The meltdown is over.
Eight months ago, UNC Resources Inc. was losing money, selling assets to raise cash and betting its survival on the outcome of a bitter legal battle that had mired the uranium supplier for more than eight years.
After winning a $300 million legal settlement and dumping some of its weakest operations, the minerals and manufacturing company is now cash rich and profitable. But the dramatic turnaround has left UNC with a major challenge: deciding what to do next.
The company expects to name a new chairman and chief executive within a few weeks, filling the void left since July, when Keith A. Cunningham retired. That person will face the task of charting UNC's future through a course of both happy and difficult choices.
UNC, whose fortunes once followed the those of the nuclear industry, must now decide what to do with its idle uranium mines, a gold mine in Oregon, its profitable manufacturing businesses and about $230 million in cash.
"They went from poor to prosperous overnight," said Rudy Mueller, an analyst with Sterling, Grace & Co., who said UNC's board of directors has been taking its time in choosing a new chairman. "The board is not of one mind on what to do next . . . there are a lot of different options."
Those options include repurchasing its own stock, acquiring new businesses, developing or shedding existing operations, or merging with another company, Mueller said.
A spokesman for the Falls Church company said it would be "premature" to discuss UNC's plans before the new chairman is in place. That chairman will take over a company that has survived a painful evolution from its origin as United Nuclear Corp., once the nation's largest private supplier of uranium fuel for commercial nuclear reactors and the U.S. Navy.
UNC decided in the latter half of the 1970s to expand its uranium production capabilities, and "incurred substantial debt" in the process, Cunningham said in the 1983 annual report. Other problems flowed from that decision.
Troubles in the commercial nuclear power industry and the accompanying collapse of the uranium market forced UNC to halt mining operations and diversify into other businesses. Unfortunately, the two principal areas the company chose -- machine tools and oil exploration and production -- were then hit hard by the recession.
The company lost $14 million in 1982 and $12.9 million in 1983 and saw its working capital -- the difference between short-term assets and liabilities -- shrink to $15.1 million by the end of last year.
Chairman Cunningham blamed the company's worst problems on General Atomic Corp., which spent more than eight years locked in legal combat with UNC. The actions of GAC, a general partnership of Gulf Oil and Scallop Nuclear Inc., prevented UNC from entering into profitable long-term uranium delivery contracts, Cunningham said in a letter to shareholders in May.
When the litigation was settled in May, GAC agreed to pay UNC $130 million in cash and to assume UNC's $71 million obligation to repay about 2.3 million pounds of uranium to Pacific Gas & Electric Co. Additionally, Chevron Corp., which has acquired Gulf Oil, agreed to invest $100 million in UNC by buying unissued UNC common stock.
Cunningham retired in July at age 61, saying the settlement had put the company "on a solid financial footing."
Today, UNC is a diversified minerals and manufacturing conglomerate. Its UNC Naval Products subsidiary is one of two companies in the nation supplying nuclear reactors and fuel to power the Navy's submarines. UNC Technical Products manufactures components for programs that include the B-1 bomber and Trident submarine. UNC Nuclear Services operates a government-owned reactor. And its National Automatic Tool Co. Inc. recently received orders to make plastics injection-molding machines worth more than $5 million for General Motors Corp.
UNC has a better balance sheet because of the legal settlement and improved operations.
Before the settlement, UNC survived by streamlining its operations. The company sold $20 million worth of assets last year, including a 50 percent interest in a special metals company, oil- and gas-producing properties, and its commercial nuclear services.
UNC has continued to shed problem businesses since the settlement. It decided in June to discontinue its offshore products and services operations, including its Swiftships and Normco Contractors subsidiaries.
The company reported profits of $1.1 million in the third quarter of this year, compared with a loss of $118,000 in the same quarter of 1983. For the first nine months of the year, the company reported net income of $12.7 million (81 cents), up from a loss of $1.2 million the year before.
UNC says third-quarter results reflect the successes of its naval products, technical products, nuclear industries and automatic tool subsidiaries, all of which are now profitable. UNC Minerals Operations, however, lost money as the result of nonproducing mines and weakness in contract drilling and oil pump markets, the company said.
The nine-month results reflect the litigation settlement, mineral property write-downs and provisions for the discontinued offshore operations.
UNC also has drastically reduced its debt. Its third-quarter interest income exceeded its interest expense by more than $2 million. The reverse was true in last year's third quarter, when interest expenses exceeded interest income by $4 million.
After the legal settlement, Standard & Poor's Corp. raised its rating of UNC's subordinated debentures from a CCC to B. Both ratings mean "highly speculative," but B is somewhat less so, said S&P rating officer Dennis Dowden. "The $300-million cash infusion helps its short-term prospects, but the long-term prospects are more tenuous," he said.
UNC's improved position appears good enough to attract new investment. In the last four months, Houston investor Charles E. Hurwitz purchased 7.45 percent of the company's shares through three companies he controls. He may seek a seat on UNC's board of directors, according to a report he filed with the Securities and Exchange Commission.
Chevron now holds two seats on the board and, as a major stockholder, could play a large role in UNC's future. Chevron will hold 37 to 38 percent of the company's stock when its investment is complete in December, said Charles B. Renfrew, a Chevron director and vice president who sits on UNC's board.
Chevron "is taking a good look" at UNC, Renfrew said. "There are some parts that are not very profitable, and indeed are a drain," he said, adding that some further "tightening up" may be possible.
"When the new CEO is aboard, I'm sure he or she will have lots to say," Renfrew said.