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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

USEC INC.

Payment of Filing Fee (Check the appropriate box):

      þ No fee required.

      o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

      (1) Title of each class of securities to which transaction applies:

      (2) Aggregate number of securities to which transaction applies:

      (4) Proposed maximum aggregate value of transaction:

      (5) Total fee paid:

      (1) Amount previously paid:

      (2) Form, schedule or registration statement no.:

      (3) Filing party:

      (4) Date filed:

USEC Inc.

March 30, 2005

Dear Shareholder:

      You are cordially invited to attend our annual meeting of shareholders to be held at 10:00 a.m., local time, Thursday, April 21, 2005 at the Marriott Bethesda North Hotel and Conference Center, 5701 Marinelli Road, North Bethesda, Maryland.

      Matters scheduled for consideration at this meeting are the election of seven directors and ratification of the appointment of the Company’s independent auditors. The meeting will also provide an opportunity to review with you USEC’s business during the year ended December 31, 2004.

      Your vote is important no matter how many shares you own. We encourage you to vote your shares today. You may vote by completing and returning the enclosed proxy card in the postage-paid envelope provided or by using telephone or Internet voting systems. If you do attend the meeting and desire to vote in person, you may do so even though you have previously submitted your proxy.

      We appreciate your continued confidence in the Company and look forward to seeing you on April 21st.

	Sincerely,
	James R. Mellor
	Chairman of the Board, President and
	Chief Executive Officer

USEC Inc.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

      The Annual Meeting of Shareholders of USEC Inc. will be held on Thursday, April 21, 2005, at 10:00 a.m., local time, at the Marriott Bethesda North Hotel and Conference Center, 5701 Marinelli Road, North Bethesda, Maryland, for the purpose of considering and voting upon:

      We are enclosing a copy of the Company’s Annual Report for the year ended December 31, 2004 with this Notice and Proxy Statement.

      The record date for determining shareholders entitled to notice of, and to vote at, the meeting is the close of business February 25, 2005. Please complete and return the enclosed proxy card in the postage-paid envelope provided at your earliest convenience, or use telephone or Internet voting systems to vote your shares.

	By Order of the Board of Directors,
	Timothy B. Hansen
	General Counsel and Secretary

Bethesda, Maryland

2005 PROXY STATEMENT

TABLE OF CONTENTS

USEC Inc.

PROXY STATEMENT

      We are providing these proxy materials in connection with the solicitation by the Board of Directors of USEC Inc. of proxies to be voted at USEC’s Annual Meeting of Shareholders to be held on April 21, 2005 or at any adjournments, postponements or reschedulings thereof. This Proxy Statement, proxy card and USEC Inc.’s Annual Report for the year ended December 31, 2004 are being mailed to each shareholder commencing on or about March 30, 2005.

GENERAL INFORMATION ABOUT THE MEETING AND VOTING

Who may vote at the meeting?

      The Board has set February 25, 2005 as the record date for the meeting. If you were the owner of USEC Inc. common stock at the close of business on February 25, 2005, you may vote at the meeting. You are entitled to one vote for each share of common stock you held on the record date, including shares:

How many shares must be present to hold the meeting?

      A majority of USEC’s outstanding shares of common stock as of the record date must be present at the meeting in order to hold the meeting and conduct business. This is called a quorum. On the record date, there were 85,339,322 shares of USEC common stock outstanding. Your shares are counted as present at the meeting if you:

What proposals will be voted on at the meeting?

      There are two items scheduled to be voted upon at the meeting:

How many votes are required to approve each item?

      Directors will be elected by a plurality of the votes cast at the Annual Meeting. This means that the seven nominees who receive the largest number of “FOR” votes cast will be elected as directors.

      The ratification of the appointment of the independent auditors requires the “FOR” vote of a majority of the shares present in person or by proxy at the meeting and entitled to vote on that proposal.

How are votes counted?

      You may either vote “FOR” or “WITHHOLD” authority to vote for each of our nominees for the Board of Directors. You may vote “FOR,” “AGAINST,” or “ABSTAIN” on all other matters to be voted upon. If you withhold authority to vote with respect to any director nominee, your shares will be counted for purposes of establishing a quorum, but will have no effect on the election of that nominee. If you abstain from voting on the other matters, your shares will be counted as present for purposes of establishing a quorum, and the abstention will have the same effect as a vote “AGAINST” the ratification of the appointment of the independent auditors. If you just sign and submit your proxy card without voting instructions, your shares will be voted “FOR” each director nominee and “FOR” the ratification of the appointment of the independent auditors.

      Broker non-votes, which occur when brokers do not receive voting instructions from their customers and the broker does not have discretionary voting authority with respect to such matter, will have no effect on the outcome of the election of directors or the ratification of the appointment of the independent auditors.

How does the Board recommend that I vote?

      The Board of Directors recommends that you vote “FOR” each of the director nominees named in this Proxy Statement and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors.

How do I vote my shares without attending the meeting?

      Whether you hold shares directly, in “street name,” or through a USEC stock ownership plan, you may direct your vote without attending the Annual Meeting. If you are a shareholder of record or hold shares through a USEC stock ownership plan, you may vote by signing and dating your proxy card and mailing it in the postage-paid envelope provided. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example as guardian, executor, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity.

      For shares held in street name, you should follow the voting directions provided by your broker or nominee. You may complete and mail a voting instruction card to your broker or nominee or, in most cases, submit voting instructions by telephone or the Internet. If you provide specific voting instructions by mail, telephone, or the Internet, your shares will be voted by your broker or nominee as you have directed.

How do I vote my shares in person at the meeting?

      Even if you plan to attend the meeting, we encourage you to vote by signing, dating, and returning the enclosed proxy card so your vote will be counted if you later decide not to attend the meeting. If you decide to change your vote at the meeting, you will have an opportunity to do so.

If you choose to vote at the Annual Meeting:

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May I revoke my proxy and change my vote?

      You may revoke your proxy at any time before it is voted by:

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ITEM 1. ELECTION OF DIRECTORS

      On the nomination of the Company’s Board of Directors, the seven director nominees listed below will stand for re-election as directors to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified. Each of the nominees presently is a member of and together constitute the Company’s Board. The New York Stock Exchange (“NYSE”) listing standards require that the boards of listed companies have a majority of independent directors and that audit, nominating and governance, and compensation committee members must all be independent as determined by the Board in its business judgment. At its February 2005 meeting, after reviewing the NYSE standards of independence, the Board of Directors determined that none of the directors other than Mr. Mellor has a material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) other than as a director, and accordingly each of Mr. Armacost, Dr. Brown, Mr. Hall, Mr. Moore, Mr. Paquette and Mr. Woods qualify as independent directors. All of the members of the Company’s Audit, Finance and Corporate Responsibility, Nominating and Governance, and Compensation committees are independent.

      Unless otherwise directed, shares represented by proxies solicited on behalf of the Board of Directors will be voted for the nominees listed below. All nominees have consented to serve if elected, but if any nominee becomes unavailable to serve, the persons named as proxies may exercise their discretion to vote for a substitute nominee.

      The following table presents information concerning the individuals nominated for election as directors of USEC.

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		James R. Mellor has been a Director since 1998 and President and Chief Executive Officer since December 2004. He served as Chairman and Chief Executive Officer of General Dynamics Corporation, a company engaged in shipbuilding and marine systems, land and amphibious combat systems, information systems, and business aviation businesses, from 1994 to 1997, and served as President and Chief Executive Officer from 1993 to 1994. He was previously General Dynamics’ President and Chief Operating Officer. He also serves on the board of directors of AmerisourceBergen Corporation, Computer Sciences Corporation, and Net2Phone, Inc. Mr. Mellor also serves on the Board of Trustees of the Scripps Research Institute.
		Michael H. Armacost has been a Director since 2002. He is a Walter H. Shorenstein distinguished fellow and visiting professor in the Asia/Pacific Research Center at Stanford University. Mr. Armacost served as President and a Trustee of The Brookings Institution from 1995 to 2002. He served as Undersecretary of State for Political Affairs from 1984 to 1989, as U.S. Ambassador to Japan from 1989 to 1993 and to the Philippines from 1982 to 1984. Mr. Armacost serves on the board of directors of AFLAC Inc., Applied Materials Inc., and Cargill, Incorporated.
		Joyce F. Brown has been a Director since 1998. She is the President of the Fashion Institute of Technology of the State University of New York. From 1994 to 1997, Dr. Brown was a professor of clinical psychology at the City University of New York, where she previously held several Vice Chancellor positions. From 1993 to 1994, she served as the Deputy Mayor for Public and Community Affairs in the Office of the Mayor of the City of New York. Dr. Brown also serves on the board of directors of Polo Ralph Lauren Corporation and the PAXAR Corporation.
		John R. Hall has been a Director since 1998. He served as Chairman of the Board of Directors of Ashland, Inc., a company engaged in road construction, specialty chemicals, lubricants, car-care products, chemical and plastics distribution and transportation fuels businesses, from 1981 to 1997, and served as Chief Executive Officer from 1981 to 1996. He was Chairman of the board of directors of Arch Coal, Inc. from 1997 to 1998, and a director until 1999. Mr. Hall also serves on the board of directors of Humana Inc. and GrafTech International Ltd.
		W. Henson Moore has been a Director since 2001. He has been President and Chief Executive Officer of the American Forest and Paper Association, the national trade association of the forest, paper and wood products industry, since 1995. He was also President of the International Council of Forest Product Associations from 2002 to 2004. He was previously Deputy Secretary of Energy from 1989 to 1992 and, in 1992 became Deputy Chief of Staff for President George Bush. From 1975 to 1987 he represented the Sixth Congressional District of Louisiana in the U.S. House of Representatives.

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		Joseph F. Paquette, Jr. has been a Director since 2001. He served as Chairman and Chief Executive Officer of PECO Energy Company, a company engaged in the production, purchase, transmission, distribution, and sale of electricity and the distribution and sale of natural gas, from 1988 until his retirement in 1997. Before that, he held positions with Consumers Power Company as President, and Senior Vice President and Chief Financial Officer, and with Philadelphia Electric Company as Chief Financial Officer. He also serves on the board of directors of CMS Energy Corporation and the Mercy Health System.
		James D. Woods has been a Director since 2001. He served as Chairman and Chief Executive Officer of Baker Hughes Inc., a provider of drilling, formation evaluation, completion and production products and services to the worldwide oil and gas industry. From 1989 to 1997 he was Chairman of the Board of Baker Hughes Inc., and its President and Chief Executive Officer from 1986 to 1997. Mr. Woods also serves on the board of directors of Varco International, Inc., OMI Corporation, ESCO Technologies, Inc., and Foster Wheeler Ltd.

      The Board Recommends voting FOR ALL Nominees listed above.

Corporate Governance

      The Board of Directors recognizes that good corporate governance is an important means of protecting the interests of the Company’s shareholders, employees, customers, and the community. The Company has closely monitored the legislative and regulatory corporate governance reforms, including provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), the rules of the Securities and Exchange Commission (the “SEC”) interpreting and implementing Sarbanes-Oxley, and amendments to the NYSE listing standards. The Company is in compliance with all provisions.

      In October 2003 and January 2004, the Board of Directors amended its Governance Guidelines in light of the new NYSE listing standards. The Governance Guidelines serve as principles addressing the role of the Board of Directors in the areas of fiduciary oversight, independence, evaluation of the chief executive officer, and succession planning. The Governance Guidelines also set standards relating to the composition and operation of the Board of Directors and its committees, including standards relating to the selection and qualification of directors, evaluation of the Board and its committees, and director education. The Governance Guidelines are administered by the Board’s Nominating and Governance Committee, which regularly reviews director criteria and qualifications, and leads the performance assessments of the Board and its Committees. The Board annually assesses the adequacy and effectiveness of its Governance Guidelines.

      Copies of the current Governance Guidelines are available from the Company’s website at www.usec.com or upon request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

Code of Business Conduct

      The Company’s code of business conduct provides a brief summary of the standards of conduct that are at the foundation of USEC’s business operations. The code of business conduct states that we conduct our business in strict compliance with all applicable laws. Each employee must read the code of business conduct and sign a form stating that he or she has read, understands and agrees to comply with the code of business conduct. A copy of the code of business conduct, is available on the Company’s website at www.usec.com or upon request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

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Meetings and Committees of the Board

      Pursuant to the Delaware General Corporation Law, under which USEC is organized, the business, property, and affairs of the Company are managed under the direction of the Board of Directors. Members of the Board are kept informed of the Company’s business through discussions with the Chief Executive Officer and other officers, by reviewing materials prepared for them by management, and by participating in meetings of the Board and its committees.

      In 2004, the Board of Directors held five regular meetings, including its annual strategic planning meeting, and two special meetings. All directors attended all of the Board of Directors’ meetings and at least 91% of the meetings of the committees on which they served. The average attendance of all directors at all Board and committee meetings in 2004 was 99%. During 2004, the non-management directors met at regularly scheduled executive sessions without management, and Mr. Mellor presided at these meetings. In 2005, after Mr. Mellor was named Chief Executive Officer of the Company, the Board determined that the Chairman of the Nominating and Governance Committee (who is Mr. Woods) will preside over meetings of the non-management directors for the time period during which Mr. Mellor is serving as Chief Executive Officer and therefore may not preside over such meetings.

      In addition, it is the Board’s policy that each of our directors attend the annual meeting. We had eight directors at the time of the 2004 Annual Meeting, all of whom were in attendance at the 2004 Annual Meeting.

      In accordance with the provisions of the bylaws of the Company, the Board has designated four committees. All of the committees are composed entirely of non-employee directors. Mr. Mellor was a member of the Regulatory and Government Affairs Committee in 2004, but is no longer a member of that committee while he serves as President and Chief Executive Officer of the Company.

      The Audit, Finance and Corporate Responsibility Committee consists of Mr. Paquette, Chairman, Mr. Armacost, and Mr. Woods, each of whom the Board has determined is an independent director as defined in the NYSE listing standards and the provisions of Sarbanes-Oxley, requiring entirely independent audit committees. This Committee is responsible for appointing and terminating the Company’s independent auditors, reviewing the Company’s accounting processes, financial controls, and reporting systems, and the scope of the audits to be conducted. It is also responsible for monitoring the policies, practices, and programs of the Company in its relations with customers, suppliers, employees, shareholders and the communities in which the Company’s facilities are located. The Committee meets regularly in executive session with the Company’s independent auditors and with the Company’s internal auditors. This Committee met eight times in 2004.

      Under the NYSE listing standards, Audit Committee members must be financially literate. Further, under the SEC’s rules, the Board must determine whether at least one member of the Audit Committee is an “audit committee financial expert,” as defined by the SEC’s rules. The Board of Directors has determined that all members of the Audit, Finance and Corporate Responsibility Committee are financially literate and that Mr. Paquette qualifies as an “audit committee financial expert.”

      The Audit, Finance and Corporate Responsibility Committee is governed by a charter adopted by the Board, a current copy of which is available on our corporate website at www.usec.com under the headings “About USEC/ Corporate Governance/ USEC Board Committees/ Audit, Finance and Corporate Responsibility,” or is available in print to shareholders upon request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

      The Compensation Committee consists of Mr. Hall, Chairman, Dr. Brown, and Mr. Paquette, each of whom the Board has determined is an independent director as defined in the NYSE listing standards. This Committee’s responsibilities include overseeing and administering the Company’s executive compensation program, and reviewing overall compensation programs and policies for the Company and its key employees. The Compensation Committee also establishes annual performance objectives under the Company’s incentive programs and oversees administration of employee benefit plans. The Compensation Committee met six times in 2004.

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      The Compensation Committee is governed by a charter, a current copy of which is available on our corporate website at www.usec.com under the headings “About USEC/ Corporate Governance/ USEC Board Committees/ Compensation.” A copy of the charter is also available in print to shareholders upon request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

      The Nominating and Governance Committee consists of Mr. Woods, Chairman, Mr. Hall, and Mr. Moore, each of whom is an independent director under the NYSE listing standards. The functions of the Nominating and Governance Committee include the following: identifying and recommending to the Board individuals qualified to serve as directors of the Company; recommending to the Board directors to serve on committees of the Board; advising the Board with respect to matters of Board composition and procedures; developing and recommending to the Board a set of corporate governance principles applicable to the Company and overseeing corporate governance matters generally; and overseeing the annual evaluations of the Board and its Committees. The Nominating and Governance Committee met five times during 2004. The Nominating and Governance Committee will consider director candidates recommended by shareholders in accordance with the procedures described under “Proposals by Shareholders” below.

      The Nominating and Governance Committee is governed by a charter, a current copy of which is available on our corporate website at www.usec.com under the headings “About USEC/ Corporate Governance/ USEC Board Committees/ Nominating and Governance.” A copy of the charter is also available in print to shareholders upon request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

      The Regulatory and Government Affairs Committee consists of Mr. Moore, Chairman, Mr. Armacost, and Dr. Brown. The Regulatory and Government Affairs Committee’s responsibilities include monitoring the Company’s compliance with regulatory requirements, overseeing the Company’s initiatives with and involving various agencies of the United States government and applicable State governments, and advising the Board on regulatory and other governmental considerations in the Board’s deliberations and decision-making processes. The Regulatory and Government Affairs Committee met two times in 2004.

      The Regulatory and Government Affairs Committee is governed by a charter, a current copy of which is available on our corporate website at www.usec.com under the headings “About USEC/ Corporate Governance/ USEC Board Committees/ Regulatory and Government Affairs.” A copy of the charter is also available in print to shareholders upon request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

Communications with Directors

      The Board has an established process to receive communications from shareholders and other interested parties. This process has been approved by a majority of the independent directors. Shareholders and other interested parties may contact the Board, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group, by mail or electronically. To communicate with the Board of Directors, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group, correspondence should be addressed to such recipient or recipients in care of USEC’s Secretary at the following address:

      To communicate electronically with the Board, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group, shareholders should go to our corporate website at www.usec.com. Under the headings “About USEC/ Corporate Governance/ Communicating with our Board,” you will find a link to the e-mail address for writing an electronic message to the Board, the

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Compensation of Directors

      The following provides information on USEC’s compensation and reimbursement practices for non-employee directors. Mr. Timbers did not receive separate compensation for his Board activities in 2004. While Mr. Mellor is employed as the President and Chief Executive Officer of USEC, he will not receive separate compensation for his Board activities.

      For 2005, non-employee directors will receive:

      At least 50% of the retainer is paid in the form of restricted stock or nonqualified stock options, although a director may elect to receive a greater proportion of the retainer as well as meeting fees and committee chairman fees in restricted stock or options. If a director chooses to receive options as payment for the retainer, chairman or meeting fees, he or she will receive options on shares with a fair market value equal to 150% of the fee amount otherwise payable to offset the associated risk and lack of dividend equivalents.

      Annual retainers, annual restricted stock and option grants, and committee chairman fees are paid at the beginning of the service year, and meeting fees paid in restricted stock are paid in the month following each meeting of the Board of Directors. Meeting fees paid in cash are paid in the week following the meeting.

      In the year ended December 31, 2004, four of the seven non-employee directors (including Mr. Mellor, who was a non-employee director until December 14, 2004) elected to receive 100% of their retainers in restricted stock. All non-employee directors are reimbursed for any reasonable expenses incurred in connection with their duties as directors of the Company.

Director Stock Ownership Requirements

      In order to align directors’ interests with the interests of shareholders, the Board requires that directors take at least 50% of their annual retainers in the form of restricted stock or options. Additionally, as an incentive to take more of their compensation in the form of Company equity, directors receive additional shares of restricted stock or options if they elect to take restricted stock or options in lieu of all or part of the annual retainer, meeting and chairman fees that they are otherwise entitled to receive in cash. This incentive payment of restricted stock or options equals 20% of the portion of the annual retainer, meeting, and chairman fees that they elect to take in restricted stock or options in lieu of cash. Incentive shares and options paid in respect of the annual retainer are granted at the time the annual retainer is paid; incentive shares and options granted in respect of chairman and meeting fees are granted in a lump sum at the conclusion of the year at the time of the annual meeting.

      Directors are required to hold all restricted stock that they receive from the Company for service as a director until their service as a director of the Company ends. Restricted stock issued as payment for annual retainers, meeting, and chairman fees vests on the later to occur of (i) the first anniversary of the date of grant and (ii) termination of the director’s service on the Board. Restricted stock issued as incentive stock vests on the later to occur of (i) the third anniversary of the date of grant and (ii) termination of the director’s service on the Board. Options vest after 12 months. Restricted stock carries the right to receive dividends and the right to vote.

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Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth, as of February 25, 2005 the beneficial ownership of the Company’s common stock for the following persons: (a) all shareholders known by the Company to beneficially own more than five percent of the common stock; (b) each of the Company’s directors; (c) the Company’s Chief Executive Officer and former Chief Executive Officer, the four other most highly paid executive officers of the Company serving as executive officers at December 31, 2004, and two additional individuals that would have been included in the summary compensation table but for the fact that they were not serving as executive officers at December 31, 2004; and (d) all of the Company’s directors and executive officers as a group. Certain information in the table is based on information contained in filings made by the beneficial owner with the SEC.

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Equity Compensation Plan Information

      The following table gives information about the Company’s common stock that may be issued under the USEC Inc. 1999 Equity Incentive Plan and Employee Stock Purchase Plan as of December 31, 2004.

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Summary Compensation Table

      The following table sets forth information regarding the compensation of the Chief Executive Officer, the former Chief Executive Officer, the four other most highly paid executive officers of the Company serving as executive officers at December 31, 2004, and two other individuals that would have been included among the four other most highly paid executives but for the fact that they were not serving as executive officers at December 31, 2004 (collectively, the “Named Executive Officers”) for the years ended December 31, 2004 and 2003, the six-month period ended December 31, 2002 and the fiscal year ended June 30, 2002.

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Option Grants in Last Fiscal Year

      The following table sets forth information regarding stock options granted in the year ended December 31, 2004 to the Named Executive Officers. The amounts shown for each Named Executive Officer as potential realizable values are based entirely on assumed annualized rates of stock price appreciation of 5% and 10% over the full 5-year term of the options. Showing these potential realizable values at the assumed rates of growth is required by rules of the Securities and Exchange Commission for illustration purposes only and are not intended to predict future stock prices, which will depend upon overall stock market conditions and the Company’s future performance and prospects. Consequently, it is possible that the potential realizable values shown in this table will not be achieved.

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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

      The following table sets forth information regarding the number of shares received upon exercise of options in the last fiscal year and the aggregate dollar value realized upon such exercise, as well as the aggregate value of stock options held as of the year ended December 31, 2004, by the Named Executive Officers:

Long-Term Incentives

      Senior executive officers of the Company, including the Named Executive Officers, are eligible to participate in the Company’s restricted stock unit program under the USEC Inc. 1999 Equity Incentive Plan. The restricted stock unit program is a three-year, performance-based program that is described in more detail in the report of the Compensation Committee on Executive Compensation later in this Proxy Statement.

      A restricted stock unit (RSU) is the right to receive, after the restriction period expires and subject to the achievement of certain goals, cash or stock equal in value to one share of common stock. Dividend equivalents accrue on the RSUs and are payable at the end of the performance period, again subject to the achievement of goals. The Compensation Committee creates the performance goals for the RSUs and will decide, at the end of the three-year performance period, to what extent the goals have been met. Award values will increase or decrease based on performance against the goals, stock price performance and dividend equivalent accruals.

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      The following table sets forth the long-term incentive awards in 2004 to the executive officers named in the Summary Compensation Table.

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Pension Plan

      USEC maintains a retirement program consisting of the Employees’ Retirement Plan of USEC Inc. that is intended to qualify under section 401(a) of the Internal Revenue Code and a non-qualified Pension Restoration Plan that is intended to provide benefits otherwise limited by section 401(a)(17) and section 415 of the Internal Revenue Code.

      The following table shows the estimated annual straight-life annuity benefit payable under these retirement programs to employees with the specified Final Average Compensation (average compensation over the three years of employment during which the participant’s earnings were the highest) and specified years of credited service upon retirement at age 65. Annual pension amounts represent a combined payment from both the qualified and non-qualified plans.

      The participant’s retirement benefits are calculated under three different formulae: the Regular Formula, the Alternate Formula using a social security offset, and the Minimum Formula. The formula that gives the participant the largest benefit will be used for the final calculation. The Regular Formula (used as an illustration for the table above) is equal to 1.2% of a participant’s Final Average Compensation multiplied by the number of years and months of credited service, plus $216. The aggregate retirement benefit is not subject to social security or other retirement benefit deductions.

      A participant’s retirement benefit calculation consists of the total earnings, including deferred compensation payable to the participant by the Company but excluding any monies derived from the exercise of stock options or the value of restricted stock that was awarded to the executive as part of the Company’s long-term incentive plan. For the eight executives named in the Summary Compensation Table, the number of years of

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      The Company also maintains a supplemental executive retirement plan (the “SERP”). Mr. Sewell is the sole participant in that plan among current USEC employees. Commencing at age 62, Mr. Sewell will receive an amount equal to 55% of his final average compensation minus (1) any benefits received by him under the Company’s other retirement programs or any retirement program to which the Company has contributed on his behalf and (2) his social security benefits. A SERP participant’s final average compensation for this purpose includes salary and annual incentive compensation, including cash and stock, earned for the three years preceding the participant’s date of termination. Based on a projected retirement at age 62, and using his current compensation to establish the value of the required plan offsets, Mr. Sewell has a projected SERP benefit target of $289,850, offsets totaling $72,223 and a final projected annual SERP benefit at age 62 of $217,627. Prior to his termination on December 14, 2004, Mr. Timbers was also a participant. The SERP had provided that commencing at age 62 (age 60 upon termination by the Company without cause or by the executive for good reason), Mr. Timbers was entitled to receive a total annual retirement benefit equal to 60% of his final average compensation minus (1) any benefits received by him under the Company’s other retirement programs and (2) his social security benefits. As a result of his termination by the Company for cause, Mr. Timbers forfeited all rights to benefits under the plan.

Report of the Compensation Committee on Executive Compensation

      The Company’s executive compensation program is administered by the Compensation Committee of the Board of Directors. The Committee is comprised of three directors, each of whom the Board has determined is independent under the NYSE listing standards. The Committee is responsible for developing executive compensation policies that support the strategic business objectives and values of the Company. A copy of the Compensation Committee Charter is available on the USEC website at www.usec.com. The responsibilities of the Committee include:

      USEC’s executive compensation program is designed to attract, retain and motivate the broad-based executive talent required to achieve the Company’s business objectives and increase shareholder value.

      Following shareholder approval of the USEC Inc. 1999 Equity Incentive Plan (“Equity Incentive Plan”), the Committee implemented the Company’s current executive compensation program. The Committee utilized an independent executive compensation consultant to assist in the overall design of the executive

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      The primary objectives of the Company’s executive compensation program include:

      Elements of the executive compensation program include base salary, an annual incentive opportunity and long-term incentive compensation, each of which is described below. A significant portion of the total compensation of executive officers is “at-risk” (for example, performance-based awards of cash and equity and stock options), with the at-risk component increasing at higher level positions that have greater Company impact. This pay-for-performance philosophy is demonstrated in the overall design of the executive compensation program.

      The elements of USEC’s executive compensation program are described in detail below.

      Base Salary. Each executive officer’s base salary reflects the scope of responsibility and accountability of his or her position within the Company. In general, executive officers having the highest level and amount of responsibility have the lowest percentage of their total compensation as base salary. Using market survey data, the base salary level for each executive officer was established within a range of the market median base salary level for the comparable position within the Survey Group — with an adjustment for individual experience and time in the position. The Committee recommends base salary levels to the Board of Directors for its approval. In 2004, the CEO (Mr. Timbers) and five senior executive officers (Mr. Green, Ms. Ferguson, Mr. Sewell, Mr. VanNamen and Mr. Hansen) received adjustments to base salary in order to bring them to within an appropriate range of the market median for their positions.

      Annual Incentive. The Company’s Annual Incentive Program provides an opportunity for executive officers and certain other Company employees to earn an annual incentive paid partly in cash and partly in stock and is based primarily on pre-determined annual performance objectives. The annual incentive is linked to corporate and individual performance. Performance measures are a mixture of formula-based Company financial goals, based on the Company’s budget, and individual key performance objectives. Key performance objectives are designed to support the Company’s strategic initiatives and operating plan. The Committee also takes into account an individual’s demonstrated leadership, initiative, cooperation and coordination in managing his or her respective area.

      Annual incentive awards are made by the Committee if and to the extent corporate and individual performance goals are achieved. At the beginning of each year, performance goals and target awards, which for executive officers range from 36% to 100% of base salary, are defined. Based on performance against these goals, the Committee has the discretion to grant a range of awards calculated as a percentage of the target awards, from 0% of the target award up to 200% of the target award (250% for Mr. Timbers). The targets are set at approximately the 65th percentile of the market, as indicated by the Survey Group. The Committee

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      Participants only receive payment under the plan if the minimum level of achievement is reached. Participants must take at least 35% of any annual incentive award in shares of restricted stock of the Company and may take the remainder of the award in cash or additional shares of restricted stock. As an incentive to take more of their compensation in the form of Company stock, participants receive additional shares of restricted stock if they elect to take restricted stock in lieu of all or part of the cash portion of the annual incentive award. This incentive payment of restricted stock equals 20% of the portion of any annual incentive award that they elect to take in shares of restricted stock in lieu of cash. The restricted stock portion of the award vests one year from the date of grant.

      At the start of 2004, the Committee established Company performance goals as a basis for determining Annual Incentive. These goals set targets for Company performance in two important areas, earnings per share and cash flow from operations per share. During its review of 2004 performance, the Committee adjusted the earnings and cash flow targets consistent with its practice to fairly reflect unanticipated business changes during the year. Based on these results and the Committee’s judgment with respect to individual performance of their key performance objectives and in the areas of leadership, initiative, cooperation and coordination, the Committee granted 2004 incentive awards to executive officers (other than Mr. Timbers and Mr. Mellor, as discussed below) ranging from 41% to 84% of base salary earned in 2004.

      Long-Term Incentives. Long-term incentives are used by the Company to align executive officers’ and other employees’ interests with those of the shareholders. These incentives create value for an employee by linking the incentives to an increase in the Company’s stock price above the fair market value on the grant date (provided the employee remains in the Company’s employ for the period required for the incentive to vest or be exercisable). In this way, long-term incentives also directly link a portion of an employee’s compensation to the interests of shareholders by providing an incentive to maximize shareholder value. For the Company, long-term incentives for executive officers are a key element and significant component of market-competitive total compensation.

      In February 1999, the Committee established a Long-Term Incentive Program under the shareholder-approved Equity Incentive Plan for use with executive officers and other key employees. The program, initially established for a five-year period, is designed to make annual grants of stock options to executive officers and other program participants. In 2001, that program was modified to include a three-year performance component comprising a grant of restricted stock units (see “Restricted Stock Units” below).

      Modifications to the Long-Term Incentive Program: During 2003, the Committee conducted an updated review of the Company’s long-term incentives in anticipation of requesting additional shares from shareholders at the 2004 annual meeting for the renewal of the program beyond 2004. In evaluating the long-term incentives, the Committee utilized an independent executive compensation consultant. The Committee and the independent consultant identified modifications to the program that would ensure that the restructured long-term incentives reflected the current “best practices” from USEC’s Peer Group and other leading companies; would not increase the total size of the long-term incentive package for executives and other participants; and would continue to meet investor and institutional expectations for acceptable share dilution. Grants under this restructured long-term incentive were made beginning in February 2004.

      Under the restructured program, a portion of the current grant of stock options was replaced with a grant of restricted stock. For senior executive officers, 50% of the option value is replaced. For other officers, 75% of the value is replaced with restricted stock grants. The options are replaced using a 5:1 replacement ratio; with every five options replaced with one share of restricted stock. The restricted stock has a three-year ratable vesting and is granted at fair market value on the date of the grant. The option portion of the long-term incentives has a three-year ratable vest and a five-year exercise period (reduced from the 10-year exercise period of previous grants). They are granted at fair market value on the date of the grant. The projected value of the long-term incentive (including the value of any dividends paid on the shares of restricted stock) is, on average, 10.9% less than the projected value under the previous design. The Restricted Stock Unit three-year performance component remains unchanged.

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      Restricted Stock. As noted above, restricted stock granted as part of the Long-Term Incentive Plan is granted at fair market value and shares vest ratably over three years. On January 29, 2004, the Committee approved a grant of restricted stock to executive officers and other key employees as part of the Long-Term Incentive Plan. Grants were made on February 10, 2004. These grants (including the projected value of dividends during the period of restriction) represented approximately 25% of the total value of the long-term incentive for senior executive officers and 75% of the total long-term incentive value for executive officers. Individual executive grants ranged from 35,290 shares to 2,340 shares. Other key employees received grants of either 1,400 or 1,500 shares.

      Stock Options. Stock options are granted at fair market value, vest ratably over three years, and have a five-year exercise period. On January 29, 2004, the Committee approved a grant of non-qualified stock options to executive officers. Grants were made on February 10, 2004. These grants represented approximately 25% of the total value of the long-term incentive for senior executive officers and 25% of the long-term incentive value for executive officers. Individual grants ranged from 176,398 options to 3,900 options.

      Restricted Stock Units. The Long-Term Incentive Program also includes a three-year performance component. Participation in this component of the long-term incentive is limited to the Company’s senior executive officers, including the executive officers named in the Summary Compensation Table. For these individuals, approximately one half of their long-term incentive is in the form of an annual grant of stock options and restricted stock as noted above, and the other half is in the form of Restricted Stock Units (RSUs) that are payable at the end of a three-year performance period, provided certain performance goals are met. During 2004, the Committee added three participants to the three-year performance component of the long-term incentive, Lisa Gordon-Hagerty, Executive Vice President and Chief Operating Officer, Robert VanNamen, Senior Vice President, and Ellen Wolf, Senior Vice President and Chief Financial Officer. Payments they received in 2004 as a result of their participation in the three-year performance component were prorated to reflect their date of hire or promotion.

      Each RSU is intended to represent one share of USEC’s common stock. If specific performance goals are achieved, participants will receive cash or stock at the end of the three-year performance period for each RSU, equal to the then-current value of a share of common stock. Participants may also defer payment until they terminate service with the Company. The Committee grants the RSUs, determines the performance goals and performance period and, at the end of the period, determines whether the goals have been met. Participants can receive 0% to 200% of their RSU target based on performance as determined by the Committee. RSUs have no voting or dividend rights, although dividend equivalents accrue and are payable at the end of the performance period, again subject to goals being achieved.

      In 2004, RSU awards were paid to participants for the performance period from July 1, 2001 to June 30, 2004. These award payments were based on the achievement of two equally-weighted performance goals: USEC’s total shareholder return (TSR) as measured against the S&P 500 total return and specific business performance targets related to achieving USEC/ DOE milestones under USEC’s American Centrifuge program. On July 28, 2004, the Committee approved awards to senior executive officers of 175% of target based on performance against the two performance goals. In addition, the Committee approved the continuation of the RSU three-year performance plan for another three-year period, July 1, 2004 to June 30, 2007. There are two performance goals for the new three-year period. The first, weighted 25%, is USEC’s TSR as measured against the S&P 500 TSR during the period. The second, weighted 75%, are specific business performance targets related to achieving USEC/ DOE milestones under USEC’s American Centrifuge program. There are seven milestones that will occur during the new three-year period. The Committee also voted to reduce the size of the maximum payout under the program from 200% of target to 150% of target.

      Stock Ownership Guidelines. Every executive officer and certain other employees must hold an ownership stake in the Company that is significant in comparison to their salaries. The Committee has established stock ownership guidelines, which apply to all executive officers and certain other employees, that range from one and one-half to five times base salary levels and must be achieved within a five-year period. All shares of stock acquired through direct purchase, the exercise of options, restricted stock grants, the Company’s 401(k) plan, and the Company’s employee stock purchase plan, count towards the guidelines.

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      On December 14, 2004 the Board of Directors terminated Mr. William H. Timbers’ employment as President and Chief Executive Officer. Under the terms of Mr. Timbers’ Restricted Stock and Non-Qualified Stock Option Agreements, he forfeited all shares still under restriction and all stock options both restricted and exercisable. In total, Mr. Timbers forfeited 1,637,170 stock options and 90,036 shares of restricted stock. In addition, Mr. Timbers forfeited his 2004 Annual Incentive bonus and any portion of the Restricted Stock Units from his 2004 to 2007 three-year performance plan that might otherwise be payable. Mr. Timbers received his annual base salary of $710,000, prorated through his termination date.

      On December 14, 2004, the Board of Directors appointed Mr. James R. Mellor Chairman of the Board, President and Chief Executive Officer of the Company for a period that could extend up to December 31, 2005. Prior to that, Mr. Mellor served as Chairman of the Board. It is anticipated that a new President and Chief Executive Officer will be hired at which time Mr. Mellor will return to his position as Non-Executive Chairman of the Board. Upon the recommendation of the Committee and with the consultation of the Board’s compensation consultant, the Board of Directors established Mr. Mellor’s base salary at the median of base pay for chief executive officers at companies in the Survey Group, adjusted to reflect his significant experience and the nature of his appointment. Mr. Mellor’s base salary level from December 14, 2004 through December 31, 2005 is $100,000 per month, prorated in 2004 based on his date of hire. Mr. Mellor will receive this salary for a minimum period of six months. Mr. Mellor also received a grant of 80,000 shares of restricted stock which shares will vest upon the earlier to occur of five years from the date of grant or Mr. Mellor’s retirement from the Board. The Company will provide Mr. Mellor with standard employee benefits and reasonable and appropriate housing until the transition to a new President and Chief Executive Officer is complete. During his tenure as Chairman and Chief Executive Officer, Mr. Mellor will not be eligible to participate in any of the Company’s incentive plans nor will he continue to receive compensation as a consultant to the Company or continue to receive compensation as a member of the Board of Directors.

      Section 162(m) of the Internal Revenue Code limits deductibility of certain compensation for the Company’s Chief Executive Officer and the four other most highly compensated executive officers employed at year-end to $1 million per year, unless the compensation is performance-based within the meaning of section 162(m). Compensation is performance-based for this purpose if, among other requirements, the shareholders of the Company approve the performance goals on which award payments are based. Shareholders have previously approved the Equity Incentive Plan. Accordingly, provided the other requirements of section 162(m) are satisfied, awards that are based on the attainment of the performance goals established under that plan will qualify as performance-based compensation under section 162(m). While the Committee intends to rely on performance-based compensation programs to preserve the deductibility of compensation paid to the executive officers to the extent consistent with its overall compensation policy, it reserves the authority to award non-deductible compensation in certain circumstances as it deems appropriate.

      On April 29, 2004, the Company’s shareholders voted to amend the Equity Incentive Plan, to increase the number of shares available for grant as incentive compensation, and to approve the performance goals under the Equity Incentive Plan. In this first amendment to the Plan, shareholders approved an additional 5,100,000 shares for grant, of which 2,295,000 may be granted as awards other than stock options. Such grants must vest over a minimum period of three years (one year where vesting is based on the attainment of

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      In addition, the amendment provided that all or a portion of a Non-Employee Director’s annual retainer and/or meeting fees be payable in the form of Nonqualified Stock Options, Restricted Stock and/or other stock-based awards should such an election be made. The number of shares subject to such an award (other than Nonqualified Stock Options) shall not exceed the number of shares with a fair market value equal to the annual retainer and/or meeting fee for which it is made. With respect to a grant of Nonqualified Stock Options, the value of such a grant will not exceed the value, as of the date of grant, of the annual retainer or the meeting fees for which it is made. No Restricted Stock grant to a Non-Employee Director shall be transferable earlier than the termination of the Director’s service. By this the Company continues to encourage the practice of Non-Employee Directors acquiring and holding equity in the Company, further strengthening the alignment of Board and shareholder interests.

      The Committee believes that the policies and programs described in this Report effectively link pay and performance, serve the best interests of shareholders and are appropriately balanced to provide the appropriate motivation for executives to contribute to the Company’s overall future success. The Committee will continue to review the effectiveness of all elements of USEC’s executive compensation program to ensure that the Company can continue to attract, retain, and motivate talented executives who can achieve its business objectives and increase shareholder value.

      Respectfully submitted by the Compensation Committee:

Employment Contracts, Termination of Employment and Change in Control Arrangements

      On February 23, 2005, the Company entered into a letter agreement with James R. Mellor, Chairman and Chief Executive Officer of the Company, relating to the terms of Mr. Mellor’s employment as Chairman and Chief Executive Officer effective for the period from December 14, 2004 through December 31, 2005. Under the terms of the letter agreement, Mr. Mellor will receive $100,000 per month for a minimum of six months as compensation for his employment as Chief Executive Officer. The Company must give Mr. Mellor two months’ notice prior to the end of his employment as Chief Executive Officer, and Mr. Mellor must provide at least 30 days’ notice if he chooses to end his service. During the time that he is employed as Chief Executive Officer, Mr. Mellor will not receive any separate fees for his service on the Board. In addition, his existing consulting agreement was terminated effective December 14, 2004. The letter agreement provides for a grant of 80,000 shares of restricted stock to Mr. Mellor on the date the letter agreement was entered into, which shares will vest upon the earlier to occur of five years from the date of grant or Mr. Mellor’s retirement from the Board. The Company will provide Mr. Mellor with standard employee benefits and temporary housing during the term of his employment. The Company may also develop and implement a deferred compensation agreement for the purpose of allowing Mr. Mellor to defer compensation in the form of restricted stock. At the conclusion of his service as Chief Executive Officer, Mr. Mellor will resume his role as Non-Executive Chairman of the Board, will receive standard fees for such service, and the Company and Mr. Mellor may enter into a new consulting agreement.

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      In 2004, the Board of Directors approved an amended and restated employment agreement between the Company and Mr. Timbers for the period from July 29, 2004, until December 31, 2009, unless earlier terminated. Mr. Timbers’ employment was terminated for cause under the terms of this agreement as of December 14, 2004.

      By the terms of his agreement, Mr. Timbers held the following corporate positions: President and Chief Executive Officer of the Company, a director on the Company’s Board of Directors and a director and the Chief Executive Officer of each of the Company’s subsidiaries. Mr. Timbers was entitled to receive an annual base salary of not less than $710,000, participated in the Company’s annual and long-term incentive programs at a level commensurate with his position and participated in the Company’s employee benefit and fringe benefit plans and programs applicable to senior management of the Company. The agreement provided that the target for Mr. Timbers’ bonus under the annual incentive program would have been at least 100% of his annual base salary for such year. Mr. Timbers’ benefits included an annual budget of $30,000 (subject to increase at the discretion of the Board) for financial planning. In addition, the Company was required to provide Mr. Timbers with an executive whole life insurance policy.

      The agreement provided that if Mr. Timbers’ employment were terminated by the Company for cause, or by Mr. Timbers for other than good reason, the Company would have no obligation to Mr. Timbers other than to pay accrued salary, earned bonuses, and any deferred compensation not previously paid. Any unvested stock options expire and all of Mr. Timbers’ restricted stock awards and other restricted equity based awards were forfeited on the date of termination.

      If Mr. Timbers’ employment had been terminated by the Company without cause or by Mr. Timbers for good reason, he would have received (i) accrued but not paid salary, bonus and deferred compensation (the bonus would be determined by pro rating the target bonus), (ii) a lump sum cash payment equal to three times the sum of his average annual base salary and bonus for the most recent three years, (iii) continuation of welfare benefits for a period up to three years (or, if sooner, until Mr. Timbers was covered by comparable programs of a subsequent employer (and reduced to the extent Mr. Timbers received comparable benefits)), (iv) one additional year of age credited for purposes of retirement plan benefits, (v) immediate vesting of his equity-based awards and (vi) office space and administrative support for two years. In addition, he would have been entitled to ownership of the paid up whole life insurance policy, or if the policy were not transferable, a cash payment of equal value.

      The agreement also provided Mr. Timbers with supplemental executive retirement benefits pursuant to the terms of the Company’s SERP, as modified by the terms of the employment agreement. The SERP provides that if a participant is terminated for cause, the participant has no rights to payment under the SERP. The agreement provided that if Mr. Timbers’ employment had been terminated by the Company without cause or by Mr. Timbers for good reason, Mr. Timbers would have been entitled to a benefit under the SERP that is calculated as if Mr. Timbers had retired at normal retirement age and as a benefit commencing at age 60, with no reduction to reflect termination prior to Mr. Timbers having reached the age of 62. Payment of this amount would have been due immediately upon termination, in the form of a lump sum cash payment.

      If Mr. Timbers received payments, whether or not under his employment agreement, that would subject him to any federal excise tax due under section 4999 of the Internal Revenue Code, he would have also received a cash payment equal to the amount of such excise tax.

      The agreement also contains provisions requiring Mr. Timbers to keep information confidential for a period beyond the term of his employment and to comply with appropriate provisions regarding non-competition and non-solicitation of employees.

      The agreement provides that any dispute arising out of Mr. Timbers’ employment or the terms of the agreement will be settled by arbitration. In addition, if Mr. Timbers is the prevailing party in a dispute regarding termination of his employment, he is entitled to recover reasonable legal fees and expenses from the Company.

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      In December 2003, the Company entered into an employment agreement with Ms. Lisa E. Gordon-Hagerty, the Company’s Executive Vice President and Chief Operating Officer, for a two-year term. In the event of a change in control (as defined in the Equity Incentive Plan) during the term of the agreement, the agreement will continue for not less than three years from the date of the change in control.

      By the terms of her agreement, Ms. Gordon-Hagerty holds the position of Executive Vice President and Chief Operating Officer of the Company. Ms. Gordon-Hagerty receives an annual base salary of not less than $490,000. Ms. Gordon-Hagerty participates in the Company’s annual and long-term incentive programs at a level commensurate with her position and participates in the Company’s employee benefit and fringe benefit plans and programs applicable to senior management of the Company.

      If Ms. Gordon-Hagerty’s employment is terminated by the Company without cause or by Ms. Gordon-Hagerty for good reason, she will receive (i) accrued but not paid salary, bonus and deferred compensation (the bonus would be determined by pro rating the target bonus), (ii) a lump sum cash payment equal to one times (two and one-half times if the date of termination occurs on or after the date of a change in control) the sum of her final average annual base salary and bonus for the three years preceding the date of termination, (iii) continuation of welfare benefits for a period up to one year (or, if sooner, until Ms. Gordon-Hagerty is covered by comparable programs of a subsequent employer (and reduced to the extent Ms. Gordon-Hagerty receives comparable benefits)) and (iv) immediate vesting of her equity-based awards. If Ms. Gordon-Hagerty’s employment is terminated by reason of the expiration of the term of the agreement, the Company will pay her the amounts and benefits described above. If Ms. Gordon-Hagerty’s employment is terminated by reason of death or disability, she (or her estate) will receive accrued salary, bonus and deferred compensation and immediate vesting of her equity-based awards, and, solely in the case of disability, continuation of welfare benefits for a period up to one year as described above. If Ms. Gordon-Hagerty receives payments, whether or not under her employment agreement, that would subject her to any federal excise tax due under section 4999 of the Internal Revenue Code, she will also receive a cash payment equal to the amount of such excise tax.

      The agreement also contains provisions requiring Ms. Gordon-Hagerty to keep information confidential for a period beyond the term of the agreement, to comply with appropriate provisions regarding non-competition and non-solicitation of employees, and to consult with the Company in certain circumstances.

      The agreement provides that any dispute arising out of Ms. Gordon-Hagerty’s employment or the terms of the agreement will be settled by arbitration. In addition, if Ms. Gordon-Hagerty is the prevailing party in a dispute regarding termination of her employment, she is entitled to recover reasonable legal fees and expenses from the Company.

      In November 2004, the Company entered into a severance agreement and general release with Mr. Hansen in connection with his resignation as Senior Vice President, General Counsel and Secretary, effective as of December 1, 2004. The Company paid Mr. Hansen $1,215,684, representing two years base salary and bonus, the prorated amount of Mr. Hansen’s targeted 2004 bonus, and the prorated amount of Mr. Hansen’s targeted 2004 through 2007 restricted stock unit awards. Mr. Hansen’s unvested restricted stock became immediately vested, and his unvested stock options vested and became exercisable for one year from the date of the agreement. The Company also agreed to continue Mr. Hansen’s benefits for two years and provide outplacement assistance up to $20,000 for one year. Mr. Hansen released the Company from any and all causes of action.

      As noted above, in January 2005, Mr. Hansen returned to USEC as General Counsel and Secretary for a limited time while the Company searches for a replacement. Mr. Hansen is no longer an executive officer of the Company. His return had no impact on the terms of this severance agreement.

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      The Company has entered into change in control agreements with each of the Named Executive Officers, other than the Chief Executive Officer and Ms. Gordon-Hagerty. These agreements provide benefits to these officers upon certain terminations of employment following a change in control of the Company (as such term is defined in the agreements).

      Each of the agreements has an initial three-year term, and is automatically extended for additional one-year periods unless the Board has given notice of non-renewal. Upon a change in control, the agreements will expire no earlier than three years following the date that the change in control occurs. Each agreement provides that the officer will be entitled to the severance benefits described below if the Company terminates his or her employment following a change in control for any reason other than cause, or if the officer terminates his or her employment for good reason.

      The benefits consist of a lump sum payment equal to two and one-half times the sum of the officer’s average annual base salary and bonus for the most recent three years. In addition, under the terms of each agreement, the Company would provide the officer and his or her dependents with continuation of medical and similar benefits for two and one-half years following the occurrence of the change in control or, if sooner, until the officer is covered by comparable programs of a subsequent employer (and reduced to the extent the officer receives comparable benefits), provided the officer complies with the non-competition, non-solicitation and confidentiality provisions of the agreement. In addition, the officer will receive two and one-half additional years of service for purposes of retirement plan benefits. If the officer receives payments, whether or not under his agreement that would subject him to any federal excise tax due under section 4999 of the Internal Revenue Code, then he will also receive a cash payment equal to the amount of such excise tax.

Certain Relationships and Related Transactions

      The Company and James R. Mellor, the Chairman of the Board of Directors, were parties to an agreement under which Mr. Mellor provided consulting services to the Company for an annual fee of $175,000. For the period from January 1, 2004 to December 31, 2004, the Company paid Mr. Mellor $291,667 under this agreement and a predecessor agreement. Pursuant to the terms of Mr. Mellor’s letter agreement regarding his employment as Chief Executive Officer, which is discussed above, this consulting agreement was terminated.

      On February 6, 2002, Mr. Timbers, the President and Chief Executive Officer of the Company at that time, received a loan from USEC in the principal amount of $229,652 to pay taxes due upon the vesting of restricted shares of common stock granted to Mr. Timbers in February 1999. This loan was provided consistent with the philosophy and design of the Company’s executive compensation program, a primary objective of which is reinforcing management’s commitment to maximize shareholder value by encouraging equity ownership. The loan bears interest at the prime rate as published in The Wall Street Journal plus 100 basis points. The rate is adjusted quarterly and interest compounds annually. The loan became payable upon termination of Mr. Timbers’ employment on December 14, 2004. As of December 31, 2004, $269,275 was outstanding under the loan.

      Ms. Ferguson, a former Senior Vice President of the Company, joined the Company on April 29, 2002. As part of the initial terms of her employment, Ms. Ferguson received a cash advance from USEC of $60,000 on April 24, 2002. This advance did not bear interest. On February 20, 2004, Ms. Ferguson repaid the advance in full.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors, and persons who own more than ten percent of a registered class of equity securities to file reports of beneficial ownership and changes in beneficial ownership with the SEC.

      Based on Company records and other information, USEC believes that all SEC filing requirements applicable to its directors and officers were complied with for the year ended December 31, 2004.

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Performance Graph

      The following graph shows a comparison of cumulative total returns for an investment in the common stock of the Company, the S&P 500 Index, and a peer group of companies. USEC is the only U.S. company in the uranium enrichment industry; however, USEC has identified a peer group of companies that share similar business attributes with it. This group includes utilities with nuclear power generation capabilities, chemical processing companies, and aluminum companies. USEC supplies companies in the utility industry, and its business is similar to that of chemical processing companies. USEC shares characteristics with aluminum companies in that they are both large users of electric power. The graph reflects the investment of $100 on December 31, 1999 in the Company’s common stock, the S&P 500 Index and the peer group, and reflects the reinvestment of dividends.