Centrus Energy Corp (LEU) 2006 Q1 法說會逐字稿

Good day and welcome, everyone, to the USEC Inc. first-quarter 2006 earnings conference call. This call is being recorded. With us today from the company is Mr. John Welch, President and Chief Executive Officer, Mr. Steven Wingfield, the Director of Investor Relations. Management will make opening remarks, which will be followed by a question-and-answer period.

At this time, I would like to turn the call over to Mr. Steven Wingfield. Please go ahead, sir.

Good morning. Thank you for joining us for USEC's conference call regarding its first quarter of 2006, which ended March 31. With me today are John Welch, President and Chief Executive Officer; Bob Van Namen, Senior Vice President, Uranium Enrichment; and John Barpoulis, Vice President, Treasurer, and interim Chief Financial Officer.

Before turning the call over to John, I want to welcome all of our callers, as well as those listening to our webcast. This conference call follows our earnings news release issued yesterday after the market closed.

USEC is making reference to non-GAAP financial information in both our earnings news release and on this conference call. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is contained in the earnings news release. 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 10-K, 10-Qs and 8-Ks are available on our website. A replay of this call also will be available later this morning on the USEC website.

I would like to remind everyone that certain of the information that we may discuss on the 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 from those in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, within our annual report on 10-K and subsequent 10-Qs.

Finally, the forward-looking information provided today is time sensitive and is accurate only as of today, May 4, 2006. 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'd like to turn the call over to John Welch.

Thank you, Steve, and good morning to you all. Welcome to USEC's conference call to discuss our first-quarter 2006 results. John Barpoulis will provide a detailed review in just a moment, but first I want to give you my views on the financial results for the quarter, the recently signed power purchase agreement with TVA, and our demonstration of American Centrifuge technology.

Turning first to the quarter. The bottom-line net income was substantially better than a year ago. We had a very good quarter financially. Revenue was up 16% quarter-over-quarter on higher prices for both uranium and SWU. The efforts made in 2005 to reduce our expenses are bearing fruit, so more of the gross profit made its way into the net income line.

Our SG&A overhead expenses, for example, were down 23%, and because we redeemed the bonds that matured in January, our interest expense was nearly cut in half. The bottom line, our net income was $34.6 million, well above last year's first-quarter net income of just under $1 million.

Turning next to Power. In early April we wrapped up negotiations with the Tennessee Valley Authority, our principal source of electricity for the Paducah plant. These were extended, difficult negotiations. We are their largest customer and they are an important customer for USEC. In fact, we are providing the uranium enrichment for the initial core for their Browns Ferry unit that is expected to restart next year. So we have a unique relationship.

Nevertheless, we had very different requirements going into negotiation. Our current contract was signed in 2000 and USEC has been paying electric rates that were increasingly below market prices. TVA's position was to recover the rising costs of the fuels it uses to produce electricity. We need the lowest price possible for electricity because our production costs are highly price sensitive.

Ultimately, we agreed to a one-year pricing arrangement to pay approximately 50% more for the power we purchase from TVA beginning June 1, excluding the new fuel cost adjustment that will be determined monthly. This fuel factor can cause the price to go up or down, and it initially appears to be headed higher.

USEC uses the monthly moving average inventory methodology for determining our cost of goods sold. Therefore, these higher production costs will begin rolling throughout our inventory later this year, but the real impact will come in 2007 and beyond. We don't expect to provide 2007 earnings and cash flow guidance until early next year, but obviously, these higher power costs will have substantial negative impact on both.

We are evaluating a number of actions we can take to help mitigate the higher power costs, but I don't think we can entirely offset them. So while we expect to see improvement of our financial results in 2006 compared to the past two years, this trend is not sustainable over the next several years in the face of higher power prices.

Last week at the annual meeting of shareholders, I spoke about the positive signs that can be seen throughout the nuclear industry. With more than two dozen plants currently under construction and many more in the planning stages, we see a robust market for our product for decades to come. We are very bullish on the future of nuclear power and believe we will play an important role in fueling that future.

As utility CEOs evaluate a new round of building nuclear plants, the critical factor in the evaluation is a stable supply of nuclear fuel, from uranium mining to enrichment to fabrication of the fuel assemblies. Utilities need to be confident that the fuel will be there if they are going to invest billions of dollars in new plants.

With crude oil prices above $70, America is getting a daily reminder of the consequences of allowing itself to be overly dependent on foreign sources of energy. To avoid compounding this problem, the nuclear industry must have a domestic enrichment technology so as not to become overly dependent on foreign enrichment sources. There must be long-term security of supply and it is critical that there will be stability in the enrichment market. The nuclear industry needs the assurance of an American domestic enrichment capacity, and USEC will be there to provide it. In return, USEC needs the assurance of a stable market so that we can recoup our substantial investment in new centrifuge enrichment technology.

The task of moving from our Gaseous Diffusion Plant in Paducah to the American Centrifuge is, in essence, the building of a bridge to a new era for USEC. We have been sharply focused on the American Centrifuge for many months, and we continue to make steady progress with testing and demonstrating the technology. Recent performance tests on individual machines in Oak Ridge have been very positive, and I am justified in our confidence in the American Centrifuge design.

Those of you familiar with project management know there are often multiple tasks occurring at the same time. The time period for individual tasks can get extended without impacting the critical path through the ultimate project goal. For USEC, the ultimate project goal is building the American Centrifuge Plant.

We will begin installing centrifuge machines in Piketon this summer, with cascade operations to follow shortly thereafter. It is a little later than our previous estimate, but we remain confident of meeting our next milestone. And while meeting the next interim milestone under the DOE-USEC agreement is certainly important, what is even more important is for this management team to gain confidence from obtaining additional performance and operating data over a number of months. Before we build thousands of machines for the American Centrifuge Plant, we want to have a very high level of confidence that the technology, cost and schedule will provide our shareholders with a reasonable return on their investment.

I mentioned that we have multiple tasks underway. We appear to be on a fairly straight path for receiving a construction and operating license for the commercial plant by early next year from the Nuclear Regulatory Commission. Members of the American Centrifuge team, Boeing, Honeywell, and ATK Space Systems are making decisions about where to locate manufacturing facilities to support building the centrifuge machines that will populate the plant over the next several years.

Our employees in Piketon have substantially completed the refurbishment of the area that will be used for the Lead Cascade. Other employees have been practicing installing and operating centrifuges so that our processes and procedures will be second nature when we begin installing the Lead Cascade machines. Clearly, we're making progress on a number of fronts.

The nature of starting up a large project like the American Centrifuge is that you almost never move in a straight line. You take a few steps forward and then something happens that you didn't expect and you take a step back to evaluate. We are building our plant for decades of service, so we think it is prudent to continue our step-by-step process. The higher cost of power at Paducah gives us plenty of incentive to move forward rapidly, but we don't want to allow haste to make the plant more expensive in the long run.

Now, I'll ask John Barpoulis to report on our first-quarter financial results. John?

Thank you, John. Good morning, everyone. As John outlined upfront, we had a very good first quarter, one that has not generally been one of our better quarters in our fiscal year. Let me provide a few highlights and then get into the details.

Starting with the top line, revenue for the first quarter was about $50 million higher than the first quarter of 2005. Our gross profit for the first quarter was $92 million, nearly double year-over-year, which helped to drive our gross profit margin for the quarter to 25%. The main driver for the higher gross margin was additional sales of uranium at near market prices that have a higher profit margin than SWU sales. As John mentioned earlier, this was due to the timing of deliveries and we have not changed our annual guidance for gross profit margins.

Expenses for the American Centrifuge demonstration were a little lower in the first quarter than in the same quarter last year, but still at a significant level. For the first quarter, net income was $34.6 million, or $0.40 per share, compared to just under $1 million, or $0.01 per share, in the same period last year.

Now let's get to the details. Total revenue in the quarter was $361 million. Revenue from SWU sales increased about $20 million, or 9%, from the same quarter a year before. SWU sales volume was essentially flat, so nearly all of the improvement was due to higher prices billed to customers.

Revenue from uranium was about $76 million, or $30 million more than the same quarter of 2005. Uranium revenue includes amounts of previously deferred revenue that was recognized during the quarter. Revenue from U.S. government contracts and Other was about $51.5 million, an increase of about $0.5 million. After several years of gradually declining average SWU prices billed to customers, we saw average prices turn 2% higher in 2005. Due to timing and mix of customers, the average SWU price billed to customers in the first quarter of 2006 was about 9% higher than in the first quarter last year. For the full year, however, we expect the average price billed to customers to be 4 to 5% higher.

Turning to uranium prices, as most of you know, much of our pre-existing inventory of uranium was sold or committed several years ago at the then-prevailing lower prices. Some of those contracts included market price adjustments and that has helped increase our average price billed to customers.

In addition, uranium obtained from underfeeding our Paducah plant is being sold at higher prices. This helps improve the average price billed to customers for uranium by about 96% in the first quarter compared to the same period a year ago. While this is well above our guidance for the full year for uranium prices billed to customers, we still expect uranium prices billed to customers to be about 25% higher than in 2005.

As we've disclosed before, USEC transfers title and collects cash from customers for uranium sales, but does not recognize the revenue until the low-enriched uranium is physically delivered. USEC continues to underfeed the enrichment process and continues to show substantial amounts of deferred revenue on the balance sheet related to uranium sales. As of March 31, 2006, $108 million in deferred revenue with an expected gross profit of about $42 million has been deferred until subsequent quarters. At year-end 2005, this amount was $107 million in deferred revenue, with an expected gross profit of $51 million. The timing of recognition of this revenue cannot be determined, as it is often dependent upon the sale of uranium by a broker to a utility and the utility's ultimate purchase and shipment of SWU from USEC.

Our other business segment, U.S. government contract work, saw a $400,000 increase in revenue quarter-over-quarter. I would point out that the results of our subsidiary, NAC, have been in our consolidated results for a full year now, and comparisons of this business segment can be made year-over-year without any adjustment.

Switching to the cost side of the business, cost of sales for the LEU segment was 3% higher. The average unit cost of sales per SWU for the quarter was 4% higher than in 2005. The increase was due to higher starting inventory cost, lower production volume, higher production costs, and higher purchase price paid to Russia under the Megatons to Megawatts program. The purchase price paid to Russia is set by a market-based pricing formula that reflects increasing global SWU prices in recent years. Cost of sales for U.S. government contracts declined $1 million.

The gross profit for the quarter was $92 million, an increase of $44 million, or 93%, over the same quarter in 2005. The gross profit margin for the quarter was 25.5%, compared to 15.3% in the same period last year, due to higher prices billed to customers for both SWU and uranium. Most of the improvement can be attributed to higher profit margins on the uranium component of low-enriched uranium sales.

Please note that the higher gross profit margin was due mainly to timing of these higher-margin uranium sales and we have not changed our guidance that for the full year we expect a gross profit margin to be between 15 and 16%.

Below the gross profit line are the expenses for the selling, general, and administrative expenses, or SG&A, and the American Centrifuge project. SG&A for the quarter was $11.7 million, a 23% reduction year-over-year. We made significant progress in our effort to lower SG&A expense and we some reductions in compensation, benefits and the use of consultants. I would caution against annualizing this quarter's results, as a portion of the reduction was for other compensation, which will not be repeated in subsequent quarters.

We also took a $1.5 million special charge in the quarter as we ceased use of leased headquarter space vacated as part of last fall's restructuring of the organization.

USEC continues to make a substantial investment in the American Centrifuge technology, nearly $20 million during the quarter. Expenses were down quarter-over-quarter by almost $3 million. Last year, we were in the midst of refurbishing the space where the Lead Cascade will be installed, and during the first quarter of 2006 this refurbishment was nearly complete. Total spending related to the American Centrifuge during the quarter was $25.1 million, including capitalized costs of $5.6 million compared to approximately $26.2 million in the same period last year, of which $4.1 million was capitalized.

This investment in our future had the effect of reducing net income by approximately $12.3 million in the quarter, assuming a 37% statutory tax rate. To help investors evaluate the impact of this adjustment to current financial results, we reported pro forma net income before American Centrifuge expenses, which is a non-GAAP financial measure.

USEC reported pro forma net income before American Centrifuge expenses of $46.9 million in the first quarter compared to $14.6 million for the same quarter in 2005, an increase of over 200%. On a GAAP basis, we reported net income of $34.6 million for the first quarter compared to $900,000 in the same quarter last year. I would refer you to our earnings release for a detailed schedule reconciling pro forma net income to net income.

Turning next to cash, our cash flow from operating activities for the first quarter was approximately $37 million compared to $81 million in 2005. Results of operations generated more cash in 2006 compared to the same period last year, but this was offset by additional payments made to Russia under the Megatons to Megawatts program due to timing, fewer customer collections, and a lower change in accounts payable and other liabilities.

The largest change to our December 31, 2005 cash position was the $289 million repayment of the senior notes that matured on January 20. After that repayment, our interest expense has been cut roughly in half and our debt to total capitalization ratio is down to 15%. We ended the quarter with a cash balance of $21.6 million, but at that time, we had a short-term borrowing under our bank credit facility of $20.5 million. During 2006, we expect to borrow on the credit facility from time to time to cover changes in working capital as we stay operating cash flow positive for the year.

In yesterday's news release, we reiterated our earnings and cash flow guidance for 2006. Our guidance for net income continues to be in a range of $70 million to $80 million for 2006. We factored in our expected power costs in the second half of the year and the monthly moving average inventory methodology will slow the impact of higher power prices on net income. As noted earlier, we expected a gross profit margin in a range of 15% to 16%.

We expect to generate approximately $145 million to $155 million in cash flow from operations in 2006. This internal cash generation will be sufficient to fund spending on the American Centrifuge through this year. Because we repaid the bonds that matured in January with our cash balance, net cash flow for the year is expected to be negative prior to any external financing activities. We continue to evaluate various options for financing construction of the American Centrifuge Plant, including an equity offering later this year.

So to summarize, we had a good first quarter, with improved revenue, higher prices billed to customers for both SWU and uranium, and net income of $34.6 million. We continue to make good progress in preparing to install Lead Cascade centrifuge machines this summer, and we continue to seek ways to mitigate the impact of higher electric power prices.

And with that, operator, we are now ready to take questions from our callers.

(OPERATOR INSTRUCTIONS) Fadi Shadid, Friedman Billings Ramsey.

A question on American Centrifuge testing that you talk about. Could you talk more about what those test results were in relation to your targets and also in relation to other centrifuge technology that is out there, including maybe the Urenco proposed plant in New Mexico. In terms of SWUs per machine and things like that.

I think our stated figure is that 320 SWU per machine is what our target is. That is roughly 8 times an individual machine capacity than what the competition is currently using. And our initial indications, which have not been at full capacity yet -- we have set some intermediate points for ourselves and measured the performance of the machine and we have performed very well in that area. So we remain highly confident that we will achieve that 320 number.

Okay, great. You talked about price expectations for SWU for this year. How about volume? Volumes were flat quarter-over-quarter. What is factored in your guidance for the rest of the year?

Bob, you want to answer that one for me?

This is Bob Van Namen. We are expecting to see higher SWU volume this year than we did have last year, that's due to both increased requirements from our customers due to the way they are operating their plants, and due to higher SWU volume, because customers are asking for more enrichment as the uranium market increases.

Okay. And with prices running up, are you seeing any change in behavior from customers in terms of contracting preferences?

We are seeing customers looking for more long-term contracts, both for uranium and for enrichment. So we are seeing activity, especially for the 2009 and beyond timeframe.

Okay, thank you.

Laurence Alexander, Jefferies.

First, would you mind updating us on where your SWU backlog stands at and how far out it runs? And how has it changed since the end of the year?

Bob Van Namen again. We only provide the backlog numbers on an annual basis at the end of the year.

Okay. To come at that from a different angle, if we're looking at SWU prices in 2007, you should have fairly good visibility on what pricing should be doing on your long-term contracts. Do you have any rough sense that you can give us on how much of an increase you should be seeing?

Same comment as before. We're not providing any guidance on 2007 numbers.

Okay, fair enough. Cameco has indicated several times that they want to get into enrichment activity, that it's a natural extension of their business. Do you see any material obstacles, beyond the obvious financial and regulatory ones? Is there any complications in terms of customer relationships where that might be a problem?

I would really rather not comment on that. I don't really have a comment on it.

Fair enough. Finally, when you're looking at the expected cost for the American Centrifuge, are costs likely to move up over the next couple of years? And if so, how much of that would be due to raw materials, for instance, steel, just basic manufacturing as opposed to labor?

This is John. The first I would say is it sounds like the same question I keep asking myself. I would start by saying, one, the market continues to look very strong, so that continues to justify in our minds why we're making the investment that we're doing.

We have scheduled a re-baselining at the end of the year, to come through with our supplier partners, Boeing, Honeywell, ATK Space Systems and Fluor for the plant construction. Our plan is to go through a detailed re-baselining at the end of the year and hope to have a better feel on that. That is basically our plan right now.

Finally, just lastly on the SG&A, you mentioned that there was another compensation item that makes extrapolating from the first-quarter results more difficult. Can you quantify how much that was so that we can exclude that?

You are correct in that it is difficult to extrapolate using that number. The impact will be provided in, I think, some additional detail in the 10-Q.

Thank you.

Paul Clegg, Natexis.

Just like to talk about the SWU market. We've been seeing just how strong it is recently, and I want to talk about the impact on your long-term business. We have seen market pricing quoted recently in the low 120s. Could you comment on what you're seeing in actual contract signings relative to those levels?

Generally, I think that the market prices are fairly indicative of what you see in contracts.

Okay, so those numbers we see on UxC and TradeTech --?

: Right.

-- are what you're --? Okay. And what percentage of your contracts have inflation adjustment clauses in them?

: Rather not comment specifically on contract provisions.

Okay. But many of them do have inflation adjustment clauses. Is that correct?

: Yes.

Okay. All right, so you probably won't answer my next question then. Are you seeing that as being a standard, though, when you sign new contracts? Do people continue to look for inflation adjustment clauses?

: Yes, and we are also seeing more adjustments based on market and power costs as well.

Then, if I may, one follow-up. Regarding the timing of accessing the capital markets this year, you always look for these tiny little differences in the way you guys word things in your press releases. But it sounds like you're still evaluating options at this point. You have not actually made a firm decision yet. So are we looking at timing later in the year then rather than midyear?

And sort of looking at your cash budgeting, are you comfortable that you can make it through a stepdown on your credit facility without accessing the capital markets until, let's say, the end of the year?

I think it is fair to say that our two-step plan to initially pursue potential an equity securities offering this year or later-issue debt has not changed. I think what has changed is that we're approaching midyear -- and we do, as you said, Paul, continue to evaluate the timing and size of the potential equity securities offering.

I think as we had outlined on our prior call, really there are several factors that impact any potential capital offering, including financial market conditions, timing of our capital needs, targeted long-term capital structure, SWU market outlook, our progress on the American Centrifuge program, and ultimately, cash from operations.

So we do continue to take these factors into account as we determine our financing plans. And so I think are, again, continuing focus to make sure that we have sufficient cash liquidity to fund our ongoing activities, and we will take all of this into account when we ultimately pursue a capital markets offer.

It would seem, though, that we might have some time to actually see some of the data come out of your early stages of testing the Cascades prior to actually seeing a capital markets offering.

I think as we have said, every week we learn more. And so for us, again, it is balancing all those factors that I outlined above to determine really what is the best time from our collective perspective to hit the markets. We are always very aware of our shareholders' concerns on dilution and we are always looking to optimize long-term value.

Very good. Thanks a lot, guys.

[David Rosen], CR Intrinsic

Just a quick question. Can you gave some type of outlook on future SWU pricing or the current SWU market and your expectations for pricing and maybe in volumes, considering [tail] reductions?

: I can talk in generalities. I would rather not do any specifics on numbers. We do see demand continue to increase as uranium prices rise, and that is putting an additional demand on the market, which is continuing to push prices up.

You are also, as John Welch mentioned, seeing global demand picking up due to some of the new reactors which are being brought online in Asia, as well as utilities continuing to operate their plants better and better. So I do think you will see continued upward pressure on prices, but I'd rather not quantify exactly where I think that's going to go.

Thank you very much.

Dave Schanzer, Janney Montgomery Scott.

Most of my questions have been answered. I did have one, however, with regard to the electricity contract with TVA. Is there any -- perhaps you can give us some color as to how it works. Is there any minimum requirements that you face with this contract?

As far as the power that's written in there, the terms of the contract, during the summer, 300 megawatts, and then up to 1600 during the rest of the year. Those are pay-as-you-go type commitments.

Is there any opportunity under the contract to resell the electricity if you need to?

We can sell it back to TVA.

Okay, thank you.

Brian Freckmann, Crown Capital

A couple quick questions. Just on the outlook, 15% gross margin you wrote about, is that a blended gross margin for all of 2006, or is that on a go-forward basis second half of the year?

That is blended for all of 2006.

That's blended. Would you care to talk about just this upcoming quarter? Given the fact that net income was about $34 million, your guidance in total is for 70 to 80. I see that this quarter that we are in right now is much like last quarter just reported. I'm trying to get a feel for sort of what the back half might look like. You could make an argument that sort of from the back half going forward, you'd basically break even. Would you like to talk about this quarter, just so we can sort of figure out what the back half could look like?

We do not provide guidance on a quarterly basis, so I won't be able to address specifics. Again, we're looking at the results of this quarter and, again, we are reiterating the net income and operating cash flow guidance for the year.

I think what is important from our perspective is that historically over the last couple of years, we have had a different pattern to our overall quarterly performance. So I think we are pleased that we had a strong first quarter and we will see how the rest of the year plays out. But we will not be able to provide any specific quarterly guidance for the year.

Okay. Then on the energy riser that you guys with TVA, can you go into depth a little bit more about how it is that that gets factored in? So you have a set cost and then TVA obviously has this sort of cost-of-energy riser? Can you sort of talk about any parameters that go along with that? How we should calculate that additional part of the contract?

It is based on TVA's estimated costs of fuel and purchased power, and then what they actually incur on a month-by-month basis for fuel and purchased power, above and beyond their baseline or falling short of their baseline. So it can work in either direction.

Are there any parameters that you start off at -- any way to know that?

It is based on the TVA forecast at the time that they set their annual rates.

Okay. My last question -- I'm trying to remember -- why is it that deferred income was up but the profitability on that was down $10 million this quarter over last? Is it just underfeeding or how do I look at that again?

It is really entirely due to the overall timing and mix of customers. And that's something that is just on quarter-to-quarter basis.

But that trend -- the profitability, could it go back up or would it keep heading south?

I think, again, we're looking at the quarterly performance, but also reiterating, as we can, our expectations for the year. So certainly take that into account in each of the individual financial parameters that you evaluate.

All right. Thanks, guys. Good luck.

Stephan Ventilato, Natexis.

Please correct me if I am wrong. You think there's a foreign ownership restriction of 10% of your rolling subsidiaries. Can you please tell me what is the percentage of voting rights currently owned by foreign investors?

You are correct. There is a 10% limitation, but we were below 10% and do not reveal or publish exactly what that percentage is. We clearly do attempt to keep track of that number.

Okay, thanks.

[Peter Bonney], QVT.

I'm quite sure that you're still anticipating achieving the October 2006 DOE milestone. But I'm trying to understand how much the time line for deployment has slipped. Basically I've understood that the Lead Cascade would sort of begin operating in the first half of 2006. But now I understand that only some of the machines will be installed this summer and the Lead Cascade won't be available until sort of an undefined time thereafter. Can you comment on that?

One, there's no difference in the cascades that are being assembled and those which are going to be -- it is that cascade that's assembled that is going to be evaluated as part of the milestones.

When you look at performance information that goes into that milestone, an awful lot of that comes from the individual machine testing that we are already doing and will continue to do as we populate and put a Lead Cascade into operations. We clearly are manufacturing all the feed part components for that Lead Cascade, and that is progressing quite well.

It is just the actual startup of Cascade testing has moved a minor amount and it's really in some ways in the rounding error between first half of the year and summer. And then it gets into operating Cascade to get adequate performance data in a Cascade configuration, add that to the rest of our performance data, and that is what will be looked as part of that milestone.

Okay, thank you.

Laurence Alexander, Jefferies.

One housekeeping question. How much -- if we're looking at the deferred revenue that was booked this quarter on the cash-flow statement, how do we reconcile that with the earnings? Or I guess specifically, what is the net earnings impact of previously booked uranium sales?

Due to the difficulty of really predicting timing, we do not reveal the breakdown beyond what we have provided. There will be some additional information in the Q, but we do not break out what we have recognized and deferred within a quarter.

Thank you.

A follow-up from Paul Clegg, Natexis.

Just one thing about the Lead Cascades and the testing. When will be the first time that you run the Cascades with UF6?

You know, I don't have that information available right now. One of the things with UF6, again, now we're back to the license. And we are progressing well through the environmental impact statements and we expect that NRC license early in 2007.

Okay, but you can actually run noncommercial with UF6 before you get the license just to test it?

Yes, but in a specific configuration.

Is that anticipated as being part of the testing that you would do for the October '06 deadline?

Maybe one thing, Paul, I ought to make sure I bring back to you -- we have been operating with UF6 gas on the individual machine testing already.

Oh, okay.

So there's data that is being gathered on that ongoing.

Okay, thank you.

At this time, there are no further questions. I would like to turn the call back to Mr. John Welch for any closing remarks.

Thank you all for your insightful questions. We expected a lively call and I appreciate the feedback you have provided. John Barpoulis and I look forward to meeting many of you in the months to come. Thank you very much and good day.

Thank you. This does conclude today's conference. We would like to thank you for your participation and have a wonderful day.