USEC Inc. Reports $11.7 Million Net Income for 2nd Quarter; Higher Uranium Prices Help Improve Gross Margin

Business Wire, August 3, 2004

BETHESDA, Md. -- USEC Inc. (NYSE:USU) today reported financial results for the second quarter ended June 30, 2004, of net income of $11.7 million or $.14 per share compared to net income of $4.3 million or $.05 per share in the same quarter last year. The gross margin improved quarter over quarter due to higher prices for natural uranium sold. Quarterly earnings are higher than recent guidance due to the timing of additional uranium revenue recorded in the second quarter that had previously been expected in the third quarter. This order movement does not affect the Company's full-year earnings guidance of $14 to $16 million net income, or 17 to 19 cents per share.

For the six months ended June 30, 2004, USEC reported net income of $0.5 million or $.01 per share compared to net income of $6.4 million or $.08 per share in the same period last year. USEC's customers generally place orders under their long-term contracts tied to reactor refuelings that occur on a 12- to 24-month cycle. Therefore, short-term comparisons of USEC's financials are not necessarily indicative of the Company's longer-term results.

Additional natural uranium available for sale in 2004 is the result of underfeeding operations at the Paducah enrichment plant rather than accelerating the drawdown from USEC's uranium inventories. Underfeeding uses less uranium in the enrichment process but requires more Separative Work Units (SWU), which requires more electric power. The value of the uranium exceeds the incremental power cost.

"We operate the Paducah plant in a manner that optimizes the economic value of the two primary inputs of production - electricity and natural uranium. Accordingly, in today's market, we have the opportunity to sell additional natural uranium produced through underfeeding into a strong, attractively priced market," said William H. Timbers, president and chief executive officer.

"These sales also meet the needs of customers who have looked to us for natural uranium in what has been a volatile market. Improved uranium prices and the additional volume of uranium generated in our production process should improve the gross margin and boost net income for the year, in line with our updated earnings guidance," Timbers said.

Revenue and Cost of Sales

Revenue for the second quarter was $318.6 million, compared to $362.6 million for the same quarter a year ago. The volume of the SWU component of low-enriched uranium sold declined 27 percent compared to second quarter 2003, and the average SWU price billed to customers was about the same quarter over quarter. Uranium sales were $81 million, an increase of $29.3 million over the same quarter last year, reflecting higher volume and higher average prices. Revenue from U.S. government contracts was $1.2 million higher quarter over quarter, totaling $41.4 million.

For the six-month period ended June 30, 2004, revenue was $498.6 million compared to $689.7 million in the same period of 2003 on 37 percent lower SWU volume. As previously disclosed, the lower revenue in the first half of 2004 reflects significantly lower SWU volume and prices as customers take delivery of enriched uranium under low-priced contracts signed during the late 1990s and shift volume and higher-priced deliveries to later in 2004. The volume of natural uranium sold declined by 2 percent in the six-month period but the average price billed to customers increased by 28 percent.

The decline in SWU sales volume produced a corresponding reduction of $180.1 million or 34 percent in the cost of sales for SWU and uranium in the six-month period. The unit cost of SWU sales was 3 percent lower than in the same period of 2003, reflecting the impact of lower production and purchase costs in previous periods.

Unit production costs per SWU were 3 percent higher in the six-month period due to lower production volumes compared with the corresponding period in 2003. Electric power costs were lower but labor and benefit costs increased compared to 2003, a period when labor costs were reduced by a strike at the Paducah plant. The Company's purchase costs per SWU increased 3 percent under a market-based formula with Tenex, the Russian government's executive agent, which reflects the impact of higher SWU prices since 2001. Under the average inventory cost method, coupled with USEC's inventory position, an increase or decrease in costs will have an effect on cost of sales in future periods.

The gross profit margin for the quarter was 17.4 percent compared to 11.5 percent in the same period last year, due to improved margins on natural uranium. For the full year, USEC expects its gross margin to be approximately 13 percent.

Selling, general and administrative expenses totaled $15.9 million in the quarter, $1.1 million higher than in the same period last year due primarily to increased compensation and benefit costs, additional legal and consulting fees and higher insurance expense.

American Centrifuge Progress Continues

The Company continues to make steady progress toward its goal of demonstrating the American Centrifuge uranium enrichment technology. USEC expects the American Centrifuge to be the world's most efficient enrichment technology when the commercial plant is deployed later this decade. Expenses during the quarter were $10.6 million, about the same as the second quarter last year. Spending on demonstration activities had the effect of reducing after-tax income by approximately $7 million or $.08 per share during the quarter.