By Frank Lewis
USEC, Inc. is reporting a net loss of $28 million for the quarter ended June 30, 2014, compared to a net loss of $40.9 million for the second quarter of 2013. For the six months ended June 30, 2014, USEC reported a loss of $78.8 million compared to $42.9 million in the same period of 2013.
The financial results for the second quarter of 2014 reflect a 63 percent reduction in revenue from the low enriched uranium (LEU) segment compared to the same period in 2013 following the cessation of enrichment at the Paducah Gaseous Diffusion Plant (GDP) in the second quarter of 2013. The net loss was primarily driven by lower sales volume and non-production expenses related to transition activities at the Paducah GDP as USEC prepares the facility for an anticipated return to the Department of Energy (DOE) in October. Other factors affecting financial results for the quarter were expenses for our reorganization efforts, workforce reductions, advisory costs and advanced technology costs related to demonstration of the American Centrifuge technology.
“During the second quarter, we continued to execute our Paducah transition plan to return the facility to DOE in October, we delivered LEU to our customers on time and in specification, and we earned a gross profit,” John K. Welch, USEC president and chief executive officer, said. “Over the past year, the non-production costs related to preparing the Paducah GDP for return have weighed on our profitability, but we are nearing the conclusion of this process. We have also been focused on successfully concluding the Chapter 11 process in the near term. The voting period for those investors holding USEC convertible notes and preferred equity ended on August 11, which is another important milestone in the process. Voting results are being certified and will be filed with the Bankruptcy Court in advance of a confirmation hearing that is scheduled for September 5. We anticipate emerging from bankruptcy protection shortly thereafter.” Welch said.
Advanced technology costs were $18 million in the three months ended June 30, 2014, a decrease of $28.2 million compared to the corresponding period in 2013. During the six month period ended June 30, 2014, advanced technology costs were $51.3 million, a decrease of $54.2 million. The lower costs in both 2014 periods reflect a decrease in development activity under the Cooperative Agreement with DOE. Costs in the corresponding period in 2013 included construction of the American Centrifuge commercial demonstration cascade that was completed in April 2013.
Funding for American Centrifuge activities was previously provided under the Cooperative Agreement, which provided for 80 percent DOE and 20 percent USEC cost sharing for work performed during the period June 1, 2012 through April 30, 2014, when the agreement expired in accordance with its terms. DOE’s share of qualifying American Centrifuge expenditures is recognized as other income. USEC reported $34.6 million in other income, which was primarily payment for DOE’s share of qualifying expenditures, during the six months ended June 30, 2014, a decrease of $53.7 million compared to the same period in 2013.
On May 1, 2014, USEC signed the ACTDO Agreement with UT-Battelle, the management and operating contractor for Oak Ridge National Laboratories (ORNL), for continued cascade operations and continuation of core American Centrifuge research and technology activities and the furnishing of related reports to ORNL. The scope of the overall work under the ACTDO Agreement is reduced from the scope of work that was being conducted by USEC under the Cooperative Agreement. Revenue and cost of sales for work that USEC performs under the fixed-price ACTDO Agreement as a contractor to ORNL is reported in the contract services segment. On July 31, 2014, ORNL exercised its option to extend the period of performance for the ACTDO Agreement by an additional six months to March 31, 2015. The agreement also provides ORNL with one additional option to extend the agreement by six months to September 30, 2015.
American Centrifuge costs incurred by USEC that are outside of the ACTDO Agreement are included in advanced technology costs. USEC incurred $7.0 million in May-June 2014 for certain demobilization and maintenance costs related to American Centrifuge that are included in advanced technology costs in the three and six months ended June 30, 2014.
Selling, general and administrative expenses declined $1.8 million in the three months and $3.0 million in the six months ended June 30, 2014, compared to the corresponding periods in 2013. The lower SG&A expense reflects declines in compensation and benefit costs of $1 million in the three-month period and $2.5 million in the six-month period, resulting from reduced staffing levels and declines in consulting costs.
Frank Lewis can be reached at 740-353-3101, Ext. 1928, or on Twitter @FrankLewispdt.