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Executives

Steven Wingfield - Director, IR

John Welch - President & CEO

John Barpoulis - SVP & CFO

Philip Sewell - SVP, American Centrifuge and Russian HEU

Bob Van Namen - SVP, Uranium Enrichment

Tracy Mey – VP and Chief Accounting Officer

Analysts

Jeff Cino - Jefferies & Co.

George Caffrey - JMP Securities

Bob Clutterbuck - Clutterbuck Capital Management

Richard Howard - Prospector Partners

USEC Inc. (USU) Q1 2012 Earnings Call May 2, 2012 8:30 AM ET

Operator

Greetings and welcome to the USEC first quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. (Operator Instructions) As a reminder, this conference is being recorded.

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

Steven Wingfield

Good morning. Thank you for joining us for USEC’s conference call regarding the first quarter 2012 which ended March 31st. 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, Vice President and Chief Accounting Officer.

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 as well as 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 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 and our quarterly reports on Form 10-Q. 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 of 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’d like to turn the call over to John.

John Welch

Good morning and thank you for joining us today. Yesterday afternoon we reported our first quarter results. As previously reported, we have expensed all of our centrifuge costs since the fourth quarter of 2011 because our activities on the project relate primarily to development and demonstration. Therefore I am 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 2011.

However we did report several positive metrics in our financials. Revenue for separative work units or SWU showed a 74% increase over the same quarter last year. Our gross profit was $38.8 million, an 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 operations remains positive at $47.7 million. John Barpoulis will provide a more detailed report on the first quarter in a few minutes.

Since we held our 2011 year end call six weeks ago and the annual meeting of shareholders was just last week, I am 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 one-year multi-party arrangement and our effort to obtain federal funding for the DOE proposed research, development and demonstration program known as RD&D.

A year ago, the natural disaster in Japan was fresh on everyone’s mind. Despite the devastation of the earthquake and 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. Given the substantial shortfall of electricity in Japan without its nuclear fleet accompanied by the incorporation of lessons learned from the Fukushima reactor 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 path 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 and South Carolina Electric & Gas, marking the first new construction in the United States in over three decades.

Nonetheless the shutdown of reactors in Japan and related reactor shutdowns in Germany have created a significant oversupply in the market to enrich uranium over the next two to four years. This has hurt our efforts to sell low-enriched uranium produced 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 past couple of weeks towards reaching an agreement and we remain optimistic. Discussions are ongoing and are at a sensitive state, so we are 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 bill is final until all approvals have been provided and final agreement signed. Our confidence in reaching a final agreement has increased over the past couple of weeks. However if these discussions are not successful, we expect to be ramping down enrichment operations at Paducah this month.

Let me turn next to our American Centrifuge project. We remain convinced that the American Centrifuge technology is our best bet to a competitive source of enrichment that will meet the long term needs of our customers. At the same time, they will provide an indigenous capability for U.S. domestic energy and national security requirements.

Meeting those needs through reliable competitive source will in turn build long term value for shareholders. As you are aware, instead of moving forward with the conditional commitment for a loan guarantee in the fall of 2011, DOE proposed our research, development and demonstration or RD&D program. This two-year cost-sharing program is designed 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 is 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 of hours will reduce the project’s risk profile. It will also give DOE more confidence in our ability to commercially deploy the 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 machines on uranium gas. Our program calls for building and operating a full commercial cascade 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 in government fiscal year 2012 but we have not yet obtained that funding.

The current political environment in Washington has significantly slowed the legislative process and obtaining legislation for funding before May 31 is a challenge. Beginning in June, our credit facility 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 year ’13 was included in the President’s budget submission. The House and Senate are considering appropriation bills that include funding for the program. However obtaining the 2013 funding beginning October 31 would be a limited benefit if we had to demobilize the project in June in line of 2012 funding. We will continue to work closely with Congressional supporters and the Department of Energy in an effort to secure this funding.

Clearly we have a number of moving pieces and a fair amount of uncertainty. But one thing it seems certain to me is that 2012 will be a year of transition for USEC. We will be a smaller 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 2000 positions within the American Centrifuge organization, in Oak Ridge two dozens. I don’t want to get ahead of myself. In the past two weeks, surprisingly 20 support positions in Piketon, Bethesda, were also eliminated.

We are continuing our organizational structure review and expect that over time we will have a significantly smaller workforce and a 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 market’s collective view regarding the value of the company. But our stock is currently trading below $1 and that’s the big elephant in the room. First, let me assure you that we will work within New York Stock Exchange to address our common stock price in the event we stay below the minimum share price requirement and become non-compliant with NYSE listing standards.

There is a process in place at the exchange that provides six months for company to take actions that can 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 are working hard to get government funding for the RD&D program. Success in these areas could improve our share price. If needed, we could also take corporate actions such as the reverse stock split 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 challenges, we ask investors to remember our positives. We anticipate revenue of approximately $1.4 billion to $1.5 billion from 2012 and arrangements to extend Paducah operations are expected to increase that revenue over time. We generated cash flow from operations in the first quarter. We ended the quarter with over $70 million in cash and we have an undrawn credit facility in place to backstop our liquidity.

In the 10-Q 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 and 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 and 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 104 reactors, the United States has the largest fleet in the world and many more reactors are being built overseas. 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 will provide our nation with a domestic source of enrichment which is important to the United States national security, energy security and non-proliferation efforts.

And finally, this is a time of transition for USEC. We cannot and will not conduct business as usual. We’ve begun implementing our plan to fundamentally change our organizational structure to align the organization with our evolving business environment and to reduce our costs.

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

John Barpoulis

Thanks John and good morning. Starting with revenue for the first quarter, total revenue was $562 million with SWU revenue making up $538 million or 96% of the total. Here you can see the decline in contract services revenue and uranium sales as a percentage of our total revenue.

SWU volume increased 73% and the average price billed 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 underwent through transition in 2011 as we completed our work on the former Portsmouth plant. Revenue from contract services in 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 cold shutdown 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 two largest cost components, our electric power and the price we pay 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 ship 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 arrangements 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 costs, however, declined 3% year over year as the average cost per megawatt hour declined 5% reflecting a mix of the fixed annual increase in the TVA contract price and the lower fuel cost adjustment. As is typically 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 for the LEU segment in the first quarter of 2012 was $501 million which is $194 million or 63% higher than in 2011. The increase in cost of sales was largely due to the significant increase in SWU volume delivered year over year and the effect of higher inventory costs from prior period. 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 months 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. Advanced technology and the special charge for workforce reduction and advisory costs. Advanced 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 advanced technology is related to the demonstration of the American Centrifuge technology.

As of the fourth quarter of 2011, all American Centrifuge project costs had been expensed, including interest expense that we would have previously capitalized. This interest expense in the first quarter of 2012 was $13 million. We have reduced the level of spending and the project is focused 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 workforce reductions and advisory costs. As we disclosed in our 10-K and March earnings release, we have engaged an outside management consulting firm to support our internal review of our organizational structure. The charge related to these efforts totaled $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 American Centrifuge project and 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 of $72 million compared to $38 million at the end of 2011.

Turning next to our outlook for the remainder of 2012, we basically reiterated the limited earnings and cash flow guidance provided about six weeks ago. We anticipate revenue between $1.4 billion 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 and 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 5.5 million SWU annually from Russia through the end of the Megatons to Megawatts program in December 2012.

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 low enriched uranium of nuclear reactors. Over the next few weeks, we will know whether we will continue to implement the RD&D program and the status of operations at Paducah. We will revisit our financial metrics with the intent to provide additional guidance for the second half of 2012 when we issue earnings in August.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Laurence Alexander with Jefferies & Co. Please proceed with your question.

Jeff Cino - Jefferies & Co.

Hi, this is Jeff on for Laurence. A couple of questions. One if you were to shift Paducah back to the government, what potential liabilities would be subject to negotiation?

John Barpoulis

Sure. Jeff, it’s John Barpoulis. Ultimately it will depend upon the outcome of our current discussions with DOE and others. We could incur costs related to severance curtailment charges and other charges related to post-retirement benefit plans if we cease the operations. Ultimately, until we have greater clarity on our path, we are not prepared to give details related to shutdown costs or areas or charges.

And if you take a look at our balance sheet from a long term standpoint, you will see we have $43 million of liabilities related to lease turnover costs that have been accrued. And we will also have about $60 million of assets that we will also need to address.

Jeff Cino - Jefferies & Co.

And I guess if you look at the current inventory you have, how much of that is pre-sold and can you talk about any gross margin that’s embedded in those sales?

John Barpoulis

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

Bob Van Namen

Our backlog will carry us out several years with a number of different sources coming in. Inventory is one piece. We will continue to take deliveries under the HEU deal through 2013. But keeping this sustained sales level over the next several years, the inventory is clearly part of that equation as we make deliveries in 2013, ’14 and ’15.

Jeff Cino - Jefferies & Co.

Sure. And then 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? And it’s pretty large market and how you guys are seeing that in addressing that market?

Bob Van Namen

Sure. Happy to do, 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 their revenue from a number of different sources, including design and fabrication and implementation of spent fuel storage technologies, including their MAGNASTOR system which we believe is one of the leaders in the world, from nuclear materials transportation and then from nuclear fuel consulting services. One of the big outcomes from the Fukushima accident and recommendations from DOE’s Blue Ribbon Commission would be to build regional interim storage facilities for spent nuclear fuel storage.

As the leader in that business, we really see NAC as having very good growth potential in all of these markets going forward. So very pleased with its position but clearly it will be a dominant piece of that contract services segment.

Operator

Our next question comes from the line of George Caffrey with JMP Securities.

George Caffrey - JMP Securities

As it relates to Paducah and 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’re talking about sort of tolling arrangement or exactly how the company would benefit?

Bob Van Namen

Yeah Bob Van Namen again on this George. As we said in the introductory remarks that John gave, we’re at a very sensitive time. So we really don’t want to go into a lot of detail on this. We made the comment in the past that we would like to see Paducah operate at roughly 5 million to 6 million SWUs 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 are satisfied with the economic proposition that’s on the table right now.

So we are looking to get this wrapped up in the next couple of weeks. Very hopeful that we can do that, bring clarity to the workforce and then also move out with providing the services to the different parties involved.

George Caffrey - JMP Securities

And then on a different note, could you discuss briefly what’s required at the moment for the $150 million of the RD&D program for 2012, I guess given the fact that you’ve indicated you’d – I assume what you are talking about is you need the actual cash prior to the end of May, if that’s not the case, could you say so? And what track the House and Senate are on in order for that to occur?

John Barpoulis

First, George, it’s John Barpoulis, just to clarify with respect to what’s necessary at the end of May. Under our credit agreement we are limited in our spending beyond June 1, and we would need to enter into an agreement with the government before that time that would provide for funding over a period. And I will turn that over to John.

John Welch

Yeah, the target that the Department of Energy has set up was $150 million fiscal year ’12 and then another $150 million in 2013. And as we mentioned in 2013 they included that $150 million in their budget. At the end of 2011 we saw a very strong bipartisan support for the program and the Department was looking for a transfer authority to reprogram within their own funds to provide that $150 million. That authority was not able to be realized, and so we have 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 are utilizing today and again through the credit facility have had authority to spend up to that level through the end of May.

So now you get to, okay, where is the balance of money for fiscal year ’12? We are pursuing – there are two paths that being pursued. We continue to pursue the legislative path. There is not much legislation that’s actually moving. There are 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 clean so that no language which would have provided transfer authority for the Department of Energy to reprogram was forthcoming in that. But there is still being pursued a legislative path but you have to have the legislation for that to accompany. Again that would be transfer 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 tails transfer for a large portion of that $150 million with some additional limited reprograming the Department itself could use. You are correct and as we stated, we need that authority to be in place by the first of June or we are operating under those very limited spend constraints of the credit facility of about $1 million a month.

Everyone both within the Congress and the Department of Energy understands that constraint that’s facing us and so we are in active discussions along both of those paths as we speak.

George Caffrey - JMP Securities

And just John, when you talked about the second path which relates to the tailings transfer, would that involve similar to the $44 million technically sale of – I think it’s a sale of SWU to the DOE?

John Welch

No, it likely would not. It would – that was really seen as, in some ways, a collateral for that activity. We are restricted from doing that under the credit facility. So it would have to be purely a transfer of tails 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.

George Caffrey - JMP Securities

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

John Welch

Sure. First, 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 as you know, we stood up the American Centrifuge manufacturing activity joint venture with Babcock & Wilcox in 2011. But both Toshiba and B&W are very strongly behind the American Centrifuge project and its ultimate deployment. John, do you want to add some color on how we dealt with the preferred?

John Barpoulis

Sure. I think George, two things to point out with respect to the preferred. One is that you may recall the agreement called for a phased investment with the second two phases being a function of specific milestones on DOE loan guarantee and conditional commitment in closing and so that since we had not yet hit those milestones, hence we’ve not closed on the subsequent phases.

And I think also the other pieces, I think it’s worth pointing out that since the fall, any one of our companies have had the ability to do exit the investment agreement but we are all – we all as John pointed out remain focused on deploying the American Centrifuge project technology and ultimately the success of our enrichment business.

George Caffrey - JMP Securities

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

John Welch

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

Operator

Our next question comes from Bob Clutterbuck, Clutterbuck Capital Management.

Bob Clutterbuck - Clutterbuck Capital Management

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

John Welch

That’s correct.

Bob Clutterbuck - Clutterbuck Capital Management

And from a timing point of view, you do anticipate the next couple of weeks one way or the other?

John Welch

I think we are in that very sensitive final close-out and approval process right now. So we will definitely know in the near term.

Bob Clutterbuck - Clutterbuck Capital Management

Okay. The second thing, tad on to the previous question, on the RD&D with the DOE that we need funding through October 1 and hopefully we will get 2013 which should start October 1. And believe me the DOE Secretary Chu obviously know all this but Congress right now is in recess. They have taken another recess. In the month of May they started their recess yesterday. And I think we all realize that any Congressional -- with the freeze in Congress on any legislation, any Congressional action on anything before June 1 is probably extraordinary unlikely on anything watchlist USEC. So doesn't that really leave us the alternative the non-legislative path and again the DOE, they know the same thing everybody else knows that the Congress isn’t likely to do anything on anything, right?

John Welch

I think that we are in the same conclusion category as you are, and we’ve had those discussions with our supporters in Congress as well as the Department of Energy. And so I mean an easy way to say there is a lot more emphasis on the non-legislative path right now. We see that as the only path to have funding in the timeframe that we need it.

Bob Clutterbuck - Clutterbuck Capital Management

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

John Barpoulis

Maybe I can address that Bob, it’s John Barpoulis. I think as part of our close-out activities related to the support in the business, we’ve 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 would say with respect to any other assumptions all a function of our privatization specific peoples, tenure and down to that personal level.

Bob Clutterbuck - Clutterbuck Capital Management

So literally it’s almost on an individual case basis.

John Barpoulis

As with these liabilities, they always are.

Operator

Our next question comes from the line of Richard Howard with Prospector Partners.

Richard Howard - Prospector Partners

A couple of easy ones for you. Were any of the SWU sales outside of long term contracts in the first quarter?

Bob Van Namen

We don’t break down what is in spot versus long term sales. I think we generally have – we say the vast majority of our sales are under long term commitment, and so that would be -- the first quarter is very similar to that. So there is not very much open demand out there again given the number of reactors that are still down in Japan, we do not see much open demand and are making very limited if any spot sales.

Richard Howard - Prospector Partners

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

Bob Van Namen

Into the U.S. market are you asking?

Richard Howard - Prospector Partners

No, the whole international market, or the world market.

Bob Van Namen

Yes, international market they have roughly 25% of the international market. They clearly dominate the Russian market and any of the former Soviet countries. They have been making increasing penetration into other markets as well and roughly 25% market share.

Richard Howard - Prospector Partners

Do you have a feel -- on that topic, do you have a feel for their competitiveness? Is there competitiveness because they have all beat up for your centrifuges, are they competitive because they don’t have proper environmental regulation, I use that term (indiscernible) I suppose et cetera?

Bob Van Namen

Richard, as you can appreciate we have a very 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 that they do look for market share at times as they do with many energy commodities. They do – they can aggressively price and what drives their ability to aggressively price, I am probably not in the best position to speculate on.

Richard Howard - Prospector Partners

Do you think their capacity is gradually declining?

Bob Van Namen

We think that they are gradually increasing their capacity. They historically have had centrifuge machines that are very, very low capacity in the less than 5 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 and the specifics on that are very uncertain as to exactly what their production capability is.

Richard Howard - Prospector Partners

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

John Barpoulis

Richard, it’s John Barpoulis. Again I think with respect to the updated covenants or newer covenants within the credit facility, I think the clearest one to talk about is related to the restrictions on ACP spend over time and we talked about the June 1 limitations. And there are additional reporting covenants and obligations and I think we provided pretty good summary of those in the 8-K we filed at the time that the credit facility was done. But I’d point to that as well.

Richard Howard - Prospector Partners

But the point I was getting at is it’s not like you’ve wiped out your collateral, it’s that you have a specific pressure point that refers to ACP spend, is that – am I –

John Barpoulis

Yes, it’s a specific limitation that based on our discussion with our revolving and term lenders. This was the agreement we came to with respect to the company’s ability to invest independently over time.

John Welch

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

Richard Howard - Prospector Partners

I guess I will ask one more question. Are there any – we have this pretty – I can’t tell but it seems they had a pretty good relationship with Toshiba and Babcock & Wilcox. Are there any other potential partners that we should be considering to help us achieve the value – I mean I hate to dilute the value out of ACP but I guess we have to consider other potential partners?

John Welch

Richard, if you go back and some of our discussions, so when we go back to the Department of Energy’s objectives of when they said let’s have a research development and demonstration activity. The Department of Energy wants to see this technology commercially deployed. And so the RD&D program has in it an ability to derisk certain areas that are associated with the project execution, machine -- specific aspects of machine performance, things like that. The other thing that they would like to see is an enhanced project execution formed both for the RD&D program and then we’d 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 their participation in the RD&D program and that is strictly to ensure that we accomplish as much as we can from a demonstration standpoint -- and for the machine as well as the demonstration that, hey this plan 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 at the loan guarantee, I mean the Department made it very clear they want to see credit worthy entities that they can feel very comfortable, they can loan $2 billion to. And so there will likely be a much enhanced project execution team, financial backing to go forward with the loan guarantee and get the loan guarantee. So you can be assured that we will be enhancing that aspect of the project as well.

Operator

There are no further questions at this time. I would like to hand the call over to Mr. Welch for closing comments.

John Welch

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

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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