It was more than fortuitous that United Nuclear Corp. became UNC Resources four years ago; with its nuclear activities a dwindling proportion of its business, the name switch was a precursor for major changes to come.
When UNC Resources was formed as a holding company in 1978, its only substantial asset was United Nuclear Corp., the nation's largest independent producer of uranium. In its peak years, uranium operations of the Falls Church-based company contributed almost two-thirds of its total revenues. Its nuclear-related manufacturing activities--products such as reactor cores and components for the Navy's nuclear fleet and for commercial power reactors--contributed much of the rest.
All that has changed--a function of weakened demand for uranium and its falling price. This year, proceeds from uranium sales will represent only 15 to 20 percent of UNC's total revenues. The company's once-lucrative uranium operations in New Mexico were shut down in April; most of the remaining 550 employes from a work force that once numbered 1,500 were laid off, and the extensive mining and milling equipment was put in mothballs for use at some future time if and when the market price of uranium rebounds.
At one time, UNC was selling uranium for more than $60 a pound, says Keith A. Cunningham, the company's president and chief executive officer. The price on the spot market today is near $20.
And for companies like UNC, the cost of mining and milling the yellowcake now exceeds its market price. Thus the company says it will add $16 million to its operating profit this year by suspending its own uranium production and fulfilling its remaining commitments--a total of 2 1/4 million pounds this year and next--with uranium bought on the open market at a cost lower than UNC could produce it.
Although UNC officials say their remaining uranium reserves will continue to make major contributions to the company, they have embarked on a concerted diversification effort designed to move UNC away from its dependence on the vagaries of the nuclear power industry. Within the last 16 months, UNC has made a number of acquisitions that are designed to make the company "less dependent on any individual market or customers," UNC's top officials told shareholders in its 1981 annual report.
Half the revenues the company expects in 1982 will come from sources that weren't part of UNC at the beginning of 1981--and there's more to come, Cunningham says.
The 59-year-old lawyer who heads the company says UNC is trying to build on its experience and capabilities while expanding into areas that do not have the same vulnerabilities as its principal existing businesses. "Our expertise is in precision manufacturing, mining, nuclear activities, and to a lesser extent, in oil and gas," he told shareholders at this year's annual meeting.
UNC's first acquisition, in May 1981, was the National Automatic Tool Co., of Richmond, Ind. NATCO's speciality is precision, high production machine-tool systems.
Three months later, UNC acquired Normco Contractors Inc. and Hamer Industries Inc., two firms based in Morgan City, La., that supply equipment and services to the offshore oil and gas production industry. Merged under the Normco name and management, the subsidiary fabricates, installs and services a variety of large components and assemblies for offshore oil production platforms. It also provides offshore and onshore field and dockside services.
In January, UNC made its most significant acquisition to date--Swift Group Inc., a holding company whose subsidiaries produce a variety of aluminum and steel boats under the Swiftships name. The boats, fabricated in four facilities in Texas and Louisiana, are used primarily in support of the offshore oil and gas industry. But they are also used by the military and as tugs, tankers, ferries, pilot boats and rescue vessels. In February, Swiftships acquired a fifth yard, Champion Shipyards Inc. of Pass Christian, Miss.
Also in February, UNC acquired Falcon Pump and Supply Co. of Mills, Wyo., a distributor of industrial pumps used primarily in the oil and gas industry.
In an interview in his Falls Church office, Cunningham said the acquisitions to date have brought into the company about $200 million in annual revenues, with Swiftships accounting for about half of that. UNC's goal is to add at least another $200 million in annual revenues through acquisitions this year, he said, noting that UNC currently is looking at two more purchases that would each add about $100 million.
"So we're looking for something next year between $500 million and $600 million in total revenues, if we're successful in our current acquisitions program," he said.
Whether UNC has made the right acquisitions remains to be seen. One stockbroker who is critical of the company contends that UNC is buying small, insignificant and marginally profitable companies that are engaged in the wrong activities for the time. Machine tools and oil and gas aren't booming right now, he notes. He also contends that UNC's best years were those in which uranium prices were at their peak and those in which it sold off some of its assets.
Rudy Mueller, a principal in the New York brokerage house of Sterling, Grace & Co., agrees that UNC's recent purchases are suffering cyclical declines but thinks UNC is "making fundamentally the right moves" and that its oil and gas-related acquisitions will prove out when the economy eventually picks up.
"It will be a good business again," Mueller predicts, contending that the Swiftships acquisition will be "a major plus." Although demand is soft now for vessels used in offshore oil service, he notes the firm makes a variety of vessels being bought by countries eager to protect their 200-mile offshore boundaries. And UNC's nuclear manufacturing activities, which provide the Navy with high-quality, precision components for its 130 nuclear vessels, are a continuing strength, he adds.
UNC officials admit that the continuing sluggish economy has hurt. Swiftships is just now gearing up to produce 10 steel ships for a $33.6 million contract placed last April. Normco is still affected by the depressed offshore oil and gas business. Orders for the company's new machine tool business also are depressed. "We had expected it to start picking up a few months ago, and it has not yet," Cunningham says. But he's confident that results in these lines will be improving during the last half of the year as the economy strengthens.
"There's an awful lot of accumulated demand that is growing out there because it has not been satisfied in the last few years. That's going to erupt at some time and cause a more positive economy," he predicts. "This is true in phases of our business--machine tools, particularly," he contends. "The U.S. is going to have to have more machine tools, for example, more sophisticated machine tools--that's the reason we went into the business. . . . We're certainly not convinced that we're wrong at this point."
Although UNC last week reported a second-quarter loss of $6.4 million, most of it was attributed to expenses incurred in shutting down its uranium operations and placing them in a "standby condition." Cunningham says the company will be profitable for the year as a whole. "I think we will survive the year in a lot better shape than a lot of companies," he adds.
UNC has shown a profit each year since 1974 except for its fiscal year ended March 31, 1981, when it reported a $34.2 million loss, attributed to a four-month shutdown of its uranium mill at Church Rock, N.M., because of a waste spill, and the write-off of a discontinued Florida venture to extract uranium from phosphoric acid supplied by W. R. Grace & Co.
Its next fiscal year, UNC reported net income of $17.4 million but attributed much of it to gains from the sale of its coal subsidiary to Getty Oil for $60 million and the sale of some of its uranium properties for another $20 million. After changing last year from a March 31 fiscal year to a calender year, UNC this spring reported revised net income for 1981 of $6.9 million.
Cunningham says he doesn't think the investing public has yet recognized the transition UNC has made. Last week, its stock was trading at around $5 on the New York Stock Exchange. At its high, UNC's stock price was the equivalent of $34.25, taking into account a 50 percent stock distribution in April 1978.
"What happened to this company when the uranium market began disappearing was that we lost what in our peak years was about two-thirds of our total market," Cunningham says. "So we had to replace . . . about two-thirds of the business--and that is a major undertaking. Not very many companies have their market pulled out from under them like that."
UNC is still embroiled in complex litigation arising out of a joint venture in the early 1970s with General Atomic Corp., an affiliate of Gulf Oil Corp. The original suit, filed by UNC in 1975, sought to void contracts for the delivery of 27 million pounds of uranium on grounds that they were executed fraudulently and in violation of antitrust laws.
Various courts have decided in UNC's favor but the case continues to drag on with appeals by General Atomic. Recently, UNC filed a lawsuit charging General Atomic and its partners with disregarding the earlier court judgments and conspiring to nullify them and harass UNC to destruction. UNC is seeking $1 billion in compensatory damages and $2 billion in punitive damages.