Centrus Energy Corp (LEU) 2012 Q2 法說會逐字稿

Greetings, and welcome to the USEC's Second Quarter 2012 Earnings Conference Call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Steven Wingfield, Director of Investor Relations for USEC, Inc. Thank you, sir. You may begin.

Good morning, and thank you for joining us for USEC's conference call regarding the second quarter of 2012, which ended June 30.

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; Tracy Mey, Vice President and Chief Accounting Officer; and Bob Van Namen, Senior Vice President, is joining us by phone.

Before turning the call over to John Welch, I'd 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 and our corporate website, USEC.com. All of our news releases and SEC filings, including our 10-K, 10-Qs, and 8-Ks, are available on our website. We intend to file our quarterly report on Form 10-Q later today.

A replay of this call also 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 those in our forward-looking statements is contained in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q.

Finally, the forward-looking information provided today is time sensitive and is accurate only as of today, August 1, 2012.

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. Now, I'd like to turn the call over to John Welsh.

Good morning, and thank you for joining us today.

Yesterday afternoon, we reported our second quarter results.

The management team was very active during the second quarter as we reached two important agreements.

First, in May, we entered into an innovative multi-party agreement that will allow us to continue to economically enrich uranium at the Paducah Gaseous Diffusion Plant for another year. It is a positive agreement for everyone involved.

Second, in June, we secured near-term funding for the research, development, and demonstration program for the American Centrifuge Technology, which we call the RD&D program. We are off to a great start on that program, and we have attracted a very strong board of managers to provide oversight to the program as provided under our agreement with the Department of Energy. This board includes leaders in the nuclear industry -- Babcock and Wilcox, Exelon, and Toshiba -- as well as two independent members with strong industry credentials.

Allow me to provide a few details why these two agreements were important accomplishments.

Starting first with the extension of enrichment operations at Paducah, this agreement is somewhat complex but works well because it's a win for everyone involved. Under the agreement, USEC is feeding depleted uranium tails into the Paducah plant rather than using a natural uranium feedstock.

These tails are from DOE operations during the 1980s, and this byproduct material contains higher amounts of the valuable U235 isotope than the depleted uranium byproduct we've generated in recent years. The government considered this tails material to be a liability to be disposed of sometime in the future.

The deleted uranium tails have been transferred from DOE to Energy Northwest, and much of the material has already been provided to USEC. Over the next 10 months, USEC will deliver low enriched uranium to Energy Northwest, which, in turn, will transfer much of that LEU to the Tennessee Valley Authority over a couple of years.

Customers of Energy Northwest and Tennessee Valley Authority will benefit from lower-cost nuclear fuel in future years. TVA also benefits from significant electricity sales to USEC during the next year.

DOE will benefit because TVA reactors using our fuel will provide DOE with tritium, which is a radioactive isotope used in our nation's national security programs. Tritium for these programs must come from US sources, and DOE now has secured additional tritium supply for our national security needs until the American Centrifuge Plant can serve that role.

A contract also maintains jobs for more than 1,000 USEC employees in Kentucky. USEC benefits from the additional through sales that will generate cash flow and positive gross profits.

Under the contract with Energy Northwest, enrichment operations will continue at the plant through next May. That will provide time for USEC and DOE to plan for Paducah's orderly transition. Paducah has been operating for nearly 60 years and produced some 300 million SWUs.

The Paducah plant has been a reliable source of enriched uranium, and our employees continue to operate the plant at a very high level of efficiency. Despite that effort, the technology uses significant amounts of electric power that puts the plan at a competitive disadvantage in the long run.

We were pleased to see two reactors in Japan restart during the second quarter, and several others may be restarted in the months ahead, but the reality is that the return of Japanese reactors following the devastating earthquake and tsunami has been at a much slower pace than we expected a year ago.

The enriched uranium market remains oversupplied in the near term. Although we continue to look for ways to economically extend Paducah enrichment operations beyond the term of the Energy Northwest contract, we believe it will be difficult to continue commercial enrichment operations there beyond May 31, 2013.

The second recent agreement involves funding for the Research Development and Demonstration, or RD&D, program that was proposed by DOE last fall.

In conjunction with our earnings news release yesterday, we also provided an update on the American Centrifuge Project and the RD&D program. We've made steady progress in the first two months since the RD&D agreement became effective. The preparations we made during the first half of the year paid dividends by allowing us to really hit the ground running and to make excellent progress on the RD&D program when it became effective in early June.

Let me click off just a few of the accomplishments so far.

We've established a governance structure for the American Centrifuge Demonstration LLC. We call this entity ACD, and it will be responsible for overseeing and directing the RD&D program.

We have been successful in attracting industry leaders to the Board of Managers, including representatives from Babcock & Wilcox, Exelon, and Toshiba, as well as two independent representatives.

We are very pleased to have the continued recognition of the importance of the American Centrifuge Technology by our strategic investors, Babcock & Wilcox and Toshiba. As you know, both companies have representatives serving on the USEC Board of Directors.

We are also pleased to have the industry expertise of our largest customer and the largest nuclear operator in the United States, Exelon.

We have also achieved the first of five technical milestones under the RD&D agreement with the finalization of our test program. This test program defines the objectives of the RD&D program with specific requirements for fulfilling the remaining milestones. Importantly, under the test plan, we all agree on where the goal line is for each milestone.

During the first half of 2012, we built or refurbished AC100 machines for the RD&D cascade. This gave us a running start on the program as we have approximately 50 machines built.

I was at the plant in mid-July, and it was great to see our people in construction mode again. They are building commercial AC100 centrifuge machines. New workers are being hired.

Our team is also installing new plant-controlled infrastructure and balance-of-plant systems, such as the service modules. These modules include the wiring and piping to connect each centrifuge to the cascade.

Under the RD&D program, we will demonstrate centrifuge manufacture and quality, AC100 operational reliability, and the operation of a commercial cascade of 120 AC100 machines. We will actually build more than 120 machines for the program, but the commercial cascade has 120 machines. This will be the first of 96 identical cascades that will comprise the American Centrifuge plant later this decade.

The $350 million RD&D program provides for a cost sharing of 80% DOE and 20% USEC for work performed between June 1, 2012 and the end of 2013. The program currently has funding that we expect to be sufficient through the end of November 2012. The remaining funding from DOE for fiscal year 2013 has not yet been authorized and is subject to further Congressional or DOE action. We will continue to work with Congress and DOE to obtain additional funding as soon as practical, but the calendar for acting on pending legislation is uncertain.

The RD&D program is vitally important to our company. It is a key element in ultimately attaining a loan guarantee in deploying the America Centrifuge technology. It is through this program that we will continue to de-risk the project. We will build and operate a commercial cascade of AC100 centrifuge machines. We will obtain reliability data from hundreds of thousands of machine hours, and we will test the balance-of-plant systems.

While this program does not guarantee a DOE loan guarantee, I believe we will have a stronger application as a result of the program. The scale-up risk will be substantially reduced, and we will have had the benefit of working with industry leaders to make the project even better. We are excited about the program, and we're excited to be in a building mode again at the American Centrifuge plant.

I want to take a minute to address our financial results.

We reported a net loss for both the quarter and the six-month period. As you will recall, we have expensed all of our American Centrifuge costs since the fourth quarter of 2011. Also charged to expense is interest expense that previously would have been capitalized when we were preparing for commercial plant deployment.

In addition, our advanced technology expense in the second quarter included $44.6 million related to the title transfer of previously capitalized American Centrifuge machinery and equipment to DOE, as provided for in the cooperative agreement we have.

Combined, advanced technology and interest expense in the quarter was nearly $65 million more than in the same quarter of 2011. This was offset by $10 million in other income that represents DOE's share of the first month of the RD&D program.

At the bottom line, we reported a net loss of $92 million for the quarter compared to a net loss of 21.2 in the same quarter of 2011. In the six-month period of 2012, we reported a net loss of $120.8 million, compared to a net loss of $37.8 million in the same period last year.

However, we did report positive metrics in our financials during the first half of 2012. Our gross profit was $51 million, an improvement of 8% year over year, and cash flow provided by operations remains positive at $162 million, and we ended the period with a cash balance of $229 million.

John Barpoulis will provide a more detailed report on the second quarter in a few minutes, but I do want to hit the high points of our updated outlook for 2012.

First, as a result of the innovative multi-party agreement we signed with Energy Northwest and others, we expect revenue to be 3 to $400 million better than the assumptions we made early in the year. Total revenue is expected to be just under $2 billion.

Second, we see a gross profit margin of about 7% compared to 5% earned in 2011.

Third, given the amount of advanced technology expense that we invested in the American Centrifuge project in the first half of the year, we expect to report a net loss for the full year of approximately $100 million, but because we've already reported net loss of about $121 million in the first six months of the year, you can infer that we expect a better second half of year financially.

In summary, although we reported a net loss, we had a very good second quarter from an operational and strategic point of view. We worked closely with the Department of Energy and other important opportunities to sign two significant agreements. We had strong cash flow from operations, and the net loss was mainly due to how we account for spending on our American Centrifuge.

Now, I'd like to turn the call over to John Barpoulis for a more detailed report on our financial results. John?

Thanks, John, and good morning, everyone.

Starting at revenue for the second quarter, total revenue was $365 million, with the SWU revenue making up $347 million, or 95% of the total.

You can see the continued trend of revenues for contract services and natural uranium declining as a percentage of our total revenue. Revenue from the second quarter was 20% below the same quarter in 2011.

We focus on the longer term in our planning, and most of my comments will be related to the six-month period ended June 30, 2012.

During the first half of 2012, revenue was $926 million, an increase of $91 million, or 11%.

SWU volume increased 35% compared to the same period last year, and the average price billed to customers increased 3% year over year, reflecting the variability of utility orders and refueling cycles.

Uranium sales accounted for $3.6 million, which was down significantly from $82 million in the first half of 2011. Most of our inventories of uranium available for sale have been sold in prior years, and we expect this trend to continue.

Our Contract Services segment underwent a transition in 2011 as we completed our work on the former Portsmouth plant. Revenue from Contract Services in the six-month period of 2012 was $38 million, compared to $114 million in the same period last year.

The lower revenue was due primarily to the completion of the cold shutdown contract in September 2011. This segment includes revenue from our subsidiary, NAC International, which will dominate revenue in the segment going forward.

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

I would note that under our new contract for extending enrichment operations at Paducah, we are passing the TVA fuel cost adjustment through to Energy Northwest. The cost of power is about 70% of our cost of production. In the first half of 2012, production costs increased $29 million, or 8%, compared to the same period of 2011 due to an 11% increase in production volume.

Unit production costs, however, declined 3% year over year, reflecting the lower impact of fixed costs on increased production volumes. The average cost per megawatt hour decreased 1% in the six-month period, reflecting lower TVA fuel cost adjustments in the first quarter of 2012.

Purchase costs for the SWU components of LEU from Russia under the Megatons to Megawatts Program declined $4 million in the six-month period compared to the first half of 2011 due to the timing of deliveries. The price we will pay Russia in 2012 increased 2% under the market-based pricing formula.

The cost of sales for the LEU segment in the six-month period of 2012 was $842 million, which was $166 million more than in 2011, but the cost of sales for SWU was flat year over year.

I would note that there were a number of factors that affected the cost of sales in the 2012 period that are detailed in the earnings release and our 10-Q that we intend to issue later today.

Cost of sales in the Contract Services segment during the six-month period was $34 million, a decrease of $78 million. As noted earlier, these costs were mostly incurred by NAC in the current year, and the decrease reflects the completion of the work in 2011 at the Portsmouth plant in Ohio.

Gross profit for the second quarter was $12 million compared to $33 million in the same quarter of 2011. For the six-month period of 2012, gross profit was $51 million compared to $47 million in the same period last year. Our gross profit margin in the first half of 2012 was 5.5%, basically unchanged from the same period of 2011.

Selling, general, and administrative expense was $30 million in the six-month period of 2012, compared to $32 million in the same period last year. Our business is in a state of transition, and we are continuing to review our organizational structure. We engaged a management consulting firm to support this review. In addition, the initial actions related to our organizational structure have resulted in workforce reductions. Together, the charges for advisory support, as well as workforce severance-related charges, totaled $9.6 million in the first half of 2012.

As John Welch noted earlier, advanced technology expense represents a large investment in the American Centrifuge technology. This expense was $86 million in the second quarter of 2012 and $123 million in the six-month period. Nearly all of the expense in advanced technology is related to the demonstration of 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 when we were preparing for commercial plant deployment. This interest expense in the six-month period of 2012 was $25 million. We do not expect to capitalize spending related to the ACP until commercial plant deployment continues.

Under the RD&D agreement, we will be sharing the costs of this program going forward. The agreement was effective June 1, 2012, and DOE's pro rata share of 80% was $10 million, which was reported as other income in both the quarter and six month periods of 2012.

Expense and interest related to the American Centrifuge project and the special charge for workforce reductions and advisors were the main drivers for our net loss in the second quarter and the six-month period of 2012. Although these factors had a significant impact on our P&L statement, we are reporting cash flow from operations of $162 million for the first half of 2012.

You can see the impact of this cash generation as our cash balance grew to $229 million as of June 30 compared to $72 million at the end of the first quarter and $38 million at the end of 2011.

We provided an update to our guidance for 2012 in late June and provided some additional details regarding the RD&D program and other modest modifications to the outlook in the earnings news release.

We now see total revenue of approximately $1.95 billion as a result of delivering approximately 30% more SWU in 2012 compared to 2011.

We believe the gross profit margin for the full year will be approximately 7% and the gross profit will be approximately $140 million.

Below the gross profit line, we expect the 80/20 cost sharing agreement for the RD&D program will reduce the effect of our advanced technology spending going forward. We expect DOE's share, as reported under other income, will be approximately $105 million for 2012.

Interest expense that previously would have been capitalized is expected to be approximately $40 million.

Bottom line -- we expect to report a net loss for the full year of approximately $100 million. To use an old Wall Street saying, cash is king, and we expect to report positive cash flow from operations for the year of approximately $30 million. We also expect to end the year with a cash balance of approximately $200 million.

We won't provide a view of 2013 until we report our fourth quarter in February, but I don't want to leave an expectation that we will continue this relatively high level of SWU deliveries going forward. The increase in SWU sales in 2012 was a direct result of the multi-party agreement we signed to extend Paducah operations.

Looking to 2013, we expect the volume of SWU sold will decline by about one-third.

As always, our financial guidance is subject to a number of assumptions and uncertainties that are included in the outlook section of our earnings news release. These factors could affect our results.

Before we open the call to your questions, I want to provide a short update on our continued listing on the New York Stock Exchange.

As we anticipated and shared on our last call, the decline of the price of our common equity below $1 put us into a non-compliance situation with the NYSE. We alerted investors on May 14 that we had received a notification from the NYSE to that effect.

I want to assure you that we are working with the Exchange to address our noncompliance with NYSE listing standards. There is a process in place at the Exchange that provides six months for companies to take actions that can increase the price above the $1 threshold. If needed, we could also take corporate action, such as a reverse stock split, with the approval of shareholders at our annual meeting next April.

We've had inquiries from shareholders on this subject, and I want to leave no doubt 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.

And with that, Operator, we're ready to take questions from our callers.

(Operator Instructions)

Laurence Alexander, Jefferies and Company.

Just a couple of things. For the cash flow discussion, how much variability do you think there is in terms of potential working capital swings for your cash flow generation in the back half of the year?

Laurence, it's John Barpoulis. I think our working capital needs are typically driven by Paducah operations and the timing of Russian deliveries and payments, and so as we take a look at the remainder of 2012, I think that those are relatively certain. So at this point, I don't see a lot of variability in the overall liquidity or working capital needs.

Obviously, there are things that may pop up that could affect that timing of reimbursement, or release of the cash collateral for tails under the RD&D program could affect some aspect of the timing, but on the whole, I think we're in pretty good shape.

And then in your comments, you mentioned, obviously, the declining of SWU volumes in 2013. What's your longer-term view on the SWU market, and what gives you the confidence in continuing to pursue the ACP given the competitive dynamics there and the inventory overhang in the market?

Laurence, Bob Van Namen to take that one.

Hi, Laurence. A couple of comments on that.

First off, clearly, the near-term market is dominated by the events of [Tukashima] and the impact that that has had both on supply and demand in the near term.

The market is going through a number of transitions, including the shutdown of two large gaseous diffusion plants and the end of the HEU deal with the Russians at the end of 2013. So what we see is really we expect a surplus supply that is pushing market prices down now to work themselves out over the next several years.

The longer-term market fundamentals really remain very solid from when we began the project. Japan is starting to restart reactors, as John Welch said, and we do expect them to recover a number of those, although it will take some years to do so.

We continue to see a lot of interest in new build around the world. We see China and India going off on very large new build programs, and we're seeing the success here in the US with both South Carolina Electric and Gas and Southern Company starting projects, as well.

Our customers really see a good, solid long-term position for American Centrifuge. What they look at is competition, and they want diversity of supply, and they want diversity of technology. They look at USEC with their track record as a long and reliable supplier as really being a piece of that overall long-term competitive supply mix.

We have a number of contracts currently in place for ACP output going forward, and our customers have been sticking with us as we've gone through the last several years, and we are keeping them very well informed about the long-term developments with the project. So we see all the fundamentals really pointing in the same direction as we saw when we first started the project.

And then, lastly, if Congress and the DOE have any delays in the funding proposals, what happens next? I mean do you drop back to ACP spending being curtailed to 1 million a month until they implement the appropriations, or how should we think about what happens if there's a delay?

Well, probably first thing -- Laurence, this is John -- is to address what's going on in the Congress. The calendar for acting on fiscal year '13 legislation before or after November election, it's uncertain, but we've been encouraged by even some of the most recent discussion in the last 24 to 48 hours about a long-term continuing resolution that would fund the government through March.

That would -- the fact that that's being discussed now and will likely be a major point to be addressed in September when Congress comes back in session, that's good because I don't think that -- they're going to have to do something from a continuing resolution standpoint in September, and it's good that they're talking about a longer one.

We will be fully engaged both with Congress and the Department of Energy on our funding needs to ensure that there is no gap. Our position is that if there is not funding, we are very constrained for what we can spend ourselves, and so we would likely have to go through some sort of demobilization.

But there are options and actions that DOE has that can take the funding into the new year, so again, that's why we'll be fully engaged with both the Congress on legislative activities and DOE for other funding options. But it is in no one's best interest to have any sort of interruption. The test program and the milestones that I talked about that we were all agreed to and everybody's marching to quite aggressively, any sort of interruption in funding and then all of that would have to be redone, and no one wants that to happen.

Thank you.

Thanks, Laurence.

George Caffrey, GMP Securities.

Just to follow up a little bit on that, would -- as far as the continuing resolution for, let's say, an additional six months' worth for the budget, how does that specifically affect USEC? I mean would funding be contained in a continuing resolution?

The Department of Energy would basically -- in a continuing resolution, programs that are underway, they would be earmarking money to be able to continue to spend at the same level, and so that's being looked at by them right now. I mean the fact that we have the program off and running is a very good point as we enter into those kinds of discussions.

Sure. And would you be able -- would they be in a position -- and I don't know if you can answer this -- to fund in a manner other than, let's say, allowing you to reduce your restricted cash by taking on some liabilities, restricted cash toward the surety bonds?

George, it's John Barpoulis. With this first element or leg of funding, the $87.7 million that take us through the end of November, that will effectively take all of our tails that we have and release the cash collateral related to those tails. So that would not be one of the options that DOE would have post-November 30. But as John indicated, there are other options that DOE could exercise.

Okay. And could you talk a little bit about your contracted volumes? In terms of looking at your guidance, it would appear that due to contracts, I assume you're getting a little bit better than spot pricing for SWU this year. Could you talk a little bit about your contracts and where those contracts are priced relative to the current price of SWU or current spot price of SWU?

We'll ask Bob to comment on that.

Sure, Bob Van Namen here. We don't give, again, guidance specifically on the SWU pricing trends for 2013. We would be including that in our guidance that we give next February.

But just as a few general comments, as we go forward from here, we're going to have a mix of supply sources, and we have entered into a number of long-term contracts for that output which really have us in a very good position with our backlog. You can see from the numbers that we recorded so far we are seeing the benefits of the increased prices over the last several years. We do not expect to be very active in the very near-term market for placing SWUs. As we've said, the demand is very limited in that timeframe, and as we fill out the transitional supply material from the Russians, we do see the opportunity to continue to book good margins on that.

So longer-term pricing is mainly going to be to keep us aligned with the TSA material sort of in intermediate term and then stepping into long term with ATP. But we do see, again, the benefit of the turnover in the portfolio and selling out the contracts at higher prices than we've seen over the last several years.

Okay, thank you. And then just a couple very quick data points. It may be in the Q, which I haven't seen.

One would be it seems that the interest expense in the first half was a little on the high side. Was there a charge relative to some earlier capitalized interest expense that occurred in the first half?

We do have deferred financing costs in there related to the renewal of our credit facility. And, George, there will be additional detail in the Q that may be able to help with that, and we'd be happy to follow up any questions that you may have (inaudible) go look at that.

Okay. And then if I can, one last thing. Could you -- LCEs outstanding at quarter end, if you happen to have it?

We did have LCEs outstanding at quarter end. Again, they typically will relate to the financial assurance provided to TVA and various credit support aspects for NAC, and there is a table in the Q that will provide that breakout for you.

Okay. Thank you so much.

Sure. Thank you.

Richard Howard, Prospector Partners.

Yes, obviously, a lot has been accomplished. I was wondering if you could give us a feel for what top management's next priority is, and I'm thinking specifically do we need to add partners? Do we need to add a customer partner? Do we need an outside partner? Do we need to shrink overhead? Just give us some color on that.

How about all of the above?

No, no, that's not a fair answer.

I know. I know that, but the answer is all of the above, is that we've talked about what we have done from an infrastructure standpoint. We know we're going to be a smaller company. We took some actions. We have taken actions because of the Portsmouth closure. We've taken actions to get ahead of that downturn, and we've seen some of the benefit of that already, albeit there have been some restructuring charges. But we will see the benefit of that going forward.

The big change in structure will occur in 2013 as we transition the Paducah gaseous diffusion plant. That has an impact clearly on the direct labor workforce that is associated with Paducah. It also impacts the overhead structure that we have, both people costs, etcetera. So all of that is being looked.

What you're alluding to on the other side is, okay, what's your plan relative to being able to come back at the loan guarantee, and we certainly know that we will go back at the loan guarantee with as strong a consortia as we can. We would fully expect Toshiba and B&W to be part of that process. They've been with us every step of the way, but we will also be reaching out to other folks at the timeframe when we come back to the loan guarantee.

It clearly would be our desires that when we complete the RD&D program, we're able to transition to the deployment of the plant, which means that there will be major activities in 2013 that are focused on putting us in the best position to go back for the loan guarantee so that we could go from one activity to the other.

Do you think that a new partner is -- is a new partner something that would help you get DOE funding? Or is it -- I mean is it critical? Is it just be good? And why haven't more customers stepped up than just Exelon?

Rich, this is John Barpoulis. I'll take one aspect of that.

I think from a credit standpoint, the credit strength of sponsors for any project financing is an important factor as one takes a look at the overall picture for a loan guarantee or for any product financing. So I do think that, again, the strength of the sponsors and diversity in the sponsors, I think, will be an important factor as we update our application.

With respect to the involvement of Exelon in the RD&D program, I think we're very pleased to have the leading nuclear operator like Exelon involved in the Board of Managers. They are bringing that extensive operating expertise. They're providing that customer perspective. And all of that will position us well for going back in.

I don't want to speculate on who could be additional sponsors going back in. Don't want to speak necessarily for utility customers. But, again, we're seeing their support through long-term contracts for ACP output as they've supported us in the past, and the nature of their support going forward is something that we'll certainly be discussing with them.

Keep up the good work. Thank you.

Thanks, Rich.

[Evan Bobizatay] of [Powbarry] Investment Management.

Do you guys see a possibility of a GOE loan guarantee coming before the completion of the test program at the end of 2013? And if so, what would be the earliest in terms of do you think there's a calendar date or an event that would accelerate that?

Evan, it's John Barpoulis. I think from an ideal timing standpoint -- and John Welch touched on this -- ideal timing would be to close out on permanent financing for commercial deployment on the day that we complete execution of the RD&D program. Obviously, that will require engagement prior to that, but again, I wouldn't want to speculate on a specific date of closing, but that would be an ideal target for us to shoot for.

Okay. And then as far as the convertible with B&W and Toshiba, will the next phase two all incur -- do you not expect that occurring before sometime in December 2013 before the completion of the test program?

Just to clarify, we have our eye on our convertible note maturity, and October of 2014 is one aspect. But the preferred equity for B&W/Toshiba that you mentioned, you may recall we closed on phase one, the initial phase of their three-phased investment. The second phase under the documents would come at a conditional commitment, and the third phase at financial closing.

I would say that we're very pleased with B&W and Toshiba's continued participation and support in the project. I think it's fair to say that our plan -- the deployment plan that was outlined at the time of the investment is not quite how we have ended up, so I'm sure that there will be further discussions with our preferred equity investors as we come back at the loan guarantee, and I think we would work with them and any additional sponsors to structure the best permanent financing we can for American Centrifuge as it moves forward.

Okay, great. Thanks so much, guys.

Okay, thank you.

Bob Clutterbuck, Clutterbuck Capital Management.

In the spirit of fairness, I'd like to congratulate you guys on the recent quarter. You got the big three done in the quarter -- the Paducah, the RD&D, and the oversight. That being said, we'd like now to follow-up, I think, on the two previous questions.

You put together, at least on the surface, a very impressive board of managers, three big-time firms. Can you drill down on their involvement and particularly comment, if you could, on Exelon? With Toshiba and B&W being equity partners, what's the timing and possibility of that? Are they ceremonially involved, or are they roll-up-their-sleeves-big-time involved? Can you talk about that?

Yes, I think, first and foremost, RD&D is a program that we're very much focused on performing and performing it well. It's absolutely critical, and as I said earlier, towards de-risking major aspects of the project.

The Board of Managers is there to ensure that the project meets its objectives. So, first and foremost, they're going to be involved. They're going to receive regular reports on cost schedule, performance, are we meeting everything we do, and they have responsibility that if we're not performing properly, that it will get highlighted, and then ultimately, they have the ability to make changes if changes are required.

So to first answer your question is they are going to be very involved. And so when you look at the members that are there, you will note that they're very much supporting the technical aspects. Toshiba and B&W are not just involved in the Board of Managers; they are directly involved throughout the project and execution, and so you will see the best athletes that we can get from B&W and Toshiba interspersed throughout the project.

There's a Deputy Program Manager, Bob Warther, who's very strong, and you would see -- he's coming from B&W, and we have him in construction, and we'll have him in operations, as well, Deputy Program Manager.

So their involvement is very much focused at the performance level. The individual assigned by Exelon runs their nuclear projects group, so he's very much a down-in-the-dirt evaluate-the-project-to-make-sure-it's-staying-and-performing-according-to-plan.

So we chose the board of members that way, and if you look at the two outside independents, they're both very experienced people that understand the regulatory environment and understand projects and major program management.

Now, again, back to what John was talking about relative to involvement of Toshiba, B&W, and others relative to the deployment of the plant, that would be a separate activity that's discussed. It would be outside of RD&D.

The RD&D program is focused specifically at the aspects of building 120 machines, running the cascade, showing the reliability, maintaining the infrastructure to build machines going forward, etcetera. But we would be working outside of that framework for putting together the team to go back at the loan guarantee and have adequate financing.

I hope that answered your question.

Well, one other question on that before I ask the second question. Who is -- I didn't see any announcement about who's chairing the Board of Managers.

The Board of Managers will determine that at their first meeting. It will not be a USEC person.

It will not be a USEC person. All right. I assume it will be one of the other three then.

The second question -- and I think this is just trying to pin down, I think, from the two earlier questions -- with these three things accomplished, clearly, you guys stated, I believe, on your last call that you wanted to accomplish these things and you wanted to clean up the balance sheet and focus on the equity raise. Can you talk about the MO of that and the timing of that and the scope of that? Because, obviously, I think it was Rich that mentioned I think many of us feel that's extraordinarily important to be able to get a Japanese export/import in the deal [when you have two billion]. So talk about the scope of it, the MO, and the timing if you can.

Sure, Bob. It's John Barpoulis. So maybe I'll work my way backwards and reinforce, as I believe we summarized a bit in the last answer.

Ideal timing from our standpoint again is to close on permanent financing for American Centrifuge commercial deployment the day that we complete execution of the RD&D program. And based on our current estimate of RD&D schedule, that would be the end of calendar year 2013 or early 2014. So that would be our timing objective.

Then I would work our way backwards. As part of our application update with the loan guarantee office, we would certainly expect to complete the revised estimate of cost and schedule. Until that's done, I don't think it's possible to provide, I'll call it, a specific estimate of total sources and needs. We are seeking the loan guarantee of $2 billion from DOE. We have been in discussions with the Japanese export credit agencies regarding a loan for up to $1 billion. The Japanese organizations have remained engaged on the project, and last month, in fact, representatives toured the American Centrifuge plant site as part of that continuing dialog.

So, again, throughout that process, we would expect to remain engaged and informing and keeping people in the loan guarantee office and Japanese export credit agencies up to speed on our progress during the RD&D program. And as the RD&D program approaches completion, we would certainly expect to be in a better position to determine the amount of and to raise the capital needed to complete the plan.

Okay. And then, finally, I asked earlier, on Exelon -- and I assume you guys would prefer not to answer -- but are you hopeful they're going to be joining Toshiba and B&W as an equity investor?

Well, again, Bob, wouldn't want to speculate on the nature of sponsors down the road but just reinforce that we're very pleased with their participation in the program. John?

Yes, the only thing I'd add to that, Bob, is that we had our customer outreach to provide an update this week on USEC and where we're going on RD&D, as well as the details of the Paducah plant. And as you would expect, those are some of our largest customers. They were all people that are participating in American Centrifuge, and the thing that comes clear out of those discussions is they are very supportive of deployment of ACP. They want it in their mix of -- from a competitive standpoint, the reliability of having a supplier, but they certainly are looking for diversity of supply, and this is still in their [quiver] of wanting us to be successful. And so I would expect we'll have their support continuing for output of the plant, and if it goes beyond that, time will tell.

Well, I appreciate it, and I'll let the other people get in the queue, and let's have about a string of four quarter announcements like this, okay?

Okay. Thanks, Bob.

Richard Howard, Prospector Partners.

Yes, I didn't want to ask this question while we were dealing with the important issues, but could you give us some thoughts on the Russian supply over the next several years?

And sort of tied in with all that is what kind of profit margins -- and don't answer anything you don't want said in public, which I'm sure is your thought -- but how much bomb material is left? Are they still running their centrifuges? What kind of profit margins is that material providing USEC? Just whatever you think you can tell us, I'd like to know about this because it seems to me that we're making an awful lot of electricity out of enriched uranium that we're not going to have five years from now.

Rick, It's John Barpoulis. Maybe I'll comment on the financial aspect of it and then turn it over to others.

To pick up on one aspect of your question, obviously, we would not be able to comment on that level of detail. It's not something that we do provide publicly. But just recall from a timing standpoint, again, Megatons to Megawatts program ending in 2013, the new commercial agreement with the Russians ramping up over that time period, shortly thereafter, as well, and those are elements of our supply mix, and so we certainly look at those elements that -- the commercial supply from Russia becoming an increasingly important element of that supply mix in the following period.

And so when one takes a look at the economic support or financial support, ultimately, our sales are over the multiple sources of supply.

With respect to Megatons to Megawatts, in the Russian commercial supply, I'd just note again that we do have the option to work out with the Russians to expand the amount -- the volume under that contract down the road, as well. John, (inaudible)?

And are they meeting that -- if they meet the commercial supply aspect of that you're talking about, are they going to have to run centrifuges to do that, or are they done with the bomb materials is what I'm really trying to ask. I mean it sounded like you said yes, but I'm not sure.

Okay, this is Phil Sewell. Yes, they're done with the bomb material at the end of 2013. After that time period, material that they would supply to us under the transitional supply arrangement would be from commercial operations using that uranium that is enriched.

The excess bomb material they have is not suitable after 2013 for use in a commercial reactor, and that's why they've chosen to curtail that program, and they have no interest, and they've expressed no interest in continuing to try to provide Megatons to Megawatts or bomb material after 2013.

And as John said, our transitional supply arrangement provides a ramp into another part of our supply mix, and we will be purchasing material through 2022 under that agreement, and we do have the option to increase the quantity we buy under that to the levels equivalent to the Megaton/Megawatt contract.

And they will get that material by running centrifuges?

Yes, they will.

It will come from their commercial plant.

Good. I think this is a big, huge positive out in the future, I mean, if we make it.

Okay, thanks, Rich.

It appears we have no further questions at this time. I would now like to turn the floor back to management for closing comments.

Thank you for your questions this morning, and it certainly is an important channel for two-way communications between us.

The management team recognizes that we still have a great deal to do in the months ahead, and I would like to meet Bob's requirement of having reports like this every quarter, and we'll work on it.

We must crisply execute our RD&D program, and believe me, that's where our focus is, and then we have a lot of deliveries of low enriched uranium that are required for Energy Northwest. We'll be closely working with DOE on the transition of Paducah plant after May 2013. That will dictate a lot of how the 2013 financials will look, and we will continue to work to align our organization with our evolving business environment. And we are mindful of our financial structural issues that must be addressed, and we're going to address them.

We appreciate the support of our investors as we transition to a more competitive technology platform, and we thank you for your continued support. Thank you, and good day.

This concludes today's teleconference. You may now disconnect your lines at this time, and thank you for your participation.