Centrus Energy Corp (LEU) 2008 Q1 法說會逐字稿

Good day, and welcome, everyone, to the USEC, Inc., first quarter 2008 earnings results conference call. This call is being recorded.

With us today from the company is Mr. John Welch, President and Chief Executive Officer, and 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. Steve Wingfield. Please go ahead, sir.

Good morning, and thank you for joining us for USEC's conference call regarding the first quarter, which ended March 31st, 2008. With me today are John Welch, President and Chief Executive Officer; John Barpoulis, Senior Vice President and Chief Financial Officer; Bob Van Namen, Senior Vice President; and Tracy Mey, Controller and Chief Accounting Officer.

Before I turn the call over to John Welch, I'd like to welcome all of our callers, as well as those 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 on many financial websites, as well as our corporate website, usec.com.

I'd like to inform all of our listeners that our news releases and SEC filings, including our 10K, 10Qs, and 8Ks are available on our website. We expect to file our first quarter 10Q later today.

A replay of this call will 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 from those in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from our forward-looking statements is contained in our filings with the SEC, including our annual report on 10K and subsequent quarterly 10Qs.

Finally, the forward-looking information provided today is time-sensitive and is accurate only as of today, April 30th, 2008. 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.

Thanks, Steve, and good morning to you all. Thank you for joining us to discuss our first quarter results. John Barpoulis will provide a detailed review of those financial results in just a moment. I'll start with a high-level review of our earnings for the quarter and then provide a status report on the American Centrifuge project.

Taking a look at the bottom line, we earned $4.4 million in the first quarter. That's very much inline with what we expected. As we noted in our outlook issued in February, our sales volume will be lower in 2008 than in 2007. The volume of SWU delivered in 2007 was slightly above our pattern of selling 10 to 12 million SWU annually, due in part to some orders moving into 2007 from two -- from 2008. Because a majority of reactors served by USEC are refueled on an 18- to 24-month cycle, volume of deliveries experienced in '07 reduced our customers refueling requirements in 2008. That same cycle, however, will result in the swing back in 2009 to SWU volume similar to what we saw in 2007.

This is another instance of the variability we often see in our quarterly revenue earnings and cash flow. Over a longer period, our financial results average out and are more predictable.

We are reiterating our guidance for the year. We expect net income in a range of $25 to $45 million and cash flow used in operations of $60 to $80 million. Inside that range we expect LEU deliveries to be more heavily weighted in the four quarter, a pattern we have seen in the past, as our utility customers prepare for refueling reactors in the spring of 2009. And we continue to expect cash flow from operations to significantly improve in 2009.

Earlier this month, we provided an update on our construction of the American Centrifuge plant. There were several major takeaways in the release that I want to emphasize to our investors. First, we have finalized the initial design of the AC100 Centrifuge machine. At the end of March, we released 75% of the design drawings to our strategic suppliers to initiate manufacturing of components for the machines. After additional focus validation testing, we expect to release the remainder of the drawings by June 30th.

Second, the Lead Cascade integrated testing continues to go well. We've logged more than 30,000 machine hours since the first of the year, and the results are giving us more confidence about the reliability and performance of the AC100. The data generated by this testing program has resulted in modifications and improvements to centrifuge components that are reflected in the AC100 design.

Third, we have been testing centrifuges with AC100 components, at our facilities in Oakridge, Tennessee, and we have seen SWU performance beyond the 350 SWU per machine per year. That is our current target. That strengthens our conviction that we have a very good centrifuge design with potential to have even better performance in the future. Given that the AC100 is already about 8 times more productive than our competitor's machine today, that is a significant upside potential.

Fourth, although we are still going through our budget work, we continue to expect the cost of the American Centrifuge plant to be about $3.5 billion. We have been working our way through a step-by-step process, which includes cost analysis and meetings with our suppliers to go through their estimates in detail. We expect to complete our budget work on the project in June and will report back to you soon thereafter.

Firth, we are continuing to review our financing plans. Since the timing of a review by DOE of projects being considered for federal loan guarantees is uncertain, we are looking carefully at alternative spending profiles for the American Centrifuge plant. While we want to avoid substantially delaying the ultimate build-out of the plant, we're keeping a close eye on our capital spending to make sure we live within our means until we are able to raise debt capital.

Six, the build-out of the plant continues on schedule. We are refurbishing the feed and withdrawal facility, constructing a new boiler building to support operations, and preparing the floor of the production buildings for machine mounts. Later this year, we expect to begin to install service modules that provide the piping and electrical connections for the centrifuges.

The final point I'll make is in regards to the manufacturing infrastructure that we are creating. When our competitors build a plant in the United States, they are importing the centrifuges which are manufactured in Europe. USEC, on the other hand, is recreating the industrial base to build these sophisticated machines here in the United States. In fact, various components of the American Centrifuge are being built or assembled in a dozen states.

In March, we purchased a facility in Oakridge, built in the 1980s, specifically for manufacturing centrifuges. Babcock and Wilcox Company, a subsidiary of McDermott, will use the facility for centrifuge machine manufacturing, balancing, and testing. We've re-named the facility The American Centrifuge Technology and Manufacturing Center. We are spending more than $50 million on machines and equipment to make it a state-of-the-art manufacturing center. We expect to use the center to build 40 to 50 of the AC100 centrifuge machines late this year, which will be assembled and installed at Piketon. The center is where key components of the AC100 machines will be manufactured and assembled over the next few years, to complete the ACP build-out.

As we talk with shareholders, one of the most frequent requests is for an update on the DOE's loan guarantee program. Let me spend a few minutes here to bring you up to speed. As most of you know, the appropriations legislation passed in December, authorized up to $38.5 billion in loan guarantees for new energy projects. That authorization included about $20 billion for nuclear power projects and set aside up to $2 billion in loan guarantees for projects related to the front end of the nuclear fuel cycle. We believe that very much includes the American Centrifuge plant.

We are pleased to see DOE's implementation plans for the loan guarantee program was sent to Congressional Appropriations Committees earlier this month. Based on the required 45-day waiting period, DOE could solicit projects and proposals later this quarter.

As we analyze the implementation plant, we saw many areas where ACP is in close alignment with the selection criteria set forth. For example, DOE seeks projects that will result in lower emissions of air pollutants and greenhouse gases. The American Centrifuge technology supports an expanded fleet of reactors and requires 95% less electricity than the gaseous diffusion technology used today to create the same amount of low-enriched uranium, thereby reducing our carbon footprint.

DOE wants commercially ready projects that can be put into service quickly. Our plan is designed for commercial operation, already has a 30-year operating license, and is already well under construction and it is a project that is a -- that is positioned for long-term commercial success as we expect nuclear power generation to expand over the coming decades.

Obviously, the loan guarantee is a competitive process, but we think we have an attractive package to present to DOE. We'll keep you informed as the process moves forward.

After our last earnings call in February, we heard from many of our shareholders. We value your feedback and we are acting on your suggestions. One area where we've taken immediate steps to improve is communications. As you've probably noticed, we have been issuing more news releases. We've also been putting out statements as events merit, providing our view on external events. For example, in recent weeks, we put out statements regarding the Supreme Court accepting the anti-dumping trade case involving imports of uranium enrichment and on the GAO report on DOE's management of depleted uranium stored at Paducah and Piketon.

We've also been communicating with Congress. In March, I spoke before the Senate Committee on Energy and Natural Resources on the need for a legislative patch to fix a gap in U.S. trade law. Our concern is that a recently signed agreement between the United States and Russia could be unenforceable unless legislation is passed declaring that uranium products are a good as defined by trade law.

One of the most pressing challenges facing the industry today is how to pull in a small portion of Russia's huge nuclear fuel capacity into the U.S. market without endangering America's own nuclear fuel industry. The recent agreement between our nations provides a critical transition period to deploy new domestic capacity, while giving Russia an opportunity to sell limited quantities in the U.S. market without threatening the stability of the U.S. market. We continue to monitor this legislation and similar bills very closely.

Last week, Bob Van Namen was one of several industry experts who testified before the House Science and Technology Committee. The panel spoke about the status of America's supply of nuclear fuel and the industry's ability to meet additional demand for fuel as the country prepares to increase its use of nuclear power. This is an important topic and we are pleased to be invited to provide a fuel supplier's view to Congress.

My testimony and Bob's are posted in the newsroom section of our website. Of course, most of our meetings on the Hill do not result in speeches. We spend a much greater share of our time talking to members and educating key Congressional staffers on issues affecting the company, than we do testifying before committees.

To wrap up, our financial results came in as we expected for the first quarter. We finalized the initial design for the AC100 and are moving forward to test these individual machines during 2008. The Lead Cascade integrated testing program continues to provide us with results that are consistent since last fall, and these results are increasing our confidence in the performance and reliability of the technology. A larger cascade consist -- consisting entirely of AC100 machines, about 40 to 50, is expected to be built later this year by our strategic suppliers. We will operate and test this cascade in the spring of 2009.

We are making good progress in our process to re-baseline our budget for the American Centrifuge plant, and we continue to expect the cost to be about $3.5 billion. We expect to report back to you on this in June.

Now I'd like to turn the call over to John Barpoulis for a report on the first quarter financials. John.

Thank you, John, and good morning to everyone. We want to get to your questions, quickly, so I'll keep my report to the key points. We expect to issue our 10Q report later today and it has substantial detail.

Starting at the top line for the quarter, revenue is $343 million or $122 million less than the same quarter last year. As is the norm, SWU sales made up the vast majority of the revenue at $245 million, and also made up the lion's share of the decrease between the two periods. SWU sales in the first quarter reflected 36% lower volume of customer deliveries in the lower average price billed to customers. The 10Q has additional detail about the impact of barter sales that were included in last year's first quarter results. And when those are factored out, the average price is about the same quarter-over-quarter.

Echoing what John said in his remarks, these results are inline with our expectations for sales in the quarter. 2007 was a record year for revenue in sales volume of SWU and the 18- to 24-month refueling cycle for reactors means that we will have lower deliveries in 2008. Because of the long-term nature of our contracts, we have good visibility into 2009, and we can see those sales rebounding next year. I think 2008 will look a lot like the quarterly pattern we saw in 2005, with small profits or small losses in the first three quarters of the year, followed by a strong fourth quarter. As always, the timing of our customer orders and deliveries can vary and impact that quarter profile.

Uranium revenue was $47 million or about triple the revenue of -- from uranium recorded in the same quarter last year, as both volume and price increased. For the full year, we expect revenue from uranium to be relatively unchanged from 2007. The U.S. Government contract segment was $51 million, an increase of almost $7 million.

Turning next to cost of sales for the LEU segment. Cost of sales for SWU and uranium was $261 million, which was $93 million or 26% less quarter-over-quarter. That's mainly due to the 36% decline in SWU sales volume.

As you know, under our monthly moving average inventory methodology, cost of sales reflects changes in production and purchase cost. Our production costs increased 25% during the quarter due to an increase in the amount of power purchased and quantities produced. You will recall that we are now buying 2,000 megawatts of power 24/7 during the non-summer months from TVA, and that translates into nearly a million more megawatt hours of electricity being purchased during the quarter. The additional power is used to increase SWU production and to underfeed the enrichment process.

The quantity of uranium that is added to uranium inventory from underfeeding is accounted for as a byproduct of the enrichment process.

Production costs are allocated to the uranium obtained from underfeeding based on the net realizable value of the uranium, and the remainder of the production cost is allocated to SWU inventory costs. Our overall unit product cost declined just under 1%, even with the increase in power used.

Last year we identified higher prices paid to Russia as a source of gross profit margin squeeze during 2008. While we benefit from the strong improvement in market prices over the past several years, the price we pay to Russia is increasing at a faster pace than the amount we collect from our customers, which puts pressure on our gross profit margin. In the first quarter, the price we paid to Russia under the market-based pricing formula, was 11% higher than in the same quarter of 2007, which is inline with our expectations for the full year.

Gross profit for the quarter was $39 million, that's $34 million less than the same quarter of 2007, or a decrease of 47%. A gross profit margin was 11% for the quarter, compared to nearly 16% in the same quarter of 2007. We expect a gross margin of 13 to 14% for the year end 2008.

Below the gross margin, we have expenses for the continued demonstration and development costs of American Centrifuge. The lower expense quarter-over-quarter is due to reduced activities associated with assembling and testing centrifuges and related equipment at our test facilities in Oakridge. More of our spending in 2008 is related to construction of the American Centrifuge plant and is being capitalized.

The numbers tell the story here. In the first quarter of 2008, $110 million of spending was capitalized compared to $7 million in the same quarter last year. As we move forward with the commercial deployment of the American Centrifuge, most of our spending will be capitalized.

Cash spent in the first quarter on ACP was at a lower rate than the annualized spend rate of $650 to $700 million, contained in our February 2008 outlook. The spend profile for the rest of 2008 is one of the areas we are looking at in our development of the project budget going forward. As John noted, in our news release earlier this month that updated our progress on the American Centrifuge, we are looking at an alternative spending profile for ACP that would aim to not substantially delay the ultimate build-out of the plant. Because we are uncertain of how long DOE's review of the loan guarantee application by USEC may take or when a broad recovery of the credit markets may occur, we want to be careful to live within our means until we're able to raise debt capital.

Fortunately, our efforts to improve the economics of the Paducah plant have been successful and that facility can provide a meaningful financial and operational backstop as we deploy the American Centrifuge. Paducah is running at its highest efficiency in decades and could well run for years beyond our previous plan, which gives us flexibility as we consider alternate planning scenarios. We believe the key to our success is to construct the American Centrifuge plant in the most cost-effective manner, look for ways to mitigate and balance risks, and have flexibility in our schedule.

Turning back to the first quarter results, the bottom line, we recorded net income of $4.4 million or $0.04 per share for the first quarter of 2008, compared to net income of $39.3 million or $0.45 per share in the same quarter of 2007. The results in the first quarter of 2007 benefited from approximately $16.9 million from the non-cash reversal of previously recorded accruals for taxes and interest associated with the accounting standard known as FIN 48. Our first quarter 2008 results are inline with our expectations.

We announced on our last conference call that beginning this quarter, we would cease reporting pro forma net income before American Centrifuge expenses. As we move further into the construction phase of the American Centrifuge plant, a greater portion of the spending will be capitalized and the impact on net income will be reduced over time.

Our guidance for 2008 is for American Centrifuge expenses to be roughly $125 million, and that will have a significant effect on our net income. However, it is an easy calculation using a statutory tax rate to see the impact that spending has on our earnings.

Turning next to cash. We have $805 million in cash on hand as of March 31st, 2008, compared to $886 million on December 31st, 2007. Much of this cash balance reflects the $775 million in net proceeds of the equity in convertible debt offering completed in September. Cash flow from operations in the first quarter was $21 million compared to cash flow from operations of about $88 million in the first quarter of 2007. The reduction in cash flow from operations reflects lower net income and an increase in net inventory quarter-over-quarter. This cash, along with access to a $400 million credit facility and marketable inventory, gives USEC over $1 billion of liquidity. This should provide us with ample liquidity well into 2009.

In yesterday's news release, we also reiterated our net income and cash flow guidance for 2008. As noted in the news release, our guidance is subject to a number of assumptions and uncertainties that could affect results, and we refer you to the 2008 outlook section of our annual report, for a full list of factors that could affect net income.

So to summarize, our financial results for the first quarter were inline with our expectations. We have reiterated our annual guidance and expect a strong fourth quarter. While our guidance for 2008 is down from our 2007 results, it is consistent with the cycle of our customers' fuel needs tied to refueling reactors on an 18- to 24-month cycle. In looking ahead, we see stronger sales in 2009. We have ample liquidity for American Centrifuge project and other financial requirements into 2009.

That concludes my report, and I'll ask the operator to prompt our callers for questions. Curtis.

(OPERATOR INSTRUCTIONS) And our first question comes from Al Kabili with Goldman Sachs. Your line is now open.

Hi. Good morning, guys.

Good morning, Al.

Thanks for taking my questions. I guess the first question, John, if you could talk about your average SWU prices and clarify the barter contracts which made for a tough comp.

That sounded like for Bob. Let him take a shot.

The barter was a deal done with a specific customer. It was a -- not a normal transaction, but it was one where a customer had a significant quantity of natural uranium that he then wanted to exchange in order to increase the quantity of low-enriched uranium he had. So he paid for the enrichment and in using the natural uranium, he received the low-enriched uranium back. So a very unusual transaction, but one which clearly benefited the customer and fit in well into our position as well.

So the overall trends on SWU prices I think were your other question there. I can point you -- while we don't discuss our price portfolio, what we can do is to point to the current market indicators. And we have seen those continuing to strengthen over the last several months and several years. We're now looking at $146 a SWU for the stock market price and $150 a SWU for some of the consultants forecast for long-term prices. The prices we are signing up in contracts are reflective of what we're seeing in the market indicators.

Okay. And then I think the press release mentioned if you stripped out the bartering -- the impact of the bartering contract last year, your SWU prices would have been roughly flat. Could you just tell us, perhaps, sequentially versus the fourth quarter what your average SWU prices did?

Versus fourth quarter of 2007?

Yes.

And are you looking at -- or asking about what are expectations are really embedded within our guidance for 2008?

Yes, I am. And, perhaps, stripping out some of the noise of the bartering contract would be to look at your SWU prices, kind of what -- how they trended versus the fourth quarter of '07 as well.

Right. Well, what we have disclosed is that we do have slightly lower prices in first quarter 2008. We are seeing a small increase in prices for the year. That will be going up on a reasonably smooth basis with, again, probably the fourth quarter being the highest quarter for both volume and for price.

Okay. And then what drove the lower prices in the first quarter?

It truly is just the mix of timing of customers and older contracts that were reflective of market prices several years ago being delivered in the first quarter. So it's -- with so few deliveries in each quarter, and then being of such large volume and large dollar value, then the individual prices and the volatility within those prices do swing and cause the volatility we're seeing.

Okay. Got it. Thank you. And then if we could switch over to production and power cost. I think your -- you mentioned your unit production cost was actually down very slightly. Yes, we are seeing fuel cost inflation and I know your new contract has fuel cost adjustments in it with the TVA. Could you discuss how much of a headwind this could be going forward?

Couple of comments on that. You're right, the fuel cost adjuster is a source of volatility in our production cost. It is a much lower level of volatility. It's a much smaller component than us having to be susceptible to overall market risk on power. Fuel cost adjuster is a smaller adjuster than overall power cost. TVA has, in the fall, received very little rain. Their cheapest source of power continues to be the hydropower and they have seen a substantial recovery in rainfall during the springtime. So we do see this fuel cost adjuster, which is somewhat governed by the hydropower. So we're looking for that to moderate.

We're also getting hit somewhat by replacement power costs which are governed by natural gas prices. The more hydro they have, the less replacement power they have to get. So again it all comes back to the hydro situation within the Tennessee Valley. We have seen and are forecasting that fuel cost adjuster to result in power prices going either up or down. So we do see that moderating somewhat going into the future.

Also helping us there, the plant efficiency at Paducah continues to be very high. Our power utilization index, the way we turn power into SWU continues to be very strong. And we're helped by uranium prices which continue to benefit from underfeeding at the plant.

Okay. And that brought up the next question, which is the -- you had, I think it was a 25% or 29% increase in more power in the quarter. Is that primarily for underfeeding or is that -- how much of that is underfeeding versus building LEU inventory?

It's definitely a combination of both. We are going to be building inventory somewhat this year, looking forward to higher sales levels in 2009. And we are using the power to do both underfeeding and LEU production.

Okay. And then final question. John, as you updated recently the -- and reiterated the $3.5 billion cost estimate for the American Centrifuge project. And I know the full budget review is ongoing and expected in June. But could you just clarify, does -- we have seen quite a bit of inflation in commodities such as steel since the beginning of the year. Does that updated estimate of $3.5 billion factor in the commodity inflation we've recently seen?

The answer is yes. The longer -- boy, got that frog this morning. The -- and we'd seen some of this over last year. We had the benefit of the contracts that have been signed, such as for carbon fiber for the casings and things like that, is that we're able to basically get a lot of that built into the basic price we have. But there is still an escalation factor in there that would kick in. And so to the degree that we can account for what has already occurred and then project ahead, we have done that. Again, the projections are that a lot of those commodities have started to turn and flatten out a bit.

For those contracts that are not in place, there clearly will be factors in there. We have tried to accommodate that in our estimates with what we've seen so far.

Okay. Thank -- thank you very much.

Al, let me -- one other point on your fuel cost adjuster and your power question. We do, in the last several years, we've been successful in incorporating a power price adjuster into many of our contracts with customers so that we do have a hedge built into recent contracts where we will be able to temper the impact of higher fuel cost adjusters with the power price indicator and contract. We do have assumptions for the fuel cost adjuster in our guidance, and, again, we could go either plus or minus from the guidance, based on how it actually turns out.

Okay. And that actually does bring one last question related to the guidance. It's a $20 million spread between the low end and the high end. Could you just talk about what are the key factors in your -- in the guidance in terms of what could drive low end versus high end?

I think it is the key factors that you've touched on and that we touched on in general in our Q and our releases. SWU prices and volumes, to the extent that as we've talked about we have a strong -- expectations for a strong fourth quarter, and so there are sales, certainly, that are -- that are targeted toward the end of the year in early 2009, so there's the timing question around prices and volume. Additional potential SWU sales on a spot market basis. Uranium, both volume and price. And then on the cost side, I think you've touched on the fuel adjustment provision as well. I think the other factor related to uranium sales and price is our recognition of uranium revenue, and, again, that's tied to when that is delivered in the form of LEU.

Right. And your deferred revenue, I noticed, was up about $100 million in --

That's right, it was up.

-- sequentially. Is that -- is that -- how much of that's factored in this year's outlook that you'd expect you'd sell this year?

I think my best answer there is we do have embedded an expectation for uranium revenue recognition based on our view -- our best understanding and view of customer deliveries. And so there is an expectation built in there. And to the extent that changes, that could also affect our guidance.

Okay. Thank you very much.

Okay. Thanks, Al.

And our next question comes from Laurence Alexander from Jefferies. Your line is now open.

Good morning.

Good morning.

Good morning, Laurence.

I guess first question is, could you give updates on the tone of the negotiations for ACP contracts and how the litigation environment might be affecting that.

I'll let Bob Van Namen address that since he's on the frontline on that issue.

And the last part of that question, if you would repeat it, Laurence?

Just will the various parts of litigation that give some uncertainty on the longer term supply for the U.S., I mean, is that -- how is that affecting the negotiation?

You're talking the trade case issues --

Right.

-- that are going on? Sure. We have definitely been meeting with customers over the last several months and discussing both our positions on the trade case as well as our progress on American Centrifuge. They have continued to express a great deal of interest in the project and our progress to demonstrate the technology. And we have had a number of customers, both fuel managers and utility executives out to tour the facility. They continue to be very impressed with the technology, with the progress that we're making, with the people who are working on the project. Everyone who comes through really remarks about how amazing the cast is that we have working on the project. And they also comment on our commitment both to the project and to the long-term growth of nuclear power.

We are negotiating with several customers, both internationally and from the United States, and we expect to be signing contracts in the not-too-distant future. Because we made the strategic decision to sign off -- or to hold off on signing contracts until now, we really are in a better position to structure proposals for these long-term sales to our customers in a way that are more likely to earn the appropriate return on our capital.

Based on the discussions I've had with our customers, they really do understand that the sales contracts for the initial output of the centrifuge represent a substantial commitment by each of them and by USEC to help ensure a reliable and competitive domestic source of nuclear fuel that will be available for decades to come. We're working towards having a substantial portion of the output from American Centrifuge contracted later this year as an integral part of our debt financing. So I would say the discussions are going very well. We're on track for where we thought we would be. We're getting the interest we thought. We get the recognition for the project that we would like to see. Very positive so far.

And I guess second question on the CapEx spending for the $3.5 billion total expense. How much of that is for the machines versus the infrastructure? And then if you can extend that into a discussion on what your range of CapEx spending might be under different scenarios, that is if you really were to pare back to the bone, what could -- how much do you have to spend even in the most conservative scenario.

Let me answer the first part. With respect to the, I'll say the proportion of total project costs that are related to machines and the facilitization, the infrastructure related to machines, what we've talked about, about half of the estimate is related to machines and about a third is related to total project management. The Delta is then related to infrastructure. So that's the rough, rough proportions. Obviously, we're going through the budget efforts and those proportions are likely to change. So that really gets to our previous, I'd say guidance around the proportions.

The -- with respect to your latter question, I don't think we're at a point where we are ready to get into the range of capital expenditures for this year in the near term. That is very much of the focus of our baseline efforts that we're looking at and the overall business plan that we're looking at.

Okay. And then just one last question if I may. On the -- you've been signaling in the past couple of calls that '09 should be similar or at least the trend should be similar to '07 due to the refill cycle on the top line. Can you just help us walk through what that would imply because you're also seeing higher costs on the Russian -- under the Russian contract? And we'd also need to do some significant -- significant or small adjustment for the barter exchange last year. So do you have anything else, whether it's underfeeding or other order items that might be offsetting those two headwinds in '09?

I'm trying -- I think the short answer there is focused on the higher SWU sales volumes, that that is the -- our expectation for '09. And with respect to the other components that you mentioned, obviously on the Russian, the -- our expectations for a Russian price will be impacted by SWU prices this year. I mean, recalling that it is a function of a market-based pricing formula.

The two -- yes, two --

I'll look to Bob for any supplemental items.

Yes. Two other points I would make that we touched on briefly in one of the previous questions. Number one, the plant efficiency at Paducah continues to be very high, so we are getting very good output from the -- from the plant. And number two is the benefit of underfeeding and our ability to take advantage of the uranium market are definitely offsetting some of the price increases that we're seeing under the Russian contract.

Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from Mark Manley with Natixis. Your line is now open.

That's Natixis.

You knew who --

We know, Mark.

We knew who you were.

Good morning.

No problem. Can you give me a little clarity on how the DOE would determine the size of a fuel cycle loan guarantee or is -- I mean, the $2 billion, they've allocated it -- would they go to the maximum of that or is there some process where they determine the size?

I don't think that that's clear. But I do, also on the -- with respect to the DOE process, I think that they continue to establish their internal processes. We expect it to be a competitive process. But ultimately, they will need to look at the credit profile and the business plan related to an application. So I don't think we have a pre-existing or anticipated view of an amount or their approach to allocating in a competitive process.

Might they sort of say, "Oh, you know, this is two much, but we can give you a little bit less," and kind of impose a restriction on the business plan, if you will?

Yes, I think that's -- I would -- that would really be speculation as to how they would get into process. But from our standpoint, we will be applying for the capital that we need to make the American Centrifuge plant a success. And from their standpoint, from a credit perspective, they would be looking to, I'm sure, lend to a project in order to make the business plan succeed and for them to be repaid. So I think both sides need to work.

Okay. If I could just shift to the charter change that you passed at the annual meeting regarding foreign ownership restrictions. Did the limit in the past significantly restrict funding options and have you seen some more foreign interest recently?

Well, this issue really goes back to when we were doing the equity offering in the fall in that it was pointed out by people that those covenants were very restrictive and might limit the participation of foreign entities that were interested. And the markets that we're dealing with today are truly global and that restriction of when we went and looked at it was unnecessarily strict. And we're -- there's an awful lot of unique natures of about what we do, the classified nature of the project, and limitations imposed by the NRC or the Department of Energy on Foreign Ownership. But those are really focused at a majority ownership and ability to exert control over USEC.

And so what we did in modifying that Article 11 was to really relax those restrictions so we weren't looking at a trigger point that someone could unknowingly get into. And yet we still give ourselves a protection, if you saw a 10% ownership by an individual that you could start a process down to try and understand where that might go to. So it was very much our old self-imposed strict requirement, we think limited some of the ownership in the aggregate, and we went ahead and relaxed that to be more inline with the regulatory intent of the Nuclear Regulatory Commission and the Department of Energy. So we would see that that would make it easier for foreign interest, foreign ownership of the stock going forward.

So it opens the door for more, perhaps more equity offering? Is that in the works potentially?

No. I think from our standpoint, Mark, the message here is that investors expressed a concern about this in the fall and this is an example of management hearing our investor concerns and then acting to implement changes that we hope ultimately will improve our shareholder position. So it's really to facility and encourage, attract additional shareholders to our base.

And if I could just follow up on an earlier question regarding how much of the CapEx goes towards machines. You said about a half. Is that -- I mean, is that number -- is that amount per machine, I guess, based on the $3.8 million SWU volume, and would you expect that to go down on a machine basis if you expand beyond --

Mark, I think to be fair to you, we'd need to -- with this re-estimate come back and provide you all a better breakdown. We provided a breakdown --

Last year.

-- last year when we saw a $2.3 billion estimate with a contingency, and we really have not gone back and re-done and apportioned that. We've been pretty clear on where we -- where the growth has occurred, where the real surprise was on the plant. So I think that those percentages likely have changed with this estimate. So as we come through it, we will provide additional guidance on that. I think that's probably the fairest way to say it. Otherwise, I -- we'd be speculating and you don't want me doing those machinations in my head, you'd like to have the real facts.

All right. And then finally, if I could just -- you mentioned in the beginning in the remarks that you might look at some alternative spending profiles for the ACP. Can you give any kind of a range of what those might look like or what that might look like?

Again, I think we're still, as John indicated, we're working through our budget. And so at this point, it'd be premature to provide any guidance on specific spend profiles. But the intent again is, we're -- we are looking at the anticipated timing of the loan guarantee program, anticipated recovery of the capital markets, our overall capital and liquidity, but also the capital requirements of the project and how do we best keep that on a track for success. So we're balancing all factors in the work that we're doing now as we go through our budgeting and re-baseline exercise.

Great. Thanks very much.

Okay. Thank you.

At this time there are no further questions. Mr. Welch, I'll turn it back to you for any closing remarks.

Well, thank you all for your questions this morning. We greatly appreciate the dialogue, it's always been good. And the dialogue we've had with many investors in the last week, we are taking that aboard and we're trying to reach out as much as we can. And we clearly will keep you appraised as the re-baseline comes through.

Our vision is clearly one for delivering long-term shareholder value and we are focused on executing that plan. And I look forward to talking with you again in early August to let you know how the second quarter came -- how we came through on the second quarter and the full impact of the re-base lining activities we'll give you end of June, early July.

With that, we thank you very much.

This concludes today's teleconference. You may disconnect your lines at any time. Have a great day.