Business context and reporting period
USEC Inc. (the registrant named in the filing; request metadata identifies Centrus Energy Corp.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2013. Its principal business was supplying low-enriched uranium (LEU) to nuclear utilities. The company was transitioning away from enrichment at the Paducah plant toward inventory sales, reduced Russian supply and a possible future American Centrifuge operation.
USEC began ceasing enrichment at Paducah at the end of May 2013 after a depleted-uranium enrichment arrangement expired. It sold NAC International in March 2013. On July 1, 2013, it effected a 1-for-25 reverse stock split.
Key financial metrics
Amounts are in millions of dollars except per-share data. Comparisons are with the corresponding 2012 period.
| Metric | Three months ended June 30, 2013 | Six months ended June 30, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $284.8 | $605.2 | $353.8 quarter; $895.8 six months |
| Gross profit (loss) | $(46.9) | $(33.6) | $10.2 quarter; $46.9 six months |
| Gross margin | (16.5%) | (5.6%) | 2.9% quarter; 5.2% six months |
| Operating loss | $(68.0) | $(81.7) | $(81.6) quarter; $(101.6) six months |
| Net loss | $(40.9) | $(42.9) | $(92.0) quarter; $(120.8) six months |
| Net loss per share, basic and diluted | $(8.35) | $(8.76) | $(18.78) quarter; $(24.65) six months |
| Operating cash flow | Not separately presented | $(48.8) | $162.1 for six months |
Revenue fell 20% for the quarter and 32% for the half-year. Six-month SWU revenue declined 37%, mainly due to lower delivery volumes; the average SWU price billed rose 5% in both periods. Gross losses reflected lower SWU volumes and Paducah transition costs. The reported net-loss improvement included DOE cost-sharing income for the American Centrifuge research, development and demonstration (RD&D) program, a tax benefit and, for the six-month comparison, the NAC sale gain.
At June 30, cash and cash equivalents were $194.7, down from $292.9 at December 31, 2012; restricted cash was $3.3. Working capital was $481.8, versus $542.1 at year-end. Net inventory was $609.3. Stockholders’ deficit was $419.2. Debt included $530.0 of 3.0% convertible senior notes due October 1, 2014; the $83.2 credit-facility term loan was repaid in March. A $107.0 convertible preferred stock balance was classified as a current liability. The revolving facility had $76.9 available at June 30 and matured September 30, 2013.
Other notable balance-sheet and cash-flow items: six-month investing cash flow was $36.1, including $43.2 of NAC sale proceeds; financing cash flow was $(85.5), principally reflecting repayment of the term loan. A pension remeasurement reduced the reported pension liability by $138.3 and contributed to $95.4 of six-month other comprehensive income, net of tax.
Material changes, outlook and risks
- Paducah transition: USEC recorded $70.0 of LEU non-production costs in the second quarter, including $19.3 of asset retirements, $10.0 of inventory write-downs, $20.1 of site and turnover costs, and $11.8 of power-contract losses. Lease-turnover liabilities were $43.8 at June 30. Management estimated total Paducah severance costs of $25–$30, subject to possible DOE contribution of up to $6. Further transition charges were possible.
- American Centrifuge: DOE’s 80% share of qualifying RD&D costs was recognized as other income: $40.7 in the quarter and $88.3 for six months. DOE funding of $227.7 was expected to support the program through September 30; up to $52.3 of further cost-share funding depended on milestones and appropriations. The program was scheduled to end December 31, 2013. USEC said it needed significant additional capital, estimated at least $4 billion to complete the plant, and had no post-RD&D financing in place. Demobilization or termination remained possible.
- Management outlook: For 2013, USEC expected average SWU prices billed to rise 5% while deliveries fell approximately 35% from 2012, yielding revenue of about $1.25 billion. It expected SG&A below $50 million. Management limited guidance because of transition costs, order timing, deferred revenue and market-price uncertainty.
- Liquidity and solvency: Management said available cash, operating cash generation and credit availability were expected to cover obligations for at least 12 months, conditional on renewing or replacing the facility after September 2013 and on American Centrifuge spending. It was pursuing a possible balance-sheet restructuring to address the 2014 notes maturity; completion and effects were uncertain. Management stated it would likely be unable to repay the notes at maturity without restructuring or refinancing.
- Market, government and pension exposure: Management cited persistent LEU oversupply, falling market prices, lower expected sales and uncertainty over Russian supply, DOE support and customer contract revisions. PBGC had preliminarily estimated approximately $130 million of potential Portsmouth ERISA Section 4062(e) liability; USEC disputed the assertion and estimate. Potential Paducah-related exposure could be higher, but the filing does not provide a clear amount.
- Listing and contingencies: The NYSE accepted a compliance plan on August 1, 2013 for market-capitalization standards, with an 18-month cure period and required operating milestones. A delisting could allow noteholders to demand cash repurchase that USEC said it could not fund. USEC also appealed DOE denials of $38.0 of certified claims; collection timing and outcome were uncertain. The filing reported no material adverse outcome expected from ordinary legal matters.
Important facts for investors to verify
- Whether the revolving credit facility was renewed or replaced by its September 30, 2013 maturity, and the resulting borrowing availability and covenants.
- Whether DOE appropriations and milestone approvals funded the RD&D program through December 2013, and whether the centrifuge project obtained credible post-program financing.
- Actual Paducah lease-return, severance and other transition costs, including DOE’s acceptance schedule and any related pension funding requirements.
- Progress toward resolving or refinancing the $530.0 convertible notes due October 2014, and any restructuring effects on common and preferred shareholders.
- NYSE compliance-plan milestones, Russian supply execution, customer deliveries and backlog, and the collection prospects for DOE receivables and claims.