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STATEMENT
by
WILLIAM H. TIMBERS
President and Chief Executive Officer
USEC Inc.

House Commerce Committee
Subcommittee on Oversight and Investigations

U.S. House of Representatives

April 13, 2000

Mr. Chairman and Members of the Committee. My name is William H. Timbers, and I am President and Chief Executive Officer of USEC Inc. and its subsidiary, the United States Enrichment Corporation.

Thank you for the opportunity to participate in this hearing concerning USEC, which was privatized by the government nearly two years ago.

The privatization of the government's uranium enrichment operations was a Congressional objective for some thirty years and fourteen consecutive Congresses. A bi-partisan group of Members on this Committee and in the Senate led these efforts. It also took the efforts of the Nixon, Ford, Carter, Reagan, Bush and Clinton Administrations to complete the job. As a demonstration of continuing bipartisan and bicameral cooperation, this was a truly a landmark accomplishment.

The 1992 Energy Policy Act recognized that the government's uranium enrichment enterprise was failing and that life as a business in the private sector was the best hope for preserving this important domestic energy resource. The Act created the United States Enrichment Corporation, a government corporation, and gave it a number of responsibilities. The Act transferred all uranium enrichment activities from the Department of Energy to the new government corporation.

The Act directed the new corporation to restructure the enrichment enterprise, run it like a business, make a profit, commercially implement the Russian HEU agreement and prepare the restructured business for sale to the private sector.

The 1996 USEC Privatization Act provided the additional preparations needed for the privatization of the corporation. As directed by the Congress, the USEC Federal Board of Directors and the Secretary of the Treasury consummated the sale of USEC in July 1998 by a public offering of securities to investors. This sale became the largest privatization of a federal asset since Conrail, yielding a total of over $3 billion to taxpayers.

On a number of occasions, I have appeared before Congressional committees to report on the government corporation's progress and prospects. Today, I am here to represent USEC Inc. as a private enterprise, now entirely owned by approximately 40,000 investors.

As an investor-owned company, we have a fiduciary responsibility to our owners with an obligation to create shareholder value. We also continue to fulfill our national security obligation to the federal government, serving as its Executive Agent to implement the Megatons to Megawatts program on a commercial basis. And we continue, as well, our commitments to ensure a long-term domestic enrichment capability and to protect the health and safety of our workers.

--USEC Business Challenges-- During the 22 months since privatization, market conditions have changed drastically. There have been:

• A 15 percent drop in global market prices for enrichment
• An 18 percent drop in global demand for enrichment

• A 12 percent drop in uranium prices
• An 18 percent drop in global demand for uranium

At the same time our costs have increased dramatically:

 
• Our summer power prices have tripled at Paducah-and electricity is 55 percent of our production cost,
• Our cost of purchasing the Russian material has increased-our purchase costs are now higher than our selling price, and
• Our obligations have forced us to substantially reduce production levels, resulting in higher unit costs.

These and other conditions have produced a triple-whammy of fewer sales, reduced revenues and greatly increased costs. Any business faced with this situation must take prompt action to change that equation. That's what we are doing-taking action. But we have had to act under a unique constraint.

Let me quote to you directly from our SEC form 10Q disclosure document dated December 31, 1999. "USEC has been constrained in responding to these market conditions by its privatization agreement with the U.S. Treasury Department. This agreement restricts the actions that USEC could take to reduce operating costs." I am sure you can appreciate that no other business has had to contend with such changed market conditions while limited by such constraints.

Coming to grips with these changed market conditions means making tough decisions. These decisions and their implementation are in all of our interests. They will help to ensure that USEC Inc. remains a dependable domestic supplier of enriched uranium services and retains its global leadership in a fiercely competitive business.

The workforce reduction constraints in the Treasury agreement expire this coming July. We have already announced a reduction of up to 850 employees at the Paducah and Portsmouth enrichment plants. We regret the necessity of having to lay off employees. But we must take this action to reduce costs to make us more competitive. The fact is that we are taking a hard look at all of our costs to seek reductions. Everything is on the table for consideration.

The combined results of these factors have been a deterioration of our market, our profitability and our share price. Share price is a barometer. In USEC's case, the barometer has fallen 67 percent since the initial public offering two years ago. This indicates recognition by investors of changed market conditions and the other factors I previously mentioned.

As we stated in our public announcement last February, we expect much lower earnings for fiscal year 2001. We have also cut our dividend to investors, and both Standard and Poor and Moody's have dropped our credit rating to below investment grade. To be sure, the dot com phenomenon has made the stock markets chaotic. During the past year, more than 50 percent of the companies in America listed in the S&P 500 index had stock price declines, and many well-known and respected companies have ratings below investment grade. Neither of these facts is of any comfort to us or to our shareholders. The initiatives we are taking are aimed at improving both situations.

Another contributing reason for the decline in our share price is investor concern about the continuing legacy contamination issues being revealed about the Paducah and Portsmouth DOE reservations. While USEC liability in these matters was limited by the Privatization Act, some confusion exists because press reports do not clearly point out that these contamination issues arise from operational practices years before USEC Inc. was created and they remain the responsibility of the U. S. Government.

--Our Commitment to Safety--

From the day we began operations in 1993, USEC has set a high standard of commitment to safety. As directed by the Energy Policy Act, we earned certification of the plants by the U.S. Nuclear Regulatory Commission, and we are under their regulatory purview. Last September, we participated in this Committee's hearings on legacy contamination issues at Paducah and Portsmouth. We clearly stated that, for the benefit of our workers and host communities, we take these issues of worker protection and legacy contamination very seriously.

We are cooperating fully with DOE as they address these historical issues. We have also taken initiatives to re-ensure that current work in our plant areas is conducted safely and that we provide a safe working environment for our employees. As you will recall, an NRC spokesperson also testified before your Committee that day, stating that NRC had determined that USEC operations were being conducted safely and that our safety program was in full compliance with their regulations.

  -- USEC Uranium Inventories -- I would like to now turn to the matter of the pre-privatization government transfers of uranium to USEC and our sale of this material. Let me summarize the situation. Uranium was transferred to USEC by the government as directed by the Energy Policy Act of 1992 and the USEC Privatization Act of 1996, and information on the transfers was publicly reported.

I have made commitments to the U.S. government that USEC would limit its sales of its uranium, and I also gave assurances that our sales would be made in a market-sensitive manner. We have lived up to those commitments. I would also point out that we have a fiduciary duty to our shareholders to maximize the value of our uranium assets. Clearly, we do not want to sell our uranium in a market-disruptive manner that might lower the value of our uranium assets.

  -- Megatons to Megawatts Progress -- We are also meeting our obligation as Executive Agent of the government by implementing the Megatons to Megawatts national security program. We are now in the sixth year of commercial implementation of the program. The equivalent of over 3,254 nuclear warheads has been converted to power plant fuel purchased by USEC from Russia. We have paid Russia over $1.3 billion thus far, and over half of that was paid by the privately owned USEC-not the taxpayer. And, we are actually ahead of the 1993 U.S./Russian schedule for purchases and deliveries. The scoreboard clearly shows that we have been successful in meeting our commitments to implement this national security program. -- The Goal of Worker Transition -- Before concluding my remarks, I would like to return to the very important matter of workforce reductions this coming July. While these reductions will result in considerable savings, they will also result in a substantial impact on those affected employees, their families and their communities.

We have proposed that all concerned constituencies, including USEC, Congress, the Administration, DOE, the unions and the communities, work together to mitigate these impacts. Worker transition to cleanup programs is the most logical and feasible way to address this matter. We are prepared to cooperate with all constituencies to pursue a seamless worker transition. But to achieve this goal, we must put aside differences and begin working together.

I would like to conclude by expressing my appreciation to the Committee for your consideration. My five years of public service as USEC's Transition Manager, President and CEO of the government corporation have afforded me an opportunity to work with a wonderful group of employees and with many dedicated public servants in the Congress and the Administration.

As President and CEO of the private-sector USEC, I am determined that we will meet our commitments to our owners for creation of shareholder value and will fulfill our obligations and commitments to the government. I firmly believe that we can and will achieve continued profitability for our shareholders. We will continue to succeed in implementing the Megatons to Megawatts program. And we will continue to provide a secure and dependable domestic source of uranium enrichment.

We remain the world leader in sales of uranium enrichment services. We have strong business fundamentals that include over $6 billion in backlog and a robust cash flow from sales. We are a well run, service-oriented business focused on safety, customer service, identifying and seizing opportunities, solving problems and producing results.

While we are a work-in-progress, we have been making progress. To fulfill the promise of a privatized USEC, all concerned have to realize that the Cold War is over and the war we are now fighting is global competition.

Thank you for your consideration. I welcome your questions.