February 4, 2000
USEC layoffs shake Paducah
Job cuts had been anticipated
By Joe Walker
In drastic cost-cutting moves that union officials and federal lawmakers have predicted for several months, USEC Inc. will eliminate about 425 more jobs at the Paducah Gaseous Diffusion Plant and a similar number at its sister plant near Portsmouth, Ohio, starting July 1.
The USEC Board of Directors made the decision Thursday afternoon. Following 250 layoffs in the last two years, the cuts will drop Paducah's work force to about 1,200, about a third lower than when USEC was privatized in July 1998.
Although the board reportedly talked about closing one of the plants, USEC spokeswoman Elizabeth Stuckle said that decision was not made. USEC's privatization agreement requires it to run both plants until 2005 unless it meets one of several criteria, such as having a profit margin lower than 10 percent for 12 straight months.
"None of those events has occurred," Stuckle said. "I want to stress that."
The new layoffs, most of which will occur in July, amount to a 20 percent employment reduction systemwide.
"We regret having to take this action and the impact it will have on our employees," said USEC Executive Vice President Jim Miller.
USEC also said it will cut its $1.10 annual dividend in half as of March 15 and buy back 20 million additional shares for nearly $120 million by June 2001. Last year, USEC authorized buying back 10 million shares. Its stock has plummeted from $14.25 a share in July 1998 to less than $6, but its dividend has been far higher than other firms in the utilities industry.
"We could not sustain the dividend we were paying," Stuckle said, adding that the board believed it was better to drop the dividend, in light of declining earnings, than keep it artificially high. "If we don't increase the shareholder value, we're not going to be able to help fix the financial conditions."
Stuckle said voluntary layoffs - which have traditionally involved enhanced severance benefits - will be offered to as many workers as possible. But she acknowledged that because prior layoffs have been voluntary, the pool of people qualified for voluntary layoffs has been depleted.
"We wish we could (offer voluntary layoffs to everyone) but realistically, we don't expect that we will have 850 volunteers," she said.
Stuckle said USEC will start the new layoffs July 1 because its privatization agreement with the U.S. Treasury limited cuts to 500 at the plants before then. Specifics on what type of jobs will be cut or what severance will be offered are not yet known, but will be provided to workers as soon as possible, she said.
About 600 job cuts will involve uranium enrichment workers, Stuckle said. The rest will be in phasing out jobs of USEC employees who do environmental cleanup, seismic upgrade, nuclear safety upgrade and similar work funded by the Department of Energy, which owns the plants, she said.
Many of the cuts will involve consolidating work at the plants and eliminating redundancies, she said, adding that rehiring workers is unlikely.
USEC hopes that eliminating jobs, buying back stock, and negotiating for lower Russian uranium and plant power costs will help improve its sagging economic situation. It earned $32.6 million during the last quarter, an increase of $1.5 million, but predicts "substantially lower earnings next year compared with the current fiscal year."
Stuckle said USEC expects its net income to be $110 million to $115 million next year, or about the same of the current year. Despite declining income, USEC expects to keep a strong cash flow because of the drastic cost-cutting measures, she said.
The company blames low prices for enriched uranium, declining sales and higher production costs stemming from a glut of Russian enriched uranium. As a federally mandated agent, USEC is paying more for the Russian material, blended down from dismantled nuclear warheads, than the Paducah and Portsmouth plants can produce it for.
To balance production with anticipated purchases of Russian uranium, USEC will decrease output to about a quarter of each plant's capacity in the next fiscal year, starting Oct. 1. Miller said the resulting job cuts will save about $39 million annually amid growing global oversupply of enriched uranium and strong foreign competition.
"We continue to strongly supply government activities to carry
out work transition programs and to create new jobs," Miller said.