USEC Inc. (USU)
Q2 2012 Earnings Call
August 1, 2012 8:30 a.m. ET
Steven Wingfield - Director, IR
John Welch - President & CEO
John Barpoulis - SVP & CFO
Philip Sewell - SVP, American Centrifuge and Russian HEU
Bob Van Namen - SVP, Uranium Enrichment
Tracy Mey – VP and Chief Accounting Officer
Laurence Alexander - Jefferies & Co.
George Caffrey - JMP Securities
Richard Howard - Prospector Partners
Bob Clutterbuck - Clutterbuck Capital Management
Previous Statements by USU
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Greetings and welcome to the USEC second quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Steven Wingfield, Director of Investor Relations for USEC Inc. Thank you sir. You may begin.
Good morning. And thank you for joining us for USEC’s conference call regarding the second quarter of 2012 which ended June 30. With me today are John Welch, President and Chief Executive Officer; John Barpoulis, Senior Vice President and Chief Financial Officer; Phil Sewell, Senior Vice President; Tracy Mey, Vice President and Chief Accounting Officer, and Bob Van Namen, Senior Vice President is joining us by phone.
Before turning the call over to John Welch, I’d like to welcome all of our callers as well as those listening to our webcast. This conference call follows our earnings news release issued yesterday afternoon. That news release is available on many financial websites and our corporate website, usec.com. All of our news releases and SEC filings, including our 10-K, 10-Qs and 8-Ks are available on our website. We intend to file our quarterly report on Form 10-Q later today. A replay of this call also will be available later this morning on the USEC website.
I’d like to remind everyone that certain of the information that we may discuss on this call today may be considered forward-looking information that involves risks and uncertainties, including assumptions about the future performance of USEC. Our actual results may differ materially from those in our forward-looking statements.
Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Finally, the forward-looking information provided today is time sensitive and is accurate only as of today, August the 1
, 2012. This call is the property of USEC. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of USEC is strictly prohibited.
Thank you for your participation and now I’d like to turn the call over to John Welch.
Good morning. And thank you for joining us today. Yesterday afternoon we reported our second-quarter results. The management team was very active during the second quarter as we reached two important agreements. First, in May, we entered into an innovative multiparty agreement that will allow us to continue to economically enrich uranium at the Paducah gaseous diffusion plant for another year. It is a positive agreement for everyone involved.
Second, in June, we secured near-term funding for the research, development and demonstration program for the American centrifuge technology, which we call the RD&D program. We were off to a great start on that program and we have attracted a very strong board of managers to provide oversight to the program as provided under our agreement with the Department of Energy. This board includes leaders in the nuclear industry, Babcock & Wilcox, Exelon and Toshiba, as well as two independent members with strong industry credentials.
Allow me to provide a few details why these two agreements were important accomplishments. Starting first with the extension of enrichment operations at Paducah, this agreement is somewhat complex but works well because it’s a win for everyone involved. Under the agreement, USEC is feeding depleted uranium tails into the Paducah plant rather than using a natural uranium feedstock. These tails are from DOE operations during the 1980s and this by-product material contains higher amounts of the valuable U235 isotope than the depleted uranium by-product we’ve generated in recent years.
The government consider this tails material to be a liability to be disposed of sometime in the future. These leaded uranium tails have been transferred from DOE to Energy Northwest and much of the material has already been provided to USEC. Over the next 10 months, USEC will deliver low enriched uranium to Energy Northwest which in turn will transfer much of that LAU to the Tennessee Valley Authority over a couple of years.
Customers of Energy Northwest and Tennessee Valley Authority will benefit from lower cost nuclear fuel in future years. TVA also benefits from significant electricity sales to USEC during the next year. DOE will benefit because TVA reactors using our fuel will provide DOE with tritium, which is a radioactive isotope used in our nation's national security programs. Tritium for these programs must come from U.S. sources and DOE now has secured additional tritium supply for our national security needs until the American centrifuge plant can serve that role.
A contract also maintains jobs for more than 1000 USEC employees in Kentucky. USEC benefits from the additional SWU sales that will generate cash flow and positive gross profits. Under the contract with Energy Northwest, enrichment operations will continue at the plant through next May. That will provide time for USEC and DOE to plan for Paducah’s orderly transition.