UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended ~~September 30, 2010~~March 31, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-14287

USEC Inc.

(Exact name of registrant as specified in its charter)

Delaware	52-2107911
(State of incorporation)	(I.R.S. Employer Identification No.)

Two Democracy Center

6903 Rockledge Drive, Bethesda, Maryland 20817

(301) 564-3200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	ý		Accelerated filer	o
Non-accelerated filer	o		Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o. No ý

As of ~~October 15, 2010,~~April 29, 2011, there were ~~114,441,455~~121,909,791 shares of Common Stock issued and outstanding.

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Consolidated Condensed Balance Sheets at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009~~2010 (Unaudited)	4
	Consolidated Condensed Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ (Unaudited)	5
	Consolidated Condensed Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ (Unaudited)	6
	Notes to Consolidated Condensed Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4845
Item 4.	Controls and Procedures	4945
	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	5046
Item 1A.	Risk Factors	5046
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6150
Item 6.	Exhibits	6150
Signature		6251
Exhibit Index		6352

This quarterly report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains “forward-looking statements” – that is, statements related to future events. In this context, forward-looking statements may address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “will” and other words of similar meaning. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For USEC, particular risks and uncertainties that could cause our actual future results to differ materially from those expressed in our forward-looking ~~state ments~~statements include, but are not limited to: risks related to the deployment of the American Centrifuge technology, including risks related to performance, cost, schedule and financing; our success in obtaining a loan guarantee from the U.S. Department of Energy (“DOE”) for the American Centrifuge Plant, including our ability to address the technical and financial concerns raised by DOE and the ~~U.S. Department~~timing of ~~Energy (“DOE”);~~any loan guarantee; our ability to reach agreement with DOE on acceptable terms of a conditional commitment, including the timing of any decision and the determination of credit subsidy cost, and our ability to meet ~~any~~all required conditions to funding; our ability to ~~raise capital~~obtain additional financing beyond the $2 billion of DOE loan guarantee funding for which we have ~~applied;~~applied, including our success in obtaining Japanese export credit agency financing of $1 billion; the impact of the demobilization of the American Centrifuge project and uncertainty regarding our ability to remobilize the project and the potential for termination of the project; our ability to meet the November ~~2010~~2011 financing milestone and other milestones under the June 2002 DOE-USEC ~~Agreement related to financing the American Centrifuge project and other remaining miles tones under that agreement;~~Agreement; restrictions in our ~~revolving~~ credit facility that may impact our operating and financial flexibility and spending on the American Centrifuge project; risks related to the completion of the remaining two phases of the three-phased strategic investment by Toshiba Corporation (“Toshiba”)

and Babcock & Wilcox Investment Company (“B&W”), including our

ability to satisfy the significant closing conditions in the securities purchase agreement governing the transactions and our ability to close on the second phase of the transactions prior to the outside date of June 30, 2011, and the impact of a failure to consummate the transactions on our business and prospects; certain restrictions that may be placed on our business as a result of the transactions with Toshiba and B&W; our ability to achieve the benefits of any strategic relationships with Toshiba and B&W; uncertainty regarding the cost of electric power used at our gaseous diffusion plant; the economics of extended Paducah plant operations, including our ability to negotiate an acceptable power arrangement and our ability to obtain a contract to enrich DOE’s depleted uranium; our dependence on deliveries of LEU from Russia under the Russian Contract and on a single production facility; risks related to the approvals and implementing agreements needed for our new supply contract with TENEX to become effective; limitations on our ability to import the Russian LEU we buy under the new supply contract into the United States and other countries; our inability under many existing long-term contracts to directly pass on to customers increases in our costs; the decrease or elimination of duties charged on imports of foreign-produced low enriched uranium; pricing trends and demand in the uranium and enrichment markets and their impact on our profitability; changes to, or termination of, our contracts with the U.S. government including uncertainty regarding the impacts on our business of the transition of government services performed by us at the former Portsmouth gaseous diffusion plant to the new decontamination and decommissioning contractor; limitations on our ability to compete for potential contracts with the U.S. government; changes in U.S. government priorities and the availability of government funding, including loan guarantees; the impact of government ~~regulation;~~regulation by DOE and the U.S. Nuclear Regulatory Commission; the outcome of legal proceedings and other contingencies (including lawsuits and government investigations or audits); the competitive environment for our products and services; changes in the nuclear energy industry; the impact of the recent natural disaster in Japan on the nuclear industry and on our business, results of operations and prospects; the impact of volatile financial market conditions on our business, liquidity, prospects, pension assets and credit and insurance facilities; and other risks and uncertainties discussed in this and our other ~~filing s~~filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K. Revenue and operating results can fluctuate significantly from quarter to quarter, and in some cases, year to year. For a discussion of these risks and uncertainties and other factors that may affect our future results, please see Item 1A entitled “Risk Factors” and the other sections of this report and our annual report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made in this report and in our other filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business. We do not undertake to update our forward-looking statements except as required by law.

USEC Inc.

CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)

(millions)

	September 30, 2010		December 31, 2009		March 31, 2011		December 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	146.1	$	131.3	$	149.8	$	151.0
Accounts receivable, net		228.0		191.4		244.8		308.6
Inventories		1,472.8		1,301.2		1,696.0		1,522.5
Deferred income taxes		43.4		48.6		39.1		47.5
Deferred costs associated with deferred revenue		184.5		244.4		216.0		152.9
Other current assets		61.1		52.7		77.8		71.6
Total Current Assets		2,135.9		1,969.6		2,423.5		2,254.1
Property, Plant and Equipment, net		1,195.3		1,115.1		1,263.3		1,231.4
Other Long-Term Assets
Deferred income taxes		240.6		270.3		213.5		204.5
Deposits for surety bonds		110.2		158.3		140.8		140.8
Deferred financing costs, net		10.5		12.0		11.0		10.6
Goodwill		6.8		6.8		6.8		6.8
Total Other Long-Term Assets		368.1		447.4		372.1		362.7
Total Assets	$	3,699.3	$	3,532.1	$	4,058.9	$	3,848.2

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	148.1	$	153.4	$	142.0	$	172.4
Payables under Russian Contract		231.4		134.8		-		201.2
Inventories owed to customers and suppliers		587.1		469.4		1,036.7		715.8
Deferred revenue and advances from customers		237.6		325.0		303.9		179.1
Total Current Liabilities		1,204.2		1,082.6		1,482.6		1,268.5
Long-Term Debt		575.0		575.0		615.0		660.0
Series B-1 12.75% Convertible Preferred Stock		75.8		-
Convertible Preferred Stock						80.7		78.2
Other Long-Term Liabilities
Depleted uranium disposition		119.2		155.6		130.4		125.4
Postretirement health and life benefit obligations		173.8		168.9		181.4		178.7
Pension benefit liabilities		181.5		176.6		149.0		145.4
Other liabilities		84.2		97.8		78.0		78.2
Total Other Long-Term Liabilities		558.7		598.9		538.8		527.7
Commitments and Contingencies (Note 14)
Commitments and Contingencies (Note 12)
Stockholders’ Equity		1,285.6		1,275.6		1,341.8		1,313.8
Total Liabilities and Stockholders’ Equity	$	3,699.3	$	3,532.1	$	4,058.9	$	3,848.2

See notes to consolidated condensed financial statements.

USEC Inc.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

(millions, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2010			2009			2011			2010
Revenue:
Separative work units	$	404.2		$	467.0		$	1,001.8		$	1,266.2		$	308.5		$	266.6
Uranium		79.3			26.2			164.5			150.2			14.0			15.6
U.S. government contracts and other		81.1			56.1			202.7			152.8
Contract services														58.0			62.5
Total revenue		564.6			549.3			1,369.0			1,569.2			380.5			344.7
Cost of sales:
Separative work units and uranium		451.4			461.3			1,077.2			1,268.1			307.2			267.2
U.S. government contracts and other		75.2			48.8			183.0			142.3
Contract services														59.4			50.8
Total cost of sales		526.6			510.1			1,260.2			1,410.4			366.6			318.0
Gross profit		38.0			39.2			108.8			158.8			13.9			26.7
Special charge for workforce reduction		-			2.5			-			2.5
Advanced technology costs		28.6			31.7			80.3			93.8			26.7			25.7
Selling, general and administrative		14.0			14.0			43.4			45.1			15.5			15.1
Other (income)		(12.4	)		-			(32.4	)		-			(3.7	)		(9.7	)
Operating income (loss)		7.8			(9.0	)		17.5			17.4
Preferred stock issuance costs		4.8			-			4.8			-
Interest expense		0.3			0.2			0.4			1.0
Operating (loss)														(24.6	)		(4.4	)
Interest (income)		(0.2	)		(0.2	)		(0.4	)		(1.2	)		(0.2	)		(0.1	)
Income (loss) before income taxes		2.9			(9.0	)		12.7			17.6
(Loss) before income taxes														(24.4	)		(4.3	)
Provision (benefit) for income taxes		1.9			(2.8	)		14.2			8.6			(7.8	)		5.4
Net income (loss)	$	1.0		$	(6.2	)	$	(1.5	)	$	9.0
Net income (loss) per share – basic	$	.01		$	(.06	)	$	(.01	)	$	.08
Net income (loss) per share – diluted	$	.01		$	(.06	)	$	(.01	)	$	.06
Net (loss)													$	(16.6	)	$	(9.7	)
Net (loss) per share – basic													$	(.14	)	$	(.09	)
Net (loss) per share – diluted													$	(.14	)	$	(.09	)
Weighted-average number of shares outstanding:
Basic		113.2			111.8			112.6			111.3			119.6			111.7
Diluted		166.4			111.8			112.6			160.0			119.6			111.7

See notes to consolidated condensed financial statements.

USECInc.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(millions)

	Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2011			2010
Cash Flows from Operating Activities
Net income (loss)	$	(1.5	)	$	9.0
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net (loss)							$	(16.6	)	$	(9.7	)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		30.2			23.2			15.0			9.7
Deferred income taxes		31.9			(0.1	)		(1.9	)		9.0
Other non-cash income on release of disposal obligation		(32.4	)		-			(0.6	)		(9.7	)
Preferred stock issuance costs and capitalized paid-in-kind dividends		5.6			-
Capitalized convertible preferred stock dividends paid-in-kind								2.5			-
Gain on extinguishment of convertible senior notes								(3.1	)		-
Changes in operating assets and liabilities:
Accounts receivable – (increase)		(36.6	)		(10.6	)
Inventories – (increase) decrease		(53.9	)		212.7
Payables under Russian Contract – increase		96.6			33.4
Deferred revenue, net of deferred costs – increase (decrease)		4.1			(26.4	)
Accounts receivable – decrease								63.8			2.4
Inventories – decrease								147.4			74.2
Payables under Russian Contract – (decrease)								(201.2	)		(134.8	)
Deferred revenue, net of deferred costs – increase								62.3			62.6
Accrued depleted uranium disposition – increase (decrease)		(36.4	)		28.3			5.0			(46.8	)
Accounts payable and other liabilities – increase		8.5			22.9
Accounts payable and other liabilities – (decrease)								(18.2	)		(11.7	)
Other, net		13.9			27.0			(3.1	)		11.9
Net Cash Provided by Operating Activities		30.0			319.4
Net Cash Provided by (Used in) Operating Activities								51.3			(42.9	)

Cash Flows Used in Investing Activities
Capital expenditures		(123.0	)		(363.2	)		(50.7	)		(49.0	)
Deposits for surety bonds – (increase) decrease		48.1			(38.2	)
Deposits for surety bonds – net (increase) decrease								-			3.0
Net Cash (Used in) Investing Activities		(74.9	)		(401.4	)		(50.7	)		(46.0	)

Cash Flows Used in Financing Activities
Borrowings under credit facility		38.3			-
Repayments under credit facility		(38.3	)		-
Repayment and repurchases of senior notes		-			(95.7	)
Proceeds from issuance of Series B-1 convertible preferred stock and warrants		75.0			-
Payments for deferred financing costs and preferred stock issuance costs		(13.2	)		(0.7	)
Payments for deferred financing costs								-			(7.5	)
Tax benefit related to stock-based compensation								-			0.3
Common stock issued (purchased), net		(2.1	)		(0.8	)		(1.8	)		(2.7	)
Net Cash Provided by (Used in) Financing Activities		59.7			(97.2	)
Net Increase (Decrease)		14.8			(179.2	)
Net Cash (Used in) Financing Activities								(1.8	)		(9.9	)
Net (Decrease)								(1.2	)		(98.8	)
Cash and Cash Equivalents at Beginning of Period		131.3			248.5			151.0			131.3
Cash and Cash Equivalents at End of Period	$	146.1		$	69.3		$	149.8		$	32.5
Supplemental Cash Flow Information:
Interest paid, net of amount capitalized	$	-		$	5.6		$	-		$	-
Income taxes paid, net of refunds		2.7			5.3			1.2			14.7

See notes to consolidated condensed financial statements.

USEC Inc.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

1. BASIS OF PRESENTATION

The unaudited consolidated condensed financial statements as of and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ have been prepared pursuant to the rules and regulations of the Securities and Exchange ~~Commission (“SEC”).~~Commission. The unaudited consolidated condensed financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the financial results for the interim period. Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been omitted pursuant to such rules and regulations. ~~Certain amounts in the consolidated condensed financial statements have been reclassified to conform with the current presentation.~~

Operating results for the three ~~and nine~~ months ended ~~September 30, 2010~~March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2010.~~2011. The unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes and management's discussion and analysis of financial condition and results of operations included in the annual report on Form 10-K for the year ended December 31, ~~2009.~~2010.

2. INVENTORIES

USEC is a supplier of low enriched uranium (“LEU”) for nuclear ~~fuel~~ power plants. LEU consists of two components: separative work units (“SWU”) and uranium. SWU is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components: enriched uranium having a higher percentage of U235 and depleted uranium having a lower percentage of U235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium used in the production of LEU under this formula is referred to as its uranium component.

USEC holds uranium at the Paducah gaseous diffusion plant (“GDP”) in the form of natural uranium and as the uranium component of LEU. USEC holds SWU as the SWU component of LEU. USEC may also hold title to the uranium and SWU components of LEU at fabricators to meet book transfer requests by customers. Fabricators process LEU into fuel for use in nuclear reactors. Components of inventories follow:

	March 31, 2011			December 31, 2010
	(millions)
Current assets:
Separative work units	$	909.3		$	947.4
Uranium		774.4			562.5
Materials and supplies		12.3			12.6
		1,696.0			1,522.5
Current liabilities:
Inventories owed to customers and suppliers		(1,036.7	)		(715.8	)
Inventories, net	$	659.3		$	806.7

September 30,
2010

December 31,
2009

(millions)
Current assets:
Separative work units
$ 991.3 $ 805.1
Uranium                                     ��
468.6 482.1
Materials and supplies
12.9 14.0
1,472.8 1,301.2
Current liabilities:
Inventories owed to customers and suppliers
(587.1 ) (469.4 )
Inventories, net $ 885.7 $ 831.8

Inventories Owed to Customers and Suppliers

~~Generally, title~~Inventories owed to ~~uranium provided by~~ customers ~~as part of their enrichment contracts does not pass~~and suppliers relate primarily to ~~USEC until delivery of LEU. In limited cases, however, title to the uranium passes to USEC immediately upon delivery of the uranium by the customer. Additionally, USEC owed~~ SWU and uranium inventories owed to ~~fabricators with a cost totaling $586.8 million at September 30, 2010 and $469.2 million at December 31, 2009.~~fabricators. Fabricators process LEU into fuel for use in nuclear reactors. Under inventory optimization arrangements between USEC and domestic fabricators, fabricators order bulk quantities of LEU from USEC based on scheduled or anticipated orders from utility customers for deliveries in future periods. As delivery obligations under actual customer orders arise, USEC satisfies these obligations by arranging for the transfer to the customer of title to the specified quantity of LEU at the fabricator. USEC’s balances of SWU and uranium vary over time based on the timing and size of the fabricator’s LEU orders from USEC. Balances can be positive or negative at the discretion of the fabricator. Fabricators have other inventory supplies and, where a fabricator has elected to order less material from USEC than USEC is required to deliver to its customers at the fabricator, the fabricator will use these other inventories to satisfy USEC’s customer order obligations on USEC’s behalf. In such cases, the transfer of title of LEU from USEC to the customer results in quantities of SWU and uranium owed by USEC to the fabricator. The amounts of SWU and uranium owed to fabricators are satisfied as future bulk deliveries of LEU are made.

Uranium Provided by Customers and Suppliers

USEC held uranium with estimated fair values of approximately $2.9 billion at ~~September 30, 2010,~~March 31, 2011, and ~~$2.8~~$3.3 billion at December 31, ~~2009,~~2010, to which title was held by customers and suppliers and for which no assets or liabilities were recorded on the balance sheet. Utility customers provide uranium to USEC as part of their enrichment contracts. Title to uranium provided by customers generally remains with the customer until delivery of LEU at which time title to LEU is transferred to the customer, and title to uranium is transferred to USEC.

3. PROPERTY, PLANT AND EQUIPMENT

A summary of changes in property, plant and equipment follows (in millions):

	December 31, 2009			Capital Expenditures (Depreciation)			Transfers and Retirements			September 30, 2010			December 31, 2010			Capital Expenditures (Depreciation)			Transfers and Retirements			March 31, 2011
Construction work in progress	$	991.4		$	102.9		$	(11.2	)	$	1,083.1		$	1,126.3		$	45.1		$	(4.4	)	$	1,167.0
Leasehold improvements		182.6			-			3.0			185.6			187.3			-			1.4			188.7
Machinery and equipment		260.1			2.2			8.1			270.4			269.1			0.1			(0.5	)		268.7
		1,434.1			105.1			(0.1	)		1,539.1			1,582.7			45.2			(3.5	)		1,624.4
Accumulated depreciation and amortization		(319.0	)		(24.9	)		0.1			(343.8	)		(351.3	)		(13.3	)		3.5			(361.1	)
	$	1,115.1		$	80.2		$	-		$	1,195.3		$	1,231.4		$	31.9		$	-		$	1,263.3

Capital expenditures include items in accounts payable and accrued liabilities at ~~September 30, 2010~~March 31, 2011 for which cash is paid in subsequent periods.

USEC is working to deploy the American Centrifuge technology at the American Centrifuge Plant (“ACP”) in Piketon, Ohio. Capital expenditures related to the ACP, which is primarily included in the construction work in progress balance, totaled ~~$1,105.6~~$1,183.6 million at ~~September 30, 2010~~March 31, 2011 and ~~$1,023.1~~$1,143.8 million at December 31, ~~2009.~~2010. Capitalized asset retirement obligations included in construction work in progress totaled $19.3 million at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009.~~2010.

In 2009, USEC significantly demobilized and reduced construction and machine manufacturing activities in the American Centrifuge project because of a lack of progress in obtaining and the uncertainty of timing for additional financing for the project. However, USEC continues limited manufacturing, assembling and operating of centrifuge machines in the lead cascade test program and ongoing development efforts. USEC performed an evaluation in 2009 and concluded that future cash flows from the ACP will exceed its capital investment based on a probability-weighted analysis. USEC continues to believe there have been no events or changes in conditions that would cause USEC to reassess this conclusion. Since USEC believes its capital investment is fully recoverable, no impairment for costs previously capitalized is anticipated at this time. USE C will continue to evaluate this assessment as conditions change.

4. DEFERRED REVENUE AND ADVANCES FROM CUSTOMERS

	September 30, 2010		December 31, 2009		March 31, 2011		December 31, 2010
	(millions)				(millions)
Deferred revenue	$	222.5	$	301.9	$	248.8	$	176.1
Advances from customers		15.1		23.1		55.1		3.0
	$	237.6	$	325.0	$	303.9	$	179.1

Deferred costs associated with deferred revenue					$	216.0	$	152.9

~~Related costs associated with deferred revenue totaled $184.5 million at September 30, 2010 and $244.4 million at December 31, 2009.~~

Advances from customers included $52.5 million as of March 31, 2011 and $1.2 million as of December 31, ~~2009 included $22.7 million~~2010 for services to be provided ~~in 2010~~ for DOE in our ~~U.S. government contracts~~contract services segment. DOE funded this work through an arrangement whereby DOE ~~transfers~~transferred uranium to USEC which USEC immediately ~~sells~~sold in the market. ~~On November 1, 2010, USEC sold a fifth lot of such uranium that provided additional funding of $32.3 million for this work in the fourth quarter of 2010.~~

Advances from customers as of September 30, 2010 includes $12.6 million representing the balance of $45 million of support from DOE pursuant to a cooperative agreement entered into with DOE for pro-rata cost sharing support for continued American Centrifuge activities with a total estimated cost of $90 million. DOE made the $45 million available by taking the disposal obligation for a specific quantity of depleted uranium from USEC, which enabled USEC to release encumbered funds for investment in the American Centrifuge technology that USEC had otherwise committed to future depleted uranium disposition obligations. In July 2010, surety bonds and related deposits were reduced, and USEC received the $45 million in cash. In the nine months ended September 30, 2010, USEC made qualifying American Centrifuge expenditures of $64.8 million. DOE’s pro-rata share of 50%, or $32.4 million, is recognized as other income in the nine months ended September 30, 2010. If USEC determines that it is unable to provide cost sharing of at least $45 million, DOE’s share and the assumption of depleted uranium obligations will be reduced pro rata.

~~5. PORTSMOUTH FACILITY UPDATE~~

~~USEC leases the Portsmouth GDP from DOE. On September 30, 2010, the three large process buildings and certain other Portsmouth GDP facilities were de-leased and returned to DOE.~~ 5. PORTSMOUTH TRANSITION OF SERVICES

USEC ceased uranium enrichment operations at the Portsmouth GDP, located in Piketon, Ohio, in ~~2001 and is currently maintaining~~2001. USEC’s contract to maintain the facility for DOE in a state of “cold shutdown” ~~under~~expired on March 28, 2011. As previously reported, DOE awarded a contract ~~with DOE in preparation~~ for the decontamination and decommissioning (“D&D”) of the ~~facilities by DOE.~~Portsmouth site in August 2010 to a joint venture between Fluor Corp. and The Babcock & Wilcox Company. Under the ~~lease~~contract, the new contractor will serve as the prime contractor for the D&D. With this transition of services to the D&D contractor, revenue for USEC’s contract services segment will decrease significantly in 2011 compared to prior years.

In connection with the expiration of the cold shutdown contract, USEC entered into an agreement ~~ownership of plant~~with DOE in which USEC agreed to de-lease and ~~equipment that USEC leaves behind transfers~~return to DOE ~~as well as~~all remaining facilities at the Portsmouth site in Ohio except for those facilities leased for the ACP. In that agreement, DOE agreed to provide infrastructure services in support of the construction and operation of the ACP and to permit USEC’s re-lease of certain facilities needed to provide utility services to the ACP. The de-lease of these facilities will be completed when all relevant regulatory approvals have been obtained. This is currently anticipated to occur on or before June 15, 2011. However, if the full de-lease does not occur prior to September 30, 2011 the agreement will expire unless extended by mutual agreement of the parties. At the time of de-lease of the remaining facilities and their return to DOE, regulatory responsibility for ~~D&D. The turnover requirements~~the de-leased facilities will be transferred from the NRC to DOE. Until the facilities are de-leased, USEC will continue to operate such facilities and provide services to DOE and its contractors under cost reimbursement type contracts.

Severance Costs

Under the Worker Adjustment and Retraining Notification Act (“WARN Act”), notifications of potential mass layoffs are required to be issued by an employer 60 days in advance. Accordingly, WARN Act notifications were provided to 1,023 USEC employees on January 24, 2011 in anticipation of the lease require USEC to remove certain uranium and USEC-generated waste, and USEC accrues amounts to cover these expected costs as part of USEC's lease turnover cost es timate. In order to facilitate an expeditious de-lease, USEC and DOE agreed in September 2010transition to the ~~return~~new D&D contractor. An agreement was reached with the D&D contractor and the United Steel Workers (“USW”) Local 5-689 allowing the transition from USEC of ~~certain assets~~all Portsmouth workers represented by the USW to ~~DOE~~the D&D contractor on March 28, 2011. Under that agreement, no severance benefits were payable as ~~permitted under~~ ~~the lease that USEC had included in its lease turnover cost estimate, which had the effect of reducing USEC's lease turnover cost estimate. As~~ a result of ~~this reduction in accrued lease turnover costs~~the transition. On March 8, 2011, WARN Act notifications were provided for 95 members of the Security, Police, Fire Professionals of America (“SPFPA”) Local 66. Negotiations continue between SPFPA and ~~partially offset~~the D&D contractor to transition employees represented by ~~approximately $1.5 million of accelerated depreciation of leasehold improvements~~SPFPA when the facilities are de-leased and ~~approximately $0.5 million of inventory abandonment related~~returned to DOE. Salaried Portsmouth site workers, including most managers and supervisors, have also received job offers from the D&D contractor and will transition upon de-lease of the facilities, ~~cost of sales were reduced by approximately $2.2 million~~which is targeted for ~~the nine months ended September 30, 2010.~~ June 15, 2011.

Working with DOE and the D&D contractor, USEC was able to reduce the potential severance liability for transferring employees. Employees represented by the USW that moved to the D&D contractor as of March 28, 2011 will be employed by the D&D contractor and will therefore not receive severance benefits. Those identified by USEC as at risk to be released in June are expected to receive substantially equivalent offers of employment. The potential severance liability is currently estimated to be less than $2 million, as compared to the potential liability of up to approximately $25 million as previously reported before the employee transition negotiations. The severance liability is expected to approach an immaterial amount pending final negotiations by the D&D contractor with transitioning employees. Due to the continued uncertainty and significant reduction in the potential severance liability, no costs have been accrued for severance liability as of March 31, 2011.

Pension and Postretirement Benefit Costs

The cessation of certain U.S. government contract activities, the transfer of employees, and the pending transfer of certain other employees in Portsmouth triggered certain curtailment charges related to the USEC defined benefit pension plan. Since it was likely that a substantial number of employees would be leaving USEC as a result of the transitioning of the government services work to the D&D contractor, USEC recognized approximately $0.4 million in cost of sales for December 2010 related to unamortized prior service costs based on the employee population at Portsmouth. USEC has recorded an additional $3.2 million in cost of sales in the first quarter of 2011 for curtailment charges related to the pension plan based on additional information and clarification on the timing and number of employees leaving USEC and refined actuarial estimates. There still exists, however, a broad range of possibilities and assumptions related to the obligations under the postretirement health and life benefit plan and the impact to USEC. A curtailment charge is possible once USEC has greater clarity on employee decisions with the plan offered by the D&D contractor, further discussion with DOE, and further refinement of actuarial assumptions. Based on current USEC estimates, curtailment charges related to the postretirement health and life benefit plan could be up to $16.3 million. Potential plan design changes may also occur depending on the outcome of employee decisions and DOE discussions.

6. DEBT

~~The carrying value~~Long-term debt as of ~~USEC’s long-term debt was $575.0 million at September 30, 2010~~March 31, 2011 and December 31, ~~2009, consisting~~2010 consisted of ~~3.0%~~the following:

	March 31,		December 31,
	2011		2010
	(millions)
Credit facility term loan, due May 31, 2012	$	85.0	$	85.0
Convertible senior notes, due October 1, 2014		530.0		575.0
Long-term debt	$	615.0	$	660.0

The interest rate on the credit facility term loan as of March 31, 2011 was 9.5%. The credit facility matures May 31, 2012 and is secured by assets of USEC Inc. and its subsidiaries, excluding equity in, and assets of, subsidiaries created to carry out future commercial American Centrifuge activities. In addition to the $85.0 million term loan, the credit facility includes aggregate lender commitments under the revolving credit facility of $225.0 million, including up to $150.0 million in letters of credit. Borrowings under the credit facility are subject to limitations based on established percentages of qualifying assets such as eligible accounts receivable and inventory.

Utilization of the revolving credit facility at March 31, 2011 and December 31, 2010 follows:

	March 31,		December 31,
	2011		2010
	(millions)
Short-term borrowings	$	-	$	-
Letters of credit		17.2		17.3
Available credit		207.8		207.7

The convertible senior notes are due October 1, 2014. Interest ~~on the notes~~of 3.0% is payable semi-annually in arrears on April 1 and October 1 of each year. The notes were not eligible for conversion to common stock as of ~~September 30, 2010~~March 31, 2011 or December 31, ~~2009.~~2010.

~~On February 26, 2010,~~In January 2011, USEC ~~replaced its $400.0 million revolving credit facility, scheduled to mature on August 18, 2010,~~executed an exchange with a ~~new 27-month credit facility that matures May 31, 2012. The new syndicated bank credit facility initially provided up to $225.0~~noteholder whereby USEC received convertible notes with a principal amount of $45 million in revolving credit commitments, including up to $100.0 million in letters of credit, secured by assets of USEC Inc. and its subsidiaries, excluding equity in, and assets of, subsidiaries created to carry out future commercial American Centrifuge activities. In July 2010, the revolving credit commitments were expanded to $250.0 million, including up to $125.0 million in letters of credit. As with the former credit facility, borrowings under the new credit facility are subject to limitations based on established percentages of qualifying assets such as eligible accounts recei vable and inventory.

~~Utilization of the current revolving credit facility at September 30, 2010 and the former revolving credit facility at December 31, 2009 follows:~~

September 30, December 31,
2010 2009
(millions)
Short-term borrowings                                                                     $ - $ -
Letters of credit                                                                     42.6 45.4
Available credit                                                                     207.4 295.5

~~7. INVESTMENT BY TOSHIBA AND BABCOCK & WILCOX~~

On September 2, 2010, the first closing of $75.0 million occurred under the Securities Purchase Agreement dated as of May 25, 2010, between USEC and Toshiba Corporation (“Toshiba”) and Babcock & Wilcox Investment Company (“B&W”). At the first closing, Toshiba and B&W purchased 75,000 shares of Series B-1 12.75% convertible preferred stock, and warrants to purchase 6.25 millionexchange for 6,952,500 shares of common stock ~~at an exercise price~~and cash for accrued but unpaid interest on the convertible notes. In connection with this exchange USEC recognized a gain on debt extinguishment of ~~$7.50 per share, which will be exercisable in the future. This was the first of a three-phased investment of $200~~$3.1 million. ~~The remaining two phases are subject to additional closing conditions.~~

The estimated fair value of the preferred stock was $75.0 million using a discount rate of 12.75%, and was equal to the liquidation value of $1,000 per share or $75.0 million. The preferred stock is classified as a liability since it is convertible for a variable number of shares of common stock based on a fixed monetary value known at the issuance date. Since the preferred stock is classified as a liability, the proceeds of $75.0 million were first allocated to the liability instrument's full fair value, and no residual proceeds remained to be assigned to the warrants. The preferred stock is subject to subsequent mark-to-market adjustment through earnings. Upfront costs and fees of $4.8 million related to the investment were expensed in the quarter ended September 30, 2010 and classified as preferred stock issuance costs. The issuance c osts were expensed in the period of issuance, rather than deferred and amortized, since the preferred stock is classified as a liability and recorded at fair value.

Paid-in-kind dividends on the preferred stock of $0.8 million were accrued as of September 30, 2010 and declared payable on October 1, 2010. The dividend amount was capitalized as interest to construction work in progress for the American Centrifuge Plant. The following is a summary of the preferred stock liability as of September 30, 2010 (in millions):

September 30, 2010
Series B-1 12.75% convertible preferred stock:
Value at issuance
$ 75.0
Dividends payable
0.8 (a)
Balance as of September 30, 2010
$ 75.8

(a) Paid-in-kind dividends of approximately 770 shares of convertible preferred stock declared payable on October 1, 2010.

~~8. INCOME TAX UPDATE~~

The provision for income taxes for the nine months ended September 30, 2010 includes a charge of $6.5 million related to the change in tax treatment of Medicare Part D reimbursements as a result of the Patient Protection and Affordable Care Act as modified by the Reconciliation Act of 2010 (collectively referred to as “the Act”) signed into law at the end of March 2010. The charge was due to a reduction in USEC’s deferred tax asset as a result of a change to the tax treatment of Medicare Part D reimbursements. Under the Act, the tax-deductible prescription drug costs will be reduced by the amount of the federal subsidy. Under Financial Accounting Standards Board guidance, the effect of changes in tax laws or rates on deferred tax assets and liabilities is reflecte d in the period that includes the enactment date, even though the changes may not be effective until future periods.

Included in the 2010 overall effective tax rate is a 15 percentage point impact related to the $75.0 million investment of Toshiba and B&W. The first quarterly dividend on the preferred stock that was issued on September 2, 2010 was declared payable on October 1, 2010 in additional shares of preferred stock (paid-in-kind). ~~The preferred stock and warrants are considered equity instruments for income tax purposes.~~ ~~The 2010 paid-in-kind dividends and issuance costs are permanent differences that are not deductible for tax purposes and are included in the effective tax rate calculation.~~

9.7. FAIR VALUE MEASUREMENTS

Pursuant to the accounting guidance for fair value measurements, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, consideration is given to the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

The accounting guidance for fair value measurement also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

•	Level 1 – quoted prices in active markets for identical assets or liabilities.
•	Level 2 – inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
•	Level 3 – unobservable inputs in which little or no market data exists.

Financial Instruments Recorded at Fair Value

	Fair Value Measurements (in millions)																	Fair Value Measurements (in millions)
	September 30, 2010								December 31, 2009									March 31, 2011								December 31, 2010
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Deferred compensation asset (a)		-	$	1.7		-	$	1.7		-	$	1.5		-	$	1.5			-	$	2.3		-	$	2.3		-	$	1.8		-	$	1.8

Liabilities:
Deferred compensation obligation (a)		-		1.8		-		1.8		-		1.5		-		1.5			-		2.4		-		2.4		-		2.0		-		2.0
Series B-1 12.75% convertible preferred stock (b)		-		-		75.0		75.0		-		-		-		-
Convertible preferred stock (b)																			-		-		80.7		80.7		-		-		78.2		78.2

(a) The deferred compensation obligation represents the balance of deferred compensation plus net investment earnings. The deferred compensation plan is informally funded through a rabbi trust using variable universal life insurance. The cash surrender value of the life insurance policies is designed to track the deemed investments of the plan participants. Investment crediting options consist of institutional and retail investment funds. The deemed investments are classified within level 2 of the valuation hierarchy because of (i) the indirect method of investing and (ii) unit prices of institutional funds are not quoted in active markets; however, the unit prices are based on the underlying investments which are traded in acti ve markets.
(b) The calculation of the fair value allocated to the Series B-1 12.75% convertible preferred stock included unobservable (level 3) inputs as described in Note 7.
(a) The deferred compensation obligation represents the balance of deferred compensation plus net investment earnings. The deferred compensation plan is informally funded through a rabbi trust using variable universal life insurance. The cash surrender value of the life insurance policies is designed to track the deemed investments of the plan participants. Investment crediting options consist of institutional and retail investment funds. The deemed investments are classified within level 2 of the valuation hierarchy because of (i) the indirect method of investing and (ii) unit prices of institutional funds are not quoted in active markets; however, the unit prices are based on the underlying investments which are traded in active markets.																	(a) The deferred compensation obligation represents the balance of deferred compensation plus net investment earnings. The deferred compensation plan is informally funded through a rabbi trust using variable universal life insurance. The cash surrender value of the life insurance policies is designed to track the deemed investments of the plan participants. Investment crediting options consist of institutional and retail investment funds. The deemed investments are classified within level 2 of the valuation hierarchy because of (i) the indirect method of investing and (ii) unit prices of institutional funds are not quoted in active markets; however, the unit prices are based on the underlying investments which are traded in active markets.
(b) The estimated fair value of the convertible preferred stock is based on a discount rate of 12.75%, which is unobservable (level 3) since the instruments do not trade. Dividends on the convertible preferred stock are paid as additional shares of convertible preferred stock on a quarterly basis at an annual rate of 12.75%. The estimated fair value equals the liquidation value of $1,000 per share.																	(b) The estimated fair value of the convertible preferred stock is based on a discount rate of 12.75%, which is unobservable (level 3) since the instruments do not trade. Dividends on the convertible preferred stock are paid as additional shares of convertible preferred stock on a quarterly basis at an annual rate of 12.75%. The estimated fair value equals the liquidation value of $1,000 per share.

The following is a reconciliation of the beginning and ending balances for items measured at fair value using significant unobservable inputs (Level 3) (in millions):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010 2009 2010 2009
Series B-1 12.75% convertible preferred stock:
Beginning balance
$ - $ - $ - $ -
Total gains or losses (realized/unrealized) - - - -
Purchases, issuances, sales and settlements:
    Purchases
- - - -
    Issuances
75.0 - 75.0 -
    Paid in kind dividends payable
0.8 - 0.8 -
    Sales
- - - -
    Settlements
- - - -
Ending balance
$ 75.8 $ - $ 75.8 $ -

	Three Months Ended March 31,
	2011			2010
Convertible preferred stock:
Beginning balance	$	78.2		$	-
Less: paid-in-kind dividends payable, beginning balance		(2.4	)		-
Issuances		2.4			-
Paid-in-kind dividends payable		2.5			-
Total gains or losses (realized/unrealized)		-			-
Ending balance	$	80.7		$	-

Other Financial Instruments

As of ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, the balance sheet carrying amounts for cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities ~~and payables under the Russian Contract~~ approximate fair value because of the short-term nature of the instruments.

The balance sheet carrying ~~value~~amounts and estimated fair values of USEC’s long-term debt ~~was $575.0 million at September 30, 2010 and December 31, 2009, consisting~~follow (in millions):

	March 31, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
Credit facility term loan, due May 31, 2012	$	85.0	$	90.8	$	85.0	$	85.6
3.0% convertible senior notes, due October 1, 2014		530.0		421.7		575.0		517.9
	$	615.0	$	512.5	$	660.0	$	603.5

The estimated fair value of ~~3.0% convertible senior notes due October 1, 2014.~~the term loan is based on the change in market value of an index of loans of similar credit quality based on published credit ratings. The estimated fair value of the convertible notes is based on the trading price as of the balance sheet ~~date, was $449.2 million at September 30, 2010 and $372.0 million at December 31, 2009.~~date.

~~10.~~8. PENSION AND POSTRETIREMENT HEALTH AND LIFE BENEFITS

The components of net benefit costs for pension and postretirement health and life benefit plans were as follows (in millions):

	Defined Benefit Pension Plans						Postretirement Health and Life Benefit Plans
	Three Months Ended March 31,						Three Months Ended March 31,
	2011			2010			2011			2010
Service costs	$	4.8		$	4.8		$	1.3		$	1.2
Interest costs		12.6			12.2			3.0			3.0
Expected returns on plan assets (gains)		(13.4	)		(12.1	)		(0.9	)		(0.9	)
Amortization of prior service costs (credit)		0.4			0.4			-			(2.1	)
Amortization of actuarial losses		2.5			4.0			0.7			0.7
Curtailment loss		3.2			-			-			-
Net benefit costs	$	10.1		$	9.3		$	4.1		$	1.9

USEC expects total cash contributions to the plans in 2011 will be as follows: $14.6 million for the defined benefit pension plans and $4.8 million for the postretirement health and life benefit plans. Of those amounts, contributions made as of March 31, 2011 were $3.5 million and $1.5 million related to the defined benefit pension plans and postretirement health and life benefit plans, respectively.

The elimination of expected years of future service for certain employees at the Portsmouth site (see Note 5) in the actuarial calculation resulted in a curtailment loss of $3.2 million for the defined benefit pension plan. The curtailment loss is included in cost of sales for the contract services segment in the three months ended March 31, 2011. Similarly, a future curtailment loss is possible under the postretirement health and life benefit plan once USEC has greater clarity on employee decisions regarding the plan offered by the new employer, further discussion with DOE, and further refinement of actuarial assumptions. Based on current USEC estimates, curtailment charges related to the postretirement health and life benefit plan could be up to $16.3 million. Potential plan design changes may also occur depending on the outcome of employee decisions and DOE discussions.

9. STOCKHOLDERS’ EQUITY

Changes in stockholders' equity were as follows (in millions, except per share data):

Common
Stock,
Par Value
$.10 per
Share

Excess of
Capital over
Par Value

Retained
Earnings

Treasury
Stock

Accumulated
Other Compre-hensive Income (Loss)

Total
Stockholders’ Equity

Compre-hensive Income (Loss)

Balance at December 31, 2009
$ 12.3 $ 1,179.6 $ 322.4 $ (71.3 ) $ (167.4 ) $ 1,275.6
Restricted and other stock issued, net - (8.3 ) - 13.8 - 5.5 -
Amortization of actuarial losses and prior service costs (credits), net of income tax of $3.0 million - - - - 6.0 6.0 6.0
Net (loss)
- - (1.5 ) - - (1.5 ) (1.5 )
Balance at September 30, 2010
$ 12.3 $ 1,171.3 $ 320.9 $ (57.5 ) $ (161.4 ) $ 1,285.6 $ 4.5

	Common Stock, Par Value $.10 per Share		Excess of Capital over Par Value			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2010	$	12.3	$	1,172.8		$	329.9		$	(57.1	)	$	(144.1	)	$	1,313.8

Amortization of actuarial losses and prior service costs (credits), net of income tax of $1.3 million		-		-			-			-			2.3			2.3
Net (loss)		-		-			(16.6	)		-			-			(16.6	)
Comprehensive (loss)																(14.3	)

Common stock issued in exchange for convertible senior notes		0.7		40.5			-			-			-			41.2
Restricted and other common stock issued, net of amortization		-		(2.9	)		-			4.0			-			1.1
Balance at March 31, 2011	$	13.0	$	1,210.4		$	313.3		$	(53.1	)	$	(141.8	)	$	1,341.8

Amortization of actuarial losses and prior service costs (credits), net of tax, are those related to pension and postretirement health and life benefits as presented on a pre-tax basis in note ~~11.~~8.

Included in the sale of securities to Toshiba and B&W on September 2, 2010 were warrants to purchase 6.25 million shares of common stock at an exercise price of $7.50 per share, which will be exercisable in the future. The warrants are equity instruments and are assigned a zero value as described in note 7.

~~11. PENSION AND POSTRETIREMENT HEALTH AND LIFE BENEFITS~~

~~The components of net benefit costs for pension and postretirement health and life benefit plans were as follows (in millions):~~

Defined Benefit Pension Plans Postretirement Health and Life Benefits Plans

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010
2009
2010
2009
2010
2009
2010
2009
Service costs
$ 4.8 $ 4.7 $ 14.5 $ 14.0 $ 1.2 $ 1.2 $ 3.7 $ 3.5
Interest costs
12.3 11.9 36.7 35.7 3.0 3.2 8.9 9.5
Expected return on plan assets(gains)
(12.2 ) (10.6 ) (36.6 ) (31.9 ) (0.9 ) (0.8 ) (2.7 ) (2.3 )
Amortization of prior service costs (credits) 0.4 0.4 1.3 1.2 (2.1 ) (3.6 ) (6.3 ) (10.8 )
Amortization of actuarial losses 4.0 6.0 12.0 18.0 0.7 1.0 2.0 3.1
Net benefit costs
$ 9.3 $ 12.4 $ 27.9 $ 37.0 $ 1.9 $ 1.0 $ 5.6 $ 3.0

USEC expects total cash contributions to the plans in 2010 will be as follows: $13.9 million for the defined benefit pension plans and $6.3 million for the postretirement health and life benefit plans. Of those amounts, contributions made as of September 30, 2010 were $9.7 million and $4.7 million related to the defined benefit pension plans and postretirement health and life benefit plans, respectively.

~~12.~~10. STOCK-BASED COMPENSATION

	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009		2010			2009			2011			2010
	(millions)											(millions)
Total stock-based compensation costs:
Restricted stock and restricted stock units	$	1.3		$	1.4	$	6.2		$	6.0		$	2.3		$	2.9
Stock options, performance awards and other		0.4			0.3		1.5			1.3			0.5			0.7
Less: costs capitalized as part of inventory		(0.1	)		-		(0.3	)		(0.2	)		(0.3	)		(0.1	)
Expense included in selling, general and administrative	$	1.6		$	1.7	$	7.4		$	7.1
Expense included in selling, general and administrative and advanced technology costs												$	2.5		$	3.5
Total after-tax expense	$	1.1		$	1.1	$	4.8		$	4.6		$	1.6		$	2.3

There were 115,630 stock options exercised in the nine months ended September 30, 2010. Cash received from the exercise of the options was $0.5 million. The intrinsic value of the options exercised was $0.2 million. There were no stock options exercised in the ~~nine~~three months ended ~~September 30, 2009.~~March 31, 2011. There were 500 stock options exercised in the three months ended March 31, 2010. Cash received from the exercise and the intrinsic value of the options was each less than $0.1 million.

Assumptions used in the Black-Scholes option pricing model to value option grants follow. There were no stock options granted in the three months ended March 31, 2011.

	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended March 31,
	2010	2009	2010	2009	2011	2010
Risk-free interest rate	0.78%	1.45%	0.78-1.43%	1.40-1.45%	-	1.4%
Expected dividend yield	-			-	-
Expected volatility	75%	72%	72-75%	65-72%	-	72%
Expected option life	4.1 years	4.0 years	4-4.1 years	3.8-4.0 years	-	4 years
Weighted-average grant date fair value	$3.09	$2.71	$2.81	$1.82	-	$2.81
Options granted	6,968	16,042	773,018	1,107,342	0	766,050

As of ~~September 30, 2010,~~March 31, 2011, there was ~~$10.2~~$11.5 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted, of which ~~$7.8~~$9.9 million relates to restricted shares and restricted stock units, and ~~$2.4~~$1.6 million relates to stock options. That cost is expected to be recognized over a weighted-average period of ~~1.9~~2.1 years.

Revised Long-Term Incentive Program

In February 2011, the Board of Directors approved a revised long-term incentive program under the 2009 Equity Incentive Plan for certain participating executives. The revised long-term incentive plan has three components: (1) time-based restricted stock that vests over three years, (2) performance-based restricted stock that, subject to being earned, vests over three years, and (3) a three-year performance-based cash incentive program.

The performance-based restricted stock vests over three years and is subject to being earned based on performance during 2011. Actual awards will be determined by performance during the period January 1, 2011 through December 31, 2011 against a performance goal relating to USEC’s total shareholder return compared to the Russell 2000 total shareholder return (without dividends). This award is classified as equity and is valued at the award date using a Monte Carlo model. The target number of shares of restricted stock was calculated based on USEC’s stock price on March 1, 2011. Award valuation factors associated with the underlying performance of USEC’s stock price and shareholder returns over the term of the award include:

·	Total stock return volatility based on historical volatility over one year using daily stock price observations,

·	Risk-free interest rate reflecting the yield on the 1-year Treasury bonds on grant date,

·	Beta calculated using one year of daily returns and comparing the risk of the individual securities to the Russell 2000 Index, and

·	For USEC and each of the companies in the Russell 2000 index, actual stock return from the beginning of the performance period through the grant date (January 1, 2011 – March 1, 2011) has been incorporated in the projection of the ultimate payout.

The new three-year performance-based cash incentive program includes a new overlapping three-year performance period each year. The first performance period runs from January 1, 2011 through December 31, 2013. Actual payout of awards will be determined by the performance of the Company during the performance period against two pre-determined performance goals. Cash awards earned will be granted following the completion of the performance period. This award is classified as a liability. The liability will be re-measured each reporting period based on the status of the performance against the performance goals.

1415

~~13.~~11. NET INCOME PER SHARE

Basic net income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period, excluding ~~any~~ unvested restricted ~~stock.~~stock of 1.8 million shares in the three months ended March 31, 2011 and 2.0 million shares in the three months ended March 31, 2010.

In calculating diluted net income per share, the numerator is increased by interest expense on the convertible notes, net of amount capitalized and net of tax, and the denominator is increased by the weighted average number of shares resulting from potentially dilutive securities, assuming full conversion, consisting of stock compensation awards, convertible notes, convertible preferred stock and ~~warrants, assuming full conversion.~~

Three Months Ended
September 30,
Nine Months Ended
September 30,
2010 2009 2010 2009
(in millions)
Numerator:
Net income (loss)
$1.0 $(6.2) $(1.5) $9.0
Net interest expense on convertible notes and convertible preferred stock
    dividends (a)
-      (b)   (b) 0.2
Net income (loss) if-converted
$1.0 $(6.2) $(1.5) $9.2

Denominator:
Weighted average common shares
115.1 113.3 114.6 112.8
Less: Weighted average unvested restricted stock
1.9    1.5    2.0    1.5
Denominator for basic calculation
113.2 111.8 112.6 111.3

Weighted average effect of dilutive securities:

Stock compensation awards
0.4      (b) (b)    0.6
Convertible preferred stock
4.7             - (b) -
Convertible notes
48.1      (b) (b) 48.1

Denominator for diluted calculation
166.4 111.8 112.6 160.0

Net income (loss) per share – basic
$.01 $(.06) $(.01) $.08
Net income (loss) per share – diluted
$.01
$(.06) (b)
   $(.01) (b) $.06

~~(a)~~

~~Interest expense on convertible notes and convertible preferred stock dividends net of amount capitalized and net of tax.~~

~~(b)~~

~~No dilutive effect of convertible notes or stock compensation awards is recognized in a period in which a net loss has occurred.~~

~~In the nine months ended September 30, 2010, net interest expense on convertible notes was less than $0.1 million and the~~warrants. The weighted average number of shares for ~~stock compensation awards, convertible preferred stock and convertible notes was 0.4 million, 1.6 million and 48.1 million, respectively.~~potentially dilutive securities follows (shares in millions):

	Three Months Ended March 31,
	2011		2010
Stock compensation awards		6.2		0.5
Convertible preferred stock		13.6		-
Convertible notes		44.9		48.1
Weighted average number of shares for potentially dilutive securities		64.7		48.6

In the three ~~months~~month periods ended ~~September 30, 2009,~~March 31, 2011 and March 31, 2010, diluted earnings per share is the same as basic earnings per share since no dilutive effect of potentially dilutive securities is recognized in a period in which a net interest expense on convertible notes was less than $0.1 million and the weighted average number of shares for stock compensation awards and convertible notes was 0.6 million and 48.1 million, respectively.

loss has occurred.

Options and warrants to purchase shares of common stock having an exercise price greater than the average share market price are excluded from the calculation of diluted earnings per share (options and warrants in millions):

	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended March 31,
	2010	2009	2010	2009	2011	2010
Options excluded from diluted earnings per share	2.6	1.9	2.6	1.9	1.5	2.6
Warrants excluded from diluted earnings per share	6.3	-	6.3	-	6.3	-
Exercise price of excluded options	$5.18 to $16.90	$5.00 to $16.90	$5.18 to $16.90	$5.23 to $16.90	$5.52 – 14.28	$4.69 – 14.28
Exercise price of excluded warrants	$7.50	-	$7.50	-	$7.50	-

~~14.~~

12. COMMITMENTS AND CONTINGENCIES

American Centrifuge Plant

Project Funding

USEC needs ~~to raise a~~ significant ~~amount of~~ additional ~~capital to continue funding and~~financing in order to complete the American Centrifuge Plant. USEC believes a loan guarantee under the DOE Loan Guarantee Program, ~~is essential to raising the capital needed to complete the American Centrifuge Plant. The DOE Loan Guarantee Program~~which was ~~created~~established by the Energy Policy Act of 2005, ~~and in December 2007, federal legislation authorized~~is essential to obtaining the funding ~~levels of up~~needed to ~~$2 billion for advanced facilities for~~complete the front end of the nuclear fuel cycle, which includes uranium enrichment. DOE subsequently reallocated an additional $2 billion in loan guarantee authority to the front-end nuclear facilities loan guarantee solicitation.ACP. In July 2008, USEC applied tounder the DOE Loan Guarantee Program for $2 billion in U.S. government guaranteed debt financing for the ACP. DOE a nnounced in May 2010 that it has provided Areva, a company more than 90% owned by the French government, with a conditional commitment for a loan guarantee from the reallocated funding authority for a proposed plant in the United States. DOE has said that $2 billion in funding for projects in the front end of the nuclear fuel cycle remains available. In August 2009, DOE and USEC announced an agreement to delay a final review of USEC’s loan guarantee ~~application. Since that~~application to provide additional time ~~USEC has worked~~ to address ~~the~~ technical and financial concerns raised by ~~DOE~~DOE. In the following months, USEC focused on addressing DOE’s concerns and, based on its progress in reducing program risks, submitted ana comprehensive update to its application in July 2010. ~~In late~~As part of its due diligence, DOE conducted independent financial, legal and engineering reviews of the project. USEC also has been working with DOE since October 2010 ~~USEC was informed by~~on the terms for a conditional commitment for a $2 billion loan guarantee. In April 2011, the DOE ~~that it has largely~~Loan Guarantee Program Office substantially completed ~~its initial technical review~~the due diligence and negotiation stage of ~~USEC’s~~the application process and ~~is proceeding~~advanced the ACP application to the next ~~stage~~phase. As part of this next phase, the ~~loan guarantee process.~~credit package prepared by the DOE ~~provided USEC with a draft term sheet that will serve as~~Loan Guarantee Program Office, including the ~~framework for discussions with DOE. Completion of due diligence by DOE and negotiation of~~ terms and conditions ~~between DO E~~that USEC has negotiated with the DOE Loan Guarantee Program Office, is being reviewed in parallel by DOE’s credit group and by the Office of Management and Budget (“OMB”), the Department of the Treasury and the National Economic Council (“NEC”); which review will include the establishment of an estimated range of credit subsidy cost. USEC ~~are~~has no assurance that the ~~next steps toward~~terms it has negotiated with the ~~potential issuance of~~DOE Loan Guarantee Program Office will be approved or that the credit subsidy cost will be reasonable. After obtaining a conditional ~~commitment.~~commitment, USEC will need to conclude final documentation and satisfy any technical, financial and other conditions to funding in order to close on the financing. Funding under a DOE loan guarantee will only occur following conditional commitment, final documentation and satisfaction of conditions to funding, which are subject to uncertainty.

OnIn May ~~25,~~ 2010, ~~USEC announced that~~ Toshiba and B&W signed a definitive agreement to make a $200 million investment in USEC. Under the terms of the agreement, Toshiba and B&W will each invest $100 million over three phases, each of which is subject to specific closing conditions. OnIn September 2, 2010, the first closing of $75 million occurred. If the second closing does not occur by June 30, 2011, the agreement may be terminated by USEC or each of the investors (as to such investor’s obligations). To complete the project, USEC will require additional capital beyond the $2 billion DOE loan guarantee, proceeds from the $200 million investment from Toshiba and B&W and internally generated cash flow.

USEC ~~has initiated~~also continues discussions with Japanese export credit agencies regarding financing ~~a portion~~$1 billion of the cost of ~~building~~completing the ~~plant.~~ACP. However, USEC has no assurance that it will be successful in obtaining any or all of the financing it is seeking.

Milestones under the 2002 DOE-USEC Agreement

In 2002, USEC and DOE signed an agreement (such agreement, as amended, the “2002 DOE-USEC Agreement”) in which USEC and DOE made long-term commitments directed at resolving issues related to the stability and security of the domestic uranium enrichment industry. The 2002 DOE-USEC Agreement contains specific project milestones relating to the ACP. ~~Four~~In February 2011, USEC and DOE amended the 2002 DOE-USEC Agreement to revise the remaining four milestones ~~remain~~ relating to the financing and operation of the ACP. In early August 2009 USEC began demobilization of the American Centrifuge project. As a result, USEC requested a modification to the 2002 DOE-USEC Agreement to extend the remaining ACP milestones under the 2002 DOE-USEC Agreement. In January 2010, USEC and DOE amended the 2002 DOE-USEC Agreement to extendThe amendment extended by one year to November ~~2010~~2011 the financing milestone that required that USEC secure firm ~~financ ing~~financing commitment(s) for the construction of the commercial American Centrifuge Plant with an annual capacity of approximately 3.5 million SWU per year. The remaining three milestones were ~~not~~also adjusted by the ~~January 2010 amendment, however,~~February 2011 amendment. In addition, DOE and USEC ~~have~~ agreed to discuss adjustment of the remaining three milestones as may be appropriate based on ~~among other things, progress in achieving~~a revised deployment plan to be submitted to DOE by USEC by January 30, 2012 following the completion of the November ~~2010~~2011 financing ~~milestone and the technical progress of the program.~~milestone. In the ~~January 2010~~February 2011 amendment to the 2002 DOE-USEC Agreement, DOE and USEC ~~acknowledged~~re-iterated their acknowledgment that USEC’s obligations with respect to the ACP milestones under the 2002 DOE-USEC Agreement are not dependent on the issuance by DOE of a loan guarantee to USEC. However, USEC ~~has~~ communicated to DOE that its ability to meet the remaining milestones is dependent on its obtaining a timely commitment and funding for a loan guarantee from DOE. USEC will also need additional financing commitments beyond a DOE loan guarantee to meet the November ~~2010~~2011 financing milestone. Meeting the November 2010 milestone is subject to significant uncertainty. Given this uncertainty, USEC plans to have discussions with DOE regarding adjustments to the November 2010 milestone. However, there can be no assurance that the milestone would be adjusted.

The 2002 DOE-USEC Agreement provides DOE with specific remedies if USEC fails to meet a milestone that would materially impact USEC’s ability to begin commercial operations of the American Centrifuge Plant on schedule and such delay was within USEC’s control or was due to USEC’s fault or negligence. These remedies could include terminating the 2002 DOE-USEC Agreement, revoking USEC’s access to DOE’s U.S. centrifuge technology that USEC requires for the success of the American Centrifuge project and requiring USEC to transfer certain of its rights in the American Centrifuge technology and facilities to DOE, and to reimburse DOE for certain costs associated with the American Centrifuge project. DOE could also recommend that USEC be removed as the sole U.S. Executive Agent under the ~~Megatons-to-Megawatts~~nonproliferation program ~~whi ch if such recommendation led~~between the United States and the Russian Federation known as “Megatons to aMegawatts”. As the U.S. ~~government decision to remove USEC as sole~~ Executive Agent, ~~could reduce or terminate USEC’s access~~USEC signed a commercial agreement (“Russian Contract”) in 1994 with a Russian government entity known as Techsnabexport (“TENEX”) to implement the program. USEC currently purchases about one-half of its SWU supply from Russia under the Russian ~~LEU in future years, subject to rights granted to USEC under~~Contract. The 20-year Russian Contract expires at the end of 2013. Under the terms of a 1997 memorandum of agreement between USEC and the U.S. government, USEC can be terminated, or resign as the U.S. Executive Agent, or one or more additional executive agents may be named. If USEC were removed as the sole U.S. Executive Agent, it could reduce or terminate USEC’s access to ~~continue~~Russian LEU under the Megatons to ~~purchase Russian SWU at prices,~~Megawatts program in ~~quantities~~future years. However, under the 1997 memorandum of agreement, USEC has the right and ~~under terms~~obligation to pay for and take delivery of LEU that is to be delivered in the year of the date of termination and in the following year if USEC and TENEX have agreed ~~with the Russian executive agent.~~on a price and quantity. Any of these ~~actions~~remedies under the 2002 DOE-USEC Agreement could have a material adverse impact on USEC’s business.

The 2002 DOE-USEC Agreement provides that if a delaying event beyond the control and without the fault or negligence of USEC occurs which would affect USEC’s ability to meet an ACP milestone, DOE and USEC will jointly meet to discuss in good faith possible adjustments to the milestones as appropriate to accommodate the delaying event.

USEC’s right to continue operating the Paducah GDP under its lease with DOE is not subject to meeting the ACP milestones.

1718

~~Obligation Under Lease~~New Russian Supply Agreement ~~for Power Contract~~

~~Cost~~On March 23, 2011, USEC signed a new multi-year contract with TENEX for the 10-year supply of Russian LEU beginning in 2013. Under the terms of the new contract, the supply of LEU to USEC will begin in 2013 and increase until it reaches a level in 2015 that includes a quantity of SWU equal to approximately one-half the level currently supplied by TENEX to USEC under the Megatons to Megawatts program. The contract provides USEC the option to increase or decrease the amount of the firm commitment SWU to be purchased for a given year by up to a total of plus or minus 5%. For years 2015 through 2019, in addition to its option to decrease the amount of any firm commitment SWU to be purchased during such year by up to 5%, USEC will have the option to defer up to an additional 5% of the amount of the firm commitment SWU to be purchased in such year and instead purchase the deferred amount in years 2020 through 2022. TENEX and USEC also may mutually agree to increase the purchases and sales of SWU by certain additional optional quantities of SWU up to an amount beginning in 2015 equal to the amount USEC now purchases each year under the Megatons to Megawatts program. Unlike the Megatons to Megawatts program, the quantities supplied under the new contract will come from Russia’s commercial enrichment activities rather than from downblending of excess Russian weapons material. As this new agreement is separate from the Megatons to Megawatts program, remedies provided to DOE under the 2002 DOE-USEC Agreement related to USEC’s role under the Megatons to Megawatts program do not apply to the new purchase agreement. However, the LEU we obtain from TENEX under the new agreement will be subject to quotas and other ~~long-term liabilities were reduced by $7.8 million in~~restrictions applicable to commercial Russian LEU that do not apply to LEU supplied to USEC under the ~~second quarter of 2010 due~~Megatons to ~~a change in estimate of USEC’s share of future demolition and severance costs for a power plant that was built~~Megawatts program.

Deliveries under the contract are expected to ~~supply power to~~continue through 2022. USEC will purchase the ~~Paducah GDP. DOE is obligated to pay the owner/operator~~SWU component of the ~~plant~~LEU and deliver natural uranium to TENEX for the LEU’s uranium component. The pricing terms for SWU under the contract are based on a ~~portion~~mix of ~~such costs (net~~market-related price points and other factors.

The effectiveness of ~~salvage credits including~~ the ~~value of land)~~new contract between TENEX and USEC is ~~obligated~~subject to approval of the Russian State Corporation for Atomic Energy (“ROSATOM”) and completion of administrative arrangements between the U.S. and Russian governments under the ~~lease~~ agreement ~~with DOE~~for cooperation in nuclear energy between the United States and the Russian Federation (the Russia 123 Agreement) which, among other things, provides the framework for the return to ~~fund such payments except for portions attributable to power consumed by DOE. Given additional information obtained~~Russia of natural uranium delivered by USEC ~~during the second quarter of 2010, USEC believes that the amount of its liability for such payments that can be reasonably estimated at this time with respect~~ to the plant’s shutdown, which is not anticipated to occur before 2055, is lower than the p reviously recorded long-term liability. USEC will reassess the need for additional accruals on a recurring basis as information becomes available.TENEX.

~~Legal Matters~~

~~DOE Contract Services Matter~~

The U.S. Department of Justice (“DOJ”) asserted in a letter to USEC dated July 10, 2006 that DOE may have sustained damages in an amount that exceeds $6.9 million under USEC’s contract with DOE for the supply of cold standby services at the Portsmouth GDP. DOJ indicated that it was assessing possible violations of the Civil False Claims Act (“FCA”), which allows for treble damages and civil penalties, and related claims in connection with invoices submitted under that contract. USEC responded to DOJ’s letter in September 2006, stating that the government does not have a legitimate basis for asserting any FCA or related claims under the cold standby contract, and USEC has been cooperating with DOJ and the DOE Office of Investigations with respect to their inquiries into this matter. In a supp lemental presentation by DOJ and DOE on October 18, 2007, DOJ identified revised assertions of alleged overcharges of at least $14.6 million on the cold standby contract and two other cost-type contracts, again potentially in violation of the FCA. USEC has responded to these assertions and has provided several follow-up responses to DOJ and DOE in response to their requests for additional data and analysis. As part of USEC’s continuing discussions with DOJ, USEC and DOJ have agreed several times to extend the statute of limitations for this matter. USEC does not believe that there is any basis for an FCA or related claim and does not anticipate that any such claim will be filed against it in connection with this matter. Accordingly, no loss has been accrued.

~~Contractor Matter~~

On June 22, 2010, USEC and its engineering, procurement and construction contractor for the American Centrifuge Plant, Fluor Enterprises, Inc., agreed to a settlement regarding a complaint filed on October 16, 2009 in the U.S. District Court for the Southern District of Ohio by a subcontractor, Rampart Hydro Services, L.P., regarding monies owed for work performed under a contract with USEC. As part of the settlement, the complaint was dismissed with prejudice.

~~Other~~ Legal Matters

USEC is subject to various ~~other~~ legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, USEC does not believe that the outcome of any of these legal matters will have a material adverse effect on its results of operations or financial condition.

1819

~~15.~~13. SEGMENT INFORMATION

USEC has two reportable segments: the LEU segment with two components, SWU and uranium, and the ~~U.S. government contracts~~contract services segment. The LEU segment is USEC’s primary business focus and includes sales of the SWU component of LEU, sales of both the SWU and uranium components of LEU, and sales of uranium. The ~~U.S. government contracts~~contract services segment includes work performed for DOE and DOE contractors at the Portsmouth site and the Paducah ~~GDPs,~~GDP as well as nuclear energy services and technologies provided by NAC International Inc. Gross profit is USEC’s measure for segment reporting. Intersegment sales between the reportable segments were less than $0.1 million in each period presented below and have been eliminated in consolidation.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010 2009 2010 2009
(millions)
Revenue
LEU segment:
Separative work units
$ 404.2 $ 467.0 $ 1,001.8 $ 1,266.2
Uranium
79.3 26.2 164.5 150.2
483.5 493.2 1,166.3 1,416.4
U.S. government contracts segment
81.1 56.1 202.7 152.8
$ 564.6 $ 549.3 $ 1,369.0 $ 1,569.2

Segment Gross Profit
LEU segment
$ 32.1 $ 31.9 $ 89.1 $ 148.3
U.S. government contracts segment
5.9 7.3 19.7 10.5
Gross profit
38.0 39.2 108.8 158.8
Special charge for workforce reduction
- 2.5 - 2.5
Advanced technology costs
28.6 31.7 80.3 93.8
Selling, general and administrative
14.0 14.0 43.4 45.1
Other (income)
(12.4 ) - (32.4 ) -
Operating income (loss)
7.8 (9.0 ) 17.5 17.4
Interest expense (income) and issuance costs, net
4.9 - 4.8 (0.2 )
Income (loss) before income taxes
$ 2.9 $ (9.0 ) $ 12.7 $ 17.6

~~16. SUBSEQUENT EVENT~~

Effective October 8, 2010, USEC entered into a Third Amended and Restated Credit Agreement replacing its existing credit agreement. The amended credit agreement adds an $85 million term loan facility to USEC's existing revolving credit facility. The total credit facility is now $310 million. As part of the amended credit agreement, $25 million of existing lender commitments was moved from the existing revolving credit facility to the term loan, resulting in aggregate lender commitments under the revolving credit facility of $225 million (previously $250 million). The amended credit agreement increases the letter of credit sublimit to $150 million.

~~The term loan is 100% funded as of October 8, 2010, and was issued with an original issue discount of 2% and will bear interest, at the election of USEC, at either:~~

·	the greater of (1) the JPMorgan Chase Bank prime rate (with a floor of 3%) plus 6.5%, (2) the federal funds rate plus ½ of 1% (with a floor of 3%) plus 6.5%, or (3) an adjusted 1-month LIBO Rate plus 1% (with a floor of 3%) plus 6.5%; or

·	~~the adjusted LIBO Rate (with a floor of 2%) plus 7.5%.~~

~~The interest rate on outstanding borrowings under the revolving credit facility is unchanged.~~

The credit facility matures on May 31, 2012. The term loan is subject to mandatory prepayment consistent with the existing credit agreement. The term loan may be prepaid voluntarily subject to a prepayment fee of 2% of the amount if prepaid before October 8, 2011 and 1% of the amount if prepaid after October 8, 2011 but prior to January 1, 2012.

	Three Months Ended March 31,
	2011			2010
	(millions)
Revenue
LEU segment:
Separative work units	$	308.5		$	266.6
Uranium		14.0			15.6
		322.5			282.2
Contract services segment		58.0			62.5
	$	380.5		$	344.7

Segment Gross Profit
LEU segment	$	15.3		$	15.0
Contract services segment		(1.4	)		11.7
Gross profit		13.9			26.7
Advanced technology costs		26.7			25.7
Selling, general and administrative		15.5			15.1
Other (income)		(3.7	)		(9.7	)
Operating (loss)		(24.6	)		(4.4	)
Interest (income)		(0.2	)		(0.1	)
(Loss) before income taxes	$	(24.4	)	$	(4.3	)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated condensed financial statements and related notes set forth in Part I, Item 1 of this report as well as the risks and uncertainties presented in Part II, Item 1A of this report and Part I, Item IA of the annual report on Form 10-K for the year ended December 31, ~~2009.~~2010.

Overview

USEC, a global energy company, is a leading supplier of low enriched uranium (“LEU”) for commercial nuclear power plants. LEU is a critical component in the production of nuclear fuel for reactors to produce electricity. We:

·	supply LEU to both domestic and international utilities for use in about 150 nuclear reactors ~~worldwide,~~worldwide;

·	are deploying what we ~~anticipate will be~~believe is the world’s most advanced uranium enrichment technology, known as the American ~~Centrifuge,~~Centrifuge;

·	enrich uranium at the Paducah gaseous diffusion plant (“GDP”) that we lease from the U.S. Department of Energy (“DOE”);

·	are the exclusive executive agent for the U.S. government under a nuclear nonproliferation program with Russia, known as Megatons to ~~Megawatts,~~Megawatts;

·	perform contract work for ~~the U.S. Department of Energy (“DOE”)~~DOE and its contractors at the Paducah and Portsmouth ~~gaseous diffusion plants (“GDPs”),~~sites; and

·	provide transportation and storage systems for spent nuclear fuel and provide nuclear and energy consulting services.

LEU consists of two components: separative work units (“SWU”) and uranium. SWU is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components: enriched uranium having a higher percentage of U235 and depleted uranium having a lower percentage of U235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium used in the production of LEU under this formula is referred to as its uranium component.

We produce or acquire LEU from two principal sources. We produce about half of our supply of LEU at the Paducah GDP in Paducah, ~~Kentucky. Under~~Kentucky, and we acquire the other portion under a contract with Russia (the “Russian Contract”) under the Megatons to Megawatts ~~program, we acquire LEU from Russia under a contract, which we refer to as~~program. Under the Russian Contract, towe purchase the SWU component of LEU ~~recovered~~derived from dismantled nuclear weapons from the former Soviet Union for use as fuel in commercial nuclear power plants.

Our View of the Business Today

~~We expect that the long-term market for nuclear fuel will be vibrant and growing.~~ A global fleet of approximately 440 operating nuclear ~~power~~ reactors ~~provides the nuclear fuel industry with steady demand for enriched uranium. The fuel requirements~~provide roughly 15% of the ~~current fleet provide~~world’s electricity. The United States is nearly a ~~strong business case for our investment~~quarter of that total with 104 reactors that generate approximately 20% of domestic electricity. A resurgence of nuclear power has been underway in the American Centrifuge technology. In addition, approximately 60 new reactors are under construction worldwide with approximately 25 of those expected to begin operation by the end of 2012. Looking out further, the World Nuclear Association reports that about 150 additional reactors are on order or planned,recent years and more than ~~300 more~~60 reactors ~~have been proposed. For~~are currently under construction. However, the ~~first time~~industry suffered a setback in ~~decades, it appears~~March 2011 when a massive earthquake and tsunami struck northern Japan that ~~new reactors will be built in the United States in response~~caused serious damage to an emphasis on reducing greenhouse gas emiss ions combined with the economic and energy security benefits of nuclear power. Balanced against this positive outlook are several factors that may slow the need for new base loada multi-unit nuclear power ~~capacity including the impact on electric power demand of the economic downturn in the United States and globally; the decline in the price of natural gas, a~~ competing fuel, in the United States; the increase in the capital cost for building new reactors; and the length and uncertainty of the regulatory process for licensing nuclear facilities. However, worldwide population growth, increasing per capita demand for electric power, improving public acceptance of nuclear power, and environmental concerns regarding burning fossil fuels should create a growing demand for nuclear fuel for decades to come.station at Fukushima.

~~Throughout 2010, we~~Stabilization and cleanup of the Fukushima nuclear power plant facility and surrounding area will be a long-term issue for the operator, Japan and the nuclear industry. The plant operator has said at least four of the reactors will be permanently closed due to the damage and radiation at the plant. In the immediate aftermath of the nuclear emergency, Germany shut down seven older reactors not currently served by USEC and other nations announced delays in permitting new reactors. This could result in a slowdown in the expansion of nuclear power worldwide compared to the growth expected prior to the Japanese earthquake. The public’s perception of the safety of nuclear power may have been ~~working on~~harmed by the nuclear emergency, and this could negatively affect future growth for the industry. One potential outcome from governmental reviews of the circumstances in Japan could be requirements that used nuclear fuel be moved from pool storage to dry cask storage. Our NAC International subsidiary is an industry leader of dry cask storage and would be well positioned to respond to such new requirements, if needed.

USEC has long been a ~~number~~leading supplier of ~~strategic initiatives. While~~LEU to Japan. Over the last three years, sales to Japan have accounted for approximately 10% to 15% of our revenue. We had already delivered the LEU to fuel fabricators expected to be used in 2011 refueling of reactors for utility customers most directly affected by the earthquake. Our backlog during the years 2012-2013 includes sales to customers most directly affected by the earthquake of approximately $20 million. Because of the fungible nature of low enriched uranium, it is not clear whether it will be possible to identify which supplier provided the LEU that was used to fabricate the fuel in the affected Japanese reactors. However, even if the fuel were supplied by USEC, we ~~focused on~~do not believe we would be liable under Japanese law for injuries or losses to third parties in this type of situation. We expect a thorough review by Japanese officials of nuclear plant equipment and procedures, but over the ~~steps needed~~longer term we anticipate that Japanese utilities will continue to ~~obtain~~buy LEU to fuel the ~~necessary capital~~51 reactors that provide about 30% of Japan’s electricity. The published price indicators as of March 31, 2011 showed no immediate change in the market price of SWU at $158 per SWU. However, it is too early to know the long term impacts of the disaster in Japan. Risks and uncertainties related to the Japanese disaster are described in Part II, Item 1A, “Risk Factors.”

Although some countries may delay deployment of nuclear power, others including Japan have said that nuclear power remains an essential part of their long-term energy plan. Moreover, the 104 reactors in the United States and more than 300 reactors around the world will need fuel for ~~and restart construction of~~many years. To meet this need, we are building the American Centrifuge Plant (“ACP”)~~, we have also continued~~. Construction of the plant began in 2007 after issuance of a construction and operating license by the U.S. Nuclear Regulatory Commission (“NRC”). Our plan is to ~~focus on our core businesses. This includes continued safe and efficient operation of~~expand the facility over time so that it can eventually replace the Paducah GDP that employs gaseous diffusion technology to enrich uranium. Our production facility is leased from the U.S. government and ~~contract work~~was built in the 1950s for defense purposes. Although the plant is operating at its highest efficiency in 30 years, the technology uses significant amounts of electric power that is increasingly putting us at a competitive disadvantage compared to our foreign-owned competitors who operate gas centrifuge plants.

We have invested approximately $2 billion in the American Centrifuge project but need significant additional financing to complete the plant. In 2008, we applied for a $2 billion loan guarantee from the Department of Energy for construction of the ACP. We significantly demobilized construction and machine manufacturing activities in 2009 due to delays in obtaining financing through DOE’s Loan Guarantee Program. However, we have continued limited manufacturing, assembling and operating of centrifuge machines in the lead cascade test program and ongoing development efforts. We have production-ready AC100 machines operating in the lead cascade test program and we are building additional centrifuge machines to increase machine hours that will provide additional assurance of performance, reliability and plant availability. We believe in the American Centrifuge technology and have made significant progress towards obtaining a conditional commitment for a loan guarantee, with the term sheet we negotiated with the DOE atLoan Guarantee Program Office currently under review by DOE’s credit group and by the ~~Paducah plant~~Office of Management and Budget (“OMB”), the Department of the Treasury and the ~~shutdown GDP in Piketon, Ohio.~~National Economic Council (“NEC”). For additional details, refer to “American Centrifuge Plant Update” below.

~~Over~~

The lengthy process for reaching an agreement on the ~~next several years, the enrichment industry will be going through its most significant change in decades. Faced~~loan guarantee with ~~this uncertainty and systemic change, as well as volatility in the uranium market over the last several years,~~DOE has placed an even greater emphasis on efficient operations at our ~~customers have covered most~~Paducah plant. Because approximately 70% of ~~their SWU requirements over the next two years under long-term contracts. We are developing plans for the future~~our cost of ~~the Paducah GDP. The factors~~production is electricity, we are ~~evaluating include SWU supply and demand,~~sharply focused on negotiation of the ~~volatility and~~ price of electricity as we ~~require,~~work to extend operations at Paducah. Our current power agreement with the Tennessee Valley Authority (“TVA”) expires on May 31, 2012 and we are in negotiations with TVA and other power providers to replace that contract.

In March 2011, we announced a multi-year commercial contract with a Russian government entity known as ~~well as continuing discussions with customers about their future plans given an evolving SWU supply. Our customers have told us~~TENEX that ~~they value diversity of supply. The~~provides for continued access to Russian LEU after the Megatons to Megawatts program concludes. This will ~~conclude~~provide us with continued access to an important part of our existing LEU supply mix through 2022 for our customers as we continue to deploy the ACP. By supplementing our domestic capacity at Paducah with continued access to Russian LEU, we can maintain market share as we transition to the ACP. Pricing under the new agreement is determined using a ~~highly successful 20-year non-proliferation effort at~~formula that combines a mix of market-related price points and other factors. Subject to the ~~end~~effectiveness of ~~2013. Subsequently,~~ the ~~Russians will~~new supply contract, which is conditioned upon Russian governmental approval and completion of administrative arrangements between the U.S. and Russian governments, USEC and TENEX have agreed to conduct a feasibility study to explore the ~~a bility to sell up to 20%~~possible deployment of U.S. SWU demand directly to U.S. utilities. The French are transitioning to centrifuge-based production in France and expect to end production at their gaseous diffusion plant. Areva also plans to build an enrichment plant in the United ~~States. Urenco has announced expansion of its European enrichment plants and began initial operations at~~States employing Russian centrifuge technology. Any decision to proceed with such a ~~facility in New Mexico in 2010. We believe our Paducah GDP can continue to be an important source of capacity during this period of market transition but economic power prices beyond~~project would depend on the ~~expiration of our current power agreement in May 2012 and sufficient SWU demand to permit efficient operation~~results of the ~~plant will~~feasibility study and would be ~~key factors in evaluating our future plans for~~subject to further agreement between the ~~facility.~~

~~We continue our efforts to deploy~~two parties and their respective governments. Such a project would not be deployed until after completion of the American Centrifuge technology. In July 2010, we submitted a comprehensive update to our loan guarantee application for the $2 billion in federal loan guarantee authority that remains available under the 2008 solicitation for Front End Nuclear Fuel facilities. In late October 2010, we were informed by DOE that it has largely completed its initial technical review of our application and is proceeding to the next stage of the loan guarantee process. DOE provided us with a draft term sheet that will serve as the framework for discussions with DOE. Completion of due diligence by DOE and negotiation of terms and conditions with DOE are the next steps toward the potential issuance of a conditional commitment and we will be working with DOE to complete those in an expeditious manner.

If we are successful in obtaining a loan guarantee and other financing required to complete the project, the American Centrifuge project could create nearly 8,000 jobs in the United States, with almost half located in Ohio. More detail is provided below in “Overview—American Centrifuge Plant Update.”project.

~~Our U.S. government contracts segment includes work performed~~We ceased uranium enrichment operations at the Portsmouth GDP, located in Piketon, Ohio, in 2001. Over the past decade, we maintained the Portsmouth site under contract with ~~DOE (“cold shutdown contract”)~~DOE. As part of our contract to maintain the facility in a state of “cold shutdown”, we were directed during 2009 and ~~prepare the former Portsmouth GDP~~2010 to accelerate preparation for decontamination and decommissioning (“D&D”)~~. This work is currently in a state~~ of ~~transition. In August 2010,~~the facility. As previously reported, DOE awarded a contract for the D&D of the Portsmouth ~~GDP~~site in August 2010 to a joint venture between Fluor Corp. and The Babcock & Wilcox Company ~~(“Fluor-B&W~~. Our contract to maintain the facility in a state of cold shutdown expired on March 28, 2011. We entered into an agreement with DOE to de-lease and return to DOE all remaining facilities at the Portsmouth ~~LLC”). Due to potential organizational conflicts of interest (“OCI”) concerns raised by DOE, we elected not to submit a proposal as a prime contractor~~site except for those facilities leased for the ~~contract that was awarded~~ACP. The de-lease of these facilities is currently anticipated to ~~Fluor-B&W Portsmouth LLC~~occur on or before June 15, 2011. Until the facilities are de-leased, USEC will continue to operate such facilities and ~~are not a pre-selected subcontractor. Under~~provide services to DOE and its contractors under cost reimbursement type contracts. With the ~~contract, Fluor-B&W Portsmouth LLC will serve as the prime~~ ~~contractor for the D&D. DOE has extended the expiration~~transition of our cold shutdown contract from September 30, 2010 to January 16, 2011, but this extension has not yet been definitized, meaning, among other things, that the parties have not yet reached an agreement on the amount of the fee to be paid to USEC for the work. The lack of contract definitization can result in delays in our submittal of incurred costs and recovery of fees for work performed. After the expiration of the contract, responsibility for work under our cold shutdown contract will transitionPiketon site services to the new D&D ~~contractor. To facilitate~~contractor, revenue for our contract services segment will decrease significantly in 2011 compared to prior years. For additional details, refer to the ~~transition, on September 30, 2010, we de-leased three large GDP production buildings and other facilities that we had leased from DOE.~~“Contract Services Segment” section below.

We are seeking the opportunity to perform work as a subcontractor as the D&D project proceeds over the next several years. However, currently there is no extension of our cold shutdown contract past January 16, 2011 in place and the scope and timing of any contract to perform work as a subcontractor is uncertain. USEC also performs other services for DOE at the Portsmouth GDP and the Paducah GDP that will continue after the expiration of the cold shutdown contract. However, even if we are successful in our efforts to perform work at the Portsmouth GDP as a subcontractor to the D&D contractor, we expect that our revenues from U.S. government services will be significantly reduced beginning with the first quarter of 2011. More detailremain focused on our ~~U.S. Government Contracts segment is provided below in “Overview – Revenue from U.S. Government Contracts.”~~

~~Investment by Toshiba and B&W~~

On September 2, 2010, the first closing of $75 million occurred under the Securities Purchase Agreement (the “Purchase Agreement”) dated as of May 25, 2010, between USEC and Toshiba Corporation (“Toshiba”) and Babcock & Wilcox Investment Company (“B&W”). At the first closing, Toshiba and B&W purchased 75,000 shares of convertible preferred stock, and warrants to purchase 6.25 million shares of common stock at an exercise price of $7.50 per share, which will be exercisable in the future. The Purchase Agreement providesstated goals for a $200 million investment in USEC by Toshiba and B&W over three phases upon the satisfaction at each phase of certain closing conditions. Toshiba and B&W will invest equally in each of the phases in an aggregate amount of $100 million each. We will use the funds fo r general corporate purposes and for continued investment in the American Centrifuge Plant.2011:

The second phase of the investment is for a total of $50 million and is contingent upon USEC receiving a conditional loan guarantee commitment from DOE, among other closing conditions. The third phase of the investment is for a total of $75 million and is contingent upon the closing of a DOE loan guarantee, as well as other closing conditions including regulatory review and USEC shareholder approval. Additional information about the transactions, including a copy of the Purchase Agreement and other agreements, can be found in the Current Reports on Form 8-K filed by us on May 25, 2010 and on September 2, 2010.

·	To negotiate and close on a $2 billion DOE loan guarantee and other financing necessary to complete the ACP;

·	To conclude new power purchase contracts and other arrangements to support extension of Paducah operations during the transition to the ACP; and

·	To successfully manage the transition of our cold shutdown work at the Portsmouth site.

~~American Centrifuge Manufacturing Joint Venture~~

In connection with the first closing under the Purchase Agreement, on September 2, 2010, American Centrifuge Holdings, LLC (“ACP Holdings”), a wholly owned subsidiary of USEC, and Babcock & Wilcox Technical Services Group, Inc. (“B&W TSG”), a subsidiary of The Babcock & Wilcox Company, entered into the operating agreement (the “Operating Agreement”) for American Centrifuge Manufacturing, LLC (“American Centrifuge Manufacturing”), a manufacturing joint venture. USEC and B&W TSG also agreed on a non-binding term sheet, including pricing, for the supply by American Centrifuge Manufacturing of centrifuges and related equipment for the American Centrifuge project. The Operating Agreement contains c onditions to effectiveness that have not yet been satisfied relating to third-party funding for the construction of the American Centrifuge plant and the execution and delivery of agreements contemplated by the non-binding term sheet, including an equipment supply agreement, a guarantee by The Babcock & Wilcox Company supporting American Centrifuge Manufacturing’s obligations under the equipment supply agreement, and a long term supply agreement. Once the Operating Agreement becomes effective, American Centrifuge Manufacturing will be owned 55% by ACP Holdings and 45% by B&W TSG.

American Centrifuge Plant Update

We are reaching a critical point regarding continued funding for the American Centrifuge project. We need to obtain a conditional commitment for the loan guarantee from DOE and close on the $50 million second phase of the strategic investment by Toshiba and B&W during the second quarter of 2011 in order to maintain the current spending level on the American Centrifuge project while maintaining compliance with our credit facility covenant that limits USEC’s ACP spending. In addition to limiting our spending on the American Centrifuge project, if we do not close on the second phase of the strategic investment by Toshiba and B&W by June 30, 2011, we and the investors (as to such investor’s obligations) would each have a right to terminate the securities purchase agreement governing the transactions. Our ability to continue spending will be subject to our cash flow from operations and liquidity, including restrictions in our credit facility on ACP spending. Without a conditional commitment, we likely would have to further demobilize the project and reduce investment.

We have been ~~building~~working with DOE since October 2010 on the terms for a ~~uranium enrichment plant that uses~~conditional commitment for a highly efficient uranium enrichment gas centrifuge technology that is capable of significantly reducing our electricity usage. The American Centrifuge technology requires 95% less electricity to produce low enriched uranium on a per SWU unit basis. This would significantly reduce both our production costs and our exposure to price volatility$2 billion loan guarantee for ~~electricity, the largest production cost component of our current gaseous diffusion technology. As of September 30, 2010, we have invested approximately $1.9 billion in~~ the American Centrifuge ~~program, which includes approximately $738 million charged to expense over several years for technology development~~project and ~~demonstration. We~~ have ~~operated centrifuges as~~made significant progress. As part of ~~our lead cascade test program for more than 500,000 machine hours. This experience gives us confidence in~~its due diligence, DOE conducted independent financial, legal and engineering reviews of the ~~performance of our technology, and provides operating data and expertise to support our loan guarantee application as we transition to commercial operation.~~

~~We began construction on the ACP in May 2007 after being issued a construction and operating license by the NRC.~~project. In ~~August 2007, we began demonstrating American Centrifuge machines in a cascade configuration. Subsequently, in July 2008, we applied for $2 billion in financing from~~April 2011, the DOE Loan Guarantee Program Office substantially completed the due diligence and negotiation stage of the application process and advanced the ACP application to ~~finance~~ the ~~commercial plant. The~~next phase. As part of this next phase, the credit package prepared by the DOE Loan Guarantee Program ~~was created~~Office, including the terms and conditions that we have negotiated with the DOE Loan Guarantee Program Office, is being reviewed in parallel by DOE’s credit group and by OMB, the Department of the Treasury and NEC; which review will include the establishment of an estimated range of credit subsidy cost. Credit subsidy cost is charged by the ~~Energy Policy Act~~U.S. government to cover the risk of ~~2005, and~~estimated shortfalls in ~~December 2007, federal legislation authorized funding levels of up to $2 billion for advanced facilities for~~loan repayments. It represents the ~~front end~~net present value of the nuclear fuel cycle, which includes uranium enrichment. In August 2009, DOE and USEC announced an agreement to delay a final review of our loan guarantee application. DOE raised a number of technical and financial concerns regarding our loan guarantee application, and we have focused on add ressing these concerns during the past year and submitted an update to our application in July 2010. In late October 2010, we were informed by DOE that it has largely completed its initial technical review of our application and is proceedingestimated long-term cost to the ~~next stage~~U.S. government of the loan guarantee. We anticipate that a loan guarantee ~~process.~~conditional commitment for the project could be offered during the second quarter, however, we have no assurance that this timing will be achieved, that the terms we have negotiated with the DOE ~~provided us with a draft term sheet~~Loan Guarantee Program Office will be approved or that the credit subsidy cost will ~~serve as the framework for discussions with DOE. Completion of due diligence by DOE and negotiation of terms and conditions with DOE are the next steps toward the potential issuance of~~be reasonable. After obtaining a conditional commitment, ~~and~~ we will ~~be working with DOE~~need to ~~complete those~~conclude final documentation and satisfy any technical, financial and other conditions to funding in ~~an expeditious manner. However, funding~~order to close on financing. Funding under a DOE loan guarantee will only occur following conditional commitment, final documentation and satisfaction of conditions to funding, which are subject to uncertainty.

~~Due~~In support of our application for a $2 billion loan guarantee from DOE, we continue to operate a lead cascade test program with AC100 commercial plant machines at the ~~uncertainty~~Piketon, Ohio plant. By increasing the number of ~~funding, beginning in August 2009,~~operating machine hours we ~~significantly demobilized~~provide additional assurance of performance, reliability and ~~reduced construction~~plant availability. Our suppliers continue to build components and assemble machines for the lead cascade program, demonstrating machine manufacturing ~~activities in~~capability and sustaining key infrastructure for remobilization.

Effective May 1, 2011, we launched with B&W a joint company for the manufacture and assembly of AC100 centrifuge machines. The joint company, known as American Centrifuge ~~project. Because we deferred high-volume~~Manufacturing, consolidates the authority and accountability for centrifuge machine manufacturing ~~work at all~~and assembly in one business unit which assumes contractual accountability over the family of ~~our strategic suppliers has been sharply reduced. Over~~centrifuge parts manufacturers. With this consolidation, the ~~past year since~~entire manufacturing program can be managed centrally for cost efficiency, lean manufacturing, and application of consistent standards of high quality across the ~~project was demobilized, we have worked aggressively to strengthen the project, address the DOE's concerns and attract additional sources of capital. Key actions include:~~entire machine manufacturing base.

·	~~Produced detailed updates to project scope, cost and schedule based on close collaboration with our suppliers;~~

·	~~Submitted an update to our DOE loan guarantee application, incorporating the updated project cost and schedule;~~

·	~~Closed on the first phase of the $200 million strategic investment by Toshiba and B&W;~~

·	~~Initiated discussions with Japanese export credit agencies regarding financing a portion of the cost of building the plant;~~

·	~~Operated our lead cascade of production-ready AC100 machines in a commercial plant cascade configuration and accumulated significant runtime;~~

Worked under a March 2010 cooperative agreement with DOE for pro-rata cost sharing support for continued American Centrifuge activities with a total estimated cost of $90 million, including continued operation of the AC100 cascade, manufacturing of additional AC100 centrifuge machines, and refinement to the rotor tube manufacturing process in preparation for full, high-rate production;

Refurbished machine positions in the area used for the initial lead cascade with upgraded control systems and instrumentation in preparation for installation of additional AC100 machines during the next several months, which will demonstrate improvements, provide additional data and accumulate additional operating hours; and

·	~~Continued machine technology development in Oak Ridge in support of lead cascade testing, value engineering and increasing machine productivity.~~

~~We have also restarted limited engineering work on portions~~In recent months, as part of our effort to reduce or mitigate project risks, certain key suppliers and sub-suppliers conducted production runs in their facilities for a period of time to successfully demonstrate production of machine components and assembly at a rate equal to 400 per month. That is the ~~physical plant infrastructure to facilitate the ramp up of construction activities in the future. In 2011,~~level we expect to ~~continue assembling and operating AC100 machines in our lead cascade program~~reach during high-volume machine manufacturing to populate the plant with more than 11,500 machines. The production demonstration was also intended to provide suppliers with experience that ~~reflect improvements identified in prior testing. These machines are expected~~would facilitate a transition to ~~support our target production level of approximately 350 SWU per machine, per year.~~fixed-price contracts.

We ~~need additional financing~~are also seeking to ~~complete plant construction, and we have reduced~~reduce costs by directly managing certain contractors involved in building out the scope of project activities that were underway in 2009 until we have that financing. We do not believe public market financing for a large capital project deploying innovative technology such as American Centrifugeprocess building infrastructure. Fluor Corporation is ~~available given current financial market conditions. We believe a loan guarantee under~~ the DOE Loan Guarantee Program is essential to raising the capital needed to complete the American Centrifuge Plant. In addition, to complete the project, USEC will require additional capital beyond the $2 billion DOE loan guarantee, proceeds from the investment from Toshiba and B&W, and internally generated cash flow. In order to obtain a DOE loan guarantee, we will need to demonstrate that sufficient capital is available to complete the project. We have initiated discussions with Japanese export credit agencies regarding financing a portion of the cost of building the plant. Their willingness to provide financing is closely tied with our obtaining a DOE loan guarantee. We have no assurance that we will be successful in obtaining any or all of the financing we are seeking.

We have been working with our suppliers to update the scope, cost and schedule to build the ACP. In August 2010, we announced our estimated cost of approximately $2.8 billion to complete the American Centrifuge project from the point of closing on financing. This estimate includes AC100 machine manufacturing and assembly,primary engineering, procurement and construction (“EPC”) ~~costs~~supplier. A portion of the lower risk, well-defined project scope related to construction and ~~related balance-of-plant~~mechanical work ~~start-up and initial operations, and~~will be performed by other contractors, with USEC providing the direct project management. We believe we have reduced significant risk in the American Centrifuge project since our initial baseline project budget in 2008 and our new cost estimate is based on a significantly more mature project scope.

The $2.8 billion estimate is a go-forward cost estimate and does not include our investment to date, spending from now until closing on financing needed to complete the plant, overall project contingency, financing costs or financial assurance. Until potential financial closing, we expect to continue to invest at a rate consistent with our anticipated spending indicated in our outlook for the remainder of 2010, while taking into account our anticipated cash flow from operations and other available liquidity. We are currently evaluating the appropriate level for the overall project contingency taking into account the level of risk given the maturity of the project. We are also evaluating the financing costs and financial assurance required for the project, which will be affected by, among other things, the overall financing pla n for the project, the amount of the credit subsidy cost for any DOE loan guarantee, and the amount and sources of the additional financing we need to ~~complete the project. We continue to work with suppliers to refine our estimates and seek reductions in the project cost.~~

With respect to schedule, we anticipate it will require 18 to 24 months to begin initial commercial operations upon receiving financing to complete the plant. We also anticipate that it will require 30 to 36 months to complete the plant after initial commercial operations. We continue to work with our EPC contractor and suppliers to reduce the deployment schedule for the ACP.LEU Segment

Continued deployment of the ACP remains subject to available liquidity, limitations in our credit facility on spending on the ACP, our willingness to invest further in the project absent funding commitments to complete the project, our ability to obtain a DOE loan guarantee and additional capital, other risks related to the deployment of the ACP, and the negative impact of delays or a termination of the ACP on our business and prospects described in the risk factors in Item 1A of this report and of our 2009 Annual Report on Form 10-K.

Revenue from Sales of SWU and Uranium

Revenue from our LEU segment is derived primarily from:

·	sales of the SWU component of LEU,

·	sales of both the SWU and uranium components of LEU, and

·	sales of uranium.

The majority of our customers are domestic and international utilities that operate nuclear power plants, with international sales constituting ~~34%~~31% of revenue from our LEU segment in ~~2009.~~2010. Our agreements with electric utilities are primarily long-term, fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of SWU from us or long-term requirements contracts under which our customers are obligated to purchase a percentage of their SWU requirements from us. Under requirements contracts, a customer only makes purchases when its reactor has requirements for additional fuel. Our agreements for uranium sales are generally shorter-term, fixed-commitment contracts.

Our revenues and operating results can fluctuate significantly from quarter to quarter, and in some cases, year to year. Revenue is recognized at the time LEU or uranium is delivered under the terms of contracts with domestic and international electric utility customers. Customer demand is affected by, among other things, reactor operations, maintenance and the timing of refueling outages. Utilities typically schedule the shutdown of their reactors for refueling to coincide with the low electricity demand periods of spring and fall. Thus, some reactors are scheduled for annual or two-year refuelings in the spring or fall, or for 18-month cycles alternating between both seasons.

Customer payments for the SWU component of LEU typically average approximately $15 to $20 million per order. As a result, a relatively small change in the timing of customer orders for LEU due to a change in a customer’s refueling schedule may cause operating results to be substantially above or below expectations. Customer requirements and orders are more predictable over the longer term, and we believe our performance is best measured on an annual, or even longer, business cycle. Our revenue could be adversely affected by actions of the NRC or nuclear regulators in foreign countries issuing orders to modify, delay, suspend or shut down nuclear reactor operations within their jurisdictions.

2625

Customer orders that are related to their requirements for enrichment may be delayed due to outages, changes in refueling schedules or delays in the initial startup of a reactor. In ~~addition, in~~ order to respond to these customer-driven changes as well as to enhance our liquidity and manage our working capital in light of anticipated sales and inventory levels, we work periodically with customers regarding the timing of their orders, including advancement. ~~As our customers have purchased more of their SWU supply under long-term contracts due to~~In addition, rather than selling material into the ~~transition to centrifuge-based supply and the uncertainty of supply during this transition,~~limited spot market for enrichment, USEC ~~has~~ advanced orders ~~rather than sell material into a spot market that has little near-term uncommitted demand. Most of these orders have been advanced within a calendar year. However, some orders have advanced~~ from 2011 into ~~2010. Based~~2010 and orders from 2012 into 2011, and based on our outlook for demand, we ~~expect to continue~~anticipate continuing to work with customers to advance ~~orders.~~orders in the near term. If customers agree to advance orders without delivery, a sale is recorded as deferred revenue. Alternatively, if customers agree to advance orders and delivery, revenue would be recorded in an earlier than originally anticipated period. The advancement of orders will have the effect of accelerating our receipt of cash from such advanced sales, although the amount of cash we receive from such sales may be reduced as a result of the terms mutually agreed with customers in connection with advancement. ~~However, this could~~This will have the effect of reducing backlog and revenues in future years if we do not replace these orders with additional sales. Looking a few years out, we expect an increase in uncommitted demand that could provide the opportunity to make additional near-term sales in those years to supplement our backlog and thus decrease the need to advance orders in the future. Our ability to advance orders depends on the willingness of our customers to agree to advancement on terms that we find acceptable.

Our financial performance over time can be significantly affected by changes in prices for SWU and uranium. The long-term SWU price indicator, as published by TradeTech, LLC in Nuclear Market Review, is an indication of base-year prices under new long-term enrichment contracts in our primary markets. Since our backlog includes contracts awarded to us in previous years, the average SWU price billed to customers typically lags behind the current price indicators by several years. Following are TradeTech’s long-term SWU price indicator, the long-term price for uranium hexafluoride (“UF6”), as calculated by USEC using indicators published in Nuclear Market Review, and TradeTech’s spot price indicator for UF6:

September 30, December 31, September 30,
2010 2009 2009
Long-term SWU price indicator ($/SWU) $ 160.00 $ 165.00 $ 165.00
UF6:

Long-term price composite ($/KgU) 175.00 167.77 181.59
Spot price indicator ($/KgU) 135.00 120.00 117.00

	March 31,		December 31,		March 31,
	2011		2010		2010
Long-term SWU price indicator ($/SWU)	$	158.00	$	158.00	$	163.00
UF6:
Long-term price composite ($/KgU)		193.17		190.07		167.77
Spot price indicator ($/KgU)		164.50		173.00		115.00

A substantial portion of our earnings and cash flows in recent years has been derived from sales of uranium, including uranium generated by underfeeding the production process at the Paducah GDP. We may also purchase uranium from suppliers in connection with specific customer contracts, as we have in the past. Underfeeding is a mode of operation that uses or feeds less uranium but requires more SWU in the enrichment process, which requires more electric power. In producing the same amount of LEU, we may vary our production process to underfeed uranium based on the economics of the cost of electric power relative to the prices of uranium and enrichment, resulting in excess uranium that we can sell. We expect uranium sales to have less of an impact on earnings going ~~forward.~~forward compared to prior years. Our average unit cost for uranium inventory has risen over the past ~~s everal~~several years as production costs are allocated to uranium from underfeeding based on its net realizable value. We will continue to monitor and optimize the economics of our production based on the cost of power and market conditions for SWU and uranium.

We supply uranium to the Russian Federation for the LEU we receive under the Russian Contract. We replenish our uranium inventory with uranium supplied by customers under our contracts for the sale of SWU and through underfeeding our production process.

Under the terms of many uranium sale agreements, title to uranium is transferred to the customer and we receive payment under normal credit terms without physically delivering the uranium to the customer. The recognition of revenue and earnings for such uranium sales is deferred until LEU associated with such uranium is physically delivered to the customer rather than at the time title to uranium transfers to the customer. The timing of revenue recognition for such uranium sales is uncertain.

Cost of Sales for SWU and Uranium

Cost of sales for SWU and uranium is based on the amount of SWU and uranium sold and delivered during the period and is determined by a combination of inventory levels and costs, production costs, and purchase costs. Under the monthly moving average inventory cost method that we use, an increase or decrease in production or purchase costs will have an effect on inventory costs and cost of sales over current and future periods.

We produce about one-half of our SWU supply at the Paducah GDP. Production costs consist principally of electric power, labor and benefits, long-term depleted uranium disposition cost estimates, materials, depreciation and amortization, and maintenance and repairs. The quantity of uranium that is added to uranium inventory from underfeeding is accounted for as a byproduct of the enrichment process. Production costs are allocated to the uranium added to inventory based on the net realizable value of the uranium, and the remainder of production costs is allocated to SWU inventory costs.

The gaseous diffusion process uses significant amounts of electric power to enrich uranium. Costs for electric power are approximately 70% of production costs at the Paducah GDP. We purchase most of the electric power for the Paducah GDP under a power purchase agreement with TVA that expires May 31, 2012. The base price under the TVA power contract increases moderately based on a fixed, annual schedule, and is subject to a fuel cost adjustment provision to reflect changes in TVA’s fuel costs, purchased-power costs, and related costs. The impact of the fuel cost adjustment has imposed an average increase over base contract prices of about 10% in 2010, 6% in 2009, and 15% in 2008. Fuel cost adjustments in a given period are based in part on TVA’s estimates as well as revisions of estimates for electric power delivered in prior periods. The impact of future fuel cost adjustments, which are substantially influenced by coal, gas and purchased-power prices and hydroelectric power availability, is uncertain and our cost of power could fluctuate in the future above or below the agreed increases in the base energy price. We expect the fuel cost adjustment to continue to cause our purchase cost to remain above base contract prices, but the magnitude and the impact is uncertain given volatile energy prices and electricity demand.

Under the terms of our contract with TVA, beginning September 1, 2010, we began to buy 1,650 megawatts instead of the 2,000 megawatts we had been purchasing in non-summer months since 2007. This reduction was included in the contract to provide a transition for the TVA power system for our planned transition to production at the ACP in Ohio. In the summer months (June – August), we supplement the 300 megawatts we buy under the TVA contract with additional power purchased at market-based prices and we have already contracted for supplemental summer power for 2011. During 2010, these market-based prices were lower than the prices we paid under the TVA power contract. We continue to evaluate our TVA load profile and production requirements through the end of the contract period with a goal of optimizing power purchases and decreasing our exposure to TVA fuel cost volatility. As part of our planning for continued operations of the Paducah GDP, we are evaluating possible sources of power for delivery after May 31, 2012, including negotiations with TVA and discussions with potential alternate sources of electricity.

We store depleted uranium generated from our operations at the Paducah GDP and the Portsmouth site and accrue estimated costs for its future disposition. Under federal law, we have the option to send our depleted uranium to DOE for disposition, but are continuing to explore a number of competitive alternatives. DOE has constructed new facilities at Paducah and Portsmouth to process large quantities of depleted uranium owned by DOE. Test operations at the facilities have been authorized by DOE. If we were to dispose of our depleted uranium with DOE, we would be required to reimburse DOE for the related costs of disposing of our depleted uranium, including our pro rata share of DOE’s capital costs. Processing DOE’s depleted uranium is expected to take about 25 years. The method and timing of the disposal of our depleted uranium has not been determined. DOE has taken from USEC the

disposal obligation for specific quantities of depleted uranium in past years, most recently through a cooperative agreement signed in March 2010 that provided for pro-rata cost sharing support for the funding of certain American Centrifuge activities in 2010. Our long-term liability for depleted uranium disposition is dependent upon the volume of depleted uranium that we generate, projected methods of disposition and estimated disposition costs. Our estimates of processing, transportation and disposal costs are based primarily on estimated cost data obtained from DOE without consideration given to contingencies or reserves. The NRC requires that we guarantee the disposition of our depleted uranium with financial assurance. Our estimate of the unit disposition cost for accrual purposes is approximately 30% less than the unit disposition cost for financial assurance purposes, which includes contingencies and other potential costs as required by the NRC. Our estimated cost and accrued liability as well as financial assurance we provide for the disposition of depleted uranium are subject to change as additional information becomes available.

We purchase about one-half of our SWU supply under the Russian Contract. We have agreed to purchase approximately 5.5 million SWU each calendar year for the remaining term of the Russian Contract through 2013. Prices are determined using a discount from an index of international and U.S. price points, including both long-term and spot prices as well as other pricing elements. The pricing methodology, which includes a multi-year retrospective view of market-based price points, is intended to enhance the stability of pricing and minimize the disruptive effect of short-term market price swings. The price per SWU under the Russian Contract for 2011 is 3% higher compared to 2010.

Contract Services Segment

Revenue from ~~U.S. Government Contracts~~Contract Services

We perform services and earn revenue from contract work through our subsidiary NAC and from contract work for DOE and DOE contractors at the Paducah GDP and the Portsmouth ~~GDPs, including a contract for surveillance, maintenance and deactivation (“cold shutdown”) work~~site. USEC ceased uranium enrichment operations at the Portsmouth GDP, located in Piketon, Ohio, in 2001. Over the past decade, we maintained the Portsmouth site under contract with DOE. As part of our contract to ~~prepare it~~maintain the facility in a state of “cold shutdown”, we were directed during 2009 and 2010 to accelerate preparation for decontamination and decommissioning (“D&D”) ~~work~~of the facility. As previously reported, DOE awarded a contract for the D&D of the Portsmouth site in ~~future years. Continuation of U.S.~~August 2010 to a new contractor. Revenue from Portsmouth’s government ~~contracts is subject~~contract services activities, primarily related to ~~DOE funding and Congressional appropriations. Revenue from~~the cold shutdown work, comprised ~~74%~~approximately 80% of the total revenue for the ~~U.S. government contracts~~contract services segment in ~~the nine months ended September 30,~~ 2010. As detailed above in “Overview—Our View of the Business Today,” this work is currently in a state of transition and we expect that our revenues from U.S. government services will be significantly reduced beginning with the first quarter of 2011 as t he responsibility for work under ourThe cold shutdown contract ~~will transition~~expired on March 28, 2011. As Portsmouth site services are transferred to the new ~~D&D contractor. This impact~~contractor, revenue from our contract services segment will ~~be more significant if we are not able~~decrease significantly in 2011 compared to ~~obtain work as a subcontractor and extend work we currently perform providing infrastructure and support services to the site tenants.~~prior years. See “Contract Services Segment – Portsmouth Facility Update” below.

DOE ~~is funding~~funded a portion of the work under the cold shutdown contract ~~in part~~ through an arrangement whereby DOE ~~transfers~~transferred uranium to us ~~uranium~~ which we immediately ~~sell.~~sold. We ~~have~~ completed five competitive sales of uranium ~~that will fund~~between December 2009 and November 2010 and a ~~portion~~sixth sale during the first quarter of ~~the work through the end of 2010. USEC’s~~2011. Our receipt of the uranium is not considered a purchase by us and no revenue or cost of sales is recorded upon its sale. This is because we have no significant risks or rewards of ownership and no potential profit or loss related to the uranium sale. The ~~amount of work to be provided, and therefore the total~~ value of the contract ~~modification,~~work is ~~dependent~~based on ~~the net value of the uranium realized by USEC upon each sale. Net value of the uranium equals~~ the cash proceeds from the uranium sales less ~~USEC’s~~our selling and handling costs. The net ~~value~~cash proceeds from the uranium ~~sale is~~sales were recorded as deferred ~~revenue. Revenue~~revenue, and revenue is recognized in our ~~U.S. government contracts~~contract services segment as ~~cold shutdown~~ services are provided.

Revenue from U.S. government contracts is based on allowable costs for work performed ~~as determined under~~in accordance with government cost accounting ~~standards.~~standards (“CAS”). Allowable costs include direct costs as well as allocations of indirect plant and corporate overhead costs and are subject to audit by the Defense Contract Audit Agency (“DCAA”)~~. Also refer~~, or such other entity that DOE authorizes to ~~“DOE Contract Services Matter” in note 14 to~~conduct the ~~consolidated condensed financial statements. Revenue from the U.S. government contracts segment includes revenue from our subsidiary NAC International Inc. (“NAC”).~~

From January 2006 through December 2009, DOE had only approved provisional billing rates based on 2006 budgetary estimates even though updated provisional rates had been submitted based on more current information. We have finalized and submitted to DOE Incurred Cost Submissions for Portsmouth and Paducah GDP contract work for the six months ended December 31, 2002 and the years ended December 31, 2003, 2004, 2005, 2006, 2007, 2008 and 2009. Based on the results of our Incurred Cost Submissions for those years, we believe that additional amounts can be billed and revenue of approximately $2.3 million may be recognizable. There is also the potential for additional revenue to be recognized related to our valuation allowances pending the outcome of DCAA audits and DOE reviews. However, because these periods have not been audited, uncertainty exists and we have not yet recognized this additional revenue.

audit. As a part of performing contract work for DOE, certain contractual issues, scope of work uncertainties, and various disputes arise from time to time. Issues unique to USEC can arise as a result of our history of being privatized from the U.S. government and our lease and other contracts with DOE. ~~We bill certain pension and postretirement benefit costs~~

Contract Services Receivables

Payment for our contract work performed for DOE is subject to DOE ~~pursuant~~funding availability and Congressional appropriations. In addition, DOE historically has not approved our provisional billing rates in a timely manner. DOE has approved provisional billing rates for 2004, 2006 and 2010 based on preliminary budgeted estimates even though updated provisional rates had been submitted based on more current information. In addition, we have finalized and submitted to ~~an advance agreement with~~ DOE, ~~that addresses issues unique to USEC’s privatization. In response to an issue raised by DOE's Contracting Officer, during~~Incurred Cost Submissions for Portsmouth and Paducah contract work for the ~~second quarter~~six months ended December 31, 2002 and the years ended December 31, 2003, 2004, 2005, 2006, 2007, 2008 and 2009. DCAA historically has not completed their audits of ~~2010, we and DOE agreed to certain adjustments to the actuarial calculations of the pension cost we previously claimed, which had the effect of reducing the potential unrecognized revenue related to~~ our Incurred Cost Submissions ~~described above from $8.8 million at~~in a timely manner. The only completed Incurred Cost Submission audit was for the period ended June 30, 2002. DCAA has been periodically working on the six months ended December 31, ~~2009~~2002 and the year ended December 31, 2003 audits since May of 2008. Based on the results of our Incurred Cost Submissions, we believe that additional amounts can be billed and revenue of approximately $3 million may be recognizable for these periods. There is also the potential for additional revenue to ~~$2. 3 million. Although we believed that~~be recognized related to our valuation allowances pending the outcome of audits and DOE ~~was in agreement with~~reviews. However, because these ~~adjustments, further DOE inquiries~~periods have not been ~~made since the second quarter~~audited, uncertainty exists and we have ~~responded, but certain amounts remain unpaid.~~not yet recognized this additional revenue.

In addition to the ~~amount mentioned above of~~ potential unrecognized revenue of approximately $3 million that has not been billed, ~~$31.2 million of unbilled~~our consolidated balance sheet includes receivables ~~have been recorded and $6.5 million of past due receivables related directly to~~from DOE or DOE contractors ~~remain~~of $74.9 million as of March 31, 2011. Of the $74.9 million, $32.5 million are unbilled receivables where revenue has been previously recorded. DOE has agreed to provisionally pay $7.5 million of the unbilled amounts and to work with USEC to provisionally pay additional amounts. Past due receivables from DOE or DOE contractors declined from $10.9 million at December 31, 2010 to $6.2 million at March 31, 2011.

Employee Status and Severance Costs

Working with DOE and the D&D contractor, we were able to reduce the potential severance liability for transferring employees. Employees represented by the USW that moved to the D&D contractor as of March 28, 2011 will be employed by the D&D contractor and will therefore not receive severance benefits. Those identified by USEC as at risk to be released in June are expected to receive substantially equivalent offers of employment. The potential severance liability is currently estimated to be less than $2 million, as compared to the potential liability of up to approximately $25 million that was previously reported before the employee transition negotiations. The severance liability is expected to approach an immaterial amount pending final negotiations by the D&D contractor with transitioning employees. Due to the continued uncertainty and significant reduction in the potential severance liability, no costs have been accrued for severance liability as of March 31, 2011.

A summary of our employees by location follows:

		No. of Employees
Location		Mar. 31, 2011		Dec. 31, 2010
Paducah GDP	Paducah, KY		1,174		1,185
Portsmouth site	Piketon, OH		645		1,157
American Centrifuge	Primarily Oak Ridge, TN and Piketon, OH		460		453
NAC	Primarily Norcross, GA		63		60
Headquarters	Bethesda, MD		96		94
	Total Employees		2,438		2,949

The USW and SPFPA represented 31% of our employees at March 31, 2011 and 43% of our employees at December 31, 2010.

Pension and Postretirement Benefit Costs

The cessation of certain U.S. government contract activities, the transfer of employees, and the pending transfer of certain other employees in Portsmouth triggered certain curtailment charges related to the USEC defined benefit pension plan. Since it was likely that a substantial number of employees would be leaving USEC as a result of the transitioning of our government services work to the D&D contractor, we recognized approximately $0.4 million in our cost of sales for December 2010 related to unamortized prior service costs based on our employee population at Portsmouth. USEC has recorded an additional $3.2 million in cost of sales in the first quarter of 2011 for curtailment charges related to the pension plan based on additional information and clarification on the timing and number of employees leaving USEC and refined actuarial estimates. There still exists, however, a broad range of possibilities and assumptions related to the obligations under the postretirement health and life benefit plan and the impact to us. A curtailment charge is possible once we have greater clarity on employee decisions regarding the plan offered by the D&D contractor, further discussion with DOE, and further refinement of actuarial assumptions. Based on our current estimates, curtailment charges related to the postretirement health and life benefit plan could be up to $16.3 million. Potential plan design changes may also occur depending on the outcome of employee decisions and DOE discussions.

Portsmouth Facility Update

We lease portions of the former Portsmouth GDP from DOE. On September 30, 2010, we de-leased and returned to DOE three large process buildings and certain other Portsmouth GDP facilities. As mentioned previously, we entered into an agreement with DOE regarding the full de-lease of all remaining facilities at the Portsmouth site in Ohio other than those leased for the ACP. In that agreement, DOE agreed to provide infrastructure services in support of our construction and operation of the ACP and to permit our re-lease of certain facilities needed to provide utility services to the ACP. The de-lease of these facilities will be completed when all relevant regulatory approvals have been obtained. This is currently anticipated to occur on or before June 15, 2011. However, in the event the full de-lease does not occur prior to September 30, 2011 the agreement will expire unless extended by mutual agreement of the parties. At the time of de-lease of the facilities and their return to DOE, regulatory responsibility for the de-leased facilities will be transferred from the NRC to DOE. Until the facilities are de-leased, we will continue to operate such facilities and provide services to DOE and its contractors under cost reimbursement type contracts.

Under the lease agreement, ownership of plant and equipment that we leave behind transfers to DOE as well as responsibility for D&D. The turnover requirements of the lease require us to remove certain uranium and USEC-generated waste, and we accrue amounts to cover these expected costs as part of our lease turnover cost estimate.

We also have inventories of nuclear material and equipment remaining at Portsmouth. We are reviewing these assets with DOE for disposition. During 2010, we charged approximately $1.5 million to cost of sales for inventory deemed impaired due to the estimated costs exceeding the benefits required to move certain material to another USEC location. In addition, we have approximately $8.7 million of property, plant and equipment at the Portsmouth site, net of accumulated depreciation, remaining on our consolidated balance sheet as of ~~September 30, 2010.~~March 31, 2011. These assets are depreciated over their remaining useful life and, based on current events, depreciation of these assets has been accelerated to reflect the tentative de-lease schedule of DOE.

Estimated Contract Closeout Costs to be Billed to DOE

Contract closeout related costs, as defined by applicable federal acquisition regulations and government cost accounting standards, are anticipated to be billed to DOE and recorded as revenue in the second quarter of 2011. Our current estimate for these billable costs is in the range of $40 million to $57 million without considering ongoing cost reimbursable work being performed. These contract closeout costs to be billed to DOE include DOE’s share of our defined benefit pension plan, our postretirement health and life benefit plan, potential severance, remaining CAS-based net book value of assets transferred, remaining owed contract fees and other miscellaneous costs.

Advanced Technology Costs

American Centrifuge

Costs relating to the American Centrifuge technology are charged to expense or capitalized based on the nature of the activities and estimates and judgments involving the completion of project milestones. Costs relating to the demonstration of American Centrifuge technology are charged to expense as incurred. Demonstration costs historically have included NRC licensing of the American Centrifuge Demonstration Facility in Piketon, Ohio, engineering activities, and assembling and testing of centrifuge machines and equipment at centrifuge test facilities located in Oak Ridge, Tennessee and at the American Centrifuge Demonstration Facility.

Expenditures related to American Centrifuge technology for the three months ended March 31, 2011 and 2010, as well as cumulative expenditures as of March 31, 2011, follow (in millions):

	Three Months Ended March 31,				Cumulative as of March 31,
	2011		2010		2011
Amount expensed (A)	$	26.2	$	25.2	$	793.6
Amount capitalized (B)		41.3		37.4		1,219.5
Total ACP expenditures, including accruals (C)	$	67.5	$	62.6	$	2,013.1

(A)Expense included as part of Advanced Technology Costs.
(B)Amounts capitalized as part of property, plant and equipment total $1,183.6 million as of March 31, 2011, including capitalized interest of $90.5 million. Prepayments to suppliers for services not yet performed totaled $35.9 million as of March 31, 2011.
(C)Total ACP expenditures are all American Centrifuge costs including, but not limited to, demonstration facility, licensing activities, commercial plant facility, program management, interest related costs and accrued asset retirement obligations capitalized. This includes $12.5 million of accruals at March 31, 2011.

Capitalized costs relating to the American Centrifuge technology include NRC licensing of the American Centrifuge Plant, engineering activities, construction of AC100 centrifuge machines and equipment, process and support equipment, leasehold improvements and other costs directly associated with the commercial plant. Capitalized centrifuge costs are recorded in property, plant and equipment, primarily as part of construction work in progress. Of the costs capitalized to date, approximately 60% relate to the American Centrifuge Plant in Piketon, Ohio and 40% relate to machine manufacturing and assembly efforts primarily occurring in Oak Ridge, Tennessee.

Deferred financing costs, net, includes approximately $4.0 million for costs related to the DOE Loan Guarantee Program, such as loan guarantee application fees paid to DOE and third-party costs. Deferred financing costs related to the DOE Loan Guarantee Program will be amortized over the life of the loan or, if USEC does not receive a loan, charged to expense.

The continued capitalization of American Centrifuge costs is subject to ongoing review and successful project completion. If conditions change and deployment were no longer probable, costs that were previously capitalized would be charged to expense.

We significantly demobilized and reduced construction and machine manufacturing activities in the American Centrifuge project beginning in August 2009 due to uncertainty regarding project funding. However, USEC continues limited manufacturing, assembling and operating of centrifuge machines in the lead cascade test program and ongoing development efforts. We believe that future cash flows from the ACP will exceed our capital investment. Since we believe our capital investment is fully recoverable, no impairment for costs previously capitalized is anticipated at this time. We will continue to evaluate this assessment as conditions change.

For a discussion regarding financing for the American Centrifuge project, see “Management’s Discussion and Analysis – Liquidity and Capital Resources.” Risks and uncertainties related to the financing, construction and deployment of the American Centrifuge Plant are described in Item 1A, “Risk Factors” of this report and our 2010 Annual Report on Form 10-K.

MAGNASTOR™

Advanced technology costs also include research and development efforts undertaken for NAC, relating primarily to its new generation MAGNASTOR dual-purpose dry storage system for spent fuel. In February 2009, MAGNASTOR was added to the NRC’s list of dry storage casks approved for use under a general license. MAGNASTOR has the largest storage capacity of any cask system approved to date. NAC continues to seek license amendments for the expanded use of the technology and submitted a license application for the MAGNASTOR transportation cask system, MAGNATRAN™, in January 2011.

Results of Operations – Three Months Ended March 31, 2011 and 2010

Segment Information

We have two reportable segments measured and presented through the gross profit line of our income statement: the LEU segment with two components, SWU and uranium, and the contract services segment. The LEU segment is our primary business focus and includes sales of the SWU component of LEU, sales of both SWU and uranium components of LEU, and sales of uranium. The contract services segment includes work performed for DOE and its contractors at Portsmouth and Paducah as well as nuclear energy services and technologies provided by NAC. Intersegment sales between our reportable segments were less than $0.1 million in each period presented below and have been eliminated in consolidation.

The following table presents elements of the accompanying consolidated condensed statements of operations that are categorized by segment (dollar amounts in millions):

	Three Months Ended March 31,
	2011			2010		Change			%
LEU segment
Revenue:
SWU revenue	$	308.5		$	266.6	$	41.9			16	%
Uranium revenue		14.0			15.6		(1.6	)		(10	)%
Total		322.5			282.2		40.3			14	%
Cost of sales		307.2			267.2		(40.0	)		(15	)%
Gross profit	$	15.3		$	15.0	$	0.3			2	%

Contract services segment
Revenue	$	58.0		$	62.5	$	(4.5	)		(7	)%
Cost of sales		59.4			50.8		(8.6	)		(17	)%
Gross profit (loss)	$	(1.4	)	$	11.7	$	(13.1	)		(112	)%

Total
Revenue	$	380.5		$	344.7	$	35.8			10	%
Cost of sales		366.6			318.0		(48.6	)		(15	)%
Gross profit	$	13.9		$	26.7	$	(12.8	)		(48	)%

Revenue

The volume of SWU sales increased 9% in the three months ended March 31, 2011, compared to the corresponding period in 2010, reflecting the variability in timing of utility customer orders. The average price billed to customers for sales of SWU increased 6% reflecting the particular contracts under which SWU were sold during the periods as well as the general trend of higher prices under contracts signed in recent years.

The volume of uranium sold declined 38% in the three months ended March 31, 2011, compared to the corresponding period in 2010, reflecting the timing of customer orders. The average price increased 44% reflecting the particular price mix of contracts under which uranium was sold.

Revenue from the contract services segment declined $4.5 million in the three months ended March 31, 2011, compared to the corresponding period in 2010, reflecting a $7.3 million decline in contract service revenues at Portsmouth and Paducah partially offset by a $2.8 million increase in revenues by NAC. The decline in contract services also reflects fee recognition on certain contracts in the prior period partially offset by a temporary increase in contract services work at Portsmouth in the current period.

~~Cost of Sales~~Segment Information

~~Cost~~We have two reportable segments measured and presented through the gross profit line of ~~sales for~~our income statement: the LEU segment with two components, SWU and uranium, and the contract services segment. The LEU segment is ~~based on~~our primary business focus and includes sales of the ~~amount~~SWU component of LEU, sales of both SWU and uranium ~~sold~~components of LEU, and ~~delivered during the period~~sales of uranium. The contract services segment includes work performed for DOE and ~~is determined by a combination of inventory levels~~its contractors at Portsmouth and ~~costs, production costs, and purchase costs. We produce about one-half of our SWU supply at the~~ Paducah GDP. Production costs consist principally of electric power, labor and benefits, long-term depleted uranium disposition cost estimates, materials, depreciation and amortization, and maintenance and repairs. The quantity of uranium that is added to uranium inventory from underfeeding is accounted for as a byproduct of the enrichment process. Production costs are allocated to the uranium added to inventory based on the net realizable value of the uranium, and the remainder of production costs is allocated to SWU inventory costs. Under the monthly moving average invento ry cost method that we use, an increase or decrease in production or purchase costs will have an effect on inventory costs and cost of sales over current and future periods.

We purchase about one-half of our SWU supply under the Russian Contract. We have agreed to purchase approximately 5.5 million SWU each calendar year for the remaining term of the Russian Contract through 2013. Prices are determined using a discount from an index of international and U.S. price points, including both long-term and spot prices, as well as ~~other pricing elements.~~ nuclear energy services and technologies provided by NAC. Intersegment sales between our reportable segments were less than $0.1 million in each period presented below and have been eliminated in consolidation.

The pricing methodology, which includes a multi-year retrospective view of market-based price points, is intended to enhance the stability of future pricing and minimize the disruptive effect of short-term market price swings. The price per SWU under the Russian Contract for 2010 is 8% higher compared to 2009. Officialsfollowing table presents elements of the ~~Russian government have indicated~~accompanying consolidated condensed statements of operations that Russia will not extend the Russian Contract under the government-to-government agreement beyond 2013. Accordingly, at this time we do not anticipate that we will purchase Russian SWU under the Megatons to Megawatts program after 2013. Given the success of the Megatons to Megawatts program, we believe that there could be the potential for future cooperation. However, the timing and prospects of any future cooperation are ~~uncertain.~~categorized by segment (dollar amounts in millions):

	Three Months Ended March 31,
	2011			2010		Change			%
LEU segment
Revenue:
SWU revenue	$	308.5		$	266.6	$	41.9			16	%
Uranium revenue		14.0			15.6		(1.6	)		(10	)%
Total		322.5			282.2		40.3			14	%
Cost of sales		307.2			267.2		(40.0	)		(15	)%
Gross profit	$	15.3		$	15.0	$	0.3			2	%

Contract services segment
Revenue	$	58.0		$	62.5	$	(4.5	)		(7	)%
Cost of sales		59.4			50.8		(8.6	)		(17	)%
Gross profit (loss)	$	(1.4	)	$	11.7	$	(13.1	)		(112	)%

Total
Revenue	$	380.5		$	344.7	$	35.8			10	%
Cost of sales		366.6			318.0		(48.6	)		(15	)%
Gross profit	$	13.9		$	26.7	$	(12.8	)		(48	)%

2933

Revenue

~~We provide for the remainder~~The volume of our supply mix from the Paducah GDP. The gaseous diffusion process uses significant amounts of electric power to enrich uranium. Costs for electric power are approximately 70% of production costs at the Paducah GDP. We purchase most of the electric power for the Paducah GDP under a power purchase agreement with the Tennessee Valley Authority (“TVA”) that expires May 31, 2012. Under the terms of our contract with TVA, beginning September 1, 2010, we began to buy 1,650 megawatts instead of the 2,000 megawatts we had been purchasing in non-summer months since 2007. The reduction in power purchased should not negatively affect plant efficiency. In addition, we continue to evaluate our TVA load profile and produ ction requirements through the end of the contract period with a goal of optimizing power purchases and decreasing our exposure to TVA fuel cost volatility. The base price under the TVA power contract increases moderately based on a fixed, annual schedule, and is subject to a fuel cost adjustment provision to reflect changes in TVA’s fuel costs, purchased-power costs, and related costs. The impact of the fuel cost adjustment has imposed an average increase over base contract prices of aboutSWU sales increased 9% in the ~~nine~~three months ended ~~September 30, 2010,~~March 31, 2011, compared to ~~annual amounts~~the corresponding period in 2010, reflecting the variability in timing of utility customer orders. The average price billed to customers for sales of SWU increased 6% ~~in 2009, 15% in 2008 and 8% in 2007. Fuel cost adjustments in a given period are based in part on TVA’s estimates~~reflecting the particular contracts under which SWU were sold during the periods as well as ~~revisions~~the general trend of ~~estimates for electric power delivered~~higher prices under contracts signed in prior periods. The impact of future fuel cost adjustments, which are substantially influenced by coal and purchased-power prices and hydroelectric power availability, is uncertain and our cost of power could fluctuate in the future above or below the agr eed increases in the base energy price. We expect the fuel cost adjustment to continue to cause our purchase cost to remain above base contract prices, but the extent of the impact is uncertain given volatile energy prices and electricity demand.recent years.

We store depleted uranium generated from our operations at the Paducah and Portsmouth GDPs and accrue estimated costs for its future disposition. Under federal law, we have the option to send our depleted uranium to DOE for disposition, but are continuing to explore a number of competitive alternatives. DOE has constructed new facilities at the Paducah and Portsmouth GDPs to process large quantities of depleted uranium owned by DOE. Operations have commenced at the Portsmouth facility in a test environment. If we were to dispose of our depleted uranium with DOE, we would be required to reimburse DOE for the related costs of disposing of our depleted uranium, including our pro rata share of DOE’s capital costs. Processing DOE’s depleted uranium is expected to take about 25 years. The timing of the disposal of our depleted uran ium has not been determined. The long-term liability for depleted uranium disposition is dependent upon the volume of depleted uranium that we generate and estimated processing, transportation and disposal costs. Our estimate of the unit disposal cost is based primarily on estimated cost data obtained from DOE without consideration given to contingencies or reserves. The NRC requires that we guarantee the disposition of our depleted uranium with financial assurance (refer to “Liquidity and Capital Resources – Financial Assurance and Related Liabilities”). Our estimate of the unit disposition cost for accrual purposes is approximately 30% less than the unit disposition cost for financial assurance purposes, which includes contingencies and other potential costs as required by the NRC. Our estimated cost and accrued liability, as well as financial assurance we provide for the disposition of depleted uranium, are subject to change as additional information becomes available.

~~Advanced Technology Costs – American Centrifuge~~

Significant reductions in expenditures related to American Centrifuge technology for the nine months ended September 30, 2010, compared to 2009, reflect the demobilization of the American Centrifuge project in the latter half of 2009. Cumulative expenditures as of September 30, 2010, as well as in the nine-month periods, follow (in millions):

Nine Months
Ended September 30,

Cumulative
as of
September 30,

2010 2009 2010
Amount expensed (A)
$ 78.6 $ 93.4 $ 738.2
Amount capitalized (B)
91.4 327.2 1,139.7
Total ACP expenditures, including accruals (C)
$ 170.0 $ 420.6 $ 1,877.9

(A)Expense included as part of Advanced Technology Costs.

(B)Amounts capitalized as part of property, plant and equipment total $1,086.4 million as of September 30, 2010, including capitalized interest of $68.4 million. Prepayments to suppliers for services not yet performed totaled $34.1 million as of September 30, 2010.

(C)Total ACP expenditures are all American Centrifuge costs including, but not limited to, demonstration facility, licensing activities, commercial plant facility, program management, interest related costs and accrued asset retirement obligations capitalized. This includes $9.5 million of accruals at September 30, 2010.

Deferred financing costs, net, includes approximately $2.0 million for costs related to the DOE Loan Guarantee Program, such as loan guarantee application fees paid to DOE and third-party costs. Deferred financing costs related to the DOE Loan Guarantee Program will be amortized over the life of the loan or, if USEC does not receive a loan, charged to expense.

The ~~continued capitalization~~volume of American Centrifuge costs is subject to ongoing review and successful project completion. If conditions change and deployment were no longer probable, costs that were previously capitalized would be charged to expense.

As previously discussed under “– Overview – American Centrifuge Plant Update,” DOE and USEC announced in August 2009 an agreement to delay a final review of our loan guarantee application. Since that time, we significantly demobilized and reduced construction and machine manufacturing activitiesuranium sold declined 38% in the American Centrifuge project and have worked to address the technical and financial concerns raised by DOE. We submitted an update to our application in July 2010 and in late October 2010, we were informed by DOE that it has largely completed its initial technical review of our application and is proceedingthree months ended March 31, 2011, compared to the ~~next stage~~corresponding period in 2010, reflecting the timing of customer orders. The average price increased 44% reflecting the ~~loan guarantee process. DOE provided us with a draft term sheet that will serve as the framework for discussions with DOE. Completion~~particular price mix of due diligence by DOE and negotiation of terms and c onditions with DOE are the next steps toward the potential issuance of a conditional commitment and we will be working with DOE to complete those in an expeditious manner. In parallel, we continue limited manufacturing, assembling and operating of centrifuge machines in the lead cascade test program and ongoing development efforts. Based on a probability-weighted analysis, we believe that future cash flows from the ACP will exceed our capital investment. Since we believe our capital investment is fully recoverable, no impairment for costs previously capitalized is anticipated at this time. We will continue to evaluate this assessment as conditions change.contracts under which uranium was sold.

~~For a discussion regarding financing for~~Revenue from the ~~American Centrifuge project, see “Management’s Discussion and Analysis – Liquidity and Capital Resources.” Risks and uncertainties related~~contract services segment declined $4.5 million in the three months ended March 31, 2011, compared to the ~~financing, construction~~corresponding period in 2010, reflecting a $7.3 million decline in contract service revenues at Portsmouth and ~~deployment of~~Paducah partially offset by a $2.8 million increase in revenues by NAC. The decline in contract services also reflects fee recognition on certain contracts in the ~~American Centrifuge Plant are described~~prior period partially offset by a temporary increase in ~~Item 1A, “Risk Factors” of this report and our 2009 Annual Report on Form 10-K.~~

~~Advanced Technology Costs –~~ ~~MAGNASTOR™~~

Advanced technology costs also include research and development efforts undertaken for NAC, relating primarily to its new generation MAGNASTOR dual-purpose dry storage system for spent fuel. In February 2009, MAGNASTOR was added tocontract services work at Portsmouth in the NRC’s list of dry storage casks approved for use under a general license. MAGNASTOR has the largest storage capacity of any cask system approved to date. NAC continues to seek license amendments for the expanded use of the technology and expects to submit a license application for the MAGNASTOR transportation cask system, MAGNATRAN™, later this year.current period.

~~Results of Operations – Three and Nine Months Ended September 30, 2010 and 2009~~

Segment Information

We have two reportable segments measured and presented through the gross profit line of our income statement: the LEU segment with two components, SWU and uranium, and the ~~U.S. government contracts~~contract services segment. The LEU segment is our primary business focus and includes sales of the SWU component of LEU, sales of both SWU and uranium components of LEU, and sales of uranium. The ~~U.S. government contracts~~contract services segment includes work performed for DOE and its contractors at ~~the~~ Portsmouth and Paducah ~~GDPs,~~ as well as nuclear energy services and technologies provided by NAC. Intersegment sales between our reportable segments were less than $0.1 million in each period presented below and have been eliminated in consolidation.

The following table presents elements of the accompanying consolidated condensed statements of operations that are categorized by segment (dollar amounts in millions):

	Three Months Ended September 30,										Three Months Ended March 31,
	2010		2009		Change			%			2011			2010		Change			%
LEU segment
Revenue:
SWU revenue	$	404.2	$	467.0	$	(62.8	)		(13	)%	$	308.5		$	266.6	$	41.9			16	%
Uranium revenue		79.3		26.2		53.1			203	%		14.0			15.6		(1.6	)		(10	)%
Total		483.5		493.2		(9.7	)		(2	)%		322.5			282.2		40.3			14	%
Cost of sales		451.4		461.3		9.9			2	%		307.2			267.2		(40.0	)		(15	)%
Gross profit	$	32.1	$	31.9	$	0.2			1	%	$	15.3		$	15.0	$	0.3			2	%

U.S. government contracts segment
Contract services segment
Revenue	$	81.1	$	56.1	$	25.0			45	%	$	58.0		$	62.5	$	(4.5	)		(7	)%
Cost of sales		75.2		48.8		(26.4	)		(54	)%		59.4			50.8		(8.6	)		(17	)%
Gross profit	$	5.9	$	7.3	$	(1.4	)		(19	)%
Gross profit (loss)											$	(1.4	)	$	11.7	$	(13.1	)		(112	)%

Total
Revenue	$	564.6	$	549.3	$	15.3			3	%	$	380.5		$	344.7	$	35.8			10	%
Cost of sales		526.6		510.1		(16.5	)		(3	)%		366.6			318.0		(48.6	)		(15	)%
Gross profit	$	38.0	$	39.2	$	(1.2	)		(3	)%	$	13.9		$	26.7	$	(12.8	)		(48	)%

Nine Months Ended
September 30,

2010 2009 Change %
LEU segment
Revenue:
SWU revenue
$ 1,001.8 $ 1,266.2 $ (264.4 ) (21 )%
Uranium revenue
164.5 150.2 14.3 10 %
Total
1,166.3 1,416.4 (250.1 ) (18 )%
Cost of sales
1,077.2 1,268.1 190.9 15 %
Gross profit
$ 89.1 $ 148.3 $ (59.2 ) (40 )%

U.S. government contracts segment
Revenue
$ 202.7 $ 152.8 $ 49.9 33 %
Cost of sales
183.0 142.3 (40.7 ) (29 )%
Gross profit
$ 19.7 $ 10.5 $ 9.2 88 %

Total
Revenue
$ 1,369.0 $ 1,569.2 $ (200.2 ) (13 )%
Cost of sales
1,260.2 1,410.4 150.2 11 %
Gross profit
$ 108.8 $ 158.8 $ (50.0 ) (31 )%

Revenue

The volume of SWU sales ~~declined 17%~~increased 9% in the three months ~~and 24% in the nine months~~ ended ~~September 30, 2010,~~March 31, 2011, compared to the corresponding ~~periods~~period in ~~2009,~~2010, reflecting the variability in timing of utility customer orders. The average price billed to customers for sales of SWU increased ~~4% in both the three and nine months ended September 30, 2010, compared to the corresponding periods in 2009,~~6% reflecting the particular contracts under which SWU were sold during the periods as well as the general trend of higher prices under contracts signed in recent years.

The volume of uranium sold ~~increased 273%~~declined 38% in the three months ~~and 33% in the nine months~~ ended ~~September 30, 2010~~March 31, 2011, compared to the corresponding ~~periods~~period in ~~2009. The average price declined 19% in the three-month period and 18% in the nine-month period. Sales volumes reflect~~2010, reflecting the timing of customer ~~orders and~~orders. The average ~~prices reflect~~price increased 44% reflecting the particular price mix of contracts under which uranium was sold.

Revenue from the ~~U.S. government contracts~~contract services segment ~~increased $25.0~~declined $4.5 million in the three months ~~and $49.9 million in the nine months~~ ended ~~September 30, 2010,~~March 31, 2011, compared to the corresponding ~~periods~~period in ~~2009, primarily due to additional cold shutdown~~2010, reflecting a $7.3 million decline in contract service revenues at Portsmouth and Paducah partially offset by a $2.8 million increase in revenues by NAC. The decline in contract services ~~performed at the Portsmouth GDP and contract~~also reflects fee recognition on certain ~~contracts.~~contracts in the prior period partially offset by a temporary increase in contract services work at Portsmouth in the current period.

~~Cost of Sales~~Advanced Technology Costs

~~Cost of sales for the LEU segment declined $9.9 million in the three months and $190.9 million in the nine months ended September 30, 2010, compared~~American Centrifuge

Costs relating to the ~~corresponding periods~~American Centrifuge technology are charged to expense or capitalized based on the nature of the activities and estimates and judgments involving the completion of project milestones. Costs relating to the demonstration of American Centrifuge technology are charged to expense as incurred. Demonstration costs historically have included NRC licensing of the American Centrifuge Demonstration Facility in ~~2009, primarily due to lower SWU sales volumes.~~Piketon, Ohio, engineering activities, and assembling and testing of centrifuge machines and equipment at centrifuge test facilities located in Oak Ridge, Tennessee and at the American Centrifuge Demonstration Facility.

~~Cost of sales per SWU was 3% higher in~~Expenditures related to American Centrifuge technology for the three months ended ~~September 30,~~March 31, 2011 and 2010, ~~compared~~as well as cumulative expenditures as of March 31, 2011, follow (in millions):

	Three Months Ended March 31,				Cumulative as of March 31,
	2011		2010		2011
Amount expensed (A)	$	26.2	$	25.2	$	793.6
Amount capitalized (B)		41.3		37.4		1,219.5
Total ACP expenditures, including accruals (C)	$	67.5	$	62.6	$	2,013.1

(A)Expense included as part of Advanced Technology Costs.
(B)Amounts capitalized as part of property, plant and equipment total $1,183.6 million as of March 31, 2011, including capitalized interest of $90.5 million. Prepayments to suppliers for services not yet performed totaled $35.9 million as of March 31, 2011.
(C)Total ACP expenditures are all American Centrifuge costs including, but not limited to, demonstration facility, licensing activities, commercial plant facility, program management, interest related costs and accrued asset retirement obligations capitalized. This includes $12.5 million of accruals at March 31, 2011.

Capitalized costs relating to the ~~corresponding period~~American Centrifuge technology include NRC licensing of the American Centrifuge Plant, engineering activities, construction of AC100 centrifuge machines and equipment, process and support equipment, leasehold improvements and other costs directly associated with the commercial plant. Capitalized centrifuge costs are recorded in ~~2009. Cost~~property, plant and equipment, primarily as part of ~~sales was reduced by $2.2~~construction work in progress. Of the costs capitalized to date, approximately 60% relate to the American Centrifuge Plant in Piketon, Ohio and 40% relate to machine manufacturing and assembly efforts primarily occurring in Oak Ridge, Tennessee.

Deferred financing costs, net, includes approximately $4.0 million infor costs related to the ~~third quarter of 2010 due to a net reduction in projected lease turnover costs resulting from the return of certain Portsmouth GDP facilities~~DOE Loan Guarantee Program, such as loan guarantee application fees paid to DOE ~~in September 2010. Excluding the effect of this change in estimate, cost of sales per SWU was 4% higher in the three months ended September 30, 2010 compared~~and third-party costs. Deferred financing costs related to the ~~corresponding period in 2009.~~DOE Loan Guarantee Program will be amortized over the life of the loan or, if USEC does not receive a loan, charged to expense.

~~Cost~~The continued capitalization of ~~sales per SWU was 4% higher in the nine months ended September 30, 2010 compared~~American Centrifuge costs is subject to ~~the corresponding period in 2009. Cost of sales~~ongoing review and ~~other long-term liabilities~~successful project completion. If conditions change and deployment were ~~reduced by $7.8 million in the second quarter of 2010 due~~no longer probable, costs that were previously capitalized would be charged to a change in estimate of our share of future demolition and severance costs for a power plant that was built to supply power to the Paducah GDP. DOE is obligated to pay the owner/operator of the plant a portion of such costs (net of salvage credits including the value of land) and we are obligated under our lease agreement with DOE to fund such payments except for portions attributable to power consumed by DOE. In addition, there was a charge to cost of sales of $11.4 million in the second quarter of 2009 for an increase in the estimated unit disposal cost of depleted uranium. Excluding the eff ects of these changes and the $2.2 million reduction in lease turnover costs described above, cost of sales per SWU was 6% higher in the nine months ended September 30, 2010 compared to the corresponding period in 2009.

Under our monthly moving average cost method, new production and acquisition costs are averaged with the cost of inventories at the beginning of the period. An increase or decrease in production or purchase costs will have an effect on inventory costs and cost of sales over current and future periods. Production costs are also allocated to uranium from underfeeding based on its net realizable value, and the remainder is allocated to SWU inventory costs.

In the nine months ended September 30, 2010, production costs increased $3.6 million (or 1%) and production volume increased 2% compared to the corresponding period in 2009. The cost of electric power increased by $4.5 million (or 1%) in the nine-month period due to a 1% increase in the average cost per megawatt hour.expense.

We ~~purchase approximately 5.5 million SWU per year under the Russian Contract. Purchase costs for the SWU component of LEU under the Russian Contract declined $17.6 million~~significantly demobilized and reduced construction and machine manufacturing activities in the ~~nine months ended September 30, 2010 compared to the corresponding period~~American Centrifuge project beginning in August 2009 ~~reflecting decreased volume~~ due to ~~the timing~~uncertainty regarding project funding. However, USEC continues limited manufacturing, assembling and operating of ~~deliveries partially offset by an 8% increase~~centrifuge machines in the ~~market-based unit purchase cost.~~lead cascade test program and ongoing development efforts. We believe that future cash flows from the ACP will exceed our capital investment. Since we believe our capital investment is fully recoverable, no impairment for costs previously capitalized is anticipated at this time. We will continue to evaluate this assessment as conditions change.

3432

~~Cost of sales~~For a discussion regarding financing for the ~~U.S. government contracts segment increased $26.4 million in the three months~~American Centrifuge project, see “Management’s Discussion and ~~$40.7 million in the nine months ended September 30, 2010, compared~~Analysis – Liquidity and Capital Resources.” Risks and uncertainties related to the ~~corresponding periods~~financing, construction and deployment of the American Centrifuge Plant are described in Item 1A, “Risk Factors” of this report and our 2010 Annual Report on Form 10-K.

MAGNASTOR™

Advanced technology costs also include research and development efforts undertaken for NAC, relating primarily to its new generation MAGNASTOR dual-purpose dry storage system for spent fuel. In February 2009, ~~primarily due~~MAGNASTOR was added to ~~additional cold shutdown services performed at~~ the ~~Portsmouth GDP.~~NRC’s list of dry storage casks approved for use under a general license. MAGNASTOR has the largest storage capacity of any cask system approved to date. NAC continues to seek license amendments for the expanded use of the technology and submitted a license application for the MAGNASTOR transportation cask system, MAGNATRAN™, in January 2011.

~~Gross Profit~~Results of Operations – Three Months Ended March 31, 2011 and 2010

~~Gross profit declined $1.2 million in~~Segment Information

We have two reportable segments measured and presented through the ~~three months ended September 30, 2010 compared to the corresponding period in 2009. Our~~ gross profit ~~margin was 6.7% in the three months ended September 30, 2010, compared to 7.1% in the corresponding period in 2009. Gross profit for~~line of our income statement: the LEU segment increased $0.2 million in the three-month period due to the higher average SWU selling price and the increase in uranium sales volume, offset by the lower average uranium selling price and higher unit costs for both SWU and uranium.

Gross profit declined $50.0 million in the nine months ended September 30, 2010 compared to the corresponding period in 2009. Our gross profit margin was 7.9% in the nine months ended September 30, 2010, compared to 10.1% in the corresponding period in 2009. Gross profit for the LEU segment declined $59.2 million in the nine-month period due to higher unit costs forwith two components, SWU and uranium, and the ~~lower average~~contract services segment. The LEU segment is our primary business focus and includes sales of the SWU component of LEU, sales of both SWU and uranium ~~selling price, partially offset~~components of LEU, and sales of uranium. The contract services segment includes work performed for DOE and its contractors at Portsmouth and Paducah as well as nuclear energy services and technologies provided by ~~the higher average SWU selling price.~~

~~Gross profit for the U.S. government contracts segment declined $1.4~~NAC. Intersegment sales between our reportable segments were less than $0.1 million in ~~the three months~~each period presented below and ~~increased $9.2 million~~have been eliminated in ~~the nine months ended September 30, 2010, compared to the corresponding period in 2009, reflecting contract fee recognition on certain contracts on a year to date basis.~~

~~Non-Segment Information~~consolidation.

The following table presents elements of the accompanying consolidated condensed statements of operations that are ~~not~~ categorized by segment (dollar amounts in millions):

Three Months Ended
September 30,

2010 2009 Change %
Gross profit
$ 38.0 $ 39.2 $ (1.2 ) (3 )%
Special charge for workforce reduction
- 2.5 2.5 100 %
Advanced technology costs
28.6 31.7 3.1 10 %
Selling, general and administrative
14.0 14.0 - -
Other (income)
(12.4 ) - 12.4 -
Operating income (loss)
7.8 (9.0 ) 16.8 187 %
Preferred stock issuance costs
4.8 - (4.8 ) -
Interest expense
0.3 0.2 (0.1 ) (50 )%
Interest (income)
(0.2 ) (0.2 ) - -
Income (loss) before income taxes
2.9 (9.0 ) 11.9 132 %
Provision (benefit) for income taxes
1.9 (2.8 ) (4.7 ) (168 )%
Net income (loss)
$ 1.0 $ (6.2 ) $ 7.2 116 %

	Three Months Ended March 31,
	2011			2010		Change			%
LEU segment
Revenue:
SWU revenue	$	308.5		$	266.6	$	41.9			16	%
Uranium revenue		14.0			15.6		(1.6	)		(10	)%
Total		322.5			282.2		40.3			14	%
Cost of sales		307.2			267.2		(40.0	)		(15	)%
Gross profit	$	15.3		$	15.0	$	0.3			2	%

Contract services segment
Revenue	$	58.0		$	62.5	$	(4.5	)		(7	)%
Cost of sales		59.4			50.8		(8.6	)		(17	)%
Gross profit (loss)	$	(1.4	)	$	11.7	$	(13.1	)		(112	)%

Total
Revenue	$	380.5		$	344.7	$	35.8			10	%
Cost of sales		366.6			318.0		(48.6	)		(15	)%
Gross profit	$	13.9		$	26.7	$	(12.8	)		(48	)%

3533

Nine Months Ended
September 30,

2010 2009 Change %
Gross profit
$ 108.8 $ 158.8 $ (50.0 ) (31 )%
Special charge for workforce reduction
- 2.5 2.5 100 %
Advanced technology costs
80.3 93.8 13.5 14 %
Selling, general and administrative
43.4 45.1 1.7 4 %
Other (income)
(32.4 ) - 32.4 -
Operating income
17.5 17.4 0.1 1 %
Preferred stock issuance costs
4.8 - (4.8 ) -
Interest expense
0.4 1.0 0.6 60 %
Interest (income)
(0.4 ) (1.2 ) (0.8 ) (67 )%
Income before income taxes
12.7 17.6 (4.9 ) (28 )%
Provision for income taxes
14.2 8.6 (5.6 ) (65 )%
Net income (loss)
$ (1.5 ) $ 9.0 $ (10.5 ) (117 )%
Revenue

~~Special Charge~~The volume of SWU sales increased 9% in the three months ended March 31, 2011, compared to the corresponding period in 2010, reflecting the variability in timing of utility customer orders. The average price billed to customers for ~~Workforce Reduction~~sales of SWU increased 6% reflecting the particular contracts under which SWU were sold during the periods as well as the general trend of higher prices under contracts signed in recent years.

~~In August 2009, DOE and USEC agreed~~The volume of uranium sold declined 38% in the three months ended March 31, 2011, compared to ~~delay a final review~~the corresponding period in 2010, reflecting the timing of customer orders. The average price increased 44% reflecting the USEC’s loan guarantee application for the American Centrifuge Plant in Piketon, Ohio. As a result, we began to demobilize the American Centrifuge project in order to preserve liquidity. A workforce reductionparticular price mix of ~~93 employees~~contracts under which uranium was ~~substantially completed by September 2009, resulting in a special charge of $2.5 million for one-time termination benefits consisting of severance payments and short-term health care coverage.~~sold.

Advanced Technology Costs

American Centrifuge

Expenditures related to American Centrifuge technology for the three months ended March 31, 2011 and 2010, as well as cumulative expenditures as of March 31, 2011, follow (in millions):

	Three Months Ended March 31,				Cumulative as of March 31,
	2011		2010		2011
Amount expensed (A)	$	26.2	$	25.2	$	793.6
Amount capitalized (B)		41.3		37.4		1,219.5
Total ACP expenditures, including accruals (C)	$	67.5	$	62.6	$	2,013.1

(A)Expense included as part of Advanced Technology Costs.
(B)Amounts capitalized as part of property, plant and equipment total $1,183.6 million as of March 31, 2011, including capitalized interest of $90.5 million. Prepayments to suppliers for services not yet performed totaled $35.9 million as of March 31, 2011.
(C)Total ACP expenditures are all American Centrifuge costs including, but not limited to, demonstration facility, licensing activities, commercial plant facility, program management, interest related costs and accrued asset retirement obligations capitalized. This includes $12.5 million of accruals at March 31, 2011.

MAGNASTOR™

Results of Operations – Three Months Ended March 31, 2011 and 2010

Segment Information

The following table presents elements of the accompanying consolidated condensed statements of operations that are categorized by segment (dollar amounts in millions):

	Three Months Ended March 31,
	2011			2010		Change			%
LEU segment
Revenue:
SWU revenue	$	308.5		$	266.6	$	41.9			16	%
Uranium revenue		14.0			15.6		(1.6	)		(10	)%
Total		322.5			282.2		40.3			14	%
Cost of sales		307.2			267.2		(40.0	)		(15	)%
Gross profit	$	15.3		$	15.0	$	0.3			2	%

Contract services segment
Revenue	$	58.0		$	62.5	$	(4.5	)		(7	)%
Cost of sales		59.4			50.8		(8.6	)		(17	)%
Gross profit (loss)	$	(1.4	)	$	11.7	$	(13.1	)		(112	)%

Total
Revenue	$	380.5		$	344.7	$	35.8			10	%
Cost of sales		366.6			318.0		(48.6	)		(15	)%
Gross profit	$	13.9		$	26.7	$	(12.8	)		(48	)%

Revenue

Cost of Sales

Cost of sales for the LEU segment increased $40.0 million in the three months ended March 31, 2011, compared to the corresponding period in 2010, primarily due to higher SWU sales volumes and higher unit costs in the current period.

Cost of sales per SWU was 7% higher in the three months ended March 31, 2011 compared to the corresponding period in 2010. Under our monthly moving average cost method, new production and acquisition costs are averaged with the cost of inventories at the beginning of the period. An increase or decrease in production or purchase costs will have an effect on inventory costs and cost of sales over current and future periods. Production costs are also allocated to uranium from underfeeding based on its net realizable value, and the remainder is allocated to SWU inventory costs.

Production costs declined $12.2 million (or 5%) in the three months ended March 31, 2011 compared to the corresponding period in 2010. Under our power contract with the Tennessee Valley Authority, beginning September 1, 2010, the power that we purchase from TVA during the non-summer months was reduced from 2,000 megawatts to 1,650 megawatts. This resulted in lower power purchases in the three months ended March 31, 2011 compared to March 31, 2010. As a result, the cost of electric power declined $13.8 million (or 8%) in the three months ended March 31, 2011 compared to the corresponding period in 2010. Production volume declined 15% and the unit production cost increased 12%. The average cost per megawatt hour increased 11% due to higher TVA fuel cost adjustments as well as the fixed, annual increase in the TVA contract price.

We purchase approximately 5.5 million SWU per year under the Russian Contract, however there were no deliveries in the three-month periods ended March 31, 2011 and March 31, 2010 based on our agreed-upon shipping schedule.

Cost of sales for the contract services segment increased $8.6 million in the three months ended March 31, 2011, compared to the corresponding period in 2010, reflecting a temporary increase in contract services work at Portsmouth as well as an increase in sales for NAC in the current period. In addition, USEC recorded a curtailment charge of $3.2 million for the defined benefit pension plan in the current period in connection with the transition of USEC employees to a new contractor following the expiration of the cold shutdown contract on March 28, 2011 (refer to the “Contract Services Segment” section above for details).

Gross Profit

Gross profit declined $12.8 million in the three months ended March 31, 2011 compared to the corresponding period in 2010. Our gross profit margin was 3.7% in the three months ended March 31, 2011 compared to 7.7% in the corresponding period in 2010. Gross profit for the LEU segment increased $0.3 million in the three-month period due to higher average selling prices for SWU and uranium, partially offset by higher unit costs. Gross profit for the contract services segment declined $13.1 million in the three months ended March 31, 2011, compared to the corresponding period in 2010, reflecting fee recognition on certain contracts in the prior period as well as a $3.2 million pension curtailment charge in the current period in connection with the transition of USEC employees to a new contractor following the expiration of the cold shutdown contract on March 28, 2011.

Non-Segment Information

The following table presents elements of the accompanying consolidated condensed statements of operations that are not categorized by segment (dollar amounts in millions):

	Three Months Ended March 31,
	2011			2010			Change			%
Gross profit	$	13.9		$	26.7		$	(12.8	)		(48	)%
Advanced technology costs		26.7			25.7			(1.0	)		(4	)%
Selling, general and administrative		15.5			15.1			(0.4	)		(3	)%
Other (income)		(3.7	)		(9.7	)		(6.0	)		(62	)%
Operating (loss)		(24.6	)		(4.4	)		(20.2	)		(459	)%
Interest (income)		(0.2	)		(0.1	)		0.1			100	%
(Loss) before income taxes		(24.4	)		(4.3	)		(20.1	)		(467	)%
Provision (benefit) for income taxes		(7.8	)		5.4			13.2			244	%
Net (loss)	$	(16.6	)	$	(9.7	)	$	(6.9	)		(71	)%

Advanced Technology Costs

Advanced technology costs ~~declined $3.1~~increased $1.0 million in the three months ~~and $13.5 million in the nine months~~ ended ~~September 30, 2010,~~March 31, 2011, compared to the corresponding period in ~~2009,~~2010, reflecting ~~the demobilization of~~a slight increase in development costs for the American Centrifuge ~~project in the latter half of 2009.~~

project. Advanced technology costs include expenses by NAC to develop and expand its MAGNASTOR storage and transportation technology of ~~$1.7~~$0.4 million in the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 and ~~$0.4~~$0.5 million in the corresponding period of ~~2009.~~2010.

Selling, General and Administrative

Selling, general and administrative ~~(“SG&A”)~~ expenses were flat in the three months and $1.7 million lower in the nine months ended September 30, 2010, compared to the corresponding periods in 2009. Consulting expenses declined $0.9 million in the three-month period and $3.9 million in the nine-month period. Stock-based compensation decreased $0.1 million in the three-month period and increased ~~$0.3 million in the nine-month period. Salaries, other cash-based compensation, and employee benefits increased $1.2~~$0.4 million in the three months ~~and $2.9 million in nine months~~ ended ~~September 30, 2010,~~March 31, 2011 compared to the corresponding ~~periods~~period in ~~2009.~~2010, reflecting slightly higher salary and employee benefit costs.

Other (Income)

WeIn January 2011, we executed an exchange with a noteholder whereby USEC received convertible notes with a principal amount of $45 million in exchange for 6,952,500 shares of common stock and cash for accrued but unpaid interest on the convertible notes. In connection with this exchange USEC recognized a gain on debt extinguishment of $3.1 million in the first quarter of 2011.

In March 2010, we reached a cooperative agreement with DOE ~~in March 2010~~ to provide for pro-rata cost sharing support for continued funding of American Centrifuge activities with a total ~~estimated~~ cost of $90 million. DOE ~~has~~ made $45 million available by taking the disposal obligation for a specific quantity of depleted uranium from USEC, which released encumbered funds for investment in the American Centrifuge technology that USEC had otherwise committed to future depleted uranium disposition obligations. ~~In July 2010, surety bonds and related deposits were reduced, and~~The program was completed in January 2011 when USEC ~~received~~made the ~~$45~~final qualifying expenditures of $1.2 million. DOE’s contribution on a 50% pro rata basis, or $0.6 million, was recognized as other income in ~~cash.~~the three months ended March 31, 2011. In the ~~nine~~three months ended ~~September 30,~~March 31, 2010, USEC made qualifying American Centrifuge expenditures of ~~$64.8~~$19.4 million. DOE’s ~~pro-rata share of~~contribution on a 50%, pro rata basis, or ~~$32.4~~$9.7 million, iswas recognized as other income in the ~~nine months ended September 30, 2010, including $12.4 million in the~~ three months ended ~~September 30,~~March 31, 2010.

~~Preferred Stock Issuance Costs~~

Issuance costs of $4.8 million related to the investment by Toshiba and B&W were expensed in the quarter ended September 30, 2010. The issuance costs were expensed in the period of issuance, rather than deferred and amortized, since the preferred stock is classified as a liability and recorded at fair value.

~~Interest Expenseand Interest Income~~

Interest ~~expense~~Income

Interest income increased $0.1 million in the three months ended ~~September 30, 2010, and declined $0.6 million in the nine-month period,~~March 31, 2011, compared to the corresponding ~~periods~~period in ~~2009. Interest capitalized for American Centrifuge increased from $17.0 million in the nine months ended September 30, 2009 to $20.5 million in the nine months ended September 30,~~ 2010, ~~or an increase of $3.5 million in interest that was not expensed as a period cost.~~

~~Interest income was flat in the three months and declined $0.8 million in the nine months ended September 30, 2010, compared to the corresponding periods in 2009,~~ reflecting ~~lower interest rates and~~higher average cash balances.

There was no interest expense in either period since interest costs were capitalized for the American Centrifuge project. Interest costs capitalized increased from $6.3 million in the three months ended March 31, 2010 to $11.0 million in the three months ended March 31, 2011, reflecting the convertible preferred stock issued in September 2010 and credit facility term loan funded in October 2010.

Provision for Income Taxes

The income tax ~~provision was $1.9 million~~(benefit) in the three months ended March 31, 2011 was $(7.8) million and ~~$14.2 million~~the income tax provision in the ~~nine~~three months ended ~~September 30, 2010.~~March 31, 2010 was $5.4 million. The first quarter 2010 income tax provision ~~for the nine-month period~~ included a one-time charge of $6.5 million related to the change in tax treatment of Medicare Part D reimbursements as a result of the Patient Protection and Affordable Care Act as modified by the Reconciliation Act of 2010 (collectively referred to as “the Act”) signed into law at the end of March 2010. The charge ~~was~~is due to a reduction in the Company’s deferred tax asset as a result of a change to the tax treatment of Medicare Part D reimbursements. Under the Act, the tax-deductible prescription drug costs will be reduced by the amount of the federal subsidy. Under Financial Accounting Standards ~~Boa rd~~Board guidance, the effect of changes in tax laws or rates on deferred tax assets and liabilities is reflected in the period that includes the enactment date, even though the changes may not be effective until future periods. The ~~provision for the nine-month period~~first quarter 2011 and 2010 income tax provisions also ~~included~~include a $0.3 million benefit for the reversal of previously accrued amounts associated with liabilities for unrecognized ~~benefits and a $0.9 million benefit primarily attributable to 2009 research credit adjustments resulting from a study completed in the third quarter of 2010.~~benefits.

Excluding the impact of the Act and the reversal of previously accrued amounts associated with liabilities for unrecognized benefits, the first quarter 2010 tax benefit would have been $0.8 million or an overall effective rate of approximately 18% as compared to an overall effective rate of 31% in the first quarter of 2011 based on estimated earnings for 2011. In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (collectively referred to as “the Tax Relief Act”) was signed into law. The Tax Relief Act extended federal research credits through December 2011. As a result, the ~~adjustment for the 2009~~federal research credit ~~the overall effective tax rate for 2010 is expected to be 70%. The overall effective tax rate for 2009~~ was ~~38%. The increase~~included in the overall effective ~~tax~~ rate ~~is primarily~~for the first quarter of 2011, but could not be included in the overall effective rate for the first quarter of 2010 due to ~~a decrease~~its expiration in December 2009. The difference between the overall effective rates for the first quarter of 2010 and 2011 is due to an increase in the federal research credit ~~that expired after 2009,~~in 2011, an increase in 2011 of the non-deductible paid-in-kind dividends associated with the investment by Toshiba and B&W in September 2010, and a decrease in the expected ~~2010~~ income before income taxes ~~compared to 2009, and the non-deductible dividends and issuance costs associated with the Toshiba and B&W investment~~ in ~~the third quarter of 2010. Although we are uncertain if or when the federal research credit will be extended, if it is extended in 2010, we would expect to record an income tax benefit for~~ the federal research credit in an amount in excess of $2 million. Furthermore, the impact of state income taxes on the effective rate increased from 4% to 13% even though the amount of state tax expense is less than the prior year and the rate differential is due to a larger decrease in the overall provision for income taxes as compared to state income taxes from the prior year.2011.

3736

Net ~~Income~~ (Loss)

Net income ~~increased $7.2~~declined $6.9 million ~~(or $0.07 per share–basic and diluted)~~ in the three months ended ~~September 30, 2010,~~March 31, 2011 compared ~~with~~to the corresponding period in ~~2009, reflecting~~2010, primarily due to the after-tax effects of ~~DOE’s pro-rata cost sharing for continued ACP activities~~the declines in contract services profits and ~~reduced advanced technology expenses,~~other income, partially offset by ~~the after-tax effect of preferred stock issuance costs.~~

Net income declined $10.5 million (or $0.09 per share–basic and $0.07 per share–diluted) in the nine months ended September 30, 2010, compared with the corresponding period in 2009, reflecting the after-tax effects of lower unit gross profits in the LEU segment and preferred stock issuance costs, and the tax provision charge of $6.5 million in the ~~first quarter of 2010~~prior period related to the effect of changes in tax laws on our deferred tax ~~assets, partially offset by the after-tax effects~~assets.

2011 Outlook Reiterated

We are reiterating our guidance for 2011. Specifically, in 2011 we expect revenue of ~~an increase in~~approximately $1.7 billion and gross profits in ~~the government contracts segment, other income resulting from DOE’s pro-rata cost sharing for continued ACP activities, and reduced advanced technology expenses.~~

~~2010 Outlook Update~~

~~Based on the financial results~~a range of the first nine months of 2010, our view of the anticipated spending pattern for the American Centrifuge project, and our outlook for results for the remainder of the year, we are providing the following earnings and cash flow guidance for full-year 2010.

$70 to $80 million. We expect revenue for 2010 of approximately $2 billion, with revenue from SWU sales expected to be roughly $1.5 billion. This assumes a 3% increase in the average price billed to customers offset by a 9% decrease in SWU volume compared to 2009. Revenue from the sale of uranium is expected to be approximately $200 million dollars. Uranium revenue can be volatile due to deferral of revenue recognition until the uranium sold and delivered is used as the uranium component of LEU. We expect revenue from the U.S. government contracts segment of approximately $275 million. The revenue guidance reflects a modest increase in SWU volumes from our prior guidance, offset by reductions in uranium and U.S. government contracts revenue.

Electric power continues to be the major driver in our cost of sales. Electricity is expected to be about 70% of the cost of SWU production for 2010. Beginning September 1, 2010, we reduced the amount of power we purchase in the non-summer months by 17.5% to 1650 megawatts under our power agreement with TVA. In addition, market-based power purchased during the summer of 2010 was less expensive than our initial forecast, but the fuel cost adjustment in the TVA contract has increased during 2010 and has added 9% to the base rate through September 30, 2010. We produce approximately half of our SWU supply and purchase half from Russia under the Megatons to Megawatts program. Purchases from Russia have cost 8% more in 2010 compared to the previous year.

We use the monthly moving average inventory cost methodology, and our cost of sales continues to reflect higher production and purchase costs rolling through our inventory. These costs have risen at a higher rate than our average price billed to customers, which has caused our gross profit margin to ~~decline over~~be in a range of approximately 4% to 5%. Below the ~~past three years. We currently~~gross profit line, we anticipate our ~~gross profit margin for 2010 will~~selling, general and administrative expense to be approximately ~~7%.~~

$60 million.

~~Spending in 2010~~We are not offering annual guidance for spending on the American Centrifuge project ~~that is expensed is expected~~at this time because the level of project spending continues to be ~~approximately $110 million. A cost-sharing arrangement reached with DOE to offset~~uncertain. Project spending will have a ~~portion~~significant effect on net income and cash flow, and therefore, USEC is not providing guidance on net income or cash flow at this time. However, taking into account our anticipated ACP spending during the first half of 2011 and our ~~American Centrifuge activities provides $45 million under “other income.” Also below the~~anticipated gross profit ~~line,~~margin, we continue to expect ~~selling, general and administrative expenses~~ to ~~be approximately $60 million, in line with our previous guidance. In addition, our results will be affected by~~report a ~~one-time charge of $6.5 million taken in the first quarter of 2010 related to a change in tax treatment of Medicare Part D reimbursements as a result of health care legislation signed in March 2010.~~net loss for 2011.

~~We expect net income for the full year 2010 to be approximately breakeven, after the impact of expenses~~Spending related to the American Centrifuge ~~project. At breakeven, small changes to net income can have a substantial effect~~project is restricted under our credit facility and will be dependent upon if and when additional capital becomes available. We expect total spending on the ~~effective federal income tax rate. In addition, the tax treatment for the newly issued preferred equity shares will have the effect of increasing our effective tax rate.~~

As we approach year-end, significant uncertainty exists in our U.S. government contracts segment that could impact our outlook projections. We have approximately 1,100 employees working at the former Portsmouth plant supporting DOE, its activitiesAmerican Centrifuge project, both capitalized and the cold shutdown contract efforts. We are working with DOE and the D&D contractor on an orderly transition of employees to the D&D contractor in January 2011, when work under our existing cold shutdown contract is expected to transition to the D&D contractor. However, because of uncertainty on the scope of work that may continue with DOE, transition to the D&D contractor, as well as our obligation to meet certain site specific regulatory requirements, we are uncertain as to potential severance and other employee related benefits that may needexpensed, to be ~~accrued at year-end. In a ddition, $31.2~~approximately $110 million ~~of unbilled receivables and $6.5 million of past due receivables related directly~~through June 30, 2011, which includes our plan to ~~DOE or DOE contractors remain on our consolidated balance sheet as of September 30, 2010, and the timing and amount of recovery are uncertain.~~

~~We are~~continue building a ~~moderate level~~limited number of ~~inventory~~additional AC100 machines. We also expect our current enrichment operations will generate cash in ~~2010 for future sales, which has had a negative effect on~~2011, but ACP spending will reduce our cash flow from operations. We anticipate cash flow from operations to swing from a positive $30 million in the first nine months of 2010 to a full-year range of breakeven cash generation to $20 million cash used in operations. We also expect capital expenditures related to the American Centrifuge Plant for 2010 to total approximately $100 million.

Our financial guidance is subject to a number of assumptions and uncertainties that could affect results either positively or negatively. Variations from our expectations could cause substantial differences between our guidance and ultimate results. Among the factors that could affect our results are:

·	Changes to the electric power fuel cost adjustment or changes to our power purchases from our current projection;

·	Closing out contract services work at Portsmouth and recognition of estimated contract closeout costs to be recovered from DOE as well as amounts previously billed and owed;

·	The timing of recognition of previously deferred revenue, particularly related to the sale of uranium;

·	~~Changes to planned spending on the American Centrifuge project;~~

·	Movement and timing of customer orders;

·	Changes to SWU and uranium price indicators, and changes in inflation that can affect the price of SWU billed to customers;

·	~~Economics of underfeeding the production process at the Paducah GDP to make additional uranium sales;~~ and

·	~~Actions taken~~Additional uranium sales made possible by ~~governmental bodies or agencies.~~underfeeding the production process at the Paducah GDP.

3937

Liquidity and Capital Resources

Key factors that can affect liquidity requirements for our existing operations include the timing and amount of customer sales and power purchases.

We believe our sales backlog in our LEU segment is a source of stability for our liquidity position. The source of SWU supply and the duration of contracts is evolving, however, to reflect our expected transition from GDP operations and the expiration of the Megatons to Megawatts program to a SWU supply dominated by American Centrifuge operations. As we work through the transition to ACP, sales sourced from ACP output which currently make up approximately one-third of our backlog are expected to make up a greater percentage of our sales backlog. Contracts for output from the ACP are longer in duration than our contracts for sales from current operations. Since 2006, we have included in our SWU contracts pricing indices that are intended to correlate with our sources for enrichment supply. Although sales prices under many of our SWU ~~cont racts~~contracts are adjusted in part based on changes in market prices for SWU and electric power, the impact of market volatility in these indices is generally mitigated through the use of market price averages over time. Additionally, changes in the power price component of sales prices are intended to mitigate the effects of changes in our power costs.

Customer orders that are related to their requirements for enrichment may be delayed due to outages, changes in refueling schedules or delays in the initial startup of a reactor. In ~~addition, in~~ order to respond to these customer-driven changes as well as to enhance our liquidity and manage our working capital in light of anticipated sales and inventory levels, we work periodically with customers regarding the timing of their orders, including advancement. As our customers have purchased more of their SWU supply under long-term contracts due to the transition to centrifuge-based supply and the uncertainty of supply during this transition, USEC has advanced ordersIn addition, rather than ~~sell~~selling material into athe limited spot market ~~that has little near-term uncommitted demand. Most of these~~for enrichment, USEC advanced orders ~~have been advanced within a calendar year. However, some orders have advanced~~ from 2011 into ~~2010. Based~~2010 and orders from 2012 into 2011, and based on our outlook for demand, we ~~expect to continue~~anticipate continuing to work with customers to advance ~~orders.~~orders in the near term. The advancement of orders ~~will have~~has the effect of accelerating our receipt of cash from such advanced sales, although the amount of cash we receive from such sales may be reduced as a result of the terms mutually agreed with customers in connection with advancement. ~~However, this could~~This will have the effect of reducing backlog and revenues in future years if we do not replace these orders with additional sales. Looking a few years out, we expect an increase in uncommitted demand that could provide the opportunity to make additional near-term sales in those years to supplement our backlog and thus decrease the need to advance orders in the future. Our ability to advance orders depends on the willingness of our customers to agree to advancement on terms that we find acceptable.

We purchase most of the electric power for the Paducah GDP under a power purchase agreement with TVA. The base price under the TVA power contract increases moderately based on a fixed, annual schedule, and is subject to a fuel cost adjustment provision to reflect changes in TVA’s fuel costs, purchased-power costs, and related costs. The impact of future fuel cost adjustments, which are substantially influenced by coal, gas and purchased-power prices and hydroelectric power availability, is uncertain and our cost of power could fluctuate in the future above or below the agreed increases in the base energy price. We expect the fuel cost adjustment to continue to cause our purchase cost for power to remain above the base energy prices, but the magnitude and the impact is uncertain given volatile energy prices and electricity demand. ~~In 2010, a change of one percentage point in the average annual fuel cost adjustment would change our annual costs for electric power by an estimated $4 to $5.5 million.~~

We expect our cash balance, internally generated cash from our LEU operations and ~~government~~ services ~~operations,~~provided by our ~~new term loan of $85 million,~~contract services segment, and available borrowings under our revolving credit facility will provide sufficient cash to meet our ~~cash~~ needs for at least 12 months. As described below, this does not include continuing at our current level of spending on the ACP absent additional capital. Additional funds may be necessary sooner than we currently anticipate if we are not successful in our efforts to ~~reduce spending and~~ conserve cash or in the event ofwe are required to fund unanticipated payments to suppliers, increases in financial assurance, any shortfall in our estimated levels of operating cash flow or available borrowings under the revolving credit facility, or to meet other unanticipated expenses. ~~However,~~If necessary, we could further reduce our anticipated spending on the American Centrifuge project to an asset maintenance level, providing additional flexibility to address unanticipated ~~c ash requirements.~~cash requirements, however, this will likely have a significant adverse impact on the project. We need significant additional financing to complete construction of the American Centrifuge Plant and we have already reduced the scope of project activities ~~that were underway in 2009~~ until we have that financing.

We have been working with DOE since October 2010 on the terms for a conditional commitment for a $2 billion loan guarantee. In April 2011, the DOE Loan Guarantee Program Office substantially completed the due diligence and negotiation stage of the application process and advanced the ACP application to the next phase. As part of this next phase, the credit package prepared by the DOE Loan Guarantee Program Office, including the terms and conditions that USEC has negotiated with the DOE Loan Guarantee Program Office, is being reviewed in parallel by DOE’s credit group and by OMB, the Department of the Treasury and NEC; which review will include the establishment of an estimated range of credit subsidy cost. However, we have no assurance that the terms we have negotiated with the DOE Loan Guarantee Office will be approved or that the credit subsidy cost will be reasonable or that action will be taken in a timely manner. After obtaining a conditional commitment, we will need to conclude final documentation and satisfy any technical, financial and other conditions to funding in order to close on the financing.

In May ~~25,~~ 2010, ~~we announced that~~ Toshiba Corporation (“Toshiba”) and Babcock & Wilcox Investment Company (“B&W”), an affiliate of The Babcock & Wilcox Company, ~~(“B&W”),~~ signed a definitive agreement to make a $200 million investment in USEC. Under the terms of the agreement, Toshiba and B&W ~~will~~ each agreed to invest $100 million in USEC over three phases, each of which is subject to specific closing conditions. Closing for the first phase occurred onin September 2, 2010 and USEC received $75 million. Closing on the second phase of $50 million is subject to closing conditions, including obtaining a conditional commitment for a $2 billion loan guarantee from DOE. Closing on the third phase of $75 million is subject to additional closing conditions, including closing on a $2 billion loan guarantee. For their investment, the companies received convertible preferred stock as well as warrants to purchase shares of common stock, which ~~will be~~are exercisable in the future. We intend to use the funds for general corporate purposes and for investment in the American Centrifuge Plant. The initial phase investment helps USEC continue deployment of the American Centrifuge Plant during 2010. Additional details are provided in “Overview–Investment by Toshiba and B&W” and below under “–Capital Structure and Financial Resources.”

We do not believe public market financing for a large capital project deploying innovative technology such as American Centrifuge is available given current financial market conditions. We believe a loan guarantee under the DOE Loan Guarantee Program is essential to raising the capital needed to complete the American Centrifuge Plant. In July 2008, we applied to the DOE Loan Guarantee Program for $2 billion in U.S. government guaranteed debt financing for the American Centrifuge Plant. We submitted an update to our application in July 2010. In late October 2010, we were informed by DOE that it has largely completed its initial technical review of our application and is proceeding to the next stage of the loan guarantee process. DOE provided us with a draft term sheet that will serve as the framework for discussions with DOE. Completion o f due diligence by DOE and negotiation of terms and conditions with DOE are the next steps toward the potential issuance of a conditional commitment and we will be working with DOE to complete those in an expeditious manner. However, funding under a DOE loan guarantee will only occur following conditional commitment, final documentation and satisfaction of conditions to funding, which are subject to uncertainty.

In addition, to complete the project, we will require additional ~~capital~~funding beyond the $2 billion DOE loan guarantee, proceeds from the investment from Toshiba and B&W, and internally generated cash flow. In order to obtain a DOE loan guarantee, we will need to demonstrate that sufficient capital is available to complete the project. We initiated in 2010, and continue to have ~~initiated~~ discussions with Japanese export credit agencies regarding financing ~~a portion~~$1 billion of the cost of building the plant. However, we have no assurance that they will ~~be willing to~~ provide the financing needed and on what terms.

We expect to fund continued spending on the ACP through the closing on a DOE loan guarantee, using the proceeds from the first two phases of the investment from Toshiba and B&W and through our cash flow from existing operations. However, we are reaching a critical point regarding continued funding for the American Centrifuge project. We need to obtain a conditional commitment for the loan guarantee from DOE and close on the $50 million second phase of the strategic investment by Toshiba and B&W during the second quarter of 2011 in order to maintain the current spending level on the American Centrifuge project while maintaining compliance with our credit facility covenant that limits our ACP spending. In addition to limiting our spending on the American Centrifuge project, if we do not close on the second phase of the strategic investment by Toshiba and B&W by June 30, 2011, we and each of the investors (as to such investor’s obligations) would have a right to terminate the securities purchase agreement governing the transactions. Our ability to continue spending will be subject to our cash flow from operations and liquidity, including restrictions in our credit facility on ACP spending. Without a conditional commitment, we likely would have to further demobilize the project and reduce investment.

We have been working with our suppliers to update the scope, cost and schedule to build the ~~ACP.~~ACP and we continue to work with our suppliers to refine our estimates and seek reductions in the project cost. In August 2010, we announced our estimated cost of approximately $2.8 billion to complete the American Centrifuge project from the point of closing on financing. This estimate includes AC100 machine manufacturing and assembly, EPC and related balance-of-plant work, start-up and initial operations, and project management. We believe we have reduced significant risk in the American Centrifuge project since our initial baseline project budget in 2008 and our new cost estimate is based on a significantly more mature project scope.

The $2.8 billion estimate is a go-forward cost estimate and does not include our investment to date, spending from now until closing on financing needed to complete the plant, overall project contingency, financing costs or financial assurance. Until potential financial closing, we expect to continue to invest at a rate consistent with our anticipated spending indicated in our outlook for the remainder of 2010, while taking into account our anticipated cash flow fromThis estimate includes AC100 machine manufacturing and assembly, engineering, procurement and construction (“EPC”) costs and related balance-of-plant work, start-up and initial operations, and ~~other available liquidity.~~ project management. We believe we have substantially reduced risk in the American Centrifuge project since our initial baseline project budget in 2008 and our current cost estimate is based on a significantly more mature project scope.

We are currently evaluating the appropriate level for the overall project contingency taking into account the level of risk given the maturity of the ~~project.~~project and pending discussions with DOE regarding obtaining a loan guarantee. We are also evaluating the financing costs and financial assurance required for the project, which will be affected by, among other things, the overall financing plan for the project, the amount of the credit subsidy cost for any DOE loan guarantee, and the amount and sources of the additional financing we need to complete the project. ~~We continue to work with suppliers to refine our estimates and seek reductions in the project cost.~~

We expect to fund continued spending on the ACP through the closing on a DOE loan guarantee through the proceeds from the first two phases of the investment from Toshiba and B&W and through our cash flow from existing operations, including the $45 million of cost sharing provided by DOE under the cooperative agreement entered into in March 2010.

We are seeking to fund the additional $2.8 billion of costs to complete the American Centrifuge project and additional amounts that are needed to cover overall project contingency, financing costs and financial assurance through a combination of the $2 billion of DOE loan guarantee funding for which we have applied, the proceeds from the third phase of the investment from Toshiba and B&W of $75 million, additional funding from Japanese export credit agencies ~~and/~~of $1 billion or from other third parties, cash on hand and prospective cash flow from existing USEC operations, and prospective reinvested project ~~cash.~~cash generated during construction. Many of these sources of capital are inter-related. For example, the third phase of investment from Toshiba and B&W is contingent upon the closing of a DOE loan guarantee and in order to close on a DOE loan guarantee we will need to ~~dem onstrate~~demonstrate that all sources of capital needed to complete the project are available. We have no assurance that we will be successful in raising this capital.

The change in cash and cash equivalents from our consolidated condensed statements of cash flows are as follows on a summarized basis (in millions):

	Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2011			2010
Net Cash Provided by (Used in) Operating Activities	$	30.0		$	319.4		$	51.3		$	(42.9	)
Net Cash (Used in) Investing Activities		(74.9	)		(401.4	)		(50.7	)		(46.0	)
Net Cash Provided by (Used in) Financing Activities		59.7			(97.2	)
Net Increase (Decrease) in Cash and Cash Equivalents	$	14.8		$	(179.2	)
Net Cash (Used in) Financing Activities								(1.8	)		(9.9	)
Net (Decrease) in Cash and Cash Equivalents							$	(1.2	)	$	(98.8	)

Operating Activities

~~Payables under~~Payment of the Russian Contract ~~increased $96.6~~payables balance of $201.2 million was a significant use of cash flow in the three months ended March 31, 2011. More than offsetting this use was positive cash flow provided by our LEU segment based on the timing of customer orders and deliveries. Inventories declined $147.4 million in the ~~nine months ended September 30, 2010, due to~~three-month period, providing monetization of inventory produced in the ~~timing~~prior year; accounts receivable declined $63.8 million; and deferred revenue, net of ~~deliveries, representing additions to inventory that did not require a cash outlay. Net inventories~~deferred costs, increased ~~$53.9 million representing higher power costs and lower sales.~~$62.3 million.

Investing Activities

Capital expenditures were ~~$123.0~~$50.7 million in the ~~nine~~three months ended ~~September 30, 2010,~~March 31, 2011, compared with ~~$363.2~~$49.0 million in the corresponding period in ~~2009.~~2010. Capital expenditures during these periods are principally associated with the American Centrifuge Plant, including prepayments made to suppliers for services not yet performed. Cash collateral deposits totaling $48.1 million were returned to us following (a) the signing of our new revolving credit facility in February 2010 and (b) the transfer of certain depleted uranium to DOE in support of a pro-rata cost sharing arrangement for continued funding of American Centrifuge activities.

Financing Activities

At the first closing of the investment by Toshiba and B&W in September 2010, we received $75.0 million and the investors received a total of 75,000 shares of 12.75% convertible preferred stock and warrants to purchase 6.25 million shares of common stock at an exercise price of $7.50 per share.

Borrowings and repayments under the revolving credit facility ~~totaled $38.3~~were each less than $0.1 million in the ~~nine~~three months ended September 30, 2010. We plan to borrow on the revolving credit facility from time to time based on the timing of our working capital needs. A new term loan of $85 million was funded October 8, 2010 as part of our new credit facility agreement.March 31, 2011.

There were ~~115.2~~122.7 million shares of common stock outstanding at ~~September 30, 2010,~~March 31, 2011, compared with ~~113.4~~115.2 million at December 31, ~~2009,~~2010, an increase of ~~1.8~~7.5 million shares (or 2%7%). In January 2011, we executed an exchange with a noteholder whereby we received convertible notes with a principal amount of $45 million in exchange for 6,952,500 shares of common stock and cash for accrued but unpaid interest on the convertible notes.

Working Capital

	September 30,			December 31,			March 31,			December 31,
	2010			2009			2011			2010
	(millions)						(millions)
Cash and cash equivalents	$	146.1		$	131.3		$	149.8		$	151.0
Accounts receivable, net		228.0			191.4			244.8			308.6
Inventories, net		885.7			831.8			659.3			806.7
Other current assets and liabilities, net		(328.1	)		(267.5	)		(113.0	)		(280.7	)
Working capital	$	931.7		$	887.0		$	940.9		$	985.6

Capital Structure and Financial Resources

At ~~September 30, 2010,~~March 31, 2011, our long-term debt of $615.0 million consisted of ~~$575.0~~$530.0 million in 3.0% convertible senior notes due October 1, ~~2014. These~~2014 and a term loan of $85.0 million due May 31, 2012 under our credit facility.

The convertible notes are unsecured obligations and rank on a parity with all of our other unsecured and unsubordinated indebtedness. We may, from time to time, agree to exchange a portion of our convertible notes for shares of our common stock prior to their maturity in privately negotiated transactions. We will evaluate any such transactions in light of then existing market conditions, taking into account our stock price as it relates to the conversion ratio and any potential interest cost savings. The amounts involved, individually or in the aggregate, may be material. We are restricted under our credit facility from repurchasing the notes for cash.

~~On September 2, 2010,~~In January 2011, USEC executed an exchange with a noteholder whereby USEC received convertible notes with a principal amount of $45 million in exchange for 6,952,500 shares of common stock and cash for accrued but unpaid interest on the convertible notes. In connection with this exchange USEC recognized a gain on debt extinguishment of $3.1 million in the first ~~closing~~quarter of $75 million occurred under the Securities Purchase Agreement dated as of May 25, 2010 between USEC, Toshiba Corporation (“Toshiba”) and Babcock & Wilcox Investment Company (“B&W”). Toshiba assigned its rights and obligations to purchase securities under the agreement to Toshiba America Nuclear Energy Corporation, a subsidiary of Toshiba.

At the first closing, the investors purchased 75,000 shares of Series B-1 12.75% Convertible Preferred Stock, par value $1.00 per share (“Series B-1 Preferred”), and warrants to purchase 6.25 million shares of Class B Common Stock, par value $.10 per share (“Class B Common”), at an exercise price of $7.50 per share. The creation of the Class B Common will require USEC stockholder approval, so the warrants will, in lieu thereof, until such USEC stockholder approval and related regulatory approvals have been obtained, be exercisable for 6,250 shares of a newly created Series C Convertible Participating Preferred Stock, par value $1.00 per share, at an exercise price of $7,500.00 per share.

The purchase agreement provides for our issuance and sale to the investors, for an aggregate amount of $200 million, in three phases subject to various terms and conditions, (1) shares of Series B-1 Preferred, (2) shares of Series B-2 11.5% Convertible Preferred Stock, par value $1.00 per share, and (3) warrants to purchase up to 12.5 million shares of a Class B Common at an exercise price of $7.50 per share. The transactions will occur in three phases upon the satisfaction at each phase of certain closing conditions. Toshiba and B&W will invest equally in each of the phases in an aggregate amount of $100 million each.2011.

Our debt to total capitalization ratio was ~~31%~~34% at March 31, 2011 and 36% at December 31, ~~2009, and 34% at September 30,~~ 2010, including ~~the~~ convertible preferred stock of $80.7 million which is classified as a liability.

~~Effective October 8, 2010, USEC entered into a Third Amended and Restated Credit Agreement replacing its existing~~Our $310 million syndicated bank credit ~~agreement. The amended credit agreement adds an~~facility provides for the $85 million term loan facility to USEC's existing revolving credit facility. The total credit facility is now $310 million. As part of the amended credit agreement, $25 million of existing lender commitments was moved from the existing revolving credit facility to the term loan, resulting in aggregate lender commitments under theand a revolving credit facility of $225 ~~million (previously $250 million). The amended credit agreement increases the letter of credit sublimit to $150~~ million. The revolving credit facility may be expanded through additional commit ments up to an aggregate of $250 million in revolving credit commitments (previously up to $350 million). The amended credit agreement also provides that USEC may increase the amount of the term loan from $85 million up to $100 million, subject to USEC obtaining additional commitments. As a result, the total credit facility could be expanded through additional commitments and term loans up to $350 million.

The term loan ~~is 100% funded as of October 8, 2010, and~~ was issued with an original issue discount of 2% and ~~will bear~~bears interest, at our election, at either:

·	the greater of (1) the JPMorgan Chase Bank prime rate (with a floor of 3%) plus 6.5%, (2) the federal funds rate plus ½ of 1% (with a floor of 3%) plus 6.5%, or (3) an adjusted 1-month LIBO Rate plus 1% (with a floor of 3%) plus 6.5%; or

·	the adjusted LIBO Rate (with a floor of 2%) plus 7.5%.

The interest rate for the term loan was 9.5% as of March 31, 2011, which equals the floor plus 7.5%.

Utilization of our $225 million revolving credit facility at March 31, 2011 and December 31, 2010 follows (in millions):

	March 31,		December 31,
	2011		2010
Short-term borrowings	$	-	$	-
Letters of credit		17.2		17.3
Available credit		207.8		207.7

Borrowings under the credit facilities are subject to limitations based on established percentages of qualifying assets pledged as collateral to the lenders, such as eligible accounts receivable and USEC-owned inventory. Available credit reflects the levels of qualifying assets at the end of the previous month less any borrowings or letters of credit.

The interest rate on outstanding borrowings under the revolving credit facility, ~~is unchanged and,~~ at our election, is either:

the sum of (1) the greater of a) the JPMorgan Chase Bank prime rate, b) the federal funds rate plus ½ of 1%, or c) an adjusted 1-month LIBO Rate plus 1% plus (2) a margin ranging from 2.25% to 2.75% based upon availability, or

the sum of the adjusted LIBO Rate plus a margin ranging from 4.0% to 4.5% based upon availability.

The credit facility is available to finance working capital needs and general corporate purposes. Commitments ~~under the syndicated bank credit facility~~ are secured by assets of USEC Inc. and our subsidiaries, excluding equity in, and assets of, subsidiaries created to carry out future commercial American Centrifuge activities.

Utilization of our $250 million revolving credit facility at September 30, 2010 (prior to it being amended October 8, 2010) and our former $400 million revolving credit facility at December 31, 2009 follows (in millions):

September 30, December 31,
2010 2009
Short-term borrowings                                                                     $ - $ -
Letters of credit                                                                     42.6 45.4
Available credit                                                                     207.4 295.5

Borrowings under the credit facilities are subject to limitations based on established percentages of qualifying assets such as eligible accounts receivable and inventory. Available credit reflects the levels of qualifying assets at the end of the previous month less any borrowings or letters of credit. The revolving credit facilities contain various reserve provisions that reduce available borrowings under the facility periodically or restrict the use of borrowings. As of September 30, 2010 and December 31, 2009, we had met all of the reserve provision requirements by a large margin. As of September 30, 2010 and December 31, 2009, we were in compliance with all of the various customary operating and financial covenants included in each credit facility.

Under the terms of the credit facility, we are subject to restrictions on our ability to spend on the American Centrifuge project. Subject to certain limitations when Availability (as defined in the amended credit agreement) falls below certain thresholds, the amended credit agreement permits us to spend up to $165 million for the American Centrifuge project over the term of the credit facility (the “ACP Spending Basket”). The credit facility does not restrict the investment of proceeds of grants and certain other financial accommodations (excluding proceeds from the issuance of debt or equity by the borrowers) that may be received from DOE or other third parties that are specifically designated for investment in the American Centrifuge project. Under this provision, the $45 million made available by DOE pursuant t o a cooperative agreement entered into with USEC in March 2010 for continued American Centrifuge activities is not restricted by the credit facility or counted towards the ACP Spending Basket. In addition to the ACP Spending Basket, the credit facility also permits the investment in the American Centrifuge project of net proceeds from additional capital raised by us (such as the investment from Toshiba and B&W), subject to certain provisions and certain limitations when Availability falls below certain thresholds. IfAs described above under “Liquidity and Capital Resources,” if we are unable to raise additional proceeds or capital that are permitted under the credit facility to be invested in the American Centrifuge project outside of the ACP Spending Basket, the size of the ACP Spending Basket ~~would~~will necessitate further reductions in spending on the American Centrifuge project.

The credit facility includes provisions permitting transfer of assets related to the American Centrifuge project to enable USEC to separately finance the American Centrifuge project. The USEC subsidiaries created to carry out future commercial American Centrifuge activities will not be guarantors under the credit facility, and their assets will not be pledged as collateral.

4542

Borrowings under the revolving credit facility are subject to limitations based on established percentages of qualifying assets pledged as collateral to the lenders, such as eligible accounts receivable and USEC-owned inventory. The revolving credit facility contains various reserve provisions that reduce available borrowings under the facility periodically or restrict the use of borrowings if certain requirements are not met. Additional details are provided in our ~~2009~~2010 Annual Report on Form 10-K. As of March 31, 2011 and December 31, 2010, we had met all of the reserve provision requirements by a large margin.

The credit facility includes various customary operating and financial covenants, including restrictions on the incurrence and prepayment of other indebtedness, granting of liens, sales of assets, making of investments, maintenance of a minimum amount of collateral, and payment of dividends or other distributions. As of March 31, 2011 and December 31, 2010, we were in compliance with all of the various customary operating and financial covenants. In addition, our ~~current~~ credit facility prohibits our payment of cash dividends or distributions to holders of our common stock. However, as described in Item 1A, “Risk Factors,” in our 2009 Annual Report on Form 10-K, the more restrictive nature of the covenants under our current credit facility as compared with our prior $400 million credit facility, combined with the smaller size of the credit facility, makes compliance with the covenants under the credit facility more difficult should we encounter unanticip ated adverse events. Complying with these covenants may ~~also~~ limit our flexibility to successfully execute our business strategy. Failure to satisfy the covenants would constitute an event of default under the credit facility.

Default under, or failure to comply with the Russian Contract, the 2002 DOE-USEC Agreement (other than the milestones related to deployment of the American Centrifuge project), the lease of the GDPs or any other material contract or agreement with the DOE, or any exercise by DOE of its rights or remedies under the 2002 DOE-USEC Agreement, would also be considered to be an event of default under the credit facility if it would reasonably be expected to result in a material adverse effect on (i) our business, assets, operations or condition (taken as a whole), (ii) our ability to perform any of our obligations under the credit facility, (iii) the assets pledged as collateral under the credit facility; (iv) the rights or remedies under the credit facility of the lenders or J.P. Morgan as administrative agent; or (v) the lien or lien ~~priorit y~~priority with respect to the collateral of J.P. Morgan as administrative agent.

Deferred Financing Costs

Financing costs are generally deferred and amortized over the life of the instrument. Issuance costs of $4.8 million related to the investment by Toshiba and B&W were expensed in the quarter ended September 30, 2010 since the preferred stock is classified as a liability and recorded at fair value. A summary of deferred financing costs for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 follows (in millions):

	December 31, 2009		Expenditures		Amortization			September 30, 2010		December 31, 2010		Additions		Amortization			March 31, 2011
Other current assets:
Bank credit facilities	$	0.5	$	8.4	$	(2.6	)	$	6.3	$	7.4	$	-	$	(1.3	)	$	6.1

Deferred financing costs (long-term):
Convertible notes	$	10.0	$	-	$	(1.5	)	$	8.5	$	8.1	$	-	$	(1.1	)	$	7.0
DOE Loan Guarantee application		2.0		-		-			2.0		2.5		1.5		-			4.0
Deferred financing costs	$	12.0	$	-	$	(1.5	)	$	10.5	$	10.6	$	1.5	$	(1.1	)	$	11.0 0

~~Financial Assurance and Related Liabilities~~

The NRC requires that we guarantee the disposition of our depleted uranium and stored wastes with financial assurance. The financial assurance in place for depleted uranium and stored wastes is based on the quantity of depleted uranium and waste at the end of the prior year plus expected depleted uranium generated over the current year. We also provide financial assurance for the ultimate decontamination and decommissioning (“D&D”) of the American Centrifuge facilities to meet NRC and DOE requirements. Surety bonds for the disposition of depleted uranium and for D&D are partially collateralized by interest earning cash deposits included in other long-term assets.

~~A summary of financial assurance, related liabilities and cash collateral follows (in millions):~~

Financial Assurance Long-Term Liability

September 30,
2010

December 31,
2009

September 30,
2010

December 31,
2009

Depleted uranium disposition and stored wastes
$ 189.2 $ 262.8 $ 119.2 $ 155.6
Decontamination and decommissioning of American Centrifuge 22.2 22.2 22.3 21.3
Other financial assurance
17.6 20.4

Total financial assurance
$ 229.0 $ 305.4
Letters of credit
42.6 45.4
Surety bonds
186.4 260.0

Cash collateral deposit for surety bonds
$ 110.2 $ 158.3

We reached a cooperative agreement with DOE in March 2010 to provide for pro-rata cost sharing support for continued funding of American Centrifuge activities with a total estimated cost of $90 million. DOE made $45 million available by taking the disposal obligation for a specific quantity of depleted uranium from USEC, which released encumbered funds for investment in the American Centrifuge technology that USEC had committed as financial assurance for depleted uranium disposition. The commensurate reduction in the cash collateral deposit is reflected as a reduction in cash used in investing activities.

The amount of financial assurance needed in the future for depleted uranium disposition is anticipated to increase by an estimated $30 to $40 million per year depending on Paducah GDP production volumes and the estimated unit disposition cost defined by the NRC requirement.

The amount of financial assurance needed for D&D of the American Centrifuge Plant is dependent on construction progress and decommissioning cost projections. The estimates of completed construction activities supporting the decommissioning funding plan are based on projected percent completion of activities as defined in the baseline construction schedule.

As part of our license to operate the American Centrifuge Plant, we provide the NRC with a projection of the total D&D cost. The total D&D cost related to the NRC and the incremental lease turnover cost related to DOE is uncertain at this time and is dependent on many factors including the size of the plant. Financial assurance will also be required for the disposition of depleted uranium generated from future centrifuge operations.

Off-Balance Sheet Arrangements

Other than the letters of credit issued under the credit facility, and the surety bonds, contractual commitments and the license agreement with DOE relating to the American Centrifuge technology disclosed in our ~~2009~~2010 Annual Report, there were no material off-balance sheet arrangements, obligations, or other relationships at ~~September 30, 2010~~March 31, 2011 or December 31, ~~2009.~~2010.

New Contractual Obligations

On March 23, 2011, we signed a multi-year contract with TENEX for the 10-year supply of Russian LEU beginning in 2013 through 2022. The effectiveness of the new commercial contract between TENEX and USEC is subject to approval of the Russian State Corporation for Atomic Energy (“ROSATOM”) and completion of administrative arrangements between the U.S. and Russian governments under the agreement for cooperation in nuclear energy between the United States and the Russian Federation. The pricing terms for SWU under the contract are based on a mix of market-related price points and other factors. The contract provides USEC the option to increase or decrease the amount of the firm commitment SWU to be purchased for a given year by up to a total of plus or minus 5%. For years 2015 through 2019, in addition to its option to decrease the amount of any firm commitment SWU to be purchased during such year by up to 5%, USEC will have the option to defer up to an additional 5% of the amount of the firm commitment SWU to be purchased in such year and instead purchase the deferred amount in years 2020 through 2022. TENEX and USEC also may mutually agree to increase the purchases and sales of SWU by certain additional optional quantities of SWU. USEC’s purchase commitment under the contract during the ten year period is estimated to be approximately $2.8 billion excluding contractual options to increase or decrease volumes. Actual amounts will also vary based on changes in the price points and other pricing elements.

New Accounting Standards Not Yet Implemented

We have reviewed recently issued accounting standards that are not yet effective and have determined that none would have a material impact to USEC’s consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

At ~~September 30, 2010,~~March 31, 2011, the balance sheet carrying amounts for cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities ~~and payables under the Russian Contract~~ approximate fair value because of the short-term nature of the instruments.

~~USEC has~~We have not entered into financial instruments for trading purposes. At ~~September 30, 2010,~~March 31, 2011, our debt consisted of the 3.0% convertible senior notes with a balance sheet carrying value of ~~$575.0~~$530.0 million and a credit facility term loan of $85.0 million. The fair value of the convertible notes, based on the trading price as of ~~September 30, 2010,~~March 31, 2011, was ~~$449.2~~$421.7 million. The fair value of the term loan as of March 31, 2011, using the change in market value of an index of loans of similar credit quality based on published credit ratings, was $90.8 million.

The estimated fair value of our convertible preferred stock at ~~September 30, 2010~~March 31, 2011, including accrued paid-in-kind dividends declared payable April 1, 2011, was ~~$75.0~~$80.7 million, and was equal to the liquidation value of $1,000 per share or ~~$75.0~~$80.7 million.

Reference is made to additional information reported in management’s discussion and analysis of financial condition and results of operations included herein for quantitative and qualitative disclosures relating to:

commodity price risk for electric power requirements for the Paducah GDP (refer to “Overview – Cost of ~~Sales”~~Sales for SWU and Uranium” and “Results of Operations – Cost of Sales”),

interest rate risk relating to the outstanding term loan and any outstanding borrowings at variable interest rates under our credit facility (refer to “Liquidity and Capital Resources – Capital Structure and Financial Resources”), and

interest rate and other market risks relating to the valuation of our convertible preferred stock (refer to “Liquidity and Capital Resources – Capital Structure and Financial Resources”).

Item 4. Controls and Procedures

Effectiveness of Our Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2010~~March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4945

USEC Inc.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to information regarding (a) the U.S. Department of Justice’s investigation of a possible claim relating to USEC’s contracts with the U.S. Department of Energy for the supply of cold standby and other services at the Portsmouth GDP and (b) settlement of a contractor’s claim, reported in note 14 to the consolidated condensed financial statements.

USEC is subject to various ~~other~~ legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, we do not believe that the outcome of any of these legal matters will have a material adverse effect on our results of operations or financial condition.

Item 1A. Risk Factors

Investors should carefully consider the updated risk factors below and the other risk factors in Part I, Item 1A of our ~~2009~~2010 Annual Report on Form 10-K, in addition to the other information in our Annual Report and this Quarterly Report on Form 10-Q.

Our business, results of operations and prospects could be materially and adversely affected by the effects of the March 11, 2011 earthquake and tsunami in Japan.

The recent earthquake and tsunami in Japan caused significant damage to a multi-unit nuclear power station at Fukushima, including, as announced by the plant operator, the permanent closure of at least four reactors due to the damage and radiation at the plant. Japan has categorized the severity level of the Fukushima nuclear crisis at the maximum level 7 on the International Nuclear Event Scale (INES), which is the level of the Chernobyl, Ukraine accident in 1986. It is too early to know the long term impact of the recent events in Japan, however, the events have created significant uncertainty and our business, results of operations and prospects could be materially and adversely affected.

We have long been a leading supplier of LEU to Japan. Over the last three years, sales to Japan have accounted for approximately 10% to 15% of our revenue. The Tokyo Electric Power Company of Japan, Inc. (TEPCO), which operates the affected nuclear facilities in Fukushima, has historically been one of our customers. We had already delivered the LEU to fuel fabricators expected to be used in 2011 refueling of reactors for utility customers most directly affected by the earthquake. However, our backlog during the years 2012-2013 includes sales to customers most directly affected by the earthquake of approximately $20 million. These sales could be affected and there may ~~not~~ be ~~successful~~additional sales affected as the situation develops. In addition, the shutdown of the Japanese reactors and the shutdown of reactors in ~~our efforts~~other countries due to ~~obtain a loan guarantee from DOE, which would~~safety or other concerns raised by the Japanese disaster could have ~~a significant~~an impact on near term supply and demand for LEU. If other suppliers have near term deliveries that are cancelled or delayed due to shutdown reactors or delays in reactor refuelings, they could seek to sell that excess supply in the market. This could adversely affect our success in selling our LEU and have an adverse effect on our cash flow and results of operations in future years.

The recent events in Japan could have an adverse impact on our ability to successfully finance and deploy the American Centrifuge project. We are seeking to finance the American Centrifuge project through a combination of a $2 billion DOE loan guarantee, the remaining two phases of the strategic investment by Toshiba Corporation and Babcock & Wilcox Investment Company, Japanese export credit agencies (“ECAs”) financing of $1 billion, and internally generated cash flow. In addition to the potential impact on cash flow discussed above, the Japanese crisis could have an adverse impact on our ~~prospects.~~

success in obtaining third party financing in the timeframe needed. We ~~must raise capital to remobilize and to complete~~are in discussions with DOE regarding the ~~ACP. We believe~~terms for a loan guarantee ~~under~~conditional commitment, however, this process has taken longer than anticipated and additional delays due to political or other concerns regarding nuclear power in light of recent events could adversely affect our ability to successfully deploy the ACP. While we continue our discussions with Japanese ECAs regarding financing $1 billion of the cost of completing the ACP, these discussions could also be adversely affected by the recent events if the Japanese ECAs are unable to devote the necessary time or resources to be able to make a financing commitment in the timeframe needed. We also have no assurance that the Japanese ECAs will not shift their priorities in the future or otherwise be unable to provide financing in the amount we need. If our ability to obtain Japanese ECA financing is adversely affected, this would also adversely affect our ability to obtain a DOE ~~Loan Guarantee Program is essential to raising capital needed to~~loan guarantee and complete the American Centrifuge ~~project, including raising additional capital needed from third parties. Therefore, we believe that~~project.

The recent events in Japan could also have a ~~loan guarantee is critical~~material and adverse impact on the nuclear energy industry in the long term. The disaster could harm the public’s perception of nuclear power and could raise public opposition to the planned future construction of nuclear plants. Some countries may delay or abandon deployment of nuclear power as a result of the ~~American Centrifuge project~~disaster in Japan. In the wake of the disaster, the Chinese government suspended approval of new nuclear projects and stated that it will conduct safety inspections of all plants under construction, but emphasized that China’s long-term nuclear development plans have not changed. Other governments have announced plans to review or delay decisions to review new nuclear projects.

In the immediate aftermath of the nuclear emergency, Germany shut down seven older reactors not currently served by us and its plans to extend the life of other reactors may be abandoned. Italy has renewed its moratorium on nuclear power and other European Union countries are reviewing their future plans for nuclear power. Countries have begun new safety evaluations of their plants and how well they operate in situations involving earthquakes and other natural disasters and other situations involving the loss of power. Demand for nuclear fuel could be negatively affected by such actions, which could have a material adverse effect on our results of operations and prospects. If deliveries under requirements contracts included in our backlog are significantly delayed, modified or canceled, or if our backlog of contracts is otherwise negatively affected, our future revenues and earnings may be materially and adversely impacted.

Any resulting increased public opposition to nuclear power could lead to political opposition and could slow the pace of global licensing and construction of new or planned nuclear power facilities or negatively impact existing facilities’ efforts to extend their operating licenses. The events could also result in additional permitting requirements and burdensome regulations that increase costs or have other negative impacts. As events at the Japanese nuclear facilities continue to develop, they could raise concerns regarding potential risks associated with certain reactor designs or nuclear power production. The disaster in Japan has also raised concerns regarding how to deal with used fuel, which could result in additional burdensome regulations or costs to the nuclear industry which could potentially impact demand for LEU. These events could adversely affect our business, results of operations and prospects.

The supply agreement we have entered into with Joint Stock Company Techsnabexport (“TENEX”) for the supply by TENEX of commercial Russian LEU is subject to conditions to effectiveness, including Russian government approval, that are outside of our control.

On March 23, 2011 we entered into an agreement with TENEX for the supply by TENEX of commercial Russian LEU to USEC over a 10-year period commencing in 2013. The 20-year Russian Contract implementing the Megatons to Megawatts program is scheduled to expire at the end of 2013 and the new supply contract will provide us with continued access to Russian LEU, which currently constitutes about one half of our supply source. However, the supply contract is subject to the approval of the Russian State Atomic Energy Corporation (“Rosatom”), and the purchase, sales and delivery obligations of the parties are subject to conclusion by the U.S. and Russian governments of certain implementing agreements under the U.S.-Russian Agreement for Cooperation in Nuclear Energy (the “Russia 123 Agreement”), which, among other things, provide the framework under which natural uranium supplied by us to TENEX can be returned from the United States to Russia. While the supply agreement provides some flexibility in the timing of obtaining these approvals and the first deliveries under the agreement are not until 2013, we have no assurance that these approvals and implementing agreements will be obtained in a timely manner or at all. If the approvals and implementing agreements are not obtained or waived by the parties, we will not be able to achieve the anticipated benefits from the supply contract.

Subject to the effectiveness of the supply contract, TENEX and USEC have also agreed to conduct a feasibility study to explore the possible deployment of an enrichment plant in the United States employing Russian centrifuge technology. However, we cannot give any assurance that we will ~~receive~~proceed with such a ~~DOE loan guarantee at all,~~project. As part of the feasibility study, Rosatom, TENEX and USEC will review international agreements, government approvals, licensing, financing, market demand, and commercial arrangements. Any decision to proceed with such a project would depend on the results of the feasibility study and would be subject to further agreement between the parties and their respective governments, the timing and prospects of which are significantly uncertain. In any event, such a project would not be deployed until after completion of the American Centrifuge project.

We also may not achieve the anticipated benefits from the supply contract with TENEX because of restrictions on U.S. imports of LEU and other uranium products produced in the ~~amount or~~Russian Federation. These imports (other than LEU imported under the ~~timeframe~~Russian Contract under the Megatons to Megawatts program) are subject to quotas imposed under legislation enacted into law in September 2008 and under the 1992 Russian Suspension Agreement, as amended. Under the supply contract, we ~~seek or on terms that we find acceptable.~~

~~The DOE Loan Guarantee Program was created by~~have the ~~Energy Policy Act of 2005 and in December 2007, federal legislation authorized funding levels of up~~right to ~~$2 billion for advanced facilities for the front end~~use a portion of the ~~nuclear fuel cycle, which includes uranium enrichment. We applied for $2 billion in funding in July 2008. DOE subsequently reallocated an additional $2 billion in loan guarantee authority~~import quotas to the front-end nuclear facilities loan guarantee solicitation. DOE announced in May 2010 that it has provided Areva, a company that is more than 90% owned by the French government, with a conditional commitment for a loan guarantee from the reallocated funding authority for a proposed plantsupport our sales in the United ~~States. DOE has said that $2 billion~~States of SWU purchased under the supply contract beginning in ~~funding~~2014. These quotas are subject to timely completion of the Megatons to Megawatts program by the end of 2013. Further, prior to the expiration of the quotas at the end of 2020, we will not be able to import for ~~projects~~consumption in the ~~front end~~United States LEU delivered to us under the supply contract in excess of the ~~nuclear fuel cycle remains available but we have no ass urance that a DOE Loan Guarantee will be made~~portion of the quotas available to ~~us.~~

~~On August 4, 2009, DOE and USEC announced an agreement~~us or that is not subject to ~~delay a final review of our loan guarantee application~~the quotas (e.g., for use in initial fuel cores for any U.S. nuclear reactors entering service for the ~~ACP. DOE raised several concerns with respect to our loan guarantee application, both financial and technical,~~first time). The LEU that we cannot sell for consumption in the United States will have to be ~~required to address to DOE's satisfaction in order to obtain a loan guarantee.~~sold for consumption by utilities outside the United States. We ~~have been working to address these issues. Our efforts to address DOE’s concerns focused on:~~

·	~~Completing a review of our quality assurance program and implementing corrective actions as needed;~~

·	Startup and operations of the AC100 lead cascade testing program in early 2010 using upgraded production machines to improve DOE’s confidence in the machines’ reliability through consistent operation;

·	~~Maintaining and demonstrating centrifuge machine manufacturing capability; and~~

·	~~Establishing a revised baseline cost and schedule for the project, taking into account the demobilization and remobilization costs and associated delays.~~

In late October 2010, we were informed by DOE that it has largely completed its initial technical review of our application and is proceeding to the next stage of the loan guarantee process. DOE provided us with a draft term sheet that will serve as the framework for discussions with DOE. Completion of due diligence by DOE and negotiation of terms and conditions with DOE are the next steps toward the potential issuance of a conditional commitment and we will be working with DOE to complete those in an expeditious manner. However, we have no assurance that we will be successful in ~~reaching an agreement~~our efforts to sell this LEU in the United States or outside of the United States.

Additional delays in our obtaining a conditional commitment for a loan guarantee from DOE and other financing needed for the project could severely jeopardize the American Centrifuge project and could require us to further demobilize or terminate the project.

We have been working with DOE since October 2010 on ~~mutually acceptable~~the terms for a conditional commitment for a $2 billion loan guarantee. The credit package prepared by the DOE Loan Guarantee Program Office, including the terms and conditions that USEC has negotiated with the DOE Loan Guarantee Program Office, is being reviewed in parallel by DOE’s credit group and by the Office of Management and Budget, the Department of the Treasury and the National Economic Council; which review will include the establishment of an estimated range of credit subsidy cost. However, we have no assurance that the terms we have negotiated with the DOE Loan Guarantee Program Office will be approved or that the credit subsidy cost will be reasonable or that action will be taken in a timely manner. A high credit subsidy cost could result in a potential capital shortfall which would require new sources of capital to close, which could be difficult to obtain and result in additional delays. We also continue discussions with Japanese ECAs for additional funding of $1 billion of the cost of completing the American Centrifuge plant.

We need to obtain a conditional commitment for the loan guarantee from DOE and close on the $50 million second phase of the strategic investment by Toshiba and B&W during the second quarter of 2011 in order to maintain compliance with our credit facility covenant that limits our ACP spending and to maintain the current spending level on the American Centrifuge project. Our spending on the American Centrifuge project will need to take into account existing contractual obligations. We have no assurance that we will be able to ~~reach an agreement in~~continue spending at current levels or at all.

The second closing of the strategic investment by Toshiba and B&W is conditioned on our obtaining a ~~timely manner. In addition, funding under~~conditional commitment for a ~~DOE~~ loan guarantee ~~will only~~of not less than $2 billion from DOE. The securities purchase agreement governing the transaction may be terminated by us or each of the investors (as to such investor’s obligations) if the second closing does not occur ~~following conditional commitment, final documentation~~by June 30, 2011. If the parties were to terminate the securities purchase agreement, that could have a ~~nd satisfaction of conditions to funding, which are subject to uncertainty.~~

Assignificant adverse impact on our business and prospects. Our loan guarantee application includes the $200 million investment as part of ~~completing its due diligence, DOE will be retaining an independent engineer and other outside advisors to assist in~~ the ~~review~~sources of ~~our~~funds for the American Centrifuge project. If ~~as a result~~the remaining two phases of ~~these reviews DOE determines that we have~~the investment are not ~~met their technical and financial requirements,~~consummated, this would adversely affect our ability to obtain a loan ~~guarantee could be jeopardized. Any issues or concerns that are raised as part of the additional due diligence could also affect the terms and conditions that are required in order for us~~guarantee. In addition, our ability to obtain ~~a loan guarantee. We may be asked~~Japanese ECA financing is highly dependent on the strategic investment by Toshiba. If our ability to ~~agree to terms that are difficult to achieve or that cannot be achieved in the timeframe we need. We may~~obtain Japanese ECA financing is adversely affected, this would also ~~be asked to agree to conditions that limit~~adversely affect our flexibility with respect to the American Centrifuge project or that increase the cost of the project. In addition, if any new issues or concerns arise with respect to the ACP technology or financing, the likelihood of obtaining a DOE loan guarantee could be adversely affected.

We also cannot give any assurances that we will be able to demonstrate to DOE that we can obtain the capital needed to complete the project. Additional capital beyond the $2 billion of DOE loan guarantee funding that we have applied for and our internally generated cash flow will be required to complete the project. The amount of additional capital that we will need will depend on a variety of factors, including our estimate of the total cost to complete the project, the input we receive from our suppliers as part of our ongoing negotiations, the length of the demobilization, and efficiencies and other cost savings that we are able to achieve. In orderability to obtain a DOE loan guarantee ~~we will have to demonstrate that sufficient capital is available to~~and complete ~~the project.~~

~~In 2009, we have significantly demobilized and reduced construction and machine manufacturing activities in~~ the American Centrifuge ~~project because of a lack of progress in obtaining a loan guarantee and uncertainty of funding.~~ project.

If we determine that we do not see a path forward to the receipt of loan guarantee ~~funding~~conditional commitment during the second quarter of 2011 or if we see further delay or increased uncertainty with respect to our prospects for obtaining a loan guarantee, or for other reasons, including as needed to preserve our liquidity or to stay within covenants in our credit facility, we may reduce spending and staffing on the project even further or might be forced to take other actions, including terminating the project. Further cuts in project spending and staffing could make it even more difficult to remobilize the project and could lead to more significant delays and increased costs and potentially make the project ~~uneco nomic.~~uneconomic. Termination of the ACP could have a material adverse impact on our business and prospects because we believe the long-term competitive position of our enrichment business depends on the successful deployment of competitive gas centrifuge enrichment technology.

Even if we are successful in obtaining a conditional commitment for a loan guarantee from DOE, we may be unable to meet any or all required conditions to funding or to reach agreement on acceptable terms, including credit subsidy cost, which would have a significant impact on the American Centrifuge project and our prospects.

A conditional commitment represents only one step in obtaining a loan guarantee from DOE. Final approval and issuance of a loan guarantee would be subject to completion of final agreements, continuing due diligence by DOE, and satisfaction of conditions, some of which could be significant. These conditions could include technical conditions to address or mitigate known or perceived technology risks and financial conditions to address or mitigate known or perceived funding or cost overrun risks, which may be difficult to achieve to DOE’s satisfaction.

Our ability to satisfy these conditions could be affected by risks related to, among other things, the availability of sufficient capital to complete the project, supplier performance including our ability to demonstrate component and machine production and installation rates, unforeseen technical problems, our ability to meet DOE’s technical requirements including with respect to machine performance and reliability, our ability to negotiate satisfactory fixed or maximum cost contracts with our suppliers, our ability to successfully enter into sufficient contracts for the output of the American Centrifuge plant, and unanticipated cost increases.

We may not have an agreement with respect to credit subsidy cost or other key terms at the time of conditional commitment. The amount of the credit subsidy cost is affected by the perceived credit risk of the project and could be substantial and make the project uneconomic.

We have entered into a securities purchase agreement with two investors, Toshiba Corporation and Babcock & Wilcox Investment Company, pursuant to which the investors will make a strategic investment in USEC of $200 million in three phases. If we fail to consummate the remaining two phases of the transactions contemplated by the securities purchase agreement, we may be unable to raise capital from alternative sources, and our business and prospects may be substantially harmed.

On May 25, 2010, we entered into a securities purchase agreement (the “Purchase Agreement”) with two investors, Toshiba Corporation (“Toshiba”) and Babcock & Wilcox Investment Company (“B&W”), pursuant to which the investors agreed to purchase, in three phases and for an aggregate amount of $200 million, shares of a newly created series of preferred stock and warrants to purchase shares of a newly created series of preferred stock or class of common stock (the “Transactions”). On September 2, 2010, the first closing of $75.0 million occurred under the Purchase Agreement. The remaining two phases of the Transactions ($125.0 million) are subject to significant closing conditions, including the conditions listed in the risk factor below. As a result, the remaining Transacti ons may not be completed in a timely manner or at all.

If the remaining Transactions are not completed on time or at all for any reason, our ongoing business and financial results may be adversely affected and we will be subject to a number of risks, including the following:

·	~~We have incurred and will incur significant costs and expenses relating to the Transactions, whether or not the remaining Transactions are completed;~~

Matters relating to the Transactions require substantial commitments of time and resources by our management, whether or not the remaining Transactions are completed, which could otherwise have been devoted to other opportunities that may have been beneficial to us, including pursuing other strategic options or sources of capital;

The second closing of the Transactions is conditioned on our obtaining a conditional commitment for a loan guarantee of not less than $2 billion from DOE. The securities purchase agreement may be terminated by any party if the second closing does not occur by June 30, 2011. If the second closing is not consummated, our ability to continue to spend on the American Centrifuge project will be limited and our anticipated sources of near term liquidity could be affected;

Our loan guarantee application includes the $200 million investment as part of the sources of funds for the American Centrifuge project. The strategic investment was also intended in part to address financial concerns of the DOE with respect to the ability of the American Centrifuge project to mitigate cost and other risk. If the remaining Transactions are not consummated or are delayed significantly, this would adversely affect our ability to obtain a loan guarantee (which is a condition to the third closing);

We need significant additional financing to complete construction of the American Centrifuge Plant beyond the DOE loan guarantee and the proceeds of the Transactions, and we will need to demonstrate the availability of that funding in order to obtain the DOE loan guarantee (which is a condition of the third closing). We have initiated discussions with Japanese export credit agencies (ECAs) for additional financing. Our ability to obtain Japanese ECA financing is highly dependent on the strategic investment by Toshiba. If the remaining Transactions are not consummated or are delayed significantly and our ability to obtain Japanese ECA financing is adversely affected, this will subsequently adversely affect our ability to obtain a DOE loan guarantee, consummate the third closing and complete the American Centrifuge project; and

If the remaining Transactions are not consummated, we may be unable to raise capital from alternative sources on terms favorable to us, if at all. If the remaining Transactions are not consummated or are delayed significantly and we are unable to raise capital from alternative sources, our business and prospects (including the American Centrifuge project) may be substantially harmed and our stock price may decline.

We cannot provide any assurance that the remaining Transactions will be completed, that there will not be a delay in the completion of the remaining Transactions or that all or any of the anticipated benefits of the Transactions will be achieved. In the event the remaining Transactions are materially delayed for any reason, our business and prospects may be substantially harmed.

Completion of the remaining Transactions is subject to significant closing conditions, including governmental approvals and other conditions that may be difficult to obtain and are outside of our control.

~~The completion of the remaining Transactions is subject to significant closing conditions, many of which may be difficult to obtain and are outside our control.~~

The third closing is subject to the receipt of governmental approvals and determinations from the U.S. Nuclear Regulatory Commission (“NRC”), the U.S. Department of Energy (“DOE”) and other relevant authorities related to foreign ownership, control, or influence (“FOCI”) and other matters. As a result of the ownership interests that the investors will obtain in connection with the third closing, DOE and/or NRC may require that we agree to mitigation measures (such as entering into a negation plan with the agencies) to assure that the investment from Toshiba does not result in FOCI. Under the securities purchase agreement, the parties are obligated to reasonably cooperate in obtaining these approvals; however, any negation action plan proposed to be applied to any investor must be reasonably acceptable to that investor and must not materially restrict certain rights of the investor intended to be provided to such investor under the Transaction documents. We cannot assure you that any negation action plans or other mitigation measures required by NRC or DOE will be reasonably acceptable. While we have received confirmation from the NRC that NRC consent is not required for the first and second closings, we cannot assure you that the NRC and DOE will provide the approvals necessary for the third closing on a timely basis or at all, which could have the effect of preventing or delaying completion of the Transactions or imposing additional costs on us.

The Transactions may also be subject to the notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Under this statute, the parties are required to make notification filings and to await the expiration of the statutory waiting period prior to completing the Transactions. If the federal antitrust authority challenges the Transactions, they could seek to enjoin the Transactions, impose conditions on the completion of the Transactions, or require changes to the terms of the Transactions. This could have the effect of preventing or delaying completion of the Transactions or imposing additional costs on us.

The Transactions are also subject to significant conditions tied to our progress in obtaining a DOE loan guarantee for the American Centrifuge project. The obligations of the investors at the second closing of the Transactions is conditioned upon USEC having entered into a loan guarantee conditional commitment in an amount not less than $2 billion for the American Centrifuge project with DOE. The obligations of the investors at the third closing of the Transactions is conditioned upon USEC achieving closing on a DOE loan guarantee in an amount not less than $2 billion for the American Centrifuge project. Our ability to satisfy these conditions and to obtain a loan guarantee is subject to significant uncertainty as described in the risk factor “~~We may not be successful in our efforts to obtain a loan guarantee from DOE, which would have a significant impact on the American Centrifuge project and our prospects.” In order to obtain a loan guarantee, we will have to demonstrate that any additional capital needed to complete the American Centrifuge project is available.~~

The obligations of the investors at the third closing are subject to the approval by our shareholders of (1) the amendment of our certificate of incorporation to create a new class of common stock and to increase our authorized shares of common stock and (2) the issuance of shares of common stock in the Transactions in excess of the threshold for requiring shareholder approval under the New York Stock Exchange listing requirements. We have no assurance that our shareholders will approve these matters. If we do not obtain shareholder approval, we could be required to redeem the investors’ shares for cash or separative work units (SWU), which could harm our financial condition.

The second and third closings are also subject to other customary conditions to closing, including compliance with covenants, the accuracy of representations and warranties in the securities purchase agreement (including the absence of any action or proceeding by DOE under the 2002 DOE-USEC Agreement that has resulted or reasonably could be expected to result in a recommendation to exercise remedies), and that no material adverse effect shall have occurred with respect to USEC.

There are outside dates tied to the satisfaction of these conditions of June 30, 2011 for the second closing and December 31, 2011 (subject to a one year extension in certain circumstances) for the third closing. If these outside dates are not extended, a significant delay in satisfying conditions to closing could give a party a right to terminate the securities purchase agreement. As discussed above, the failure to complete the Transactions could negatively impact our business and prospects.

If the second or third closing does not occur by the relevant outside date, and the condition is not waived by the parties, each of Toshiba and B&W must elect to either convert its shares of preferred stock into a new class of common stock (or a new class of preferred stock) or to sell its shares of preferred stock pursuant to an orderly sales arrangement. The orderly sales arrangement includes conversion of the preferred stock into ordinary common stock at the time of the sale. Until the receipt of stockholder approval, any issuance of common stock, including as a result of the conversion or sale of preferred stock issued pursuant to the Transactions, is limited in the aggregate to the total number of shares that may be issued in compliance with the NYSE listing requirements. If the conversion or sale of all of the prefer red stock would result in an issuance of common stock in excess of the NYSE limitations, then not all the preferred stock could be converted or sold and some preferred stock would remain outstanding. At the later of December 31, 2012 or one year following the applicable date of the failure to close, we would be required to redeem any remaining outstanding shares of preferred stock held by Toshiba or B&W for cash or SWU, which could harm our financial condition.

~~If Toshiba or B&W convert or sell their preferred shares or exercise their warrants, our stockholders may be diluted and our stock price may be negatively impacted.~~

Following the first closing of the Transactions, Toshiba and B&W now hold shares of newly created preferred stock and warrants to purchase shares of a newly created series of preferred stock or class of common stock. Such shares are convertible into a newly created class of common stock at the market price at the time of conversion at the election of the holder at any time after the third closing. Any remaining shares of preferred stock outstanding on December 31, 2016 will be automatically converted into the new class of common stock (or a new class of preferred stock) at the market price. In addition, such shares of preferred stock are convertible if the second or third closing of the Transactions does not occur by the relevant outside date as described above. If the failure to close is due to a material breach by us, the preferred stock is convertible at a 10% premium. The conversion of preferred stock or exercise of warrants may result in substantial dilution to our existing stockholders. Additionally, any sales by the investors could adversely affect prevailing market prices of our common stock. The potential for such dilution or adverse stock price impact may encourage short selling by market participants. Additional information about the Transactions and the conversion and other rights related to the preferred stock and warrants to be issued in the Transactions can be found in the Current Reports on Form 8-K filed by us on May 25, 2010 and September 2, 2010.

~~We may not realize the expected benefits of any strategic relationships with Toshiba or B&W.~~

In connection with the Transactions, we entered into a strategic relationship agreement with Toshiba and B&W that provides a process for us to explore potential business opportunities throughout the nuclear fuel cycle. However, we may not be successful in realizing the expected benefits of these strategic relationships. The realization of these expected benefits are subject to a number of risks, including:

·	~~Success in potential efforts to sell our low enriched uranium in connection with Toshiba’s nuclear power plant proposals, including Toshiba’s success in nuclear reactor sales;~~

·	~~Success of efforts to identify potential growth opportunities in U.S. government services, spent nuclear fuel transportation and storage, manufacturing of spent fuel storage systems; and~~

·	~~Our success in achieving cost savings and other benefits through the manufacturing joint venture with B&W.~~

We may not achieve the perceived benefits of the strategic relationships as rapidly or to the extent anticipated which could have an adverse impact on the perceived benefits of the Transactions and our prospects.

Apart from a DOE loan guarantee and the strategic investment by Toshiba and B&W, deployment of the American Centrifuge technology will require additional external financial and other support that may be difficult to secure.

We cannot assure you that we will be able to attract the capital we need to complete the American Centrifuge project in a timely manner or at all. Factors that could affect our ability to obtain financing or the cost of such financing include:

·	~~our ability to get loan guarantees or other support from the U.S. government,~~

·	our ability to meet the closing conditions of the second and third phases of the $200 million strategic transaction with Toshiba and B&W and to otherwise address the financial concerns identified by DOE,

·	~~the success of any discussions with Japanese export credit agencies regarding financing for the American Centrifuge project, including our dependency on Toshiba’s support for these discussions,~~

·	~~the success of our demonstration of the American Centrifuge technology and our ability to address the technical concerns and risks identified by DOE,~~

·	~~the estimated costs, efficiency, timing and return on investment of the deployment of the American Centrifuge Plant (described below),~~

·	~~our ability to secure a sufficient number of long-term SWU purchase commitments from customers on satisfactory terms, including adequate prices,~~

·	~~the level of success of our current operations,~~

·	~~SWU prices,~~

·	~~USEC’s perceived competitive position and investor confidence in our industry and in us,~~

·	~~projected costs for the disposal of depleted uranium and the decontamination and decommissioning of the American Centrifuge Plant, and the impact of related financial assurance requirements,~~

·	~~additional downgrades in our credit rating,~~

·	~~market price and volatility of our common stock,~~

·	~~general economic and capital market conditions,~~

·	~~conditions in energy markets,~~

·	~~regulatory developments,~~

·	~~our reliance on LEU delivered to us under the Russian Contract and uncertainty regarding prices and deliveries under the Russian Contract, and~~

·	~~restrictive covenants in the agreements governing our credit facility and in our outstanding notes and any future financing arrangements that limit our operating and financial flexibility.~~

~~We have demobilized the American Centrifuge project and increased costs and cost uncertainty could adversely affect our ability to finance and deploy the American Centrifuge Plant.~~

Based on our work with suppliers to date, we estimate the cost to complete the American Centrifuge project from the point of closing on financing will be approximately $2.8 billion. This estimate includes AC100 machine manufacturing and assembly, EPC and related balance-of-plant work, start-up and initial operations, and project management. The $2.8 billion estimate is a go-forward cost estimate and does not include our investment to date, spending from now until financial closing, overall project contingency, financing costs or financial assurance. Until potential financial closing, we expect to continue to invest at a rate consistent with our anticipated spending indicated in our outlook for the remainder of 2010, while taking into account our anticipated cash from operations and other available liquidity.

We are currently evaluating the appropriate level for the overall project contingency taking into account the level of risk given the maturity of the project. The amount of overall project contingency is not included in our $2.8 billion go-forward cost estimate and could affect the amount of capital that we will need to raise to complete the project. Factors that can affect the level of contingency include, among other things: the risk of the project, including the structure of contracts with suppliers and expectation regarding the potential transition to fixed cost contracts; the overall cost of the project; other risks perceived by lenders to the project; and the maturity of the project.

We are also evaluating the financing costs and financial assurance required for the project, which are also not included in our $2.8 billion go-forward cost estimate. Factors that can affect the financing costs and financial assurance include, among other things: the overall financing plan for the project, the amount of the credit subsidy cost for any DOE loan guarantee, and the amount and sources of the additional financing we need to complete the project.

Increases in the cost of the ACP increase the amount of external capital we must raise and could threaten our ability to successfully finance and deploy the ACP. We are seeking to fund the costs to complete the American Centrifuge project, including additional amounts that are needed to cover overall project contingency, financing costs and financial assurance through a combination of the $2 billion of loan guarantee funding for which we have applied, the proceeds from the $200 million investment from Toshiba and B&W, additional funding from Japanese export credit agencies and/or other third parties, cash on hand and prospective cash flow from existing USEC operations, and prospective reinvested project cash. Many of these sources of capital are inter-related. For example, the third phase of the investment by Toshiba and B&W is c ontingent upon the closing of a DOE loan guarantee and in order to close on a DOE loan guarantee we will need to demonstrate that all sources of capital needed to complete the project are available. However, we have no assurance that we will be successful in raising this capital.

The amount of additional capital that we will need will depend on a variety of factors, including how we ultimately deploy the project, the input we receive from our suppliers as part of our ongoing negotiations, the length of the demobilization, and efficiencies and other cost-savings that we are able to achieve.

We cannot assure investors that, if remobilized, the costs associated with the ACP will not be materially higher than anticipated or that efforts that we take to mitigate or minimize cost increases will be successful or sufficient. Our cost estimates and budget for the ACP have been, and will continue to be, based on many assumptions that are subject to change as new information becomes available or as events occur. Regardless of our success in demonstrating the technical viability of the American Centrifuge technology, uncertainty surrounding our ability to accurately estimate costs or to limit potential cost increases could jeopardize our ability to successfully finance and deploy the ACP. Our inability to finance and deploy the ACP could have a material adverse impact on our business and prospects because we believe the long-term comp etitive position of our enrichment business depends on the successful deployment of competitive gas centrifuge enrichment technology.

We are required to meet certain milestones under the 2002 DOE-USEC Agreement and our failure to meet these milestones could cause DOE to exercise one or more remedies under the 2002 DOE-USEC Agreement.

The 2002 DOE-USEC Agreement contains specific project milestones relating to the American Centrifuge Plant. As amended in January 2010, the following four milestones remain under the 2002 DOE-USEC Agreement:

·	November 2010 – Secure firm financing commitment(s) for the construction of the commercial American Centrifuge Plant with an annual capacity of approximately 3.5 million SWU per year (the “Financing Milestone”);

·	~~August 2010 – begin commercial American Centrifuge Plant operations;~~

·	~~November 2011 – commercial American Centrifuge Plant annual capacity at 1 million SWU per year; and~~

·	~~May 2013 – commercial American Centrifuge Plant annual capacity of approximately 3.5 million SWU per year.~~

In a January 2010 amendment to the 2002 DOE-USEC Agreement, DOE and USEC agreed to discuss adjustment of the August 2010, November 2011 and May 2013 milestones as may be appropriate based on, among other things, progress in achieving the November 2010 Financing Milestone and the technical progress of the program. However, we may not be able to reach an acceptable agreement regarding possible adjustments to these milestones and DOE may assert that a delaying event was within our control or due to our fault or negligence.

As part of the January 2010 amendment, DOE and USEC acknowledged that no part of the 2002 DOE-USEC Agreement, including the milestones for the ACP, is dependent on the issuance by DOE of a loan guarantee to us. However, we have communicated to DOE that obtaining a timely commitment and funding for a loan guarantee from DOE is necessary in order for us to meet the remaining four milestones and complete the ACP. We will also need additional financing commitments beyond a DOE loan guarantee to meet the November 2010 financing milestone. Meeting the November 2010 milestone is subject to significant uncertainty. Given this uncertainty, we plan to have discussions with DOE regarding adjustments to the November 2010 milestone. However, there can be no assurance that the milestone would be adjusted.

Unless we are able to obtain a loan guarantee commitment from DOE in the near term, which is largely outside of our control, and we are able to obtain other financing commitments, we will not be able to meet the Financing Milestone by November 2010. Our ability to obtain additional financing commitments is dependent upon our obtaining a loan guarantee commitment. Risks related to our ability to obtain a loan guarantee commitment are described in the risk factor ~~“We may not be successful in our efforts to obtain a loan guarantee from DOE, which would have a significant impact on the American Centrifuge project and our prospects.” Risks related to our ability to raise ca pital are described in the risk factor “~~Apart from a DOE loan guarantee and the strategic investment by Toshiba and B&W, deployment of the American Centrifuge technology will require additional external financial and other support that may be difficult to secure.”

Until we have met the Financing Milestone, DOE has full remedies under the 2002 DOE-USEC Agreement if we fail to meet a milestone that would materially impact our ability to begin commercial operations of the American Centrifuge Plant on schedule and such delay was within our control or was due to our fault or negligence. These remedies include terminating the 2002 DOE-USEC Agreement, revoking our access to DOE’s U.S. centrifuge technology that we require for the success of the American Centrifuge project and requiring us to transfer certain of our rights in the American Centrifuge technology and facilities to DOE, and requiring us to reimburse DOE for certain costs associated with the American Centrifuge project. DOE could also recommend that we be r emoved as the sole U.S. Executive Agent under the Megatons to Megawatts program. Any of these actions could have a material adverse impact on our business and prospects. Uncertainty surrounding the milestones under the 2002 DOE-USEC Agreement or the initiation by DOE of any action or proceeding under the 2002 DOE-USEC Agreement could adversely affect our ability to obtain financing for the American Centrifuge project or to consummate the transactions with Toshiba and B&W.

~~Our new credit facility contains limitations on our ability to invest in the American Centrifuge project, which could adversely affect our ability to deploy the American Centrifuge Plant.~~

Under the terms of our credit facility, we are subject to restrictions on our ability to spend on the American Centrifuge project. Subject to certain limitations when availability (as defined in the credit agreement) falls below certain thresholds, the credit facility permits us to spend up to $165 million for the American Centrifuge project over the term of the credit facility (the “ACP Spending Basket”). The credit facility does not restrict the investment of proceeds of grants and certain other financial accommodations (excluding proceeds from the issuance of debt or equity by the borrowers) that may be received from DOE or other third parties that are specifically designated for investment in the American Centrifuge project. Under this provision, the $45 million made available by DOE pursuant to a cooperative a greement entered into with USEC in March 2010 for continued American Centrifuge activities is not restricted by the credit facility or counted towards the ACP Spending Basket. In addition to the ACP Spending Basket, the credit facility also permits the investment in the American Centrifuge project of net proceeds from additional equity capital raised by us (such as the investment from Toshiba and B&W), subject to certain provisions and certain limitations when availability falls below certain thresholds.

If we are unable to obtain and timely close on a DOE loan guarantee and raise additional proceeds or capital that are permitted under the credit facility to be invested in the American Centrifuge project outside of the ACP Spending Basket, the size of the ACP Spending Basket may necessitate future reductions in spending on the American Centrifuge project, which could adversely affect our ability to deploy the American Centrifuge project and our prospects. Our spending on the American Centrifuge project will need to take into account existing contractual obligations, including anticipated payments for materials to be delivered as well as project contract termination costs.

If we are not successful in our efforts to perform work as a subcontractor to the decontamination and decommissioning contractor at the Portsmouth GDP or if the transition has other unanticipated impacts, our results of operations could be adversely affected.

Our government services business includes work performed under contract with DOE (“cold shutdown contract”) to maintain and prepare the former Portsmouth GDP for decontamination and decommissioning (“D&D”). This work is currently in a state of transition. In August 2010, DOE awarded a contract for the D&D of the Portsmouth GDP to a joint venture between Fluor Corp. and The Babcock & Wilcox Company (“Fluor-B&W Portsmouth LLC”). Due to potential organizational conflicts of interest (“OCI”) concerns raised by DOE, we elected not to submit a proposal as a prime contractor for the contract that was awarded to Fluor-B&W Portsmouth LLC and are not a pre-selected subcontractor. Under the contract, Fluor-B&W Portsmouth LLC will serve as the prime contractor for the D&D.&# 160; DOE extended the expiration of our cold shutdown contract to January 16, 2011, but this extension has not yet been definitized, meaning, among other things, that the parties have not yet reached an agreement on the amount of the fee to be paid to USEC for the work. The lack of contract definitization can result in delays in our submittal of incurred costs and recovery of fees for work performed. After the expiration of the contract, responsibility for work under our cold shutdown contract will transition to the new D&D contractor.

We are seeking the opportunity to perform work as a subcontractor as the D&D project proceeds over the next several years. However, our success in being selected and the scope, timing and size of any contract to perform work as a subcontractor is uncertain. Accordingly, we expect that our revenues from U.S. government services will be significantly reduced beginning with the first quarter of 2011. This impact will be more significant if we are not able to obtain work as a subcontractor and extend work we currently perform providing infrastructure and support services to the site tenants.

We are in the process of negotiating transition activities with the new D&D contractor to determine what scope of work will be transitioned and in what timeframe. The outcome of these discussions could raise additional risks and uncertainties, including:

·	The potential impact on USEC employees and potential severance and other costs to USEC, as we have approximately 1,100 employees working at the former Portsmouth plant supporting DOE, its activities and the cold shutdown contract efforts;

·	~~The potential impact of the loss of employees on work we perform to comply with requirements of our certificate with NRC for the Portsmouth facility;~~

The potential impact of our de-lease of facilities at Portsmouth on our activities with respect to the American Centrifuge plant, including, but not limited to, potential reduction in flexibility with respect to the storage of materials, potential increased costs of site services and use of site facilities, and potential increased interferences with our activities on site;

The potential impact on our ability to collect unbilled amounts from DOE. As a part of performing contract work for DOE, certain contractual issues, scope of work uncertainties, and various disputes arise from time to time. As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Revenue from U.S. Government Contracts,” we believe that as of September 30, 2010 additional amounts can be billed to DOE and revenue of approximately $2.3 million may be recognizable. There could also be the potential for additional revenue to be recognized related to our valuation allowances pending the outcome of DCAA audits and DOE reviews. In addition, $31.2 million of unbilled receivables and $6.5 million of past due receivables related directly to DOE or DOE contractors remain on our consolidated b alance sheet as of September 30, 2010, and the timing and amount of recovery are uncertain. The termination of the cold shutdown contract could adversely affect our ability to timely recover these or other amounts we may be owed from DOE; and

The potential impact on the cost of remaining services and activities. The reduction of the scope of work performed by USEC for DOE and the transition of the work to the D&D contractor could adversely impact the costs to us at the Portsmouth site and throughout the rest of the Company. Costs of work self-performed by us could increase due to the increased allocation of overhead and other costs to such work. Costs of contracting with the D&D contractor to perform work previously performed by us could be higher than current costs.

6049

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Total Number (d) Maximum Number
(a) Total (b) of Shares (or Units) (or Approximate Dollar
Number of Average Purchased as Part Value) of Shares (or
Shares (or Price Paid of Publicly Units) that May Yet Be
Units) Per Share Announced Plans Purchased Under the
Period Purchased(1) (or Unit) or Programs Plans or Programs

July 1 – July 31 - $ - - -
August 1 – August 31 3,414 $5.07 - -
September 1 – September 30 2,078 $5.08 - -
Total 5,492 $5.07 - -

			(c) Total Number	(d) Maximum Number
	(a) Total	(b)	of Shares (or Units)	(or Approximate Dollar
	Number of	Average	Purchased as Part	Value) of Shares (or
	Shares (or	Price Paid	of Publicly	Units) that May Yet Be
	Units)	Per Share	Announced Plans	Purchased Under the
Period	Purchased(1)	(or Unit)	or Programs	Plans or Programs

January 1 – January 31	-	-	-	-
February 1 – February 28	-	-	-	-
March 1 – March 31	351,475	$5.31	-	-
Total	351,475	$5.31	-	-

(1)	These purchases were not made pursuant to a publicly announced repurchase plan or program. Represents ~~5,492~~351,475 shares of common stock surrendered to USEC to pay withholding taxes on shares of restricted stock under the Company’s equity incentive plan.

Item 6. Exhibits

~~3.1~~10.1

~~Certificate~~Modification No. 4 dated February 11, 2011, to Agreement dated June 17, 2002 between the U.S. Department of ~~Incorporation of~~Energy and USEC Inc., ~~as amended~~.

~~4.1~~

~~Warrant to purchase 3,125,000 shares of Class B Common Stock or 3,125 shares of Series C Convertible Participating Preferred Stock issued to Toshiba America Nuclear Energy Corporation,~~ incorporated by reference to Exhibit ~~4.1 of~~10.1 to the Current Report on Form 8-K filed on ~~September 2, 2010 (Commission file number 1-14287).~~

~~4.2~~

Warrant to purchase 3,125,000 shares of Class B Common Stock or 3,125 shares of Series C Convertible Participating Preferred Stock issued to Babcock & Wilcox Investment Company, incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed on September 2, 2010 (Commission file number 1-14287).

~~10.1~~

Investor Rights Agreement, dated as of September 2, 2010, by and among USEC Inc., Toshiba Corporation, and Babcock & Wilcox Investment Company, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on September 2, 2010February 16, 2011 (Commission file number 1-14287).

10.2

~~Limited Liability~~Supplement No. 7 dated January 14, 2011 to Power Contract between Tennessee Valley Authority and United States Enrichment Corporation. (Certain information has been omitted and filed separately pursuant to a request for confidential treatment under Rule 24b-2).

10.3

Enriched Product Transitional Supply Contract dated March 23, 2011 between United States Enrichment Corporation and Joint Stock Company Agreement of American Centrifuge Manufacturing, LLC dated as of September 2, 2010 between American Centrifuge Holdings, LLC and Babcock & Wilcox Technical Services Group, Inc., incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed on September 2, 2010 (Commission file number 1-14287)“Techsnabexport”. (Certain information has been omitted and filed separately pursuant to a request for confidential treatment under Rule 24b-2).

31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema ~~Document~~

101.CAL

XBRL Taxonomy Extension Calculation Linkbase ~~Document~~

101.LAB

XBRL Taxonomy Extension Label Linkbase ~~Document~~

101.PRE

XBRL Taxonomy Extension Presentation Linkbase ~~Document~~

6150

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	USEC Inc.



~~November 3, 2010~~May 4, 2011	By:	/s/ John C. Barpoulis
		John C. Barpoulis
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

6251

EXHIBIT INDEX

Exhibit No. Description

~~3.1~~10.1

~~Certificate~~Modification No. 4 dated February 11, 2011, to Agreement dated June 17, 2002 between the U.S. Department of ~~Incorporation of~~Energy and USEC Inc., ~~as amended.~~

~~4.1~~

~~4.2~~

~~10.1~~

10.2	~~Limited Liability~~Supplement No. 7 dated January 14, 2011 to Power Contract between Tennessee Valley Authority and United States Enrichment Corporation. (Certain information has been omitted and filed separately pursuant to a request for confidential treatment under Rule 24b-2).

10.3

31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

32	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema ~~Document~~

101.CAL

XBRL Taxonomy Extension Calculation Linkbase ~~Document~~

101.LAB

XBRL Taxonomy Extension Label Linkbase ~~Document~~

101.PRE

XBRL Taxonomy Extension Presentation Linkbase ~~Document~~

6352

	September 30, 2010
Series B-1 12.75% convertible preferred stock:
Value at issuance	$	75.0
Dividends payable		0.8	(a)
Balance as of September 30, 2010	$	75.8

(a) Paid-in-kind dividends of approximately 770 shares of convertible preferred stock declared payable on October 1, 2010.

	Common Stock, Par Value $.10 per Share		Excess of Capital over Par Value			Retained Earnings			Treasury Stock			Accumulated Other Compre-hensive Income (Loss)			Total Stockholders’ Equity			Compre-hensive Income (Loss)
Balance at December 31, 2009	$	12.3	$	1,179.6		$	322.4		$	(71.3	)	$	(167.4	)	$	1,275.6
Restricted and other stock issued, net		-		(8.3	)		-			13.8			-			5.5			-
Amortization of actuarial losses and prior service costs (credits), net of income tax of $3.0 million		-		-			-			-			6.0			6.0			6.0
Net (loss)		-		-			(1.5	)		-			-			(1.5	)		(1.5	)
Balance at September 30, 2010	$	12.3	$	1,171.3		$	320.9		$	(57.5	)	$	(161.4	)	$	1,285.6		$	4.5

	Defined Benefit Pension Plans												Postretirement Health and Life Benefits Plans
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009			2010			2009			2010			2009
Service costs	$	4.8		$	4.7		$	14.5		$	14.0		$	1.2		$	1.2		$	3.7		$	3.5
Interest costs		12.3			11.9			36.7			35.7			3.0			3.2			8.9			9.5
Expected return on plan assets(gains)		(12.2	)		(10.6	)		(36.6	)		(31.9	)		(0.9	)		(0.8	)		(2.7	)		(2.3	)
Amortization of prior service costs (credits)		0.4			0.4			1.3			1.2			(2.1	)		(3.6	)		(6.3	)		(10.8	)
Amortization of actuarial losses		4.0			6.0			12.0			18.0			0.7			1.0			2.0			3.1
Net benefit costs	$	9.3		$	12.4		$	27.9		$	37.0		$	1.9		$	1.0		$	5.6		$	3.0

	Nine Months Ended September 30,				Cumulative as of September 30,
	2010		2009		2010
Amount expensed (A)	$	78.6	$	93.4	$	738.2
Amount capitalized (B)		91.4		327.2		1,139.7
Total ACP expenditures, including accruals (C)	$	170.0	$	420.6	$	1,877.9

(A)Expense included as part of Advanced Technology Costs.
(B)Amounts capitalized as part of property, plant and equipment total $1,086.4 million as of September 30, 2010, including capitalized interest of $68.4 million. Prepayments to suppliers for services not yet performed totaled $34.1 million as of September 30, 2010.
(C)Total ACP expenditures are all American Centrifuge costs including, but not limited to, demonstration facility, licensing activities, commercial plant facility, program management, interest related costs and accrued asset retirement obligations capitalized. This includes $9.5 million of accruals at September 30, 2010.

	Financial Assurance				Long-Term Liability
	September 30, 2010		December 31, 2009		September 30, 2010		December 31, 2009

Depleted uranium disposition and stored wastes	$	189.2	$	262.8	$	119.2	$	155.6
Decontamination and decommissioning of American Centrifuge		22.2		22.2		22.3		21.3
Other financial assurance		17.6		20.4

Total financial assurance	$	229.0	$	305.4
Letters of credit		42.6		45.4
Surety bonds		186.4		260.0

Cash collateral deposit for surety bonds	$	110.2	$	158.3