Centrus Energy Corp (LEU) 2003 Q1 法說會逐字稿

Good day and welcome, everyone, to the USEC Inc.'s first quarter 2003 earnings conference call. This call is being recorded. With us today from the company is Mr. William H. Timbers, the President and Chief Executive Officer, and Mr. Steven Wingfield, the Director of Investor Relations. Mr. Timbers will make his opening remarks, which will be followed by a question-and-answer period. At this time, I'd like to turn the call over to Steve Wingfield. Please go ahead, sir.

Good morning. Thank you for joining us for USEC's conference call on its first quarter ended March 31, 2003. This is Steve Wingfield, Director of Investor Relations. Before turning the call over to Nick Timbers, I'd like to welcome both our callers and those who are listening to our Web cast via the Internet. This conference call follows our earnings news release issued yesterday after the market's close. That news release is available of many financial Web sites as well as our corporate Web site usec.com.

Second, I want to alert all of our listeners of our full archive of our news releases and SEC filings, including our latest 10-K, is available on our Web site. A replay of this call also will be available later this morning on the USEC Web site. I'd like to remind everyone that certain of the information that we may discuss on this call today may be considered forward-looking information that involves risk and uncertainty, including assumptions about the future performance of USEC. Our actual results may differ materially within a variety of factors that we have referenced in our news releases and periodic filings with the SEC. Please refer to our SEC filings for a more complete discussion of these factors.

Finally, the information provided today is time sensitive and is accurate only as of today, April 24, 2003. This call is the property of USEC. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of USEC is strictly prohibited. Thank you for your participation and now I'll turn the call over to Nick Timbers.

Well, thank you, Steve, and good morning to everyone and thanks for joining us for our conference call this morning. Also with me today are Dennis Spurgeon, Executive Vice President and Chief Operating Officer, and Hal Shelton, Senior Vice President and Chief Financial Officer.

We had a strong quarter. The numerous steps that we've taken to lower our cost of production are beginning to have an impact on our bottom line. We are also seeing the initial impact of lower purchase costs from Russia. These have combined to reduce our unit cost of sales. Since our average priced invoiced to customers was basically unchanged, this lower cost structure improved our gross margin over last year and over the same quarter a year ago. The result is net income of $2.1 million.

Our prior guidance was for a breakeven quarter. Hal Shelton will provide more details on this financial performance in a few moments. I want to take this opportunity to update you on the strike by the PACE union members at our Paducah plant. Our contract with the union expired on January 31. Four days later, on February 4, the local union president declared that 635 PACE union employees were on strike. We have worked hard to reach a settlement with the union, even with the participation of a federal mediator. However, the numerous negotiating sessions have not resolved the issues. On April 2, the union walked away from our latest offer. There have been no negotiations since then.

USEC already provides its Paducah employees with outstanding pay and our benefits include substantial and affordable medical insurance, a generous pension and post-retirement health protection. Now, existing compensation benefits are well above the industry and regional averages. Our contract offer to the union would even improve these levels of compensation and scope of benefits.

Without going into great detail, let me site two examples using regional survey results. First, USEC's defined pension benefits are greater than the pension benefits provided by over 75 percent of comparable companies. Second, USEC has seen it's health care costs rise 89 percent since 1999. We have proposed to gradually increase union employees' share of medical insurance premiums from 10 percent today - and that's copay, as we all know in the industry - 10 percent today to 17 percent by 2006.

To give you a perspective, many other USEC employees already pay 20 percent of health insurance premiums or a 20 percent copay. And that's in line with national averages. The energy industry in which we're part of, the average is 24 percent. That's 24 percent copay. Unfortunately, instead of resolving these issues at the negotiating table, the PACE union has launched a public relations campaign to heighten concern about the strike. They've challenged our safety and security record.

Safety and security have always been our highest priority. The Nuclear Regulatory Commission has confirmed that the plant is being safely operated during the strike. The NRC has expanded its inspection coverage of the Paducah plant. In fact, on April 11, the NRC publicly stated, "there is no ongoing safety concern" at the Paducah plant. The security at our facility is not affected by the strike, as our security guards are members of a different union and they are on the job. Our security team is doing a great job. The guards have increased their workloads and are putting in longer hours to respond to higher national security threat levels. We really appreciate their efforts.

Since February 4, our salaried employees at Paducah have been maintaining operations and they've been doing an excellent job. We have more production sales on-line today than we did in January. Production is at or above pre-strike levels. We have made every customer order on time and we do not expect any delivery interruptions. In fact, we're ahead on production and we have all of our customer orders through the end of June ready to go. And last week, we took community leaders and the media on a tour of the plant and invited them to ask any employee any question about plant operations. The reports have all been positive.

To sum up, we have made fair and equitable contract offers to the union, but we have not yet reached an agreement. We will seek every opportunity to discuss these matters with the union leadership and work for an agreement. We look forward to the return of our 635 union employees. We do seek terms that are fair to employees, but we also must continue our efforts to enhance our competitive position in this highly competitive global marketplace. Now, that's just not - that's just not a good idea. It is an essential, continuous commitment for a publicly traded company in our industry today.

Turning next to our advanced technology program, I'm pleased to report continued progress. For example, in February, we submitted our license application for the American Centrifuge Demonstration Facility to the NRC. The Commission has completed its initial review, they've docketed the application and anticipate completion of its technical review by February of 2004. We are three months ahead of schedule.

We have completed our fourth milestone in the USEC DOE agreement that we signed last summer. This timeline established last year is one that is aggressive, but we are meeting it and are ahead of schedule at this time. But beating our schedule by three months was not an accident. We are focused on demonstrating and deploying the American Centrifuge technology as rapidly as we can.

We have often said that the nature of our business, with its multiyear contracts requires a long-term view and that our performance is best viewed over the longer term. The same long-term vision is behind our spending on the American Centrifuge technology. We are investing about a nickel a share each quarter of our shareholders' money to secure the most efficient uranium enrichment technology. We expect to demonstrate its performance in 2005 and plan to be in production using American Centrifuge by the end of the decade.

Now, I'd like to ask Hal Shelton to review USEC's financial performance in the first quarter. Hal?

Thank you, Nick, and good morning. Let me go through some of the highlights of the earnings report we issued yesterday.

Revenue for the quarter was $286 million, which was a 15 percent increase over the same quarter last year. That figure includes $24.5 million in sales of natural uranium. SWU revenue increased by nine percent, based on a nine percent volume increase quarter over quarter. The increase was due mainly to the timing and movement of customer orders. The increased sales volume, of course, drives a corresponding increase in cost of sales.

But importantly, unit production costs were 11 percent lower, reflecting more efficient operations and lower costs for electric power, labor and depleted uranium disposal. Purchase costs also declined as new market based pricing terms with Russia went into effect on January 1. This year's first shipments from Russia occurred in mid-February. Therefore, the impact of these lower cost purchases was small in the first quarter, but will play a larger role in coming quarters.

USEC employs a monthly average inventory cost methodology and maintains significant inventories, both of which caused a full impact of cost savings to be realized over time. Over the past two years, USEC has taken a number of significant steps to reduce costs and we are now seeing the benefit - a reversal of the trend in higher unit cost of sales. The accumulative effect of these cost control actions have lowered the average inventory cost for SWU. While the average price billed to customers was basically unchanged quarter over quarter, the lower cost of sales improvement our gross profit margin. The margin was 12.1 percent during the quarter, compared to 8.2 percent in the same period last year. For the full year, we expect to see gross margin of about 10 percent.

Quarterly cash flow from operations was a draw of $20 million compared to a positive $186 million in the same quarter last year. The main difference in the two periods is the timing of collections of trade receivables last year. Recall that the large share of 2001 sales came at the end of that year. Therefore, the cash collections from customers came in the following quarter, the first quarter of 2002.

Also, this year we had higher cash outlays for advanced technology compared to the same period last year, as we worked to demonstrate the American Centrifuge technology. We ended the quarter with a cash balance of $132 million. Because of the relatively large size of customer's orders and supply purchases, changes in our cash balances are reflective of these business events. As of last night, our cash balance was about $40 million higher than the balance at the end of March.

To sum up, we are beginning to see, in our financial results, the benefits of our focus on cost reduction. We need to and we will remain vigilant in our pursuit of cost reduction in order to maintain our industry competitiveness. That completes my report and I'll turn the call back to Nick.

OK. Thanks, Hal. Before we take your questions, I'd like to touch briefly on a topic of significant importance at USEC - our corporate governance practices. This is not a new subject for us. During the conference call last August, I commented on our strong commitment to do the right things for the right reasons the right way.

Earlier this month, Institutional Shareholders Services or known as ISS released its evaluation of the corporate governance practices for the largest corporations in America. I am pleased to report that, according to ISS, USEC has outperformed 99.9 percent of the companies in the Russell 3000 and 100 percent of the companies in our industry group. Based on comments from ISS, some of the factors that resulted in our outstanding score were the high degree of independence of our board of directors, the full board's annual election cycle, shareholder approval of management incentive plans and stock ownership guidelines for both directors and officers.

We are pleased that ISS has recognized the high priority that USEC has placed on corporate governance since its creation. The board demands the highest ethics and accountability from its management team and this resonates throughout our company.

Thank you, again, for taking time out of our day to be part of our quarterly call to investors. And now, operator, we are ready to take questions.

Thank you. Today's question-and-answer session will be conducted electronically. To ask a question, press the star key followed by the digit one on your touch-tone phone. Again, that's star, one if you'd like to ask a question. Please make sure your mute function is turned off so your questions will register on the queue. We'll pause just a moment to assemble the roster. Tim Hasara, Kennedy Capital.

Yes. Good morning. Just curious on your- the outlook that you gave when you reported your December quarter with respect to revenues, earnings and cash flow, whether that's changed at all.

Good morning, Tim. This is Hal. As you've indicated, we published forecast and as the year is still young, we have not undertaken any updates.

OK. And with respect to your ending cash flow - or cash balance at the end of 2003, you forecasted 150 million. Has that forecast changed to date?

The forecasts have not changed.

OK. And just a question on natural uranium. I'm curious if you can tell me what the - what the spot price is currently. And also if you're aware of Cameco, one of the larger producers of uranium, had a problem with their mine, if that's pushing the price of natural uranium up right now or you anticipate that in the future.

This is Dennis Spurgeon. Yes, they - Cameco has had a problem with its McArthur River property. I think it's too early to determine precisely the total impact of that. But we have seen a small increase in the price of natural uranium, I think, on the order of about 20 cents, it moved up in the past week or so. So there - so there has been some movement, although fairly modest at this point.

And one other question. What is currently the price of SWU in the marketplace?

There's two prices - a long-term price, which is in the $105 range and a spot price, which is in the range of $108.

OK. Thank you.

Our next question - David Schanzer with Janney Montgomery Scott.

Yes. Hi. Good morning, everybody.

Good morning, David.

Couple of questions. First of all, the paragraph you had in your press release regarding the uranium inventory remediation, could you give us some additional color and also maybe an idea or schedule as to when you think the DOE is going to transfer the replaced uranium?

It's Dennis Spurgeon again. The quantities that the DOE - specific quantities or precise quantity DOE is required to transfer as of March 31 really will not be determined until the end of this month because it's the - it's the difference between 3,293 tons and the amount we processed between the beginning of the program and March 31. And so, we will be giving them that exact number here within the - within the next week or so. And we anticipate that they will live up to the agreement that we signed with them.

And you anticipate that would happen in the first half of the year or the - or the third quarter or four quarter?

I try not to anticipate precisely when the government will do something, although we have confidence that they will always eventually come through and meet their requirements.

OK. I noticed also that in your income statement there was a significant increase in uranium sales and I was wondering whether or not that was kind of borrowing for the second quarter or whether - or that was just the vagaries of the market at the time.

No, it's just a timing issue.

OK. And lastly, I noticed that the SG&A expenses were up significantly, about 23 percent. Is there any specific reason and what's your outlook for the rest of the year?

David, this is Hal. The major impact on SG&A on a quarter over quarter comparison relates to our changing our fiscal year and having, therefore, administrative matters having a different timing this year versus last.

Oh.

And I can give you a couple of examples, as you asked for. For example, our, you know, year-end performance and compensation reviews on a pro rata basis moved to the first quarter versus the third quarter. Our printing costs for the annual report in the proxy, first quarter versus third quarter. Higher audit expenses, first quarter versus third quarter. And so those are mainly timing. One item that's pervasive for all companies is higher insurance costs. But a lot of it has to do with the timing on the year-over-year comparison.

Understood. Thank you.

Our next question - Brett Levy, Royal Bank of Canada.

A couple of my questions have been answered. Can you talk, first off, about the Paducah facility? Are you guys operating that profitably? Are you operating it more profitability than you were prior to the strike? And, if not, kind of what's the timetable to do that on the sort of chance that maybe this is a longer-term situation?

The Paducah plant is operating well. It's meeting all it's deliveries on time. We have had no major safety or other operational incidents and I think its performance currently, in the month of March, for example, is the best it's been for several years.

From a cost perspective as well.

From a cost perspective as well.

Great. And then the second one is - and, I mean, maybe this is just sort of something that needs to be retold. In terms of this investment in the - in the sort of first prototype centrifuge technology plant and then ultimately the construction of the centrifuge technology plant, can you talk a little bit about kind of what you anticipate the returns on this technology would be if it works? I mean, clearly, you're investing a lot of money in it.

Can you give us some metrics in terms of input prices versus current finished product prices or something along the lines that says, you know, you build this, you attract some investors to kind of go in with you or you raise some money on your own depending on sort of how the markets are for all of these things. And ultimately, this is a very attractive investment.

This is Hal Shelton. The attractiveness of the investment comes in, substantially lowering our cost of production. And I can give you one metric of that. And that's on the power cost. The - this technology will use 10 percent of the power or 90 percent less power than we use today and today we have a power bill that's north of $250 million a year. And so, that's really the key - one of the key drivers in putting in this new technology. What we're doing in this next four years or so, through this demonstration phase is proving out the economics and doing all the metrics to demonstrate what the profitability and what the returns will be if we - and when we put together the full commercial plant.

OK. And then, are there any other centrifuge technologies around the world that could be pointed to as an example of how profitable this approach would be or would this be the first one?

I don't know that there's one that you can point to that's a precise example, but our competitors, the Urenco and the Russians are operating centrifuges and are realizing the power cost saving that Hal referenced. We like to think that the centrifuge - the American centrifuge that we will be deploying - has some technological - substantial technological advantages over those competitors and, therefore, will be - will be cost effective not only against our current gaseous diffusion plants, but against the competing centrifuges as well.

OK. Thanks very much.

Our next question - Tony Cilluffo, Cilluffo Associates.

Good morning, Nick, and good morning, Hal. Most of my questions have been - have been answered. Just one - what is the - what are we carrying our inventory in uranium at on the books?

Our book cost for uranium is about $25 a KGU and the market price today is about 31.

Thank you very much.

Our next question - Richard Greenberg, Donald Smith & Company.

Good morning. My first question is I believe, Hal, you said that prices were unchanged year over year - unit prices of SWU - realized prices. Yet, in your annual, you were talking about a one-and-a-half percent price drop for '03 versus '02. Is there any change in that forecast?

That is still our current forecast.

Second question. I'm wondering if you guys could provide some perspective on Tokyo Electric's nuclear plant shutdown and the impact - near-term and long-term impact you would expect to have on USEC.

It's Dennis Spurgeon again. As you know, they have shut down their nuclear reactors for inspections. They - we believe that they are prepared to restart those reactors and are waiting local government approval to do so. We see no impact on us in this current calendar year, 2003. There could be some impact depending on when and at what rate they restart these plants in 2004. They do need the power from these reactors in Japan. There have been articles in the Japanese press about the consequences of not having the reactors restarted.

But having said that, we just have to wait and see the schedule on which they're granted approval to restart the plants. And obviously, that will determine their fuel needs going forward.

Dennis, on the assumption that they do restart those sometime those calendar year, what would be the approximate volume impact in '04?

Well, it depends on when they restart and if they restart all of them. The '04 impact is not going to be that great, but I don't have that number for you. That's one we can certainly get and provide to you if you'd like.

OK. Next question. The court of international trade, you know, remanding the case back to the DOC, you know, I'd like to hear your perspective on that and, you know, the - I guess it's on, you know, this tolling and argument. And also, if you could, perhaps, speculate if you were to ultimately lose that case and the, you know, the duties are taken off, what you think the impact on SWU pricing would be.

First - this is Nick Timbers. The court remanded the case back to the DOC for really clarifications of its findings. In remand, all they're asking for here in case is a clarification. As to their findings relative to other cases that they've had, that there may appear to be inconsistencies and they want to ensure that there are consistent responses. And so this is not a change of the findings. The duties are still in place. They're still being collected.

We're not going to speculate in this environment about the - some of the arguments that were put forth and probably we're not qualified to do it, to tell you the truth. But what we need to do is have an understanding that we feel very, very confident that the findings from - by the DOC and the ITC will be upheld. Even if - that they were changed by this court of international trade, there is still a - an appeal route that can be followed. We're talking about still several years through this process.

I think that we've stated before that we feel very strong that our case is solid, and that as this goes through a process, we have stated in the past that this is not the first challenge, nor will it be the last challenge to these findings.

So, I think in answering the third part of your question, I really don't want to get into a speculation about what's going to happen if the findings were to be changed. Because, so far down the road it's so speculative, and we don't think it's going to happen.

So then, Nick, in that scenario where it does drag on for years, do the duties remain in place that whole time?

Yes.

OK. All right, and the next topic is the dividend. You know, you constantly affirm that the dividend -- and I know, you know, it is a board decision -- but under the scenario that, you know, this year and next year, clearly you are under-earning the dividend, and the earlier that you would be able to earn this current dividend is '05, and even that's not for sure. Would you -- is it your plan to keep the dividend and the current level?

The board reviews this on every quarter. The board will review the dividend on Monday. And as far as I know, we are the -- the board is still looking forward to confirming that dividend.

I want to also ensure that you understand the dividend is paid with cash and not with earnings, and the cash is there to pay the dividend.

OK. And a final question. Any thoughts on, you know, starting to deal with your debt outstanding? I know it's not due starting until the beginning of 2006, but you could be buying back debt in the open market. Any thoughts on starting to deal with that debt early?

You know, Rich, we have been thinking about it here. We have a little task force looking at it, so we're anticipating -- we understand what the market conditions are here today in terms of interest rates. We're looking at 2006. We're looking at all of our financial obligations and commitments, and that's one of them. So, you raise a very, very good question, and I'm glad to report to you that we're looking at it.

OK. Great. Thank you very much.

OK.

Our next question, Peter Lieu, Lieu Capital Management.

Hi. I'd like you to answer a couple of questions. One, why are the gross margins going down for the balance of the year? Because you're indicating that it's 10 percent for the year, while the first quarter recorded 12 percent gross margin.

Peter, this is Hal. The biggest impact of that is going to be the third quarter, in essence, to the summer period when, as you know, we bring down our production to about 900 megawatts, which is more than half a drop as we conserve cash in terms of higher summer power prices. And so, it is just the timing during the year of our production cycle.

OK. Now, you indicated that the distortions in cash flow this year versus last year was a function of the skewing of receivables. Can you give us some idea of the pattern for the rest of the year in terms of cash flow?

The comparison of cash flow this year versus last year is going to be skewed almost in every quarter, and I'll give you one clear example. It was receivables in the first quarter, but recall, last year as we were going through negotiations on the new pricing for the Russian agreement, we did not purchase any material in the first and most of the second quarter. And therefore, it had no Russian payable in those two quarters. But we did fulfill the full five and a half million through purchase from the Russians in the second half of the year. So, I think when you see quarter on quarter, we will be behind on the second quarter, and we will be ahead on the third and we'll be ahead on the fourth.

OK. Thank you very much. One other thing. You know, as a shareholder, I thought your stock yielding over nine percent was an unbelievable bargain relative to other industrial companies. And, you know, to my unpleasant surprise, I see the thing pushing a 10 percent yield. You know, I don't know how other investors are reacting, but I would like to have your reaction. What do you think is missing in terms of the market understanding your company to drive the yield up to a level that most investors would think that dividend is extremely insecure? Because, it just doesn't make any sense with your level of cash flow and your cash position to have you trade with almost 10 percent yield.

Peter, we agree with you.

Peter, you know, if I know the answer to that, probably I should be in a different business. The reason -- I guess, when I have those kind of questions, my instant reaction always is it's not the dividend which is in question here; it's the price of the stock.

Now, the dividend yield should be basically lower because the price of the stock should be higher. I mean, there can be any number of different things. This is a business that is hard to understand. It does not have -- you know, the shares don't have the high degree of liquidity in terms of investors. But what we've found really in the market is that, you know, a small purchase or sale at the end of the day by -- you know, 1000 shares can move that price pretty significantly. And also, you know, we're caught up in the overall economics of the economy today. We're caught up in the economics of the energy sector today. And so, when you see the performance of the stock relative to an S&P 500 or a utility index, it's not so bad, but we're not satisfied with that in any respect.

But we believe that our approach here is the right one. And that is that we pay attention to the fundamentals. Peter, if you've seen this over a time in the last couple of years, we have worked diligently and consistently to create a business model that is working, and this one does work at this time. We have worked hard to reduce the cost of operations. We are consistent, and Hal said -- he used the term "vigilant" in terms of keeping costs down. We have a vision for the future to ensure our long-term competitiveness. And we truly believe that in the long-term, these positive and strong positions that this company is taking will be recognized in the marketplace.

I have just a couple of suggestions. A few years ago, you had indicated -- this is when your yield was over 12 percent, 12 and a half percent, when your stock was close to four dollars a share -- you indicated at that time that the company would want to buy in stock. The other thing that -- you know, the market is very, very skeptical of management, and you put an emphasis on corporate governance and how proud you are of the ISS review of your corporate governance record. But for the layman, we would love to see some senior management stock purchases on a consistent basis. Now, I'm not asking you to buy, you know, half a million dollars worth, but even if you bought 10 to $15,000 -- you know, a group of senior managers bought it and bought it on a consistent basis -- that would give a signal to lots and lots of individual investors who would be comforted by your expression of confidence. And I hope you'll consider that seriously.

OK. You do realize I'm a pretty -- I, myself, am a pretty large shareholder in this company.

Well, thank God, I haven't seen any sales from you.

I have never sold a share of this stock.

But if you're in the position -- because I know, you know, you're well-paid, and it would send a powerful message out there if you were to buy a little more.

OK. I appreciate your input on that.

Our next question, Michael Rowe with Bank of New York.

Hi. You mentioned in one of your sentences here about the full impact of the lower production costs, as well as the Russian deal, coming over time. I was wondering if you could give me a general idea, when looking at costs of goods sold -- specifically the inventory -- how much you're kind of weighted towards, you know, the first quarter costs versus historical. I mean, I don't know if an example may be, you know, 10 percent of the inventory costs were from the first quarter, and, you know, 50 percent were from the previous three quarters -- something like that to get a general idea of how long it takes for this to really get into your earnings.

Generally, for a cost incurred on the first day of the year, about 50 percent of that cost -- 50 to 60 percent -- will be seen in that year's business, and the remainder will in subsequent years.

OK. So, half in roughly the first year, and then the second half, maybe over another two years?

Yes.

All right, thank you.

Again, if you'd like to ask a question, it's star, one on your touchtone phone. That's star, one for questions.

And we'll go to David Schmookler with Miller Tabak Roberts.

Hi, guys. Nice quarter.

A couple of questions. Following up on the last question, looking into 2004, where do you guys see gross margins going there as the inventory of cheaper Russian SWU is billed?

We have not provided any forecast for 2004.

OK. And then, in the first quarter, I imagine you guys benefited in a reduction in labor costs as a result of the strike. Can you tell me if I'm thinking about that correctly? And if yes, can you quantify that?

Following on a previous question, clearly, the strike started in February, and so, February was a split month. So, the first full month of impact was March, and as it goes into inventory, there was very little impact in the first quarter's from any impact of a strike ...

Um.

... subsequent quarters. But you're right in the sense that labor costs were down.

Any way to look forward into the second quarter? You know, if the strike continues, how much will you guys benefit?

No, we're not really going to project out there. We want to get this strike over as soon as possible.

OK. Fair enough. And then, on the DOE contract for the cold standby, I understand you guys are not recouping some small portion of the costs. Any time there in the negotiations with the DOE?

We will get the full reimbursement of the costs; we are accruing for the full reimbursement. And that contract should be in place very soon.

OK. Thanks a lot.

It's not an issue, I don't think.

Our next question, ARA Cohen , Redwood Capital.

Good morning.

I've got a couple of questions. The first question: could you help explain what accounts for the large change in deferred revenue, quarter-over-quarter? It had roughly a 41 million impact on the cash flow.

This is Hal. I just don't have those numbers at hand. I believe it related to making some sales in contracts that previously -- particularly Japanese customers had provided the cash in advance -- and so, the SWU -- we recorded the revenue, but we have received the cash in a previous period.

I see. Secondly, could you explain what accounting for the large change in long-term inventories on the balance sheet?

Yes. When you look at our inventories, you need to look at the current and the long-term, because in the long-term we have our USHEU Program where the government gave us 50 metric tons. We are down-blending that to both the uranium and the SWU components over a six-year period. And as that moves out of that category it moves into both long-term uranium and current uranium and current SWU.

All right, thanks.

So, when I look at inventory, I look at all four categories or all three categories, and you'll find that, quarter-over-quarter, and March 31st over December 31st, it was down slightly in both comparisons.

I see. And could you provide some color on what contingencies exist between you and the Department of Energy in terms of their ability to seek appropriations from the Legislature? In other words, if they're unable to do so, are they able to walk from their commitment to transfer?

The answer to that is no, and the agreement has that we'll work with them to look at all their alternative ways in which that uranium will be transferred. But and agreement is an agreement. And we've found that the U.S. government is very good in fulfilling their terms of the agreement.

I see. My last question relates to where your bonds are trading. As you probably are quite aware, they're trading close to, you know, a 16 percent yield, which is probably one reason why your stock, you know, trades where it does in terms of the dividend yield. It would seem to me that -- is there any consideration to eliminate the current dividend, or at least lower it to a more appropriate level, which might, indeed, help your bonds trade at a more appropriate level?

I think I already addressed the dividend question. The board looks at it every quarter, the dividend is paid as cash, it's not paid out of earnings, and that we feel confident at this point in time that the dividend is appropriate.

So, I say that this is response filled by the board of directors. They look at it every quarter, and they will look at it again on Monday.

OK. Thank you very much.

Our next question, Hank Rauch , Liberty Mutual.

Yeah, good morning.

Following on that, is there anything in your bank indenture? Are there any other agreements that would prevent you from repurchasing your bonds in the open market?

We do have some caps on the amount that we could repurchase on an annual basis, but it's not a limit or a forbearance.

OK. And just a comment -- and I guess this follows on some of the others. I think the reason your stock trades so poorly is that you don't generate enough net income to cover your dividend, and so people are concerned that at some point, either to pay for the new plant or to help retire some of your debt, that you're going to have to stop paying the dividend. And I think that's a big issue, and you're obviously hearing that consistently from your investors -- both on the debt and equity side. Thanks.

Thank you.

Our next question, Stephen Korn, Loews Corporation.

Hi.

Two quick questions. Could you update us on your backlog of orders at the end -- at the end of fiscal year it was 4.1 billion. Where is it now?

It's still in that same range of about four billion dollars.

OK. And then, secondly, is there any progress on some of the new initiatives you were talking about getting into, either with the government or uranium handling or waste processing?

We are working diligently on those areas, and I think that we are making progress and we have identified things that are of particular interest to this company, and are in general discussions about how to proceed on those things.

So, I think that without getting into specifics, which we can't do at this time, the answer to that is yes.

Are there specific deals or projects that you've identified and are at this point pursuing?

We are looking at a broad range of things, and we are talking to a variety of different people, and there are, I think, attractive opportunities for this company that will be, you know, looked at very, very carefully.

And what would be the soonest reasonable timeframe for any sort of project or initiative to actually take place?

It's hard to say. You know, you're listening to a willing partner on the other side. But, you know, this is a significant focus of this company this year.

OK. Thank you very much.

Our next question, Brad Levy, Royal Bank of Canada.

Yes. Can you talk a little bit -- I mean, I know that you guys have not given any revision to start of the year guidance -- can you talk a little bit about the seasonality? You know, at this point I think we're modeling the second quarter should be relatively strong, and the third, relatively weak for seasonal reasons. Can you talk a little bit around, you know, some of the factors that drive that?

What drives that is our customers, when they look at refueling their plants, they look at the time when they're least engaged, which is the spring and the fall as they gear up for summer air conditioning or winter heat. And so, we do tend to see higher business and it would be the second and the fourth quarters.

In terms of a weak time for us, it is the summer quarter when we have taken -- we take our plant down to minimum operating levels as we conserve on power consumption.

Thank you.

Our next question, Tim Hasara, Kennedy Capital.

A previous caller touched on your credit agreement, and I guess your ability to buy bonds, I guess, and/or stock, too. I guess he, obviously, as a bondholder, would like you to stop paying as much on the common dividend. But I was just curious. You don't have anything out on your bank line? I would assume it'd be easy to increase the flexibility of buying both stock and bonds. Would that be accurate? Or, if not, why are you keeping the credit line in place without anything on it and presumably paying on it, as well?

Tim, this is Hal. You're correct; we have not borrowed on our bank line for almost two and a half years. As we've discussed on previous calls, being a relatively conservative guy, I think it's very good in today's economic climate to have a safety net just in case. When we look at our cash flow patterns, we have very large receivables; our average order is $14, $15 million. We have very large purchases. We might pay $40 million per invoice to the Russians, and it's just a timing of when those happen that you might need cash on a particular day.

And so, we have a relatively modest $150-million credit line in place.

You know, presumably, if you look at buying the bonds with the stock, you're paying on an interest rate basis, on a pure cash basis, more on the common stock due to the common stock dividend, than you are on the bonds. It would appear to me to make more sense to buy the common stock than buy the bonds. I was just curious on your priorities with respect to that.

At this point in time, we do not have a program to buy either the stock or the bonds back, nor have we presented one to the board of directors. And at this point in time, we don't have authorization. So, any kind of discussion would be an interesting one, but not necessarily germane to the financial planning of the company at this time.

However, you said earlier that you were considering buying the bonds back. You don't have authorization, presumably, to do the bonds. Why would it be any different to discuss buying the stock back when you talk about this?

I think that my answer was that we anticipate and we are looking forward to the maturity of $350 million of notes in 2006, and $150 million of notes in 2009. And we are planning and looking ahead as to what our financial options might be with those notes, and also with our other financial obligations in terms of the demonstration facility, lead cascade, and also the capital requirements for the centrifuge.

So, I think my response was not in a discussion about buying bonds back, but was in an overall financial engineering and capital financial analysis of the company.

OK. Thank you.

Due to time constraints, this concludes the question and answer portion of the program. Mr. Timbers, I'd like to turn the conference back over to you for any additional or closing comments.

OK, good. Well, thank you very much. As we started here we had a strong quarter, and we look forward to having further discussions with you investors and others next quarter. Thank you very much and good morning.

This does conclude today's program. Thank you for your participation. You may now disconnect.