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This excerpt taken from the USU DEF 14A filed Mar 19, 2009. Executive
Summary
USEC is a global energy company that currently operates the only
uranium enrichment plant in the United States. We are in the
midst of a critical transition period for our enrichment
business as we move from the older gaseous diffusion enrichment
technology to the advanced technology of the American Centrifuge
through our deployment of the American Centrifuge Plant
(“ACP”). The transition period has several challenges
and opportunities and during this period our ability to attract,
motivate and retain employees and executives with the requisite
skills and experience to meet these challenges is essential to
our success and to the creation of long-term value for our
shareholders. In recognition of this, in February 2008, the
Compensation Committee determined to reposition overall total
direct compensation for certain executives for 2008 to
approximately the 75th percentile of the market. This
included an increase in base salary levels and annualized target
levels of restricted stock and nonqualified stock options for
2008. These changes are discussed more fully below in
“Elements of Executive Compensation — Total
Direct Compensation.” However, in early 2009, as part of
the Company’s cash conservation efforts, steps were taken
to limit executive compensation as more fully described below.
USEC began 2008 with a business plan focused on retiring or
mitigating a number of key risks that faced the business and
getting us to the next step with respect to the American
Centrifuge program. At the beginning of 2008, when the annual
performance goals were set, the financial outlook for 2008
included projected net income for the year in a range of $25 to
$45 million, projected gross profit margin for 2008 of
roughly 13% to 14%, and projected cash flows used by operations
for the year of $60 to $80 million. As reported in our
Annual Report on
Form 10-K
for the year ended December 31, 2008, we ended 2008 with
net income of approximately $49 million and a gross profit
margin of 14.2%, which exceeded the high end of the range for
both items, notwithstanding greater than expected increases in
costs of production that were seen in 2008. Management was also
successful in its efforts to control selling, general and
administrative (SG&A) expense at just below our initial
forecast of $55 million. However, on the cash side, our
business was severely impacted by rising costs for electric
power (which makes up
70-75% of
our cost of production), which are largely outside of
management’s control. We ended 2008 with cash flow used by
operations of approximately $105 million. This was
unfavorable compared to our initial outlook and our annual
incentive award target. However, management initiated efforts in
2008 that although they had a negative impact on 2008 cash flow
were value-adding. For example, the Company’s early
repurchase in 2008 of notes due in January 2009 had a negative
cash impact in 2008 but yielded net savings of approximately
$2 million. As more fully described below under
“Elements of Executive Compensation — Annual
Incentive,” adjustments were made in calculating cash flow
for purposes of determining 2008 annual incentive awards in
order not to penalize management for these efforts.
USEC management also achieved a number of key business
objectives in 2008, including (1) progress in our efforts
with respect to the centrifuge machine that we will deploy in
the American Centrifuge Plant, with the continued operation of
prototype machines in our Lead Cascade test program, which has
now operated for more than 150,000 total machine hours;
(2) transferring technology to our strategic suppliers to
manufacture components for our centrifuge machines;
(3) selling output from the American Centrifuge Plant;
(4) positioning the Company to receive a loan guarantee
from the U.S. Department of Energy (“DOE”) to
fund the completion of the ACP; (5) performing a
comprehensive analysis of the activities, steps, processes,
systems and organization infrastructure needed during the period
of transition through commercial deployment of the ACP;
Table of Contents
and (6) strengthening our core operations by producing the
most enrichment at our Paducah gaseous diffusion plant in
14 years while achieving one of their best safety records
ever.
However, we ended 2008 with one important disappointment: the
Bush administration’s Department of Energy did not take
action to select any advanced energy projects for funding under
its Loan Guarantee Program. That remains one of
management’s top priorities as we enter 2009. The
uncertainty surrounding project funding forced us in early 2009
to begin taking steps to conserve cash and reduce the planned
escalation of American Centrifuge project construction and
machine manufacturing activities until we gain greater clarity
on potential funding for the project through the DOE Loan
Guarantee Program.
Setting the “tone at the top,” management began the
cash conservation program with recommending to the Compensation
Committee a freeze in base salaries for senior officers, capping
2008 annual incentive awards at the target level, and requiring
that 50% (rather than 35%, or 0% for someone who had met their
stock ownership guidelines) of 2008 annual incentive awards for
officers be taken in restricted stock instead of cash.
Mr. Welch, President and Chief Executive Officer, elected
to take his entire 2008 annual incentive award in restricted
stock, as he has done now for three consecutive years. Director
compensation for
2009-2010
was also frozen at the
2008-2009
level (all non-employee directors already receive more than 50%
of their compensation in equity and have not received an
increase in their cash compensation since 2007). The
Compensation Committee determined that these actions were
appropriate in responding to the current business circumstances
while rewarding performance and recognizing the importance of
retention of executives and other key employees who are critical
to the Company’s success.
Taking into account the achievements of management and other key
employees combined with the focus on cash conservation discussed
above, the five executives named in the Summary Compensation
Table that follows this discussion (whom we refer to as our
“named executive officers”) were awarded annual
incentive awards that were just below target for 2008 and that
were payable at least 50% in restricted stock (100% in the case
of Mr. Welch).
December 2008 marked the end of the three-year performance
component of the Long-Term Incentive Program described below
under “Long-Term Incentive Compensation —
2006 — 2008 Executive Incentive Plan,” which
covers the performance period March 1, 2006 through
December 31, 2008. Despite the significant achievements of
management during the period and the continued progress on the
American Centrifuge project, the failure to fully achieve
financial and economic performance targets related to the
American Centrifuge project that were set back in 2006 at an
early stage in the project, coupled with declines in the
Company’s stock price, led to performance and payout well
below target for the plan (56% of target levels). In light of
general economic and market conditions and the short-term
uncertainty facing the Company with respect to the financing of
the American Centrifuge project, which impacts the project cost
and schedule, the Compensation Committee determined to postpone
the implementation of a new three-year Executive Incentive Plan
until at least 2010 and instead to replace the plan for 2009
with a one-year performance based award that vests over three
years, as discussed under “Long-Term Incentive
Compensation — 2009 Performance Plan.”
Looking ahead, the Compensation Committee is particularly
focused on retention of key executives and employees during this
critical transition period while still maintaining a focus on
pay-for-performance.
This excerpt taken from the USU DEF 14A filed Mar 18, 2008. Executive
Summary
USEC is a global energy company that currently operates the only
uranium enrichment plant in the United States. We are entering a
critical transition period for our enrichment business as we
move from the older gaseous diffusion enrichment technology to
the advanced technology of the American Centrifuge through our
deployment of the American Centrifuge Plant. The transition
period has several challenges and opportunities and during this
period our ability to attract, motivate and retain employees and
executives with the requisite skills and experience to meet
these challenges is essential to our success and to the creation
of long-term value for our shareholders.
We began 2007 with a business plan focused on retiring or
mitigating a number of key risks that faced the business and
getting us to the next step with respect to the American
Centrifuge program. At the beginning of 2007, when the annual
performance goals were set, the financial outlook for 2007
included a projected net loss for the year in a range of $10 to
$20 million combined with projected negative cash flows
from operations for the year of negative $65 to
$75 million. As reported in our Annual Report on
Form 10-K/A
for the year ended December 31, 2007, we ended 2007 with
net income of approximately $97 million and cash flow from
operations of approximately $109 million, a substantial
improvement over our initial outlook. We also achieved a number
of key business objectives in 2007, including
(1) negotiating a five-year power contract that helps to
manage our power costs and gave us access to additional power
purchases that enable us to optimize operations;
(2) initiating our Lead Cascade test program that involved
the first group of American Centrifuge prototype machines
operating in a closed-loop cascade configuration and producing
nuclear fuel at commercial plant assay levels; and
(3) raising net proceeds of approximately $775 million
in the capital markets to fund our American Centrifuge program.
The Compensation Committee credited the contributions of
management and other key employees for many of these
achievements and value creation during 2007 and as a result the
five executives named in the Summary Compensation Table that
follows this discussion (whom we refer to as our named executive
officers) were awarded annual incentive awards that were above
target for 2007. Performance during 2007 will also be reflected
in the three-year performance component of the Long-Term
Incentive Program described below under Long-Term Incentive
Compensation — Executive Incentive Plan, which covers
the performance period March 1, 2006 through
December 31, 2008.
Looking ahead toward 2008 and beyond, the Compensation Committee
is particularly focused on retention of key executives and
employees during this critical transition period and made
several changes to the Company’s compensation program
designed to achieve that objective while still maintaining a
focus on pay-for-performance.
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