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USEC Discloses Impairment Charges and Possibility of More to Come

|Includes: Centrus Energy Corp. (LEU)

Last Friday, USEC Inc. (NYSE: USU) disclosed that it expects to expense approximately $137 million in previously capitalized items at its American Centrifuge Plant. Of that amount, $127 million relates to machines that were deemed no longer compatible with the commercial plant’s design and $10 million related to capitalized prepayments made to a plant supplier.

The larger of the two charges was the result of an evaluation of the utility provided by a number of centrifuge machines at the plant. The company determined that such machinery no longer carries future economic benefit and therefore must be expensed. The second and smaller charge relates to a prepayment balance for materials that the company will not purchase under a contract with a supplier that will not be extended.

In addition, USU expects to record a full valuation allowance in 4Q11 for the net deferred tax asset created as a result of the charges, as well as other previously recorded deferred tax assets. A valuation allowance is required if it is more likely than not that a deferred tax asset will not be realized in the future. As of 30-Sep-11, the company’s net deferred tax assets were approximately $246 million.

USU is continuing to evaluate the recoverability of the remaining capitalized costs related to the American Centrifuge project as part of its year-end financial review. These previously capitalized costs, including the approximately $137 million described above, totaled approximately $1.3 billion as of 30-Sep-11. The company disclosed that depending on the outcome of the evaluation, it could expense up to the full amount of previously capitalized costs related to the American Centrifuge project as early as 4Q11.