Centrus Energy Corp (LEU) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to the USEC Inc. fourth-quarter 2004 earnings conference call. This call is being recorded. With us today from the Company is Mr. James Mellor, Chairman and Chief Executive Officer, and Mr. Steven Wingfield, Director of Investor Relations. At this time for opening remarks I'd like to turn the conference over to Mr. Wingfield. Please go ahead, sir.

Good morning. Thank you for joining us for USEC's conference call regarding its fourth quarter and fiscal year that ended December 31, 2004. This is Steve Wingfield, Director of Investor Relations. With me today to discuss our financial results are Jim Mellor, Chairman and Chief Executive Officer; Lisa Gordon-Hagerty, Executive Vice President and Chief Operating Officer; Ellen Wolf, Senior Vice President and Chief Financial Officer; and Bob Van Namen, Senior Vice President.

Before turning the call over to Jim I want to welcome all of our callers as well as those listening to our webcast via the Internet. This conference call follows our earnings news release issued yesterday after market's close. That news release is available on many financial Websites as well as our corporate Website, USEC.com.

Second, I want to inform all of our listeners that our news releases and SEC filings, including our most recent 10-K, 10-Q's and 8-K's, are available on our website. A replay of this call will also be available later this morning on the USEC website.

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 depending on a variety of factors that we've 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 forward-looking information provided today is time sensitive and accurate only as of today, March 17, 2005. This call is the property of USEC; any redistribution, transmission 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'd like to turn the call over to Jim Mellor.

Thanks, Steve, and good morning and happy St. Patrick's Day to everyone out there. Thank you for joining us for our conference call to discuss the fourth-quarter and the year-end results for 2004. Let me say at the outset that we very much appreciate your patience in waiting for this call. As many of you know, we had originally planned to do it in mid-February. We've now filed our Form 10-K yesterday, 8-K last week, explaining two restatement issues that relate to our audited financial statements.

After the market closed yesterday we issued USEC's results for the fourth quarter and for the fiscal year. And Ellen a little later will provide a detailed report on those results and the restatement. But first I want to give you a broad outlook for the business and some of what I see as the highlights for 2004 and some look ahead into the future.

As you know well, USEC is a key player in the global nuclear fuel industry -- a pure play, if you will, in the nuclear arena. Today there are over 430 nuclear reactors operating worldwide and a number of new reactors are under construction. Most of these are in East Asia where USEC currently has some very important customers. China and India also are making substantial commitments to build new nuclear power plants as these economies are expanding rapidly.

China is particularly interesting because they have an abundance of coal reserves there, but they've elected to go nuclear because of the emission problems with coal. And now I think we'll see that throughout the world in the future. Here in the United States several of our utility customers are working on projects to see the next generation of reactors licensed and built, hopefully by the middle of the next decade.

I'm sure that many of you have seen the increasingly positive reports about the prospects for new nuclear reactors; Forbes, wires and others. And if you haven't seen them I'm sure Steve will be happy to get them together for you. And of course, all of this points to a steady growth and demand for nuclear fuel for decades to come and that's why we're investing so heavily in the American Centrifuge program and we are confident here that the American Centrifuge is going to position USEC as the low-cost and most reliable uranium producer -- enrichment producer well into the 21st century.

And we're making solid progress toward that goal. In January we announced that we have met the eighth milestone under the DOE-USEC Agreement. We began testing full size centrifuge machines at Oakridge, Tennessee. In parallel with the development of the program, our employees and teammates are also preparing the American Centrifuge Demonstration Facility in Piketon, Ohio. And we expect our state-of-the-art centrifuge machines will be demonstrated in this building by the end of this year.

The operation of a cascade of these initial centrifuge machines will provide important cost, schedule and performance data and that data is necessary before we begin construction of the commercial plant. Testing of our centrifuge machines is a critical and challenging phase of the demonstration process and we're continuing to make progress on all of the key tasks. In parallel with this technical work, we're working with the Nuclear Regulatory Commission, the NRC, on our application for an operating license for the commercial enrichment plant.

In a public hearing earlier this month the NRC staff reported the licensing process for the American Centrifuge Plant is on track and that communications between the Company and the NRC staff are very good. We fully expect that the American Centrifuge demonstration will prove the high-efficiency of our centrifuge technology and that the financial markets are going to find this to be an attractive investment.

I know many of you want to know about our funding plans for the program and let me just tell you that we intend to announce these plans when market conditions, capital needs and regulatory requirements are appropriate. Bottom line, the American Centrifuge is a key investment in this Company's future and the future of nuclear power for that matter. We've begun testing the full-size centrifuge machines and we continue to be impressed with its future potential for USEC's business and for our investors.

Meanwhile we're keeping a strong focus on our current production operations. This has to feed the Company for the next several years and our production plant in Paducah, Kentucky had an excellent year of operations. Although the plant is some 50 years old, our employees executed a maintenance plan that resulted in the highest number of production cells on line in 25 years. We've optimized our efficient use of electricity, maximizing the number of SWU's produced for each megawatt of electricity consumed. And this efficiency remains at the high mark that we set in 2003 last year.

I'm sure some of you are interested in our search for a new Chief Executive Officer, and let me quickly bring you up to speed on that. The Board of Directors has appointed a committee to lead the search effort and I'll be closely involved in that search. We'll be working with an executive recruiting firm to find a high-quality individual to lead USEC through its continued transformation.

The qualities will come as no surprise to any of you; we're looking for someone who is actually leading or has successfully lead a large organization, ideally with experience in our industry. We want and need a person who has a proven bottom-line experience, P&L and balance sheet and who knows how markets work. People skills is a must to be able to work effectively with our management team, our customers, the regulatory agencies, Congress, state leaders, both here and abroad and, of course, our shareholders. We fully intend to find and recruit that person to lead the Company.

As you would expect, the committee's work will take some time; it's not going to happen overnight. Meanwhile every day I'm working with the senior management team here which, I've got to say, is really excellent -- not just good but excellent. I can assure you that we're not standing still; we're not in a holding pattern here. We're making progress on several strategic fronts. And those of you know who about my experience and background will recognize that I'm quite used to this role.

In finality let me just that we're not going to be conducting this search in haste, we'll do it right. Quality is more important than timeliness. Lastly, I'm sure there are questions about the termination of our former CEO. Simply put as this is a legal matter and I really can't provide any substantive additional information beyond what's contained in our filings with the SEC. One thing I can tell you, however, is that the termination was not related to any strategic issue, operational performance or financial matter. And let me just say that the arbitration process continues to move ahead and we have a firm policy about not commenting about matters that are in litigation.

With that as kind of a backdrop, let me ask Ellen to talk about our financial results for the quarter and then both she and I will be available for any questions that you might have.

Thank you, Jim, and good morning, everyone. Our financial performance in the fourth quarter was solid and 2004 turned out to be a little better than we had forecasted with net income of 23 million on revenue of just over 1.4 billion with 46% of that revenue coming in the fourth quarter. Because our customers generally place orders under long-term contracts that are tied to their reactor refueling which occur within a 12 to 14 month cycle, we believe USEC's financial results are more appropriately viewed over the longer-term. Therefore, as we report quarterly earnings we consistently point out that short-term comparisons of USEC's financials are not necessarily indicative of the Company's longer-term results.

Now let's start with the bottom line. After accounting for the restatements for the fourth quarter we earned $28.2 million and for the full year net income was $23.5 million. The restatements had the impact of increasing net income in 2004 by $1.8 million. Revenue for the fourth quarter was $648.5 million, $249 million more than the fourth quarter of 2003. For the full year revenue was $1.4 billion, about the same as last year. SWU revenue in 2004 was down from 2003 reflecting the 8% volume decline from 2003.

The volume decline was due to postponed refuelings by Tokyo Electric, one of our largest Japanese customers, as well as lower contractual commitments as a result of competitor's aggressive pricing in the late 1990s. The delayed Japanese refuelings will continue to impact our SWU sales volume in 2005 but to a lesser extent than in 2004.

One of the many positive signs we've seen, however, for USEC has been an increase in the average price billed to our customers. During the quarter the average SWU price billed to customers was almost 2.5% higher than the same quarter in 2003. For the full year average SWU prices billed to customers were almost unchanged compared to 2003 reflecting the continued roll off of older, low-priced SWU contracts.

Uranium revenue for 2004 increased $55.5 million from the previous year reflecting an 11% increase in volume and a 20% increase in average realized prices. As you may be aware, most of our natural uranium is sold in conjunction with SWU sales. Therefore uranium sales in the fourth quarter of '04 were also higher than in the fourth quarter of 2003. At the end of December the published spot price indicators for natural uranium as UF6 were at $63 per kilogram which was a 42% increase for the year. At year end we had more than $330 million of natural uranium inventory on our balance sheet at a book value significantly below current market price.

Much of this inventory is presold, but some of these uranium sales contracts contain market pricing adjustments with ceilings and floors. We are also selling the additional uranium made available as a result of underfeeding operations at Paducah. Essentially underfeeding allows us to optimize the economic value of two major inputs for enriched uranium, natural uranium and electricity. We are feeding less uranium into the plant but processing it to a lower tails assay, which results in additional natural uranium being available for us to sell.

This process has two upsides. First, our customers appreciate this additional supply being made available as uranium has been in short supply; and second, the additional material generated through the process helps us to extend the life of our uranium inventory.

And finally, on the revenue side, our government contract business segment was stable in 2004. Revenue from the U.S. government contracts was $165.9 million, virtually unchanged year-over-year. Government contract work does bring a lower profit margin than the other segments of our business.

Turning now to cost of sales -- the 8% decrease in SWU volume in 2004 resulted in a corresponding decrease in cost of sales with cost of sales decreasing 55.5 million or 5% year-over-year. The unit cost of sales declined by 1% between the two years reflecting lower purchase and production cost in earlier periods. In 2004 the unit cost of purchases and production increased by 3% over 2003 reflecting higher purchase costs from Russia; higher cost for electricity, labor and benefits; and a 5% lower SWU production at Paducah. USEC uses the average inventory cost method under which an increase or decrease in production cost or purchase cost has an effect on cost of sales in future periods.

The gross profit in 2004 was about $194 million, an increase of $30.4 million or 19% over 2003. The gross profit margin for the year was 13.7% compared to an 11.3% -- in 2003. This increase was mainly due to a higher average price billed to customers for natural uranium along with a lower unit cost of sales for SWU.

Below the gross profit line are the expenses for the American Centrifuge project and selling, general and administrative expenses. USEC continues to make a substantial investment in the American Centrifuge technology. As Jim discussed, our demonstration program is on track and on schedule. Total expenditures related to the American Centrifuge in 2004 were $64.4 million of which $6 million were capitalized and $58.5 million were expensed. The $58.5 million was about $13.7 million more than was expensed last year.

This investment in our future had the effect of reducing net income by approximately $36 million or $0.43 per share in '04 in comparison to '03 where USEC expensed $44.8 million on advanced technology which had the impact of reducing net income by about $28 million or $0.34 per share. Overall we incurred $8.5 million more in expense and $14 million less in capital than our initial projection reflecting our conservative approach in allocating spending between expense and capital. You'll see that the capital costs are accumulated on the balance sheet of construction work in progress under property, plant and equipment.

Sales, general and administrative expenses, or SG&A, totaled around $64 million for the year. When adjusting SG&A in both 2003 and 2004 for severance costs relating to the departure of executive officers in those years, the SG&A expense is basically flat between the two years.

Turning next to cash, our cash flow from operating activities for the year was $52.6 million compared to $109.9 million in 2003. The primary difference in cash flow between the two periods was the previously discussed reduction in SWU sales, a $33 million payment in 2004 related to the termination of a power contract, and $35 million in short-term investments in 2003 that matured in 2004. I just want to take a second to talk about that $35 million, what it represents, our auction rate securities that in 2003 we had included in cash but we have now reclassed it to a short-term investment.

Also in the fourth quarter we repurchased $25 million in senior notes that are due in 2006, and you may remember that our total notes due in 2006 have now gone down by the $25 million to $325 million. Our cash balance on December 31, 2004 was $174.8 million.

On the restatement, in February we announced that we were considering a restatement involving the timing of revenue recognition. During the interim period we identified a second issue involving deferred tax assets. Last week we announced in our 8-K that we've made the restatements for these two issues to correct these inadvertent errors associated with the interpretation of complex accounting principles. Consistent therefore with the public accounting oversight board standards USEC's management has concluded that the control deficiencies that resulted in these restatements constitute material weaknesses in our internal control over financial reporting.

No other material weaknesses were identified for the year. Details relating to these restatements can be found in both the 8-K, which we filed last Friday, and our 10-K which we did file yesterday. All amounts that we've provided in this call do reflect those restatements.

Looking forward we are providing 2005 annual guidance for net income, cash flow from operations and the spending forecast for the American Centrifuge. We expect our total revenue to improve by approximately $100 million to $1.5 billion with revenue from SWU of approximately $1.1 billion. Following a similar pattern to the one seen in 2004, we expect deliveries of uranium and SWU to be heavily weighted to the fourth quarter. We are providing guidance for net income in 2005 after taking into account expenses for the American Centrifuge in a range between $25 to $30 million or $0.29 to $0.35 per share.

We will invest approximately $110 million in the American Centrifuge demonstration; lead Cascade and manufacturing programs during 2005. We anticipate that about half of that amount, or $55 million, will be related to activities that will need to be expensed. This level of spending will have the effect of reducing net income in 2005 by about $34 million or $0.40 per share. We expect to capitalize the remaining $55 million.

I want to emphasize that the allocation between expense and capital for the American Centrifuge will be subject to regular reassessments of the nature of the expenditure and the allocation of our dollars between the various activities in the program. A higher allocation of the expenditure to certain functions could result in either more or less expense versus capital and therefore impact our forecasted net income, but I want to stress not our total cash flow.

Cash flow from operations for the year is expected to be in the range of $150 to $170 million. Capital expenditures, including the $55 million that I just mentioned which relates to American Centrifuge, is expected to be in the range of $70 million. We anticipate a year-end cash balance in the range of $200 to $220 million.

In summary, the financial and operating results for 2004 were better than expected. We had a number of positive results as both net income and cash flow from operations improved as the year progressed. Our Paducah plant is operating at its best level in years which helps to mitigate increases in both labor and power costs. And finally, the American Centrifuge is progressing well as testing of the individual machines continues in Oak Ridge. Operator, we'd now like to open up the phones for any questions.

(OPERATOR INSTRUCTIONS) Richard Greenberg, Donaldson Co.

I guess my first question has to do with the spending on American Centrifuge. You've spent 126 million so far, if you add in the 55 million you come up with something in excess of the 170 million that you've budgeted. So I guess it's two questions. When are you going to officially change that 170 million? And secondly, should next year the expensing come down substantially which would mean a big earnings kick?

Yes, let me do two things for you first, Richard. First, the 170 had been 150; we have just upped it to 170 in the recent 10-K filing. Second, the total dollars that you're adding up include more than what we would categorize as the demonstration product. There are some expenses in there related to manufacturing and the commercial plant which at this stage we are expensing as opposed to capitalizing.

So, the 170 million that we've talked about really relates just to the demonstration stage. The total expenses are from -- that you're seeing run through the income statement are for more than just the demonstration stage. Starting later this year and more so as -- you hit the nail on the head -- less will be expensed and more will begin to be capitalized towards the latter part of this year and then going into '06 and even more so by '07.

Okay. There's just a little bit of concern that you've gone kind of over budget on the expensing side, you started at 150 and it's really turning out to be more than that. Do you still have a high level of confidence in the maximum cost of this project being $1.5 billion?

Yes, I do, definitely.

Okay. The second deals with your uranium inventory which is being worked down. Do you have some sense of -- on the assumption that uranium prices stay at this high level how many more years of 220 to 250 million of uranium sales you could have before you deplete that inventory totally?

We expect our inventory to last at least through the next couple of years. We are augmenting it with some underfeeding, as I discussed earlier in the script, and possibly going a little bit longer. But right now I'd like to say I'm confident in another two years.

Okay. And finally, Jim, one for you. You mentioned some of the qualifications of a new CEO and there do seem to be a lot of key qualifications that are necessary. As you say, you have to be almost a lobbyist, a politician. You are going -- he is going to have substantial financial issues to deal with. So it's almost like you want an investment banker. And finally and maybe most importantly --.

No, we don't want an investment banker.

And most importantly though, it seems that because there are so many technical issues in doing this project and it's kind of a bet the Company project, you want somebody who is really capable in the mechanics of getting this going and that might be the most important. I'm just wondering if you could kind of weight those three or four key factors as you see them.

Yes. And you hit it on the head. And probably with the qualifications that we've laid out, and we've laid them out in much more detail than what I did with you here. Jesus Christ would probably have a tough time fulfilling all the requirements, but we've got to prioritize. We're not going to, quite frankly, get somebody with all of the qualifications that are laid out; but I think the operational, the familiarity with complex systems and so forth are really key, Richard. We're just going to have to look, make some trade-offs and so forth, but I think you said it. There -- it's going to be people with familiarity, with experience, with background on key complex technical projects.

Okay, great. Thanks a lot, guys.

Brett Levy, Jeffries & Co.

Can you talk a little bit about the spacing? I know you guys have given a lot of guidance for 2005 and that fourth quarter will be particularly strong. Can you talk a little bit about the spacing of what you see coming in the first three quarters? Will it look similar to 2004? And then I had a couple of follow-up questions.

Historically, as you know, the second and fourth quarters have been our strongest. It matches the refueling cycles of our customers and we would expect in 2005 to see the same pattern as we had in prior years. Again, the fourth quarter being the highest.

Alright. And then also, can you guys talk a little bit -- I mean obviously the outlook for uranium drives what's going on here; can you talk a little bit about what you guys are seeing in terms of additional uranium mining or harvesting capacity coming on in the next several years? It looks to be quite tight? It looks like demand is going to be growing faster than supply for a while here, but can you guys talk about it?

I'm going to ask Bob Van Namen to address your question.

Yes, Brett, I agree with your characterization that it is tight. We are seeing a number of steps being taken to add new capacity to the market. There's a great deal of uranium exploration going on worldwide. There is a time lag that miners need to get the new projects up and going so we do see pretty good tension in the market for a few years going forward but with a pretty good certainty that there is plenty of uranium out there to fuel the power plant. We also see conversion capacity being added. Cameco and BNFL have just announced that they are adding -- they're continuing the operation of the UK facility which helps in the overall dynamics of the market.

Alright. And then last question -- you guys mentioned that you're going to refinance the '06 maturity. Can you talk a little bit about the price you paid to buy back the 25 million? And then also, are you giving any guidance on the '09 maturity notes?

The price that we paid to buy them back is confidential. And on the '09 maturity, right now it will continue to -- at this point we're not looking to refinance it.

Okay. And the covenants allow you to refinance the '06's without refinancing the unit?

That's correct. If you'll remember, the '09 and the '06 were both debt that was incurred while we were investment grade.

Alright. Thanks so much, guys.

John Witthohn, Janney Montgomery Scott.

Congratulations on the improving story. I see that SWU market share has been declining over the last few years in the U.S. Do we expect continued eroding to market share until the American centrifuge is started or is this expected to flatten out?

This is expected to flatten out. Remember '04 was a unique year for us and we do not expect to continue to see it erode and expect to continue strongly in the U.S. market.

Thank you.

Stephen Pineault , Imperium.

Congratulations on the year. A few questions here. Your revenue is going to be up about 100 million, 25 million of that is your uranium and your high-tech development expense is coming down by about 3.8 million. I figure that's an incremental margin of about 12-14 million just from the uranium and then 4 million of high-tech revenue. What else is going on that your earnings aren't coming up very much because I'm coming up to a higher number for '05?

Just a couple things to keep in mind. First, as I mentioned, our unit production costs are up so we will have higher cost of sales. And second is we do the underfeeding, that also produces a little bit higher cost of sales for uranium.

Right. And with the underfeeding you basically use one extra SWU -- or I'm sorry, half an extra SWU to produce a kilogram of uranium, is that what happens?

Generally we don't talk about what that ratio is. I apologize.

Okay. Let me ask it in a different way. If that's the case and you use a half a SWU to produce a kilogram of uranium, you're coming up to a cost per SWU of about $28 to $30 or there abouts. That's at $0.02 KW. Actually is it about 2600 kilowatt hours per SWU? Is that how it comes out in the process?

Again, I appreciate where you're trying to go at this stage, but that is information that is, again, confidential as part of our operating process (multiple speakers) utilization of the plant.

Okay. That's all I have for now. Thank you.

Craig Perry, King Street Capital.

My question is just for Bob. Bob, could you comment on versus say where we were 12-13 month ago before the price of uranium really just took off, how if at all you've seen utility's buying patterns change whether in -- or is it buying more enriched product, less enriched product, contracting on different terms, or if really you just haven't seen any movement at all? Thanks.

And you are asking the question based on the SWU market?

Really SWU and uranium. The two -- or to some degree there's a minor amount of substitution that can go on so it's really related to SWU but obviously uranium has an impact.

As the customers choose optimum tails they may select and are selecting to give us less uranium and take more SWU in the process. We are seeing firming in the SWU demand on a worldwide basis given the global changes in the uranium market.

When were you going to see that more reflected in prices do you think? I mean, we haven't seen tremendous firming up as the real SWU spot market, but we haven't seen the term market certainly move to the same degree uranium prices are. So I'm just curious if you anticipate sort of further firming. I know you answered Brett's question earlier regarding how you saw the uranium market over the next several years, I'm just curious how you saw the SWU market over the next several years.

We see a relatively stable to slightly firming SWU market going forward, but I would say I don't want to get into forecasting. There are a lot more dynamics that come into play and with the SWU market and with competitors, but we do see a stable market.

I would also like to add, Craig, that, if you'll remember, our contracts are long-term in nature and so therefore any changes that we would see in those pricings would take a while to work their way into our revenue and net income.

I understand. Thanks, guys, appreciate it.

Todr Mitev (ph),Thales.

Two questions. The first question is about inventory. On the balance sheet you carry right now 741 million SWU, 251 natural and 156, which I believe is out of spec and highly enriched. What would this number be if you used the December 31st prices?

I'll just give you some numbers to work with because we've not necessarily disclosed what the cost of our sales for uranium are. But the cost -- most of the cost for the uranium that is on our books at this point in time went in at what the cost of the market for that uranium was back in 1989 -- '98 and '99 when we established the balance sheet and went private -- separated from the U.S. government. And that price back then ran $23 to $27, somewhere in that range.

Okay. And then I think later in '02 I think you took a charge. You basically wrote them down again.

We wrote down part of that when the market dipped below that 23 to 27.

So basically right now you're not disclosing whatever unit estimate or inventory with current numbers?

That's correct.

Second question, what was the production cost per SWU for the year? In the K I see that it increased 4%, but what was the dollar number?

There are two drivers for the increase in our production cost. It's a combination; we do a blend of purchase and production when we talk about our SWU cost because the individual amounts we believe are highly competitive information. And it is a combination of the Russian contract and the purchase cost there and, if you'll remember, that amount is based on a trailing historical market price. And then finally, our own costs which are impacted by power and labor, those are the two major components that would increase its cost. And our unit costs went up about 3% from 2003 to 2004. The other impact is if we do produce less SWU or tend to have our unit costs go up, even though our actual cumulative costs may go down.

I understand that. And a related question, how does the production cost in particular -- I'm not asking about the price paid to Russia -- how is the production costs comparing to what the production cost is by your various competitors -- or let's say the most efficient competitor?

Their information is not public as ours is not public and it would be very difficult for me to comment on that or even to make an educated guess on that at this point.

Understood. Thanks.

Terence Ortslan, TSO & Associates.

I’ve a particular question that you mentioned about the uranium stock. You mentioned it would be down (indiscernible) level in about two years or so. Am I right, did I hear right?

That's correct.

And at the end of the year then your best guess would be what roughly?

At the end of this year?

Correct.

The guidance is about 250 million of revenue from uranium of which 50 million is uranium that is given to us by our customers that is just a flowthrough so that would not come out of our own inventory. And that is at market price and pre to some contract price but all of it is above what's on -- it's value on the books today.

Thank you very much.

Peter Lieu (ph), Lieu Capital Management.

I'd like you to comment on a couple of issues. One, can you talk about the tariff issues and whether -- what is the status of the latest relief if any that you're getting from the previous dumping?

As you are probably aware, there was a court -- reversed the decision as it relates to the tariff recently. The implications of this decision are not very clear for us at this point, although there is no change right now in the duties that we're being charged. And if you'll remember, in our recent releases those duties were minimal at this stage anyway. We've not seen any -- even with the minimal duties we've not seen any downward pressure on the price and if there is to be a downward pressure we would not expect it for some time, although at this point we do not anticipate it.

Okay. Now we have seen encouraging announcements in the foreign markets plan to start nuclear energy sites. What is happening to the U.S. programs in terms of a regulatory environment or government encouragement to possibly start some activity in the United States under the nuclear plants?

The current administration is extremely favorable to the nuclear environment and has made numerous public statements supporting nuclear energy for the future. The Department of Energy is also supporting this and is providing the funding for three separate groups to do studies which one of the groups we are involved in that consortium including TVA, and it is their way of encouraging the development of a blueprint for future nuclear plants that would enable the NRC to accelerate their permission and regulation of that so that it can be built quicker.

So there is a great encouragement here in the U.S. to expand and continue with nuclear power. On the international front, as Jim mentioned, both China and India are expanding significantly their use of nuclear power with around 25 or so nuclear plants that have been announced to be put up in China between now and 2020. And then finally, here in the U.S. Duke Energy has announced that it is going to pursue building another plant.

In the long-term scheme of things approximately what percentage of the world's total nuclear fuel can you expect to supply say three to four years from now in the context of all the new plants that are being started up?

Sure. And I guess I'm not going to be able to forecast what the future will hold because nuclear power will expand just as the need for electricity and power expands. And again, a lot of the plants being put in, in particular China, is between now and 2020. It takes a while to get a plant up and running. Currently worldwide usage today is about 20%.

Japan had several reversals in the past two years; in the near-term how much more will the Japan demand increase?

the Japan increase -- it will continue to expand.

It depends greatly on what happens with the Japanese economy. The Japanese economy has been going through a number of years of stagnation. We do see signs that the economy picks back up. Japan is committed to nuclear power as a significant portion of its overall energy portfolio. So we do see as the Japanese economy picks back up so will nuclear plant building there.

I thought the shipments to the Japanese plants were delayed because of environmental issues and hopefully they have fixed some of those issues so that in the next year they will be nice bump in the shipments to the Japanese plants.

But what we would expect to see as those plants come back online, it takes at least another year before they require any supply from us. So as they've been coming back online over '04 we would expect to see, as I mentioned earlier, more shipments in late '05 and then starting even more so back into '06 and '07 to our normal levels.

Thank you very much.

Tony Cilluffo, Cilluffo Associates.

Just wanted to congratulate you on the great path that we're embarked upon. And I wanted to ask, when is the annual meeting?

April 21st.

Good, I'm looking forward so I can see my grandchildren.

We've just been so focused on March 16th -- getting our 10-K filed.

And that's why I haven't called.

Well, thank you.

Thank you.

David Rosen, Green River.

A couple quick questions. First, you mentioned that you're seeing an increase in demand for SWU based on the fact that your existing customers -- or some of them at least -- are asking for lower tails assay. I was wondering if you can give me an order of magnitude as to how much additional volume that's bringing? And also, are they paying the price that they have in their contract or would that be a spot price sale?

A couple of things. One, that we expect to see -- I want to be very clear about that -- a switch in that demand between uranium and SWU starting possibly in '05 but more again as we go out into future years. Second, it depends on the nature of their contract. Some contracts have an amount with a plus or minus that's available at the contract price and some contracts, if they are requesting SWU that is above and beyond what's in their contract, then we would be negotiating with them the appropriate price.

Do you have this type of increased -- perspective increase of SWU demand in your guidance for '05?

That's correct. Our guidance for '05 takes all of this into account.

You've also made mention that you expect to take down your operating expenses, your SG&A cost. Is your perspective SG&A decline also embedded in your guidance?

We have some preliminary declines in there, but it's our hope that we will go above and beyond those targets.

It's really more than hope. We will get reductions beyond that.

Okay. So that would be (indiscernible). The other thing -- when we talk about the centrifuge, what would be the next really key milestone that we should be looking for?

The next milestone is our DOE milestone which is in June which would have us -- the milestone is to begin manufacturing and that is the next one that I would look for.

Okay. And then just going back to SWU demand, clearly if all of your customers immediately decided that because uranium prices are as high as they are that they'd prefer more SWU and would prefer to have lower tails assay? Can you give an order of magnitude as to what your expectations would be on what that would do to global SWU demand?

Not at the moment we couldn't. We would expect some increase but, again, it was something that would work its way over time. We're not going to see it immediately in '05 and would begin to see it in later contracts.

Thank you very much.

Paul Clegg (ph), Natexis.

Do you benefit at all from current Westinghouse -- if Westinghouse wins any of its current bids to build nuclear reactors in China?

Not at the moment. Actually all those areas we won't comment on at this point.

And second question regarding Urenco's LES facility, it appears to be going forward more or less along the same time frame as the completion of American Centrifuge. Can you comment at all on the impact that it could have on the pricing environment long-term?

It's our belief that LES -- or actually I should just say Urenco, that's who owns LES -- Urenco is going to expand their SWU capacity whether it's here in the U.S. or abroad. And our belief is we'll match as the market demand grows as well.

Okay, thanks.

David Snow, Energy Equities.

I was wondering if you could give us some feel as to how you might participate in the Chinese market and the growth over there?

It is a market that we find attractive and we will be looking and are looking at that market. And all I can say is it's our hopes to be a very active participant in that market.

Is it your feeling that their new pebble reactor is going to be a big factor in their program or do you have any intelligence on that?

I think that they are going to rely for the majority of their additional reactors on existing technologies, some of the more modern designs. But the pebble bed is something given their commitment long-term to nuclear power that they obviously are interested in and want to keep an eye on.

Would that be more intensively using SWU's or uranium or do you have any feel on the pebble bed versus a conventional reactor?

The pebble bed uses enrichments that are 8 to 8.5, weight percent. We've taken the steps to license the American Centrifuge facility to up to 10 weight percent and we would be prepared to serve that market as well. That is an advantage we have over our competitors.

The competitors cannot get that high?

That is correct.

What would be the limit of a competitor's enrichment currently?

They are generally I believe 5 to 5.5 weight percent which is need of normal light water reactors.

Okay. And you mentioned there were special factors that were involved in the U.S. market share last year.

It was just -- again, what I mean by special factors, it's more the timing of when their refueling is required.

Okay. Thank you very much.

Frank Shanley, Dudley & Shanley.

Thanks for taking the question. Actually two questions -- capital allocation, I guess, related. And the first is I know you made an acquisition last year, a relatively small one. I wanted to know if that one is profitable for 2005 I guess. You have revenue estimated I think at 30 million or there abouts.

Yes, and it would be slightly -- our believe is it will be slightly profitable for the year.

Okay. Can you give us any idea of -- is this the beginning of an acquisition strategy? Is there in place a -- call it diversification or new strategy?

Sure. As we've said before, our first and foremost strategy is the American Centrifuge, but at the same time we will continue to look into diversifying within the nuclear fuel cycle and NAC is one of those diversifications.

And there are others that we are actively looking at but we have nothing to announce at this time.

Okay. And finally, can you give us an indication of dividend policy going forward 2005 and '06? Do you intend to make any changes?

Every quarter the Board fully reviews the dividend and the declaration of the dividend and we will continue to do that on a quarterly basis. The numbers that we've given right now as a forecast for cash balance do include that dividend being paid out. But again, it is at the discretion of the Board on their quarterly reviews.

But we don't envision any change right now.

Thank you very much.

Okay. Thank you very much, ladies and gentlemen, for your participation in this morning's call. We value these calls as an opportunity to hear from our investors, get our story out and let me just say that the whole team is excited about USEC's long-term prospects. We remain dedicated to delivering shareholder value to all of you. Thank you very much.

Again, this does conclude today's conference. We thank you for your participation. You may disconnect at this time.