engaged with advisors on the restructuring of our balance sheet. During the fourth quarter of 2013, we engaged additional advisory support to assist with the restructuring of our balance sheet in 2014. Costs for these advisors totaled $11.0 million in 2013 compared to $8.4 million in 2012.
At December 31, 2013, USEC had a cash balance of $314.2 million compared to $292.9 million at December 31, 2012. Cash flow from operations in 2013 was $81.2 million compared to cash flow from operations of $142.9 million in the previous year. Positive cash flow resulted from a $160.1 million reduction in inventories due to monetization of inventory produced in prior years. There were no capital expenditures in 2013 compared to $4.3 million during 2012. Beginning with the fourth quarter of 2011, all American Centrifuge project costs incurred have been expensed. Cash proceeds on the sale of our former subsidiary NAC of $43.2 million were received in 2013.
USEC will be going through a period of transition during 2014 as we take steps to strengthen our financial structure by addressing balance sheet issues through a Chapter 11 filing with the U.S. Bankruptcy Court so that we can emerge as a stronger sponsor of the American Centrifuge project, complete the American Centrifuge RD&D Program, work with DOE on its options for maintaining a domestic enrichment capability and the scope of and our role in any such program and during any transition, re-evaluate our plan and alternatives for proceeding with the financing and commercialization of the American Centrifuge project, prepare for the transition of the Paducah site, and appropriately reduce the size of our corporate organization. Given the uncertainties of these transitions and the uncertain and incremental nature of federal funding for the RD&D Program or any successor program, our guidance for USEC financial results and metrics for 2014 will be limited.
Our ability to continue as a going concern is contingent upon the Bankruptcy Court’s approval of our reorganization plan and our ability to successfully implement the reorganization plan, among other factors. As a result of the Bankruptcy Filing, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, USEC Inc. may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the Debtor-In-Possession Credit Facility provided by United States Enrichment Corporation, USEC Inc.’s subsidiary) for amounts other than those reflected in the accompanying consolidated financial statements. Further, our reorganization could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements.
Our backlog includes approximately $200 million of deferred revenue, whereby customers have made advance payments to be applied against future deliveries, and approximately two-thirds of that is expected to be delivered and recognized as revenue in 2014. In total, approximately $400 million of the backlog as of December 31, 2013, is expected to be delivered and recognized as revenue in 2014. Due to the current supply/demand imbalance in the nuclear fuel market, and the transition in sources of enrichment from production at the Paducah GDP, we did not add significant new sales to offset reductions in backlog resulting from deliveries in 2013. Our opportunities to make new sales are also moderated by the uncertainty about the future prospects for commercial production at the American Centrifuge Plant (“ACP”). During the anticipated period of transition to the ACP, we expect a lower level of revenues and sales, aligned with our anticipated sources of LEU from existing inventory and purchases of Russian LEU.
After meeting its significant payables in the first quarter, the Company anticipates a cash balance of at least $60 million at March 31, 2014.