Centrus Energy Corp (LEU) 2012 Q1 法說會逐字稿

Greeting to the first quarter, 2012 conference call the. At this time participant are in a listen only mode. A question and answer session will follow the remarks. Please press star zero on the telephone key pad. This conference is being recorded. This is my pleasure to introduce your host Mr. Steven Wingfield Director of Investor Relation for USEC, Inc, , Thank you Mr.

Good morning. Thank you for joining us for USEC's conference call regarding the 2012 which ended March 31. With me today are John Welch and 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 Tracey Mey, Senior Vice President and Chief Accounting Officer.

Before turning the call to the John Welch, I would like to welcome all of our callers, as well as those listening to our webcast. This conference call follows our earnings news release issued yesterday afternoon. That news release is available on many financial websites as well as our corporate websites, usec.com.

All of our news releases and SEC filings including our 10K, 10Q's and 8K's are available on our website. We intend to follow the following reports on the 10Q later today. A replay of this call also will be available later this morning on the 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 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 statement is contained in our is contained in our filings with the SEC. Including our annual report on form 10K and quarterly reports on for 10Q.

Finally, the forward looking information provided today is time sensitive and is accurate only as of today, May 2, 2012. This call is the property USEC any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of USEC is strictly prohibited. Thank you for your participation and now I would like to turn the call over to the John.

Good morning and thank you for joining used today. Yesterday afternoon we reported our first quarter results. As previously forwarded we have expense centrifuge cost since the fourth quarter of 2011 because our activities on the project relate to the development and demonstration. Therefore, I'm sure it wasn't a surprise to anyone on this call that we reported a net loss.

At the bottom line we reported a net loss of 28.$8 million for the quarter, compared to a net loss of $16.6 million in the same quarter of 2011. However, we did report several positive metrics in our financials.

Revenue for the separate work units or SWU, showed a 74% increase over the same quarter last year. Our gross profit was $38.8 million in improvement of 179% over the same quarter in 2011. The gross profit margin was 6.9%, in the 2012 period, compared to 3.7% in the first quarter of 2011 and cash flow provided by the operations remains positive on the $47.7 million.

John Barpoulis will provide a more detail report on the first quarter in a few minutes. Since we held our 2011 year in call six week ago, and the annual meeting of shareholders was just last week, I'm going to keep my remarks this morning brief so we can get to your questions sooner.

But I do want to give you an update on three essential topics for our business. Our view of the nuclear fuel market, the potential extension of Paducah, through a one-year multi party arrangement and or effort to obtain federal funding for the BOE proposed research development demonstration program, known as RD&D .

A year ago, the natural disaster in the Japan was fresh on everyone's mind. Despite the devastation of the earthquake and the tsunami, and the issues with the Fukushima plant, no one in the industry was predicting that only one reactor in Japan would be operating in May 2012. Japanese regulatory officials are making a careful inspection of every reactor including those taken offline for scheduled routine maintenance.

In recent weeks there have been steps towards restarting reactors. Giving the substantial shortfall of the electricity in Japan without its nuclear fleet, accompanied by the corporation of lessons learned from the Fukushima reactors accident. We expect to see a restart of reactors as 2012 progresses.

We remain encouraged by the long-term outlook for the nuclear fuel industry and that is why we continue to believe that the American Centrifuge Technology is the past to building shareholder value in the years ahead. More than 60 reactors are under construction worldwide today particularly in Asia. In early 2012, the United States nuclear regulatory commission approved construction and operating licenses for Southern Company in South Carolina Electric and Gas, marking the first new construction in the United States in over three decades.

Nonetheless the shut down of reactors in Japan and related reactors shut down in Germany, have created a significant over supply in the market for enriched uranium over the next two to four years. This has hurt our efforts to sell low enriched uranium at the Paducah Gaseous Diffusion Plant. Our employees at Paducah are working very hard to keep the plant operating at a high level of efficiency. Nonetheless, its 60-year-old technology is at a competitive disadvantage to centrifuge technology because of the large amount of electricity, Paducah requires.

We will not continue to operate the Paducah plant if it doesn't make economic sense. But ceasing enrichment production at Paducah may not be necessary in 2012 if we can complete a multi party arrangement with the Tennessee Valley Authority, Energy Northwest, Bonneville Power Authority and the Department of Energy.

Significant progress has been made in the pass couple of weeks towards reaching an agreement and will remain optimistic. Discussions are ongoing and are at a sensitive stage so we were not in a position to detail the terms until they are finalized. However if we are successful we expect the agreement to support operating for another year as we work on the longer term transition plan for Paducah.

However as with any transaction a deal is not final until all approvals have been provided and final agreements signed. Our confidence in reaching a final agreement has increased over the past couple of week. However if these discusses are not successful, we expect to the enrichment operations at Paducah this month.

Let me turn next to the American centrifuge project. We remain convinced that the American Centrifuge technology is our best past to competitive source of enrichment that will meet the long-term needs of our customers. At the same time it will provide and indigenous capability for US domestic energy and national security requirements. Meeting those needs through a reliable competitive source will in turn build long-term value for shareholders.

As you are aware, instead of moving forward with a conditional commitment for a loan guarantee in the fall of 2011, DOE proposed a research development and demonstration or RD&D program. This two-year, cost sharing program is design to enhance the technical and financial readiness of the technology. We see the RD & . D program as a bridge to obtaining a DOE loan guarantee and the commercial deployment of this innovative technology.

There's no surprise of a conditional commitment -- there is no promise of a conditional commitment upon completing the program, but running our commercial AC100 machines, for hundreds of thousands hours, will reduce the project risk profile. It will also give DOE more confidence in our ability to deploy technology.

We're working towards the goals of the RD&D program. and have funded it through the end of May. We are currently operating AC100 centrifuge for scenes on uranium gas. Our program calls for the building and operating a full commercial cascades of 120 American centrifuge machines and related infrastructure.

We are working with DOE and Congress on legislation to provide federal funding for the RD&D program and government in fiscal year 2012, but we have not obtained that funding. The current political environment in the Washington has significantly slowed the legislative process in obtaining legislation for funding before may 31st is a challenge. Beginning in the June our credit significantly restricts our spending on ACP without federal RD&D funding.

We are also pursuing a non-legislative path for 2012 funding with the Department of. Energy. RD&D funding for fiscal '13 was in the President's budget submission. The House and Senate are considering appropriations bills that include funding for the program. However, obtaining the 2013 funding beginning October 1 would be of limited benefit if we had to demobilize the project in the June for lack of 2012 funding.

We will continue to work closely in the congressional supporters and the Department of Energy in an effort to secure this funding.

Clearly we have a number of moving pieces in a fair amount of uncertainty. But one thing that seems certain to me, is that the 2012 will be a year of transition or the USEC. We will be a small company. We started that process last year with the contract services segment and we began 2012 with about one-third fewer employees than we had a year earlier. In January, we eliminated about 2,000 within the American Centrifuge Organization in Oak Ridge and two dozen. I don't want to get ahead of myself. In the past 2 weeks, approximately twenty support positions in Piketon and Bethesda were also eliminated..

We are conditioning our organizational structure review and expect that over time we will have a significantly smaller work force and much leaner cost structure. Our evaluation of the organization is a top to bottom review and the reductions have included corporate officers. We expect to take additional actions affecting our employees to align the organization with our evolving business environment.

We don't generally, address our stock price on these calls because the stock price ultimately reflects the markets collective view regarding the value of a company. But our stocks is currently, trading below $1 and that' s the big elephant in the room. First, let me assure you that we would work with the New York stock Exchange to address our common stock price in the event we stay below the minimum share price requirement and become noncompliant NYSE listing standards. There is a process in place at the exchange that provides six months for companies to take actions that could increase the price above the $1 threshold.

For example, we are working hard to put in place an agreement to extend Paducah enrichment operations by one year and at the same time we're working hard to get government funding or the RD & D program. Success in these areas could improve our share price. If needed we could also take corporate action such as the reverse stocks plead with the approval of shareholders

My point here is that we are committed to maintaining our stock listing. Our shareholders want the trading liquidity of a national exchange and our convertible notes require the common stock to be listed.

There is no question that we have challenges ahead. But as we address those challenge we ask investors to remember our positives. We anticipate revenue of approximately $1.4 to $1.5 billion in 2012 and arrangements to extend Paducah operations are expected to increase that revenue over time.

We generated cash flow from operating in the first quarter and ended the quarter with over $70 million in cash and we have an undrawn credit facility in place to back stop our liquidity. With and the RD and D program, we believe that we have a path for the in closing let me emphasize 3 things. First we strongly believe in a positive long-term outlook for the nuclear fuel industry. With 104 reaction tore, the United States have the largest fleet in the world and many more being built over sea.

In a 10Q we will file later today, we confirm as we have been able to do each quarter that our cash balance, cash flow from operations and our credit facility, will provide sufficient cash to meet our needs for at least 12 months. The administration of Congress have shown that they believe that the domestic source of uranium enrichment is essential for energy and national security purposes. .

I want to say emphatically that with an agreement to extend Paducah operations in the RD&D program, we believe that we have a path for USEC to be successful going forward.

In closing, let me emphasize three things. First, we strongly believe in a positive long-term outlook for the nuclear fuel industry. With a 104 reactors, the United States has the largest fleet in the world many more reactors are being built over seas. Six new reactors went online in 2011 and another 14 are expected to be operational this year. Second, we are positioning USEC to be a leading supplier of nuclear fuel for decades to come by deploying the American Centrifuge technology. When deployed, it provide our nation with a domestic source of enrichment which is important to the United States national security, energy security and non proliferation efforts.

Finally, this is a time of transaction for USEC. We will not and cannot conduct business as usual. We have begun implementing our plan to fundamentally change our organizational structure to a align the organization with our evolving business environment and to reduce our cost. I would like to turn the call over to the John Barpoulis for a more detailed report on our

Thanks, John. And good morning everyone. Starting at revenue for the first quarter, total revenue was $562 million with SWU revenue making or $538 million was 96% of the total. Here you can see the decline in the uranium sales as the percentage of our total revenue. SWU volume increase 73% and the average price build to customers increased 1% year over year reflecting the variability of utility orders and refueling cycles. There was no uranium revenue in the first quarter of 2012 compared to $14 million in the same period last year.

Our contract services segment under went to transition in 2011 as we completed our work on the former Portsmouth plan. Revenue from contract services from the first quarter of 2012 totaled $24 million compared to $58 million in the same quarter last year. The lower revenue was due primarily to the completion of the coal shut down contract in September. This segment includes revenue for our subsidiary, NAC International, which dominated revenue in the segment in the first quarter of 2012.

Switching to the cost side of the ledger, our 2 largest cost components are electric power and the price we pay to Russia to purchase SWU. We have a power contract with the Tennessee Valley Authority or TVA. This is a five-year contract that provides moderate annual increases to the base price we pay plus an adjustment based on TVA's cost of fuel and purchase power.

In March of this year we and TVA agreed to shift a small amount of power that was to be consumed prior to May 31, 2012 to the summer months of 2012 extending our agreement through September. We also expect to amend our agreement as part of the arrangement we are negotiating with TVA, Energy Northwest, Bonneville Power and DOE.

The cost of power is about 70% of our cost of production. In the first quarter of 2012 production costs increased $3 million or 2% compared to the same period of 2011 due to a 4% increase in production volume. Unit production cost, however, declined 3% year over year as the average cost per megawatt hour declined 5%, reflecting a mix of the fix annual increase in the TVA contract price in the lower fuel cost adjustment.

As is typical for the first quarter, we did not purchase SWU from Russia under the megatons to megawatts program in either 2012 or 2011. The cost of sales in the LEU segment of 2012 was $501 million which is $194 million or 63% higher than in 2011.

The increase in cost sales, was largely due to the significant increase in SWU volume delivered year-over-year and the effect of higher inventory cost from high prior periods. Cost of sales in the contract services segment during the first quarter was $22 million, a decrease of $38 million or 64% compared to 2011. As noted earlier, this reflects completion of the work at the Portsmouth plant in Ohio.

Gross profit for the quarter was $39 million compared to $14 million in 2011. Our gross profit margin was 6.9% for 2012 compared to 3.7% in the first quarter of 2011. Selling general and administrative expense was slightly lower at $14.9 million in the three month period of 2012 compared to $15.5 million in the first quarter last year.

I want to point out two items below the gross profit line that had a significant impact on net income for the quarter. Advance technology and the special charge for work force production and advisory costs. Advance technology expense totaled $37 million in the first quarter of 2012 compared to $27 million in 2011, a difference of $10 million. Nearly all of the expense in advance technology is related to the demonstration of the American centrifuge technology.

As of the fourth quarter of 2011, all American centrifuge project costs have been expensed including interest expense that we would have previously capitalized. This interest expense in the 2012 is $13 million. We have reduced the level of spending and the project is focus on the RD&D program. Therefore, we do not expect to capitalize spending related to the ACP until commercial plant deployment resumes.

In the first quarter we recorded a special charge related to work force production and advisory cost. As we disclosed in our 10K and March earning release, we have engaged an outside management consulting firm to support our internal review of our organizational structure. The charge related to these effort total $6.4 million in the quarter. Last week the positions of approximately 20 USEC employees in Piketon and Bethesda were eliminated. As John said, we expect further reductions in 2012, so you may see additional special charges in upcoming quarters.

These two factors, expenses and interest related to the centrifuge project and the special charge for workforce reductions and advisors, were the main drivers for our net loss of $28.8 million in the first quarter compared to a net loss of $16.6 million in the same period of 2011. These factors did not affect our cash flow from operations which was $48 million compared to $51 million in the first quarter of 2011. As of March 31, 2012 our cash balance was $72 million compared to $38 million at the end of 2011.

Turing next to our outlook for the remainder of 2012, we basically reiterated the limited earnings and cash flow guidance provided about 6 week ago. We anticipate revenue between $1.4 and $1.5 billion from the sale of SWU, but that could increase depending on the terms of a potential arrangement with TVA, Energy Northwest, Bonneville Power and DOE.

USEC is in a period of transition and there are a number of uncertainties in 2012, that would make providing earnings in cash flow guidance subject to such a wide range that we believe would be of little value. We have a substantial net inventory of SWU and uranium and we will continue to buy at $5.5 million SWU annually from Russia through the end of the megatons to megawatts program in December 2013.

In 2011, we signed a commercial contract with TENEX to continue purchasing SWU from Russia over the next decade. We expect to remain an important supplier of loan rich uranium of nuclear reactors.

Over the next few week we will know whether we will continue to implement the RD&D program and status of operations at Paducah. We will revisit our financial methods with the intent to provide guidance for the second half 2012 when we issue earnings in August.

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

(Operator Instructions). One minute before we pause for the questions. Our first questions Lawrence Alexander with Jefferies and Company, please proceed with your question.

Hi, this is Jeff on for Laurence.

Good morning.

Good morning. Couple of questions, one if you were to shift the Paducah back to the government, what potential liabilities would be subject to negotiation?

It is John Barpoulis. Ultimately it would depend on the out come of our current discussion with DOE and others. We could incur cost related to severance curtailing charges and other charges related to post-retirement plan if we ceased operations. Ultimately if until we have greater clarity on our path, we are not prepared to give details related to the shut down costs or areas or charges. If you take a look at our balance sheet from a long-term standpoint, you will see we have $43 million of liability related to these turn over cost that have been accrue and we will have $60 million of assets that we would also need to address.

Great, and I guess if you look at the current inventory you have, how much of that pre sold and can you talk about any gross margins that's embedded in those sales.

Again we are not prepared to address the gross margin expectations in question in given the nature of our cost of sales. Bob, maybe we could touch on the backlog as of the end of the year, which was disclosed in the 10K.

Our backlog will carry us out with a number of different sources coming in. Inventory is one piece. We'll continue to take deliveries under the HEU deal through 2013, by keeping the sustained sales level over the next several years. The inventory is clearly part of that equation as we make deliveries no 2013 2014 and 2015.

Sure. and I guess lastly, I know that Portsmouth was a large role in the government services revenue, but could you talk about the role of NAC in the future of USEC, you know, it is a pretty large market and how you guys are seeing that and addressing that market.

Sure. Happy to do it. Bob Van Namen again. The guidance we have out for our earnings says that we expect revenues from the contract services segment in 2012 to be about $85 million. NAC revenue will clearly dominate that segment. They get there revenue from a number of different sources including design and fabrication and implementation of sent fuel storage technologies, including their Magna store system which we believe is one of the leaders in the world from nuclear materials transportation and from nuclear field consulting services.

One of the big outcome from the Fukushima accident in recommendations from the DOE's blue ribbon commission would be to build regional interims storage facilities for spent nuclear fuel storage. As a leader in that business, we really see NAC as having very good growth potential in all these markets going forward. So very pleased with its position. But clearly it would be a dominant piece of that contract services segment.

Appreciate, thanks.

Our next question come from the line of George Caffrey with GMP Securities. Please proceed with your questions.

As it relates to Paducah in the potential for an agreement, could you talk a little bit about kind of a range of magnitude of size and also whether this is you are talking about some sort of the tolling arrangement or exactly how the company would benefit.

Again, Bob Van Namen on this. George, as we said in the introductory remarks that John gave, we are at very sensitive time, so we really don't want to go into a lot of detail on this. We have made the comment on in the past that we would like to see Paducah operate at 5 or 6 million SWU's to be able to get good unit economics on its production.

So as we are looking in the future, we do see operations in that range. We do see it being a commercial transaction and again one that we're satisfied with the economic proposition that is on the table right now. We are looking to get this wrapped up in the next couple of weeks very hopeful that we could do that. Bring clarity to the work force and then also move out with provide the services to the different parties involved.

Okay. And then on a different note could you discuss briefly what's required at the moment for the 150 of the RD&D program for 2012. I guess given the fact that you have indicated you need, I assume what you are talk being you need the actual cash of prior to the end of May if that is not the case, could you say so and what track the House and Senate are on for in order for that to occur.

First, John Barpoulis, just to clarify, with respect to the necessary at the end of May, it is under our credit agreement we are limited in our spending beyond June 1, and we would need to enter into and agreement with the government before that time that would provide for funding of a period and I'll turn that of to the John.

The target that the Department of. Energy is set up was $150 million fiscal year '12 and another $150 million in 2013 and as we mentioned in the 2013 they included that $150 million in their budget. At the end of 2011 we saw very strong bipartisan support for the program and the department was looking for transfer authority to reprogram within their own funds to provide that $150 million. That authority was not able to be realized and so we had worked through a transfer of some of our tailings as a means to provide $44 million worth of funding in the initial part of 2012. It is that funding that we're utilizing today and again through the credit facility of that authority to spend up to that level through the end of May.

So now you get through where is the balance of money for fiscal year '12, we are pursuing --- there are two paths that are being pursued and we continue to pursue the legislative path. There's not much legislation that is actually moving. There was a transportation bill that was looked at but all of the interim funding under that bill I think there was a 90 day interim funding for that basically was so that know language, which would have provided transfer authority for the Department ofEnergy to program was forthcoming in that. But there is still being pursued a legislative path but you have you to have the legislation for that to accompany and again that would be transferred authority for the department to reprogram monies within their budget for the balance of that 2012 funding.

We are also pursuing a non legislative path. Because the Department of Energy does have the authority to request a reprogramming that they could do under that. It would probably be a combination of another tales transfer for a large portion of that $150 million with some additional limited reprogramming the department itself could use. You are correct. And as we need that authority to be in place by the first of June or we are operating under those very constraints of the credit facility of about $1 million a month. Everyone in the Congress and the Department of. Energy understand that constraint facing us and so we are in active discussions along both of those paths as we speak.

And just John when you talk about the second path which relates to the tailings transfer, would that involve similar to the 44 million technically a sale, I think, it's a sale of SWU to the DOE.

No. It likely will not. That would -- that was really seen as in some way a collateral for that activity we are restricted from doing that under the credit facility. It would have to be a purely a transfer of tales and the release of that liability from our balance sheet which would free up the cash that we would need to continue with the project.

And then one last question, could you just comment a little bit about Toshiba and Babcock & Wilcox, you know,, the status of their convertible preferred and we haven't seen any press release on those two partners in a while. Could you comment on that?

First and I had dinner last night with the head of the nuclear power systems group for Toshiba. Toshiba and B&W remain fully supportive of the American Centrifuge Project and. And as, you know,, we stood up the American centrifuge manufacturing activity with a joint venture with Babcock & Wilcox in 2011, but both Toshiba and B&W are very strongly behind the American centrifuge project and it's ultimate deployment. John, do you want to add some color on how we dealt with the preferred?

Sure. George, I think two things to point out with respect to the preferred. One is that you may recall the agreement called for a phase investment with the second two phases being a function of specific milestones on a (unintelligible) closing and since we had not hit those milestones, hence we have not closed on the subsequent faces. I think the other piece is I think it is worth pointing out since the fall any one of our companies have had the ability to exit the investment agreement but we, as John pointed, remain focused on deploying the American centrifuge project technology and ultimately the success of our enrichment business.

Okay. Just to be clear, the initial phase where they invested instead of extending basically, at this point, they have the ability to exit but the expectations is that they are choosing not to.

We all have the ability to exit and again at this point we are all focused forward.

Thank you. I appreciate it.

Our next question come from the Bob Clutterbuck of Clutterbuck Capital management. Please proceed with your question.

Good morning guys. John, the actually if anything considered it was pretty decent quarter except your point, the two big elephants in the room, Paducah potential extension in the RD&D. You talked about this a couple of times and you recognize that the things are apparently, very sensitive. But the Paducah and obviously any potential extension also has to be completed by June 1, correct?

That's correct.

And from a timing point of view, you anticipate a do you mean the next couple of week one way or the another.

We are in that very sensitive final close out and approvals process right now. We will definitely know in the near term.

Okay, the second thing, you know,, add onto the previous question on the RD&D with the DOE that we need funding through October 1 and hopefully get 2013 that will start October 1st, and believe me the DOE and the Secretary too know all this, but the -- I mean -- Congress right now is on recess. They are taking an another recess in the month of the May and I think we all realize any congressional with the freeze in Congress on any legislation, any congressional action on anything before June 1st is probably, extraordinarily unlikely on anything much less USEC, so doesn't that really leave us alternative the non-legislative path. Again, the DOE they know the same thing that everybody knows, that the Congress is likely not to do anything on anything correct?

I think that we are in the same conclusion category as you are and we have had those discussions with our supporter in the Congress and the Department ofEnergy and so either way you say it, I mean these are there is a lot more emphasis on the non legislative path. We see that as the only path that funding in the time frame that we need it.

Finally, let me ask a question. I assume with the downsizing there would be a lot of early retirements and what have not. And are you using the assumption that the post retirement benefits that proportion between what USEC picks up and the government picks up, follow up what has been done in the past?

Maybe I can address that Bob, it's John Barpoulis. As far as the close out activities related to the supports of business we have had disclosure and we expect to continue to have additional disclosure on where we see the government's relative proportion of that funding and that I say with respect to any other assumption all the function of our privatization people's tenure and down to that personnel level.

Okay, literally is almost on an individual case basis.

As with these liabilities they always are.

Okay, well okay, gentleman. Good luck over the next 30 days.

Thank you Bob.

Our next question from the Richard Howard with partners.

Couple easy ones for you, were any of the SWU sales outside of long-term contracts in the first quarter?

We don't breakdown what is stock versus long-term sales. I think we generally have, you know,, we save the vast majority of sales are long-term commitments and that would be the first quarter is very similar to that. There is not very much open demand out there again given the number of reactors that are still out in the Japan. We do not see much open demand and making very limited, if any, spot sales.

Could you give us a feel for the Russian supply to the market? Did they supply any material outside of there contract for you?

Into the US market are you asking?

No. The whole international market. The world market.

Yes. International market they have 25% of the international market. They clearly dominate the Russian market. Many of the former Soviet country. They are been making penetration in other markets as well in roughly 25% market share.

Do have you a field on that, do have you a field for their competitiveness. Is there competitiveness because they have old beat up free centrifuges. Are they competitive because they don't have proper environmental regulations I use that term proscriptively. I suppose. Et cetera.

Richard, we have a complex relationship with the Russians both as a partner and as a competitor on that and I probably, would not want to speculate. I do think they do look for market share at times as they do with many energy commodities, they can aggressively price and what drives their ability to a congressively price I'm probably not in the best position to speculate on.

Do you think there their cost is contiunally declining?

We think they are gradually increasing their capacity. They Historically they have had centrifuge machines that are very, very low capacity in less than five SWU per year, per machine, as they replace failed machines they are replacing them with slightly higher capacity, machines. So that does give them a small growth in their output, but again the numbers in the specifics on that are very uncertain as to exactly, what their production capability is.

Grest. Okay. And then could you give a feel for what aspect of the credit facility is sort of a pressure point as of June 1st?

RIchard, it's John Barpoulis. Again, with respect to the covenants updated covenants within the credit facility, I think the clearest one to talk about is related to the restrictions on over time and we talked about the June 1st limitations. And there are additional reporting covenants and obligations and I think we have provided a pretty good summary of those in the AK files at the time and credit facility was done I pointed that out well.

The point I was getting at it is not like you wiped out our collateral, it's that you have a specific pressure point that refers to ACP ---

Yes, it is a specific limitation based on our discussions with our revolving and term lender, this is the agreement that we came with respect to the company's ability to investment independently over time.

And on ACP again, if we were not to have funding and we went down to the demobilization, the credit facility, allows us to spend the money that would be necessary to demobilize. They clearly would like to see the government funds for the research development demonstration program and they would like to see that kick in the June time frame and that's basically the way they set up the facility. I am.

I'm pretty sure we all would.

I guess I'll ask one more question. We have this pretty -- I mean I can't tell, but seem like they have a pretty good relationship with the Toshiba and Babcock. Are there any other potential partners that we should be considering to help us achieve the value? I hate to dilute the value out of ACP, but I guess we have to consider other potential partners.

Richard if you go back in several of our discussions. If we go back to the Department of. Energies objectives when they said let's have a research, development and demonstration activity, the Department of. Energy want to see this technology commercially deployed and so the RD&D program has it in an ability to derisk certain areas that are associated with the project execution. Machine -- specific aspects of machine performance and things like that.

The other things that they would like to see and enhance project execution form both for the RD&D program and with hope that that would become a precursor for an enhanced financial approach for the loan guarantee. So we are talking about additional with additional parties about there participation in the RD&D program and that is strictly to accomplish as. As we can from a demonstration standpoint and for the machine as well as a demonstration this plant is ready to be deployed fully. And so we would potentially look for other parties that would help us in that demonstration.

But to go back to the loan guarantee, the Department's made it clear they want to see creditworthy entities that they could feel very comfortable, they can loan $2 billion to and so there would likely be a much enhanced project execution team financial backing to go forward with loan guarantee and get the loan guarantee. So you could be assured that we would be enhancing that of the project as well.

Great, I'm rooting for you.

If there no other questions at this time I would like to hand the over to Mr. Welch or closing comments.

Thank you for joining us this morning. We as always appreciate your attending and continued support. We will remain optimistic that we can resolve the challenges a head of us. I think it is pretty clear that over the next 30 days we are going to know a heck of a lot. I can assure you that USEC management team is focused on meeting the challenges ahead and we look forward to talking to you at the next call.

There conclusion the telephone conference, you may your line at this time, thanks you for your participation.