Centrus Energy Corp (LEU) 2008 Q4 法說會逐字稿

Good day, and welcome, everyone to the USEC Inc. fourth 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. Steve 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. Thank you for joining us for USEC's conference call on the fourth quarter and full year 2008 which ended December 31, 2008. With me today are John Welch, President and Chief Executive Officer, John Barpoulis, Senior Vice President and Chief Financial Officer, Phil Sewell, Senior Vice President, Bob Van Namen, Senior Vice President and Tracy Mey, Controller and Chief Accounting Officer.

Before turning the call over to John Welch, 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 the markets closed. That news release is available on many financial websites as well as our corporate website, usec .com. 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. We expect to file our annual report on form 10-K later today. 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 this call today may be considered forward-looking information that involves risks and uncertainties, 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, including our annual report on form 10-K. Finally, the forward looking information provided today is time sensitive and is accurate only as of today, February 26, 2009. 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 would like to turn the can call over to John.

Good morning to you all, and thank you for joining us to discuss our 2008 results. We preannounced our results early in February and so you were likely aware that we had a better than expected fourth quarter, which in turn pushed our net income for the year above the range in our guidance.

Taking a look at the bottom line, we earned $25.1 million in the fourth quarter, matching the net income in the same quarter last year. For the full year, we earned $48.7 million compared to $96.6 million in the same period last year. Revenue tracked our expectations for the year. As we noted throughout 2008, our sales volume was substantially lower in 2008 than in 2007. And as we've also noted, we expect 2009 sales volume to be at least as good as 2007, a year when we set a record for revenue and volume. The majority of the reactors served by USEC are refueled on an 18 to 24 month cycle, so we are seeing the deliveries scheduled in 2009 for many customers who refueled and purchased SWU from us in 2007. We provided guidance for 2009 in the earnings release that went out yesterday after the markets closed. John Barpoulis will go into more detail about this guidance during his remarks. But I would like to hit on a few of the highlights of that guidance.

We expect a strong uptick in revenue as a result of a 40% increase in SWU sales volume. We also expect the average price for SWU billed to customers to increase 10%. We see total revenue coming in a range of $2.2 billion to $2.25 billion with approximately $1.8 billion coming from the sale of SWU. Revenue from government services is expected to be relatively flat year-over-year. Uranium revenue will decline to about $200 million as spot prices for uranium soften throughout 2008. Uranium prices have been just below $50 a pound so far this year.

While we have good news on the revenue side, our costs are expected to rise faster than revenues, and we see pressure on our gross profit margin in 2009. Our costs for the SWU we purchase from Russia went up 11% in 2008, and we expect those purchase costs to rise by a similar rate in 2009. As you know, we purchased about half of our SWU supply from Russia, so this increase will have a significant effect on our cost of sales. We recently signed an agreement with 10X, the Russian executive agent regarding the formula we use to set the price for purchases from Russia during the period of 2010 to 2013. The current pricing methodology uses a discount from an index of international and US price points, including both long and short term spot prices. The new pricing methodology is intended to enhance the stability of future pricing for both parties through a formula that combines a different mix of price points and other pricing elements. We expect this amendment will help moderate the year-over-year increases we've seen in 2008 and '09 and provide us with better visibility into future purchase costs. This new agreement requires government approvals from both the United States and Russia.

The other major cost component of our low enriched uranium segment is power. Specifically, the cost of electrical power from the Tennessee Valley Authority. In 2007, we signed a five year contract with TVA that provided moderate annual increases to the base price we pay. This contract also includes an adjustment up or down based on TVA's cost of fuel and purchase power. This adjustment was fairly modest in 2007, but when the price of coal spiked in early 2008, the fuel cost adjustment significantly increased our power costs. Coal prices have come down somewhat since the summer's peak, but not to the extent seen for other fossil fuels. The issue is made worse by a lingering drought in the Tennessee Valley. Lower reservoir levels have substantially reduced the amount of hydro power generated by TVA and increased power purchases from other utilities. The fuel cost adjustment in 2008 imposed an average increase over base contract prices of about 15%. We expect the fuel cost adjustment to continue to cause our power costs to remain above our base contract price. TVA has publicly said that their fuel costs have declined in recent months, but coal prices remain above their price level of early 2008. TVA continues to forecast increased fuel and purchase power costs for 2009. We've made certain assumptions about those fuel cost adjustments going forward, but a large degree of uncertainty remains. Together, the higher power costs and the higher SWU purchase costs paid to Russia will increase our cost of sales in 2009 at a rate higher than the improvements in prices billed to customers this year. We anticipate a gross profit margin this year of 10% to 12%, which is down from the 14% recorded in 2008.

This erosion of our profit margin provides an excellent reminder of why we are so sharply focused on building the American Centrifuge plant. We have little control over the price we pay for power, and electricity makes up 70% to 75% of Paducah's production cost. The American Centrifuge plant on the other hand uses the 95% less electricity than the current gaseous diffusion technology. This lower variable cost for power should reduce our production cash costs while providing operating cost stability after our initial capital investment.

Returning to our 2009 outlook, we expect net income in a range of $25 million to $50 million. That wide range reflects the uncertainty of power costs as well as the variability of timing for the recognition of uranium revenue. Later in the year, we will update this guidance as we gain clarity. During 2008, we built inventory in advance of the expected increase in SWU volume to be sold this year. In fact, our net inventories increased by $270 million. We expect to monetize this inventory in 2009, and we look for cash flow generated from operations to be in the range of $240 million to $275 million. Imbedded in our guidance is an expectation that we will expense roughly $120 million on the American Centrifuge plant in 2009. In addition, our baseline plan calls for spending approximately $700 million in capital expenditures for ACP. I want to say at the outset that this spending projection will likely be adjusted by the time we talk with you again after the first quarter.

Earlier this month, we announced that we were moderating the planned spending on the American centrifuge plant in 2009. We had anticipated that the DOE under the Bush administration would make a project selection for a loan guarantee before leaving office, but that did not happen. It takes time for the staff appointments below the Secretary of Energy to be made and ratified by the Senate, and we thought it prudent to reduce the rate of increase in planned spending on the project. We have been very pleased with the actions taken already by Energy Secretary Steven Chu. DOE issued a news release last week announcing a sweeping reorganization of the department's Loan Guarantee program. DOE expects to be in a position to begin offering loan guarantees later this spring. We see this as an excellent sign that this administration is serious about supporting innovative energy p products. Our American Centrifuge plant is well underway and we are on the cusp of creating thousands of jobs at a time when every new job is critical for communities across the nation.

Later today, we will issue our annual report on form 10-K. As is typical for these documents, we will provide a wide range of information on the company including an update on our progress to build the American Centrifuge plant. There were several points regarding ACP that I want to emphasize to our investors. First, given the uncertainty regarding the timing of the Loan Guarantee program, we have not updated our project schedule. We've said that our decision to slow spending on the project until DOE funding becomes more certain will likely have a negative impact on both schedule and costs. How much of an impact will depend on the duration of the slowdown in spending and whether further steps to conserve cash become necessary. We are working with our suppliers to evaluate and minimize the potential costs and schedule impact. Second, we do not expect to reduce spending in 2009 on our critical near term items including the lead cascade test program, AC100 design, and value engineering. Third, we are currently building the AC100 cascade and expect to begin operation of a five stage cascade midway through 2009. Although this cascade will operate be a closed loop configuration, the flow of uranium feed entails between individual machines in the cascade will be similar to those expected in commercial plant operations. Additional machines will be added until we reach a cascade of 40 to 50 machines which we expect to do late in the third quarter. This cascade will operate for the rest of 2009 and is intended to provide additional data on equipment operation and reliability that could identify opportunities to further optimize the centrifuge and cascade design. Our lead cascade integrated testing program that has been underway since August,2007, continues to provide us with valuable information. We have logged more than 150,000 machine hours since the lead cascade operations began. We have swapped out components in the original cascade with AC100 components to give us additional operating hours for the improved parts. Changing the components also allows us to analyze the impact of operations on them, which is part of our deterministic approach to long term reliability of the centrifuges.

And my final point. We are working with the Department of Energy Loan Guarantee office on a regular basis to answer their questions and expeditiously move the process forward. Dr. Chu has publicly made the point several times that the loan guarantee process must be accelerated, and we have seen a new sense of urgency trickling down through the department. We voiced the strong attributes to the American Centrifuge projects, especially in relation to the application put in by our foreign owned competitor. Our project is licensed by the NRC and well underway. Our centrifuge has issued utilized classified US technology and proudly carry the Made in America label. We are leading the way to reestablish the uranium enrichment industrial base in the United States. Our project alone has the potential to create more than 6,000 direct and indirect jobs in the very near term. The American Centrifuge will provide our US utility customers with a domestic source of enrichment with US controlled technology. That is energy security they can count on.

In short, our project is not only aligned with the criteria established for the Loan Guarantee program, but also fits well with our nation's economic priorities. We are working diligently to have the project selected by DOE in the near term so that we can return to ramping up the project toward commercial operations. If we do not see a path that leads to DOE funding our project later this year, we must take additional steps to slow down spending. We want to avoid that scenario if at all possible because it will dramatically affect both the schedule and cost of the plant. We remain very bullish on our project and believe it is our best path for building shareholder value. We are prepared to quickly resume the ramp up in hiring and spending on the project as funding becomes available. This project is critical for our company and for our nation's energy security. Now I would like to turn the call over to John Barpoulis for a report on the fourth quarter and full year 2008 financials. John?

Thanks, John, and good morning, everyone. We want to get to your questions and since we expect to issue our 10-K report later today, I will keep my report to the highlights. I will also give some color to our results for the fourth quarter since the 10-K is more focused on the full year. Starting at the top line for the quarter, revenue was $432 million, a decrease of 30% or $185 million over the same quarter last year. As is the norm, SKU sales made up the majority of the revenue at $314 million. SWU sales in the fourth quarter reflected a 45% decline in sales volume, but a 6% increase in the average price billed to customers. The good news here is that we are seeing the higher prices in contracts we've signed in recent years being part of a mix of delivery. We expect that trend to continue in 2009 as average SWU prices billed to customers are anticipated to increase by approximately 10% year-over-year. Uranium revenue was $63 million, which was an increase of more than 100% over the same quarter last year. This is a good example of the variability of our sales quarter-to-quarter. In the third quarter of 2008, uranium revenue was about half that recorded in the third quarter of 2007. Uranium sales volume was down 37% but the average price billed to customers was up by more than 200%. Nonetheless, we saw uranium prices drop during the second half of 2008 along with other energy commodities due to the selling by financial players and recessionary concerns. Although we believe there is solid demand for uranium over the medium to long term, uranium prices are well below where they were a year ago. We will seek to be opportunistic in placing the uranium we obtained from under feeding into the market in the coming months.

Turning back to the quarter, the US government contract segment contributed $55 million, 6% more than the same quarter last year. The mix there is increased revenue from NAC, offset by the completion of the uranium remediation work for DOE. Looking now at revenue from the full year, total revenue was $1.615 billion, down 16%. The timing of reactor refuelings can clearly be seen during 2008, as SWU volume was down 27% year-over-year. Average SWU prices billed to customers increased 2% compared to 2007. Uranium revenue is $54 million or 33% higher year-over-year. Uranium volume was down 4%, but the average price billed to customers increased 38%. Our government contract segment contributed $222 million which is $28 million, or 14% more than 2007. The increase was primarily due to increased contract work related to coal shutdown efforts at the Portsmouth GDP, incremental revenue for DOE contract work done in prior years that was recognized in 2008 and the timing of sales by NAC. Turning next to the cost of sales for the LEU segment, I'm going to stick to the full year as the factors are the same throughout the year, but some of the variability gets smoothed out over the annual period. The cost of sales for SWU and uranium was just over $1.2 billion, that's $271 million or 18% less than 2007, and mainly due to the decline in SWU sales volume offset by 4% higher unit costs.

As you know, under our monthly moving average inventory methodology, cost of sales reflects changes in production and purchase costs. Our production costs increased 14% during the year, reflecting a 12% increase in the amount of power purchased. The average cost per megawatt hour increased by 6% year-over-year. We bought 2,000-megawatts of power 24/7 during the non-summer months from TVA in 2008. That translates into 1.6 million more megawatt hours of electricity being purchased in 2008 than in 2007. The additional power is used to increase SWU production and to underfeed the enrichment process. Production volume was up by 10% as we built inventory in advance of sales in 2009 as well as taking advantage of the economics of under feeding. The quantity of uranium that is added to uranium inventory from under feeding is accounted for as a byproduct of our enrichment process. Product costs are allocated to the uranium obtained from under feeding based on the net realizable value of the uranium and the remainder of production costs is allocated to SWU inventory costs. Our overall unit production costs increased 3% during 2008. The impact of higher prices paid to Russia also affected profit margins.

In 2008, the price we paid Russia under the market based pricing formula was 11% higher than in 2007. John noted earlier that we expect the increase in 2009 to be similar to the one seen in 2008. Cost of sales in the government contract segment increased $17 million during the year compared to 2007, primarily due to increased contract work related to cold shutdown efforts at the Portsmouth plant and additional NAC costs related to the timing of sales. Gross profit for the fourth quarter was $78 million, an increase of $3.5 million from the same quarter of 2007. Our gross profit margin was 18% for the fourth quarter compared to 12% in the same quarter of 2007. For the full year, the gross profit was $229 million, which was $59 million, or 20%, lower than 2007. The gross profit margin was 14.2% for 2008 compared to 14.9% in 2007. Below gross profit, we have expenses for advanced technology, primarily the continued demonstration and development costs of American Centrifuge. The amount expensed in 2008 was $110 million compared to $127 million in 2007. The reduction in advanced technology expense is due to reduced activities associated with assembling and testing centrifuges and equipment at our test facilities in Oak Ridge and increased spending in activities related to the capitalized construction work and progress on the centrifuge machines and the ACP. Although advanced technology expenses were down 13% in 2008, we significantly increased the pace of spending on the plan. In addition to the advanced technology expenses, $420 million of spending was capitalized compared to $119 million in 2007. As we continue to move forward with the commercial deployment of the American Centrifuge, much of our spending will be capitalized, but we will still have significant advanced technology expenses in 2009.

Selling, general, and administrative expense increased by $9 million in 2008 compared to 2007, but the previous year's expense benefited from a reversal of a previously accrued tax penalty of more than $3 million. Compensation and benefit-related expenses increased by $2 million, and consulting expenses were $2 million higher compared to 2007. Travel expenses were also $1 million higher reflecting additional travel related to the American Centrifuge project. Going to the bottom line, we recorded net income of $25.1 million in the fourth quarter, which matched the net income in the same quarter of 2007. For the year, we recorded net income of $48.7 million, or $0.35 per diluted share compared to $96.6 million, or $0.94 per diluted share in 2007. The basic EPS was $0.44 per share in 2008, versus $1.04 per share in 2007. I would note that the results in 2007 benefited from $22 million from the non-cash reversal of previously recorded accruals for taxes and interest associated with the accounting standard known as FIN48. We did a little better than our guidance for the year due to better than anticipated results in the fourth quarter. The biggest drivers for the improvement were the timing of recognition of previously deferred revenue for uranium sales and lower than expected -- lower than planned ACP expense. To a lesser extent, the cost of power moderated somewhat in the fourth quarter compared to TVA's forecast.

Turning next to cash, we ended the year with $249 million in cash compared to $886 million on December 31, 2007. The cash flow used in operations during 2008 was $105 million compared to cash flow generated by operations of $109 million in 2007. The $214 million difference between the two years was the result of a build in a net inventory of $271 million year-over-year. The other draw on our cash balance was the higher level of capital expenditures, $442 million, related to the American Centrifuge project and $54 million in the early repurchases of our senior notes that matured in January of 2009. On January 20, we repaid the remaining principal of $96 million on those senior notes. We have an extensive discussion of our liquidity in the 10-K, but I can simplify it for this call. Without a DOE loan guarantee or other financing and without taking into account USEC's plans to slow down product spending in 2009, USEC anticipates that its cash, expected internally generated cash flow from operations and available borrowings under its revolving credit facility would be sufficient to meet its cash needs for approximately six to nine months on the baseline budget and schedule. Taking into account USEC's plan to slow down project spending, USEC anticipates that its liquidity will be sufficient beyond this period. In yesterday's news release, we also set our earnings and cash flow guidance for 2009. As noted in the news release, our guidance is subject to a number of assumptions and uncertainties that could affect results. Although our base cost for power is set under a five year contract with TVA, we expect the fuel cost and purchase power cost adjustment in that contract to increase our costs. This will negatively affect our production cost and cash flow from operations for 2009. Just how large this fuel cost adjustment will be this year is an open issue.

We've all seen volatility in the energy markets recently and the forecasts from TVA have mirrored this volatility. We expect a gross profit margin of 10% to 12% for 2009, down from 14% last year. Below the gross profit line, expenses related to the American Centrifuge project are expected to be about $120 million, but that is already subject to revision, depending on the outcome of the DOE loan guarantee. We anticipate that our corporate overhead, our selling, general, and administrative expenses, or SG&A, will be approximately $57 million. The downturn in the global stock markets have resulted in a sharp downturn in the fair value of our pension and post retirement benefit plan assets which will result in higher net benefit costs in 2009. These costs are imbedded in our cost of sales as well as SG&A. Combined, this net benefit cost is expected to be approximately $51 million higher than in -- in 2009 than last year. Earlier, John discussed our guidance regarding revenue, net income and cash flow. You probably noticed that our -- the range in our guidance is fairly wide, but that reflects the variability that we see in some of our key cost factors, the timing of revenue recognition for uranium sales and the impact of our spending slowdown on expenses for the American Centrifuge project. We expect net income in a range of $25 million to $50 million.

To quickly summarize, financial results for the fourth quarter and full year 2008 were better than expected due to the reasons I laid out. Looking ahead, we see stronger sales in 2009 and substantially higher cash flow from operations, but higher costs will squeeze our gross profit margin. And we are vigorously pursuing a DOE loan guarantee to raise the substantial capital we need to complete the ACP. And with that, operator, we are now ready to take questions from our callers.

Thank you. (Operator instructions) We will pause momentarily to give everyone an opportunity to signal. We will go first to Laurence Alexander of Jefferies.

Good morning.

Good morning, Laurence.

I guess first of all, given the historical lumpiness, quarter-by-quarter, in your business, how many months of liquidity are you comfortable with before you start changing your spending plans?

Laurence, I think we are constantly looking at our liquidity capabilities, resources, as well as our expected spending profile. I think our expectation and our plan is to always ensure that we have sufficient liquidity for our ongoing business, and so that is clearly our priority. I couldn't tell you a specific number of months horizon. I can just tell that you we are ensuring that we are capable of meeting that.

And then how much -- if you ratcheted back your spending to the minimum level that you identified, what would that level be on a run rate basis?

I think that is -- as indicated I think in our release earlier in the month, we are now in detailed discussions with our suppliers, looking at the overall spending profile with a view in mind of when funding could be available from DOE. The extent that that time frame changes is very much a function of our discussions with DOE and their progress in reviewing our application, we would need to begin to further ratchet down our spending profile. And so again, I wouldn't give you a dollar threshold, but it is something that will be a function of the horizon to get to the DOE loan guarantee funding.

And then has the DOE given any color on how any delays in your schedule affect their perspective on the program or how they look at your funding request versus other applicants?

No, I think that they have, in the course of our various conversations, the discussions have been very constructive. They have provided us with constructive feedback, and I would characterize it as a dialogue in parallel with any other discussions that they may be having.

Thank you.

Thank you.

We will go next to Roger Reed of Natisis Bleichroeder.

Good morning, gentlemen.

Good morning, Roger.

Following up on Laurence's question there, you indicate you are optimistic the DOE might have something moving forward, I guess late spring, I think I wrote down. Is there a -- I don't know, is there an announcement that we could watch or a commentary we could watch from DOE that would lead us to believe that that is a more or less likely event? They have certainly been much more vocal over the last, let's say two months than probably we heard from the prior 12 months, but I was just wondering if there is any sort of hurdles or anything we should look for here.

This is John. I think certainly we're encouraged by Secretary Chu's comments that they would like to start making announcements in April. We need to remember that in December of 2007, there was 16 renewable projects that were selected. None of those have been finalized yet. And then of course, we're clearly focused on the second phase of the Loan Guarantee program, which was on nuclear projects, both fuel cycle as well as the reactor projects. I think you can look -- that it would follow a three phase type of approach. There would be a selection, which then is followed by a period of getting to a conditional commitment, and then there is a third phase, which would be the detailed final negotiations leading up to closing. That is expected to be a multiple month time frame, but certainly, the first hurdle you would expect to see would -- in the case of the nuclear projects, would be selection. In the case of renewable projects, you would probably hear an announcement more along the lines of conditional commitment, and we certainly are hoping that his projection of doing that mid, latter part of April would hold true.

Okay. So in terms of how we should consider your spending on ACP in 2009 and this process of getting the DOE to commit to the -- to actually provide funding, I mean it is probably -- we're probably looking at a delay that takes out most of 2009? Do you think that is a reasonable assumption on our part?

I think -- I certainly would hope that it is not that long. I think that we have been given indications that once they get to a selection point, that the process is several months, but we would hope it does not take that long. John, anything else you wanted to add to that?

No, I think to the extent that there is a view or we have a view, as we get more information, clearly, we will be providing that as I'm sure DOE will as well as they move forward in the steps in the process. So again, the steps in the process, selection, commitment and then closing on a loan itself with funding. And so those are the three concrete steps that we would look toward and any announcement by DOE on that as well.

Okay, thank you. That's helpful. I guess a little more the operational side, we saw the 8-K on the Russian agreement the other day, talked a little bit about it here on the call. As we look at Russian prices, 2008 up 11%, roughly the same level in 2009. As I look to '10, '11, '12, as the agreement runs its course, should I consider price increases or cost increases to you? Obviously, considerably less than that 11%, about the same, or it is just going to depend based on what the markers and the indexes tell us?

This is Phil Sewell. The new agreement with the Russians represents a new pricing methodology that really provides more stability with respect to future pricing and with that stability, we're looking for moderation of the rate of increase in prices under that contract. And the Russians were looking for stability in terms of flow of income and payments to them and because of that, we have reached an agreement with them that represents, I will say pricing that is more consistent with the pricing in the marketplace, with customers and therefore, the moderation will be consistent with what we're seeing today in our sales contracts and throughout the future.

Okay. That is kind of what I thought, I just wanted to make sure. Then my final question, on the TVA power gone through, the coal the big driver there, along with the drought condition, other than watching the weather channel for rain, is there a particular coal price that you think is a sort of a trigger point where we can say alright, if coal prices drop below this, then you're kind of back to the base cost, as opposed to base plus a premium?

Sure. Bob Van Namen here. A couple of things to watch out for. One is, you don't necessarily look for rainfall as much as you do runoff. And I've learned in no uncertain terms the difference, because given the fact that TVA has been through a drought for several years, the ground is still fairly dry. They have to get enough rain to really soak into the ground as well as being able to replenish the reservoirs. So keep an eye on both of those factors. On the coal subject, obviously, coal rose and stuck up at higher prices much longer than we saw oil and natural gas. It has definitely started to come back down, but TVA still does has a large backlog of coal contracts that are substantially below even where the market price is today. So we are looking for them to judiciously replenish their backlog of coal contracts and do so at the market optimum time. We do continue to see, because coal price do continue to stick up above historical levels, that there will still be some upward pressure on prices as they roll off their coal, but again, we're seeing that offset by hopefully the return of hydro prices, their operations on their nuclear units and the fact that purchase power is coming down as natural gas prices come down.

Okay. That's helpful. Thank you.

We will go next to [Gabriela Vis] of Goldman Sachs.

Good morning.

Hi, Gabby.

Can you provide us a little bit of guidance on how you expect the breakdown of quarterly revenues for 2009? Do you expect it to be more primarily front end loaded, back end loaded? Anything would be helpful.

I know it is something that we recognize that our investors and analysts would like to get a better sense of the quarterly information, but again, due to the lumpiness on the whole, we do not provide specifics on a quarterly basis, and we also recognize our customers do modify the timing of the deliveries. I would say that again, not providing any quantitative guidance, I think that we are seeking and hoping that the delivery schedule will be more stable over the year, as opposed to very -- either volatile or spotty quarters. That's an objective, but again, I won't provide any quantitative guidance for it.

Okay. Thank you.

Sure.

Can you provide us with a refresher on the details surrounding the DOE loan guarantee and how you expect the program oil pan out? Is it going to be direct financing from the government? Do you still expect that only one project will be chosen for the full amount? And if you can just give us a little refresher, that would be great.

Sure. With respect to process, we have been meeting with the Loan Guarantee program staff regularly for months. We had submitted our parts one and parts two of our application in July and August of last year. The deadlines for those were September and December of last year, and so we had provided our applications well ahead of the deadline. We -- once the application was in, we began to have a conversation with DOE staff, and while I can't really disclose the content of those discussions, again, those discussions I think have been constructive. We have received constructive feedback from the Loan Guarantee office. The staff is evaluating not only our project, obviously, our -- AREVA's competing bid as well as nuclear power plant projects and nuclear energy projects, so they've got a full plate. With respect to the steps in the process, the first step would be a selection of a project under the solicitation. The second step would be after selection, we would expect -- one would expect to be negotiating with the Loan Guarantee staff on a conditional commitment, so the next step would be a commitment, a formal commitment. And then between the commitment and final closing on the loan, obviously at that point, you're putting in place all of the necessary documentation to get to closing. So those are the three steps.

With respect to whether it -- who actually does the financing, the program has evolved, so that it is -- I wouldn't call it just a loan guarantee program anymore. The funding would be from the Department of Treasury in our case, in the case of someone who is seeking the level of debt guarantee that we are. So seeking a -- that 100% of our debt is guaranteed, the guarantor technically is the Department of Energy, but the Department of Treasury would be the lender. Last is with respect to whether they would award all $2 billion or something less to a project, we have applied for $2 billion, because that is the amount that we need from a debt standpoint, and so we do not expect that there would be a reduced amount. On the other hand, it is a function of what DOE will actually do. John?

The only thing I would add to that Gabby is the size and the cost of the product were designed to meet the policy objectives of the Department of Energy and the Energy Policy Act of 2005 that established the loan Loan Guarantee program. Without the full $2 billion, we would have to take a very hard look at the impacts of the reduced funding on the project and including the basic economics of the project itself.

Great. Thank you. And one little detailed question. Did you guys provide any tax guidance for 2009? Is it similar to '08, around 30%, 38%?

We encourage people in our guidance to use the statutory level and obviously, as we go through the year, to the extent that changes, we would update.

Great. Thank you very much.

We will go to [Suzanna Trustor] of Swiss Re.

Good morning.

Good morning.

I have basically three questions. One is a follow up question to make sure my understanding is correct. You mentioned in terms of the DOE plan approval, the three phases, and then you mentioned a timing indication end or later part of April. Can you reconfirm for which phase it was, whether it is for the selection or you already think there would be an announcement for the conditional commitment?

The timing that John had outlined with respect to the end of April is not with respect to our project. It is with respect to Secretary Chu's announcement of seeking to announce, and that would be selections we believe, at the end of April, but again, I would look to his specific wording on what that said.

Okay. Thank you. The second question relates to the pension liabilities. I just noted on the balance sheet that they increased by $200 million from quarter-to-quarter. Can you give us a little bit more color around it, and also give us some insight of how much or if any is unfunded? And you mentioned that you need to fund another $50 million, but can you provide us a bit more color around it? And also in terms of cost increases for 2009, you gave us an indication, but what do you expect thereafter?

As with many companies, that have the defined benefit plans, we were not unaffected by the events of the fourth quarter of 2008 and continued volatility in the stock market. We have conservatively invested our pension assets, but again, those did see a decline. The balance sheet number that you mentioned is a shift from a net pension asset to a net pension liability. The -- in our guidance, we did outline -- the increase in expense is the GAAP side, the increase in funding in 2009 was about $15 million, and so that is the level that we will expect for 2009. Again, the funding level is a function of the funding requirements under the Pension Protection Act of 2006 as well as IRS guidelines, and so we will be following those. With respect to -- we provide our guidance for one year. With respect to anything further out, very much a function of future years but also a function of the performance of our asset investments. So there is a considerable amount of detail on our pensions that will be provided in the 10-K. Rather than getting into selective numbers here, I would encourage you to take a look at the footnotes.

Okay, and the final question is regarding the revolving credit facility, the $400 million, which I believe expired in August 2010. It includes some financial covenants. Now, given the situation that you will I think in the front end of this year continue to invest in the ACP -- for the ACP program to what extent are you coming to financial levels which might hit covenants?

There are -- there is one financial covenant, that covenant only kicks in when we exceed certain availability thresholds or usage thresholds, and so we do not -- have not met those thresholds now at this point or previously. Again, there is a considerable amount of detail, additional detail in our 10-K with respect to the credit facility in the various levels that we will certainly be keeping an eye on with respect to availability, and I would again encourage you to take a look at those.

Can I just follow up on the financial covenant which is mentioned, or was mentioned before in your filings, but was never defined in terms of what level it is? Can you provide more insight, what is the minimum that words covenant or leverage covenant or --

I would encourage you -- actually, the credit facility itself is a filed document, and so to the extent that you would like to take a look at the specific definitions around that financial covenant to look at -- it is a coverage, a debt service coverage covenant.

Thank you very much.

Okay. Thank you.

At this time, there are no other questions in the queue. I will turn the conference back to Mr. John Welch for any additional remarks.

Well, thank you for your questions this morning. We have made substantial progress on our project during 2008, and we are clearly at an inflection point regarding the future of nuclear power in the United States, and we are attempting to lead that effort to reestablishing the manufacturing infrastructure for our industry. We are actively engaged with DOE regarding the Loan Guarantee program, and we are cautiously optimistic based on recent actions and statements by Secretary Chu. As we move forward with the American centrifuge project, we are also keeping a sharp focus on our current operations. We have a vision for delivering long term shareholder value and we are focused on executing that plan. Thank you for your interest and investment in USEC and have a good day.

That concludes today's conference call. We thank you for your participation. You may disconnect at this time.