USEC became a publicly traded company in 1998. Two years later, USEC's share price headed south, dropping from its initial-public-offering price of $14.25 to as low as $3.63. Timbers, at 2001 shareholders meeting, blamed too many employees. high costs, two inefficient enrichment plants and lower prices for enriched uranium -- the result of dumping by two foreign competitors, Eurodif SA, part of French nuclear energy company Areva, and Urenco Ltd., a joint Dutch-German-British venture.
The U.S. Commerce Department imposed tariffs, and USEC prices returned to "levels at or a little higher" than they were before the dumping began, said Steven A. Wingfield, a USEC spokesman.
USEC Inc. chief executive William H. Timbers Jr. is out, and the company won't say why. "This is between the board and Timbers," a USEC spokesman said.
(Debra G. Lindsey -- The Washington Post)
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But until the tariffs kicked in, the lower price for enriched uranium took a bite out of USEC's revenue, the company said. In 2000, the board of directors cut the company's dividend requirement from $1.10 per share to 55 cents. USEC reduced its full-time and contract workforce by 40 percent, closed one enrichment plant, changed work rules at the other (prompting a strike in 2003) and embarked on the $1.5 billion American Centrifuge project.
American Centrifuge will bring the United States more in line with foreign competitors, some of which have been using centrifuge technology to enrich uranium for 30 years, analysts said. USEC uses gaseous diffusion technology, which requires more electricity.
It is the second time USEC has sought to lower its electricity bills. When the company was privatized, Timbers and other supporters of privatization promoted a laser-based technology called Atomic Vapor Laser Isotope Separation. In June 1999 the privatized USEC announced it was scrapping the technology in which it had been investing approximately $120 million a year. That prompted the company to announce the stock buyback and sent its stock into a dive. The technology could not enrich uranium with a sufficient return on investment, Yulish said.
The American Centrifuge project is on schedule, the company said. But USEC's rivals are making their own improvements. Urenco is attempting to build a centrifuge in New Mexico, where it has the support of Sen. Pete Domenici (R-N.M.). Urenco already supplies some U.S. utility companies with enriched uranium, and an enrichment facility in the United States could pose a competitive threat, analysts said.
Analysts and investors see the need for the American Centrifuge project, but they're not happy about the financial pressure it places on USEC. In 2003, USEC spent $42.8 million on the project, reducing profit by $26.5 million, according to the company's 2003 annual report. "For the next two years, investors will continue to see the impact of this investment on our financial statements. But it is an investment that we believe will pay off in the long run for our shareholders," Timbers said in a speech to shareholders in April.
"I have no trouble buying into the idea that the American Centrifuge should be built," said David Schanzer, an energy analyst with Janney Montgomery Scott LLC in Philadelphia. "But I see a lesser probability of seeing the dividend maintained."
Investors have been encouraged by the company's exclusive contract with the U.S. government to implement the Megatons to Megawatts nonproliferation program, signed by the United States and Russia in 1993. The program was created to eliminate Russia's stockpile of nuclear weapons by turning uranium from warheads into fuel for commercial reactors. USEC has so far converted uranium from 9,000 Russian warheads, the company said.
Last month, USEC executives increased its estimate of 2004 earnings from $14 to $16 million, to $18 to $20 million. Revenue for the first nine months of 2004 were down 27 percent from the comparable period last year, according to the company's financial reports. But some of USEC's biggest orders are expected in the fourth quarter, analysts and the company said.
USEC executives have tried to reassure shareholders that they will continue to receive quarterly dividends. "All indications are that cash flows should be sufficient to maintain the dividend," Wingfield said.
To bolster cash flows and earnings, USEC in 2005 is looking to diversify and grow through acquisitions, Yulish said. Last month, USEC paid Pinnacle West Capital Corp. $16 million for NAC International, a Norcross, Ga., company that produces containers to store and transport spent nuclear fuel.
Such growth is essential to restore investor confidence, Schanzer said. So far, USEC executives "haven't been successful at convincing the financial community of the efficacy of what they're doing in terms of delivering a consistent stream of earnings," he said.
