UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2007
Commission file number 1-14287
USEC Inc.
 	 	 	
Delaware
(State of incorporation)	 	52-2107911
(I.R.S. Identification No.)	
2 Democracy Center
6903 Rockledge Drive, Bethesda, Maryland 20817
(301) 564-3200
Securities registered pursuant to Section 12(b) of the Act:
 	 	 	
Title of Each Class
Common Stock, par value $.10 per share
Preferred Stock Purchase Rights	 	Name of Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange	
Securities registered pursuant to Section 12(g) of the Act: None
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  þ      No  o
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  o      No  þ
     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  þ      No  o
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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 þ	 	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 Act). Yes o     No þ
     The aggregate market value of Common Stock held by non-affiliates of the registrant calculated by reference to the closing price of the registrant’s Common Stock as reported on the New York Stock Exchange as of June 30, 2007, was $1,922 million. As of January 31, 2008, there were 110,489,000 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
     Portions of the definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the annual meeting of shareholders to be held on April 24, 2008, are incorporated by reference into Part III.

 

 
TABLE OF CONTENTS
 	 	 	 	 	
 	 	 	 	Page	
 	 	PART I	 	 	
Items 1 and 2.	 	Business and Properties	 	3	
Item 1A.	 	Risk Factors	 	27	
Item 1B.	 	Unresolved Staff Comments	 	47	
Item 3.	 	Legal Proceedings	 	47	
Item 4.	 	Submission of Matters to a Vote of Security Holders	 	48	
 	 	Executive Officers of the Company	 	49	
 	 	 	 	 	
 	 	PART II	 	 	
Item 5.	 	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	 	51	
Item 6.	 	Selected Financial Data	 	55	
Item 7.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	57	
Item 7A.	 	Quantitative and Qualitative Disclosures about Market Risk	 	85	
Item 8.	 	Consolidated Financial Statements and Supplementary Data	 	85	
Item 9.	 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	 	85	
Item 9A.	 	Controls and Procedures	 	86	
Item 9B.	 	Other Information	 	87	
 	 	 	 	 	
 	 	PART III	 	 	
Item 10.	 	Directors, Executive Officers and Corporate Governance	 	87	
Item 11.	 	Executive Compensation	 	87	
Item 12.	 	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	 	87	
Item 13.	 	Certain Relationships and Related Transactions, and Director Independence	 	87	
Item 14.	 	Principal Accountant Fees and Services	 	87	
 	 	 	 	 	
 	 	PART IV	 	 	
Item 15.	 	Exhibits and Financial Statement Schedules	 	88	
Signatures	 	 	 	89	
Consolidated Financial Statements	 	90 – 127	
Glossary	 	 	 	128	
Exhibit Index	 	 	 	131	
 
This annual report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, 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 statements include, but are not limited to: the success of the demonstration and deployment of our American Centrifuge technology including our ability to meet our performance targets and schedule for the American Centrifuge Plant; the cost of the American Centrifuge Plant and our ability to secure required external financial support; the cost of electric power used at our gaseous diffusion plant; our dependence on deliveries under the Russian Contract and on a single production facility; our inability under most existing long-term contracts to pass on to customers increases in SWU prices under the Russian Contract resulting from significant increases in market prices; changes in existing restrictions on imports of Russian enriched uranium, including the imposition of duties on imports of enriched uranium under the Russian Contract; the elimination of duties charged on imports of foreign-produced low enriched uranium; pricing trends in the uranium and enrichment markets and their impact on our profitability; changes to, or termination of, our contracts with the U.S. government and changes in U.S. government priorities and the availability of government funding, including loan guarantees; the impact of government regulation; the outcome of legal proceedings and other contingencies (including lawsuits, government investigations or audits and government/regulatory and environmental remediation efforts); the competitive environment for our products and services; changes in the nuclear energy industry; and other risks and uncertainties discussed in this and our other filings with the Securities and Exchange Commission.
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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 of this report entitled “Risk Factors.” We do not undertake to update our forward-looking statements except as required by law.
Items 1 and 2. Business and Properties
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, either directly or through our subsidiaries United States Enrichment Corporation and NAC International Inc. (“NAC”):
 	•	 	supply LEU to both domestic and international utilities for use in about 150 nuclear reactors worldwide,	
 	 	 	 	
 	•	 	are demonstrating and deploying what we anticipate will be the world’s most efficient uranium enrichment technology, known as the American Centrifuge,	
 	 	 	 	
 	•	 	are the exclusive executive agent for the U.S. government for a nuclear nonproliferation program with Russia, known as Megatons to Megawatts,	
 	 	 	 	
 	•	 	perform contract work for the U.S. Department of Energy (“DOE”) and its contractors at the Paducah and Portsmouth gaseous diffusion plants (“GDPs”), and	
 	 	 	 	
 	•	 	provide transportation and storage systems for spent nuclear fuel and provide nuclear and energy consulting services, including nuclear materials tracking.	
     USEC Inc. is organized under Delaware law. USEC was a U.S. government corporation until July 28, 1998, when the company completed an initial public offering of common stock. In connection with the privatization, the U.S. government transferred all of its interest in the business to USEC, with the exception of certain liabilities from prior operations of the U.S. government. References to “USEC” or “we” include USEC Inc. and its wholly owned subsidiaries as well as the predecessor to USEC unless the context otherwise indicates. A glossary of certain terms used in our industry and herein is included in Part IV of this annual report.
Uranium and Enrichment
     In its natural state, uranium is principally comprised of two isotopes: uranium-235 (“U235”) and uranium-238 (“U 238 ”). U 238  is the more abundant isotope, but it is not readily fissionable in light water nuclear reactors. U 235 is fissile, but its concentration in natural uranium is only about 0.711% by weight. Most commercial nuclear reactors require LEU fuel with a U 235  concentration greater than natural uranium and up to 5% by weight. Uranium enrichment is the process by which the concentration of U 235  is increased to that level.
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     The following outlines the steps for converting natural uranium into LEU fuel, commonly known as the nuclear fuel cycle:
 	•	 	Mining and Milling — Natural, or unenriched, uranium is removed from the earth in the form of ore and then crushed and concentrated.	
 	 	 	 	
 	•	 	Conversion — Uranium concentrates are combined with fluorine gas to produce uranium hexafluoride, a solid at room temperature and a gas when heated. Uranium hexafluoride is shipped to an enrichment plant.	
 	 	 	 	
 	•	 	Enrichment — Uranium hexafluoride is enriched in a process that increases the concentration of the U235 isotope in the uranium hexafluoride from its natural state of 0.711% up to 5%, which is usable as a fuel for light water commercial nuclear power reactors. Depleted uranium is a by-product of the uranium enrichment process. USEC currently has the only commercial uranium enrichment plant operating in the United States. The standard measure of uranium enrichment is a separative work unit (“SWU”). A SWU represents the effort that is required to transform a given amount of natural uranium into two streams of uranium, one enriched in the U 235 isotope and the other depleted in the U 235  isotope. SWUs are measured using a standard formula derived from the physics of uranium 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.	
 	 	 	 	
 	•	 	Fuel Fabrication — LEU is converted to uranium oxide and formed into small ceramic pellets by fabricators. The pellets are loaded into metal tubes that form fuel assemblies, which are shipped to nuclear power plants.	
 	 	 	 	
 	•	 	Nuclear Power Plant — The fuel assemblies are loaded into nuclear reactors to create energy from a controlled chain reaction. Nuclear power plants generate about 16% of the world’s electricity.	
 	 	 	 	
 	•	 	Consumers — Businesses and homeowners rely on the steady, baseload electricity supplied by nuclear power and value its clean air qualities.	

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     We produce or acquire LEU from two principal sources. We produce LEU at the Paducah GDP in Paducah, Kentucky, and we acquire LEU by purchasing the SWU component of LEU from Russia under the Megatons to Megawatts program.
Products and Services
     Low Enriched Uranium
     The majority of our customers are domestic and international utilities that operate nuclear power plants. Our revenue 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.	
     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 or uranium from us or long-term requirements contracts under which they are obligated to purchase a percentage of their SWU or uranium requirements from us. Under requirements contracts, customers only make purchases if the reactor has requirements. The timing of requirements is associated with reactor refueling outages.
     U.S. Government Contract Work
     We perform contract work for DOE and DOE contractors at the Paducah and Portsmouth GDPs including:
 	•	 	actions to prepare the Portsmouth GDP, which had been maintained in a state of readiness or “cold standby,” for a decontamination and decommissioning program, or “cold shutdown”,	
 	 	 	 	
 	•	 	processing DOE-owned out-of-specification uranium, and	
 	 	 	 	
 	•	 	providing infrastructure support services.	
     Through our subsidiary NAC, we are a leading provider of nuclear energy services and technologies, specializing in:
 	•	 	design, fabrication and implementation of spent nuclear fuel technologies,	
 	 	 	 	
 	•	 	nuclear materials transportation, and	
 	 	 	 	
 	•	 	nuclear fuel cycle consulting services.	
Revenue by Geographic Area, Major Customers and Segment Information
     Revenue attributed to domestic and foreign customers, including customers in a foreign country representing 10% or more of total revenue, follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
United States	 	$	1,310.6	 	 	$	1,109.5	 	 	$	1,074.1	 	
Foreign:	 	 	 	 	 	 	 	 	 	 	 	 	
Japan	 	 	274.7	 	 	 	389.8	 	 	 	224.2	 	
Other	 	 	342.7	 	 	 	349.3	 	 	 	261.0	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	617.4	 	 	 	739.1	 	 	 	485.2	 	
 	 	 	 	 	 	 	 	 	 	
 	 	$	1,928.0	 	 	$	1,848.6	 	 	$	1,559.3	 	
 	 	 	 	 	 	 	 	 	 	
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     Other than the U.S. government, our 10 largest customers represented 51% of revenue and our three largest customers represented 20% of revenue in 2007. Revenue from U.S. government contracts represented 9% of revenue in 2007, 10% of revenue in 2006 and 13% of revenue in 2005. No other customer represented more than 10% of revenue.
     Reference is made to segment information reported in note 17 to the consolidated financial statements.
SWU and Uranium Backlog
     Backlog is the aggregate dollar amount of SWU and uranium that we expect to sell in future periods under contracts with customers. At December 31, 2007, we had contracts with customers aggregating an estimated $6.5 billion through 2015 ($6.0 billion through 2012, including $1.4 billion expected to be delivered in 2008), compared with $7.0 billion at December 31, 2006. Backlog is partially based on customers’ estimates of their fuel requirements and certain other assumptions, including our estimates of selling prices and inflation rates. Such estimates are subject to change. Some contracts include pricing elements based on market prices prevailing at the time of delivery. We use an external composite forecast of future market prices in our estimate. Pricing under some new contracts is subject to escalation based on a broad power price index. For purposes of the backlog, we assume increases to the power price index in line with overall inflation rates.
Gaseous Diffusion Plants
     Two existing technologies are currently used commercially to enrich uranium for nuclear power plants: gaseous diffusion and gas centrifuge. We currently use the older gaseous diffusion technology and are deploying gas centrifuge technology to replace our gaseous diffusion operations.
     Gaseous Diffusion Process
     The gaseous diffusion process separates the lighter U235 isotope from the heavier U238. The fundamental building block of the gaseous diffusion process is known as a stage, consisting of a compressor, a converter, a control valve and associated piping. Compressors driven by large electric motors are used to circulate the process gas and maintain flow. Converters contain porous tubes known as a barrier through which process gas is diffused. Stages are grouped together in series to form an operating unit called a cell. A cell is the smallest group of stages that can be removed from service for maintenance. Gaseous diffusion plants are designed so that cells can be taken off line with little or no interruption in the process.
     The process begins with the heating of solid uranium hexafluoride to form a gas that is forced through the barrier. Because U 235  is lighter than U  238 , it moves through the barrier more easily. As the gas moves, the two isotopes are separated, increasing the U  235  concentration and decreasing the concentration of U  238  in the finished product. The gaseous diffusion process requires significant amounts of electric power to push uranium through the barrier.
     Paducah GDP
     We operate the Paducah GDP located in Paducah, Kentucky. The Paducah GDP consists of four process buildings and is one of the largest industrial facilities in the world. The process buildings have a total floor area of 150 acres, and the site covers 750 acres. We estimate that the maximum capacity of the existing equipment is about 8 million SWU per year. In 2008, we expect to produce approximately 6 million SWU at the Paducah GDP. The Paducah GDP has been certified by the NRC to produce LEU up to an assay of 5.5% U  235 .
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     Portsmouth GDP
     We ceased uranium enrichment operations at the Portsmouth GDP, located in Piketon, Ohio, in 2001. Under contract with DOE, we maintained the Portsmouth GDP in a state of readiness or “cold standby”, and beginning in 2006, the program was redefined to consist of actions necessary to prepare for a DOE decontamination and decommissioning program, which we refer to as “cold shutdown”. DOE and USEC have periodically extended the Portsmouth GDP maintenance program, most recently through September 30, 2008.
     Lease of Gaseous Diffusion Plants
     We lease the Paducah and Portsmouth GDPs from DOE. The lease covers most, but not all, of the buildings and facilities relating to gaseous diffusion activities. Major provisions of the lease follow:
 	•	 	except as provided in the 2002 DOE-USEC Agreement, we have the right to renew the lease at either plant indefinitely in six year increments and can adjust the property under lease to meet our changing requirements. The current lease term expires in 2010 and we expect to make a decision regarding a lease extension in the first half of 2008;	
 	 	 	 	
 	•	 	we may leave the property in an “as is” condition at termination of the lease, but must remove wastes we generate and must place the plants in a safe shutdown condition;	
 	 	 	 	
 	•	 	the U.S. government is responsible for environmental liabilities associated with plant operations prior to July 28, 1998 except for liabilities relating to the disposal of some identified wastes generated by USEC and stored at the plants;	
 	 	 	 	
 	•	 	DOE is responsible for the costs of decontamination and decommissioning of the plants;	
 	 	 	 	
 	•	 	title to capital improvements not removed by us will transfer to DOE at the end of the lease term, and if we elect to remove any capital improvements, we are required to pay any increases in DOE’s decontamination and decommissioning costs that are a result of our removing the capital improvements;	
 	 	 	 	
 	•	 	DOE must indemnify us for costs and expenses related to claims asserted against us or incurred by us arising out of the U.S. government’s operation, occupation, or use of the plants prior to July 28, 1998; and	
 	 	 	 	
 	•	 	DOE must indemnify us against claims for public liability (as defined in the Atomic Energy Act of 1954, as amended) from a nuclear incident or precautionary evacuation in connection with activities under the lease. Under the Price- Anderson Act, DOE’s financial obligations under the indemnity are capped at $10 billion for each nuclear incident or precautionary evacuation occurring inside the United States.	
     In December 2006, we signed a lease agreement with DOE for our long-term use of facilities at the Portsmouth GDP in Piketon for the American Centrifuge Plant. The lease for these facilities and other support facilities is a stand-alone amendment to our current lease with DOE for the gaseous diffusion plant facilities. Further details are provided in “The American Centrifuge Plant”.
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Raw Materials
     Electric Power
     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. In 2007, the power load at the Paducah GDP averaged 1,510 megawatts and we expect the average power load at the Paducah GDP to increase to approximately 1,675 megawatts in 2008. We purchase electric power for the Paducah GDP under a power purchase agreement signed with Tennessee Valley Authority (“TVA”) in 2000. Beginning in June 2006, pricing under the TVA power contract increased by about 50%, and was also subject to a fuel cost adjustment to reflect changes in TVA’s fuel costs, purchased power costs, and related costs. The increase in electric power costs from the pre-2006 pricing significantly increased our overall LEU production costs and reduced our cash flows, and negatively affects our gross profit margin as higher production costs are reflected in cost of sales under our monthly moving average cost of inventory.
     Effective June 1, 2007, we amended the TVA power contract to provide for the quantity and pricing of power purchases for the five-year period June 1, 2007 through May 31, 2012, extending the overall term of the power contract by two additional years to May 31, 2012. Pricing under the TVA power contract consists of a summer and a non-summer base energy price through May 31, 2008. Beginning June 1, 2008, the price consists of a year-round base energy price that increases moderately based on a fixed, annual schedule. All years are subject to a fuel cost adjustment provision. During 2007, the fuel cost adjustment resulted in an average 8% increase over base prices. The impact of future fuel cost adjustments is uncertain and our cost of power could fluctuate in the future above or below the agreed increases in the base energy price.
     The quantity of power purchases under the TVA contract generally ranges from 300 megawatts in the summer months (June — August) to up to 2,000 megawatts in the non-summer months. This is an increase from previous quantities in the non-summer months. During the last two years of the contract, the quantity of non-summer power purchases will be reduced to a maximum of 1,650 megawatts at all hours. This is designed to provide a transition down for the TVA power system because of the significant amount of power being purchased by us. Consistent with past practice, we also purchased from TVA and another supplier, at market-based prices, an additional 600 megawatts of power during the summer months of 2007.
     We are required to provide financial assurance to support our payment obligations to TVA. These include a letter of credit and weekly prepayments based on the price and usage of power. These financial assurances were increased in 2007 because of the increased quantities in the non-summer months effective June 1, 2007.
     Uranium
     Natural uranium is the feedstock in the production of LEU at the Paducah GDP. The plant uses the equivalent of approximately 6 million kilograms of uranium each year in the production of LEU. Uranium is a naturally occurring element and is mined from deposits located in Canada, Australia and other countries. According to the World Nuclear Association, there are adequate uranium resources to fuel nuclear power at current usage rates for at least 70 years.
     Mined uranium ore is crushed and concentrated and sent to a uranium conversion facility where it is converted to uranium hexafluoride, a form suitable for uranium enrichment. Two commercial uranium converters in North America, Cameco Corporation and ConverDyn, deliver and hold title to uranium at the Paducah GDP.
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     Utility customers provide uranium to us as part of their enrichment contracts or purchase the uranium required to produce LEU from us. Customers who provide uranium to us generally do so by acquiring title to uranium from Cameco, ConverDyn and other suppliers at the Paducah GDP. At December 31, 2007, we held uranium to which title was held by customers and suppliers with a value of $5.8 billion based on published price indicators. The uranium is fungible and commingled with our uranium inventory. Title to uranium provided by customers remains with the customer until delivery of LEU, at which time title to LEU is transferred to the customer and we take title to the uranium. The uranium that we sell to utility customers comes from our uranium inventories, which includes uranium from underfeeding the enrichment process, purchases of uranium from third-party suppliers and uranium that we obtained from DOE prior to privatization.
     The quantity of uranium used in the production of LEU is to a certain extent interchangeable with the amount of SWU required to enrich the uranium. Underfeeding is a mode of operation that uses or feeds less uranium, which supplements our supply of uranium, but requires more SWU in the enrichment process, which requires more electric power. In producing the same amount of LEU, we vary our production process to underfeed uranium based on the economics of the cost of electric power relative to the price of uranium.
     Coolant
     The Paducah GDP uses Freon as the primary process coolant. The production of Freon in the United States was terminated in 1995 and Freon is no longer commercially available. We expect our current supply of Freon to be sufficient to support at least 10 years of continued operations at current use rates.
     GDP Equipment
     GDP equipment components (such as compressors, coolers, motors and valves) requiring maintenance are removed from service and repaired or rebuilt on site. Common industrial components, such as the breakers, condensers and transformers in the electrical system, are procured as needed. Some components and systems are no longer produced, and spare parts may not be readily available. In these situations, replacement components or systems are identified, tested, and procured from existing commercial sources, or the plants’ technical and fabrication capabilities are utilized to design and build replacements.
     Equipment utilization at the Paducah GDP averaged 98% in 2007 compared to 96% in 2006. Equipment utilization is based on a pre-defined measure of cells in operation. The utilization of equipment is highly dependent on power availability and costs. We reduce equipment utilization and the related power load in the summer months when the cost of electric power is high. Equipment utilization is also affected by repairs and maintenance activities.
Russian Contract (“Megatons to Megawatts”)
     We are the U.S. government’s exclusive executive agent (“Executive Agent”) in connection with a government-to-government nonproliferation agreement between the United States and the Russian Federation. Under the agreement, we have been designated by the U.S. government to order LEU derived from dismantled Soviet nuclear weapons. In January 1994, USEC, as Executive Agent for the U.S. government, signed a commercial agreement (“Russian Contract”) with a Russian government entity known as OAO Techsnabexport (“TENEX”, or “the Russian Executive Agent”), Executive Agent for the Federal Agency for Atomic Energy of the Russian Federation, to implement the program.
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     We have agreed to purchase approximately 5.5 million SWU each calendar year for the remaining term of the Russian Contract through 2013. Over the life of the 20-year Russian Contract, we expect to purchase about 92 million SWU contained in LEU derived from 500 metric tons of highly enriched uranium. As of December 31, 2007, we had purchased 59 million SWU contained in LEU derived from 322 metric tons of highly enriched uranium, the equivalent of about 12,900 nuclear warheads. Purchases under the Russian Contract constitute approximately 50% of our supply mix. Prices are determined using a discount from an index of international and U.S. price points, including both long-term and spot prices. A multi-year retrospective view of the index is used to minimize the disruptive effect of short-term market price swings. Increases in these price points in recent years have resulted, and we believe likely will continue to result, in increases to the index used to determine prices under the Russian Contract.
     Under the Russian Contract, we are obligated to provide to TENEX an amount of uranium equivalent to the uranium component of LEU delivered to us by TENEX, totaling about 9 million kilograms per year. We credit the uranium to an account at the Paducah GDP maintained on behalf of TENEX. TENEX holds the uranium or sells or otherwise exchanges this uranium in transactions with other suppliers or utility customers. From time to time, TENEX may take physical delivery of uranium supplied by a uranium converter that would otherwise deliver such uranium to us. Under these arrangements, the converter provides uranium to TENEX for shipment back to Russia, and the converter receives an equivalent amount of uranium in its account at the Paducah GDP.
     The Russian Contract provides that, after the end of 2007, the parties may agree on appropriate adjustments, if necessary, to ensure that the Russian Executive Agent receives at least approximately $7.6 billion for the SWU component over the 20-year term of the Russian Contract through 2013. We do not expect that any adjustments will be required. TENEX has requested that we discuss revisions of the pricing formula for the SWU component of LEU delivered under the Russian Contract in 2009 and beyond. Officials of the Russian government have announced that Russia will not extend the Russian Contract, or the government-to-government agreement it implements, beyond 2013. Accordingly, we do not anticipate that we will purchase significant quantities of Russian SWU after 2013.
     Under the terms of a 1997 memorandum of agreement between USEC and the U.S. government, we can be terminated, or resign, as the U.S. Executive Agent, or one or more additional executive agents may be named. Any new executive agent could represent a significant new competitor.
2002 DOE-USEC Agreement and Related Agreements with DOE
     On June 17, 2002, USEC and DOE signed an agreement (“2002 DOE-USEC Agreement”) in which both we and DOE made long-term commitments directed at resolving issues related to the stability and security of the domestic uranium enrichment industry. We and DOE have entered into subsequent agreements relating to these commitments. The following is a summary of material provisions and an update of activities under the 2002 DOE-USEC Agreement and related agreements:
     Russian Contract (“Megatons to Megawatts”)
     The 2002 DOE-USEC Agreement provides that DOE will recommend against removal, in whole or in part, of us as the U.S. Executive Agent under the Russian Contract as long as we order the specified amount of LEU from the Russian Executive Agent and comply with our obligations under the 2002 DOE-USEC Agreement and the Russian Contract.
     Remediating or Replacing Out-of-Specification Uranium
     Under the 2002 DOE-USEC Agreement, DOE was obligated to remediate or replace 9,550 metric tons of natural uranium transferred to us from DOE prior to privatization that contained elevated levels of technetium. The contaminant put the uranium out-of-specification for commercial use. We have been operating facilities at the Portsmouth GDP under contract with DOE to process and remove technetium from the out-of-specification uranium, and in October 2006, the remediation project for USEC-owned uranium was completed. We have also been processing and removing technetium from out-of-specification uranium owned by DOE under an agreement with DOE entered into in December 2004. These efforts are expected to continue through September 2008.
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     Domestic Enrichment Facilities
     Under the 2002 DOE-USEC Agreement, we agreed to operate the Paducah GDP at a production rate at or above 3.5 million SWU per year. Historically, we have operated at production rates significantly above this level, and in 2008, we expect to produce approximately 6 million SWU at the Paducah GDP. Production at Paducah may not be reduced below a minimum of 3.5 million SWU per year until six months before we have completed a centrifuge enrichment facility capable of producing LEU containing 3.5 million SWU per year. If the Paducah GDP is operated at less than the specified 3.5 million SWU in any given fiscal year, we may cure the defect by increasing LEU production to the 3.5 million SWU level in the ensuing fiscal year. We may only use the right to cure once in each six-year lease period.
     If we do not maintain the requisite level of operations at the Paducah GDP and have not cured the deficiency, we are required to waive our exclusive rights to lease the Paducah and Portsmouth GDPs. If we cease operations at the Paducah GDP or lose our certification from the NRC, DOE may take actions it deems necessary to transition operation of the plant from us to ensure the continuity of domestic enrichment operations and the fulfillment of supply contracts. In either event, DOE may be released from its obligations under the 2002 DOE-USEC Agreement. We will be deemed to have “ceased operations” at the Paducah GDP if we (1) produce less than 1 million SWU per year or (2) fail to meet specific maintenance and operational criteria established in the 2002 DOE-USEC Agreement.
     Advanced Enrichment Technology
     The 2002 DOE-USEC Agreement provides that we will begin operation of an enrichment facility using advanced enrichment technology in accordance with certain milestones. A discussion of our American Centrifuge uranium enrichment technology and those milestones is included under the caption “— The American Centrifuge Plant — Project Milestones under the 2002 DOE-USEC Agreement”.
     Other
     The 2002 DOE-USEC Agreement contains force majeure provisions that excuse our failure to perform under the agreement if such failure arises from causes beyond our control and without our fault or negligence.
11

 
The American Centrifuge Plant
     We have begun construction of the American Centrifuge Plant (“ACP”) in Piketon, Ohio, using our next generation American Centrifuge uranium enrichment technology. We are deploying the ACP to replace our gaseous diffusion uranium enrichment operations and to be well positioned to meet utility demand for LEU. Deploying the American Centrifuge technology will drastically reduce our power costs and modernize our production capacity, enabling us to stay competitive in the long term. We believe that the centrifuge machine that we will deploy in the ACP will have an output much greater than the next best competitor’s machine and will be the most efficient uranium enrichment machine in the world.
     Our American Centrifuge technology has its foundations in centrifuge technology developed by DOE over a 20-year period through 1985. We license this technology from DOE. We have significantly updated and improved the original DOE centrifuge technology through the use of high- performance materials, advanced computer-aided design, analytic modeling tools, improved equipment design and rotor balancing, highly accurate digital controls and computer-aided manufacturing processes to achieve specified performance parameters while meeting exacting tolerances.
     We initiated testing of centrifuge components in 2003 at our test facility in Oak Ridge, Tennessee and began testing full-size centrifuge machines in January 2005. These tests validated our initial performance target of 320 SWU per machine per year. The output performance of our technology has been further optimized to achieve 350 SWU per machine per year, and we believe our machines have the potential for even greater performance.
     In April 2007 we received a 30-year NRC construction and operating license for the ACP, and in May 2007 we officially commenced commercial plant construction, meeting a project milestone under the 2002 DOE-USEC Agreement. We are working toward beginning commercial operations at the ACP in late 2009 and having approximately 11,500 machines deployed in 2012. We expect these machines to produce LEU containing about 3.8 million SWU per year based on our current estimates of machine output and plant availability. In order to achieve 3.8 million annual SWU production capacity of the ACP, we expect to assemble several hundred centrifuge machines per month from 2010 through 2012.
     Concurrent with our initial deployment of capacity for 3.8 million SWU per year, we are analyzing the nuclear fuel market to determine the economics of adding additional ACP capacity. We are also evaluating our potential to continue to build and install centrifuges after the initial deployment. Although we will need an amendment to our NRC license for any expansion of the ACP, the environmental impact statement issued with our license contemplated the potential impact of an expansion of the plant to approximately double its anticipated capacity.
     Lead Cascade Test Program
     After extensive testing of individual machines and components, in August 2007 we began the Lead Cascade test program operations. The Lead Cascade test program involves the integrated testing of multiple centrifuge machines in a cascade configuration at our American Centrifuge Demonstration Facility in Piketon, Ohio. Testing is done within an existing building that will ultimately house the commercial plant. As required by the license issued by the NRC for the American Centrifuge Demonstration Facility, machines in the Lead Cascade test program are operated in a closed-loop cascade configuration where the uranium gas is enriched, depleted and re-combined in a repetitive cycle.
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     In a centrifuge enrichment facility, a cascade is a group of centrifuge machines connected in a series and parallel arrangement to achieve an intended isotope separation capability. The number and arrangement of centrifuge machines in a cascade can vary. The cascades tested during our Lead Cascade test program initially consisted of fewer than 20 prototype machines, including spare machines. A commercial uranium enrichment facility that uses gas centrifuge technology is made up of hundreds of cascades.
     The Lead Cascade test program is an important step in the deployment of the ACP. We designed the Lead Cascade test program with a number of objectives in mind, and we have achieved these objectives. We have demonstrated the ability of the cascade to generate product assays in a range useable by commercial nuclear power plants, obtained data on machine-to-machine interactions and verified cascade performance models under a variety of operating conditions. We have also obtained data on the performance of centrifuge components that is being factored into the design of the commercial production centrifuge machine, which we refer to as the AC100 series. We also addressed issues that emerged during Lead Cascade operations. We expect that testing of Lead Cascade operations will continue at various operating conditions and configurations to aid in confirming design parameters for the AC100 series machine, to provide further reliability data and to provide additional training to operators and technicians. We expect the existing Lead Cascade of prototype machines to help us identify improvements in design, assembly and operations that will be factored into the AC100 machine, helping us and our suppliers to ensure reliability and achieve lower costs through high-volume manufacturing for full-scale commercial deployment.
     AC100 Centrifuge Testing, Demonstration and Deployment
     Concurrent with our testing activities in the Lead Cascade test program, we are working to finalize the development and design of the first series of plant production centrifuges that will be manufactured by our strategic suppliers. The initial design release for the AC100 machine is scheduled for the end of March 2008. Using the specifications from this design release, we and our strategic suppliers will begin to make various components and test these first AC100 designs under a variety of operating conditions at our Oak Ridge facilities over a six-month period.
      Our strategic suppliers will proceed with their manufacturing facilitization efforts with the goal of assembling and installing a cascade of 30 to 40 AC100 machines, based on the initial design release, in late 2008. We will then begin integrated testing of these machines in early 2009. We expect the initial AC100 design release to achieve a performance level of approximately 350 SWU per machine per year. This initial design release will not meet our desired targets for machine cost and performance, and therefore, we will continue our efforts to identify improvements in design, assembly and operations that can help to ensure reliability and lower the cost of the AC100 machine. The final design for the first series of AC100 machines that will be produced in large quantities for ACP will reflect any improvements resulting from individual machine testing and subsequent integrated testing.
      We also expect to continue our research and development efforts as the first phase of the plant is built. We will incorporate improvements at specific planned points as we build out the initial capacity of the ACP to its 3.8 million annual SWU production capacity. New analytic capability and computer-aided manufacturing methods provide an opportunity to develop more productive and less costly machines as we seek to enhance our capability in centrifuge technology and develop a new series of machines. This will result in continued development spending that will be expensed.
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     Strategic Suppliers
     We are working with the following five strategic suppliers to deploy the American Centrifuge project:
 	 	 	
Strategic Supplier	 	Responsibility	
 	 	 	
Honeywell International	 	Final machine assembly	
 	 	 	
Alliant Techsystems Inc.	 	Fabricating carbon fiber rotor tubes	
 	 	 	
The Babcock & Wilcox Company	 	Classified machining and unclassified part procurement, rotor balancing and assembly	
 	 	 	
Fluor Corporation	 	Managing commercial plant engineering, procurement and construction activities	
 	 	 	
Major Tool and Machine	 	Fabricate machine casing and appurtenances	
     We have put in place an experienced project management team, some of whom were involved with the DOE centrifuge program in the 1980s, and are implementing established project management processes. We are directly coordinating and integrating our suppliers and subcontractors in certain cases, because of the unique nature of the project and our extensive technical and operating experience with gaseous diffusion and centrifuge enrichment technology.
     To date, we have custom-built nearly all of the components ourselves for the American Centrifuge machines assembled for our Lead Cascade test program. We continue the process of transferring the technology for assembling our American Centrifuge machines to our strategic suppliers as we and our suppliers prepare manufacturing capacity for the classified components and carbon fiber rotor fabrication, and transfer responsibility for rotor balancing. Our goal is to develop the manufacturing infrastructure and capacity with our suppliers to be prepared for high-volume manufacturing in 2010. As our team of strategic suppliers gains manufacturing experience, they will integrate changes, implement improvements to the machine design and work to lower the capital cost per machine. Given these expected manufacturing improvements and the one-time demonstration expenses we have incurred to date, we believe potential capacity expansions beyond our initial 3.8 million SWU per year American Centrifuge Plant will benefit from improved economies of scale.
     Essentially all of the buildings required for the commercial plant were constructed in Piketon during the 1980s by DOE. These existing structures include a centrifuge assembly building, a uranium feed and withdrawal facility and two enrichment production buildings. Fluor Corporation is managing the engineering, procurement and construction activities related to these structures, process systems to integrate and support the centrifuge machines and cascades, and the balance of plant infrastructure. The feed and withdrawal facility is where the natural uranium is fed into the commercial centrifuges and enriched product is removed. The process systems include service modules that provide utilities to the centrifuge machines and interconnecting piping that enables uranium gas to flow throughout the enrichment production facility, as well as a distributed control system that monitors and controls the enrichment processing equipment. The balance of plant infrastructure includes electric, telecommunications, cooling and water distribution. Fluor began refurbishment and ancillary construction work in May 2007. Design, procurement, refurbishment and construction activities for these facilities will continue through 2011.
     Since 2004, we have been working with our strategic suppliers primarily under cost-reimbursement agreements. We are in the process of negotiating modifications of these arrangements so that we and our suppliers will share certain cost, schedule and performance risks. We have been pursuing a phased approach to contracting, with work divided into three stages: demonstration, initial AC100 machine production, and the balance of commercial plant machine production. As we proceed with the project, we intend for contracts with suppliers to transition from a cost-reimbursable model to a fixed price or incentive based model, as appropriate.
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     Project Cost and Schedule Update
     We established a target cost estimate in early 2007 for completing the ACP of $2.3 billion, which included spending to date but did not include financing costs or a reserve for general contingencies. At that time, we also established our current schedule for deployment of ACP. During 2007 we saw variances in spending and commitments for components for the ACP from corresponding amounts in our target cost estimate of approximately 15%, which helped to form our view that a reserve for general contingencies of approximately 15% to 20% was reasonable at the time. We have insight into more than $1 billion of ACP costs through costs of $615 million incurred through December 31, 2007 and near-term commitments. Our spending and commitments to date have remained within the 15% to 20% contingency band we had previously viewed as reasonable.
     We are now in the midst of a thorough, bottom-up review of the cost to build the plant based on greater maturity of machine design and balance of plant design. We expect to complete and announce a budget for the project in the second quarter of 2008. Our current negotiations with suppliers regarding the significant scope of work that remains indicate that overall costs for the ACP will be higher than we previously estimated. As seen in other large construction projects currently underway, our costs are also under pressure. In addition, since we are completing machine design concurrent with developing manufacturing and balance of plant cost estimates, offsets to these upward cost pressures are difficult to quantify. Among the factors that are creating upward pressure on costs are higher than anticipated costs from our suppliers for project management, supervision, labor and overhead, and higher commodity and material prices. We also expect higher than anticipated demonstration costs as we continue to spend time working to reduce the manufacturing cost per machine through value engineering.
     Based on where we are in the bottom-up review of the target cost estimate, we expect that the project budget that we will establish in the second quarter will be about $3.5 billion, including expenditures to date, but not including costs for financing or financial assurance. We are continuing to evaluate bids received and negotiate with our suppliers. We are also continuing our design and value engineering efforts to lower the overall project cost. However, we may not be successful in our negotiations and value engineering efforts, and there may be further upward pressure on costs as we establish the project budget over the next several months. We expect to spend between $650 and $700 million in 2008, with most of the spending in 2008 being capitalized.
     As part of our bottom-up review we are also looking at the ACP deployment schedule. We are evaluating whether the project risk and cost can be improved by modifying items such as the timing of the final design release for the AC100 machine and value engineering efforts, when to begin making AC100 components for the commercial plant, and the ramp up to high-volume manufacturing. Therefore, a decision could be made to slow the pace of one or more steps in order to lower or manage the overall risk and cost of the project.
15

 
     Project Milestones under the 2002 DOE-USEC Agreement
     The 2002 DOE-USEC Agreement provides that we will develop, demonstrate and deploy the American Centrifuge technology in accordance with fifteen milestones, 12 of which we believe have already been achieved as follows:
 	 	 	 	 	
Milestones under	 	Milestone	 	Achievement	
2002 DOE-USEC Agreement	 	Date	 	Date	
Begin refurbishment of K-1600 centrifuge testing facility in Oak Ridge, Tennessee	 	December 2002	 	December 2002	
 	 	 	 	 	
Build and begin testing a centrifuge end cap	 	January 2003	 	January 2003	
 	 	 	 	 	
Submit license application for Lead Cascade to NRC	 	April 2003	 	February 2003	
 	 	 	 	 	
NRC dockets Lead Cascade application	 	June 2003	 	March 2003	
 	 	 	 	 	
First rotor tube manufactured	 	November 2003	 	September 2003	
 	 	 	 	 	
Centrifuge testing begins	 	January 2005	 	January 2005	
 	 	 	 	 	
Submit license application for commercial plant to NRC	 	March 2005	 	August 2004	
 	 	 	 	 	
NRC dockets commercial plant application	 	May 2005	 	October 2004	
 	 	 	 	 	
Begin Lead Cascade centrifuge manufacturing	 	June 2005	 	April 2005	
 	 	 	 	 	
Begin commercial plant construction and refurbishment	 	June 2007	 	May 2007	
 	 	 	 	 	
Lead Cascade operational and generating product assay in a range usable by commercial nuclear power plants	 	October 2007	 	October 2007	
 	 	 	 	 	
Financing commitment secured for a one million SWU per year centrifuge plant	 	January 2008	 	January 2008	
     Three milestones remain to be achieved, with the last milestone being optional. Our current deployment schedule is later than the schedule originally established for the remaining three milestones. We believe we will reach an agreement with DOE regarding rescheduling of the three remaining milestones at a later date, as was done with respect to the October 2007 and January 2008 milestones, however DOE may not agree to extend these milestones.
 	 	 	
Milestones under	 	 	
2002 DOE-USEC Agreement	 	Milestone Date	
 	 	 	
Begin American Centrifuge commercial plant operations at facility in Piketon, Ohio	 	January 2009	
 	 	 	
American Centrifuge Plant capacity at one million SWU per year	 	March 2010	
 	 	 	
American Centrifuge Plant projected to have an annual capacity of 3.5 million SWU	 	September 2011	
     DOE is not obligated under the 2002 DOE-USEC Agreement to provide any formal confirmation that we have met any milestone, including the most recent January 2008 milestone. DOE also has remedies under the 2002 DOE-USEC Agreement if it determines that we did not meet one or more of the milestones. See “Risk Factors —  We are required to meet certain milestones under the 2002 DOE-USEC Agreement and our failure to meet these milestones or disagreements with DOE as to whether we met a milestone could cause DOE to exercise one or more remedies under the 2002 DOE-USEC Agreement. ”
16

 
     NRC Operating License
     In 2004, USEC received an NRC license to possess and use radioactive material at the American Centrifuge Demonstration Facility. This possession and use license expires in 2009 and we expect to apply for a license renewal to allow for continued Lead Cascade operations. In April 2007 the NRC issued a license to construct and operate the American Centrifuge Plant and we began construction of the American Centrifuge Plant in May 2007. Our construction and operating license is for a term of 30 years and includes authorization to enrich uranium to a U  235  assay of up to 10%. The plant is expected to have an initial annual production capacity of 3.8 million SWU. Although we will need an amendment to our NRC license for any expansion of the American Centrifuge Plant, the environmental report submitted with our license application and the environmental impact statement issued by the NRC contemplated the potential expansion of the plant to approximately double the currently expected capacity.
     DOE Lease
     In December 2006, USEC and DOE signed a lease agreement for our long-term use of facilities in Piketon for the American Centrifuge Plant. The process buildings that will house the cascades of centrifuges encompass more than 14 acres under roof. The lease for these facilities and other support facilities is a stand-alone amendment to our lease with DOE for the gaseous diffusion plant facilities in Piketon and in Paducah. The initial term runs through June 2009, but can be extended under specific conditions by five years. After the first five-year extension, we have the option to extend the lease term for additional five-year terms up to 2043. Thereafter, we also have the right to extend the lease for up to an additional 20 years, through 2063, if we agree to demolish the existing buildings leased to us after the lease term expires. We have the option, with DOE’s consent, to expand the leased property to meet our needs until the earlier of September 30, 2013 or the expiration or termination of the GDP lease. Rent is based on the cost of lease administration and regulatory oversight and is initially estimated to be approximately $1.9 million per year. We may terminate the lease upon three years’ notice. DOE may terminate for default, including default under the 2002 DOE-USEC Agreement.
     Financial Assurance for Decontamination and Decommissioning
     We own all capital improvements at the American Centrifuge Plant and, unless otherwise consented to by DOE, must remove them by the conclusion of the lease term. This provision is unlike the lease of our gaseous diffusion plants where we may leave the property in an “as is” condition at termination of the lease. DOE generally only remains responsible for pre-existing conditions of the American Centrifuge leased facilities. At the conclusion of the 36-year lease period in 2043, assuming no further extensions, we are obligated to return these leased facilities to DOE in a condition that meets NRC requirements and in the same condition as the facilities were in when they were leased to us (other than due to normal wear and tear). We are required to provide financial assurance to the NRC incrementally based on facility construction and centrifuge installation achieved to date as well as anticipated in the coming year. We are also required to provide financial assurance to DOE in an amount equal to our current estimate of costs to comply with lease turnover requirements, less the amount of financial assurance required of us by the NRC for decontamination and decommissioning (“D&D”). As of December 31, 2007, we have provided financial assurance to the NRC and DOE in the form of surety bonds totaling $41.6 million that supports estimated construction progress through May 2008. The surety bonds are partially collateralized with interest-earning cash deposits.
     The financial assurance requirements will increase each year commensurate with the status of facility construction and operations and our projection of activity for the following year. 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 current estimate of the total D&D cost related to the NRC is $317.7 million in 2006 dollars, and the projected total incremental lease turnover cost related to DOE is estimated to be $27.6 million in 2006 dollars. Financial assurance will also be required for the disposition of depleted uranium generated from future centrifuge operations.
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     Asset Retirement Obligations
     D&D requirements for the American Centrifuge Plant create asset retirement obligations. As construction of the American Centrifuge Plant takes place, the present value of the related asset retirement obligation is recognized as a liability. An equivalent amount is recognized as part of the capitalized asset cost. The liability is accreted, or increased, over time for the time value of money. The accretion is charged to cost of sales. Upon commencement of commercial operations, the asset cost will be depreciated over the shorter of the asset life or the expected lease period.
     During each reporting period, we reassess and revise the estimate of asset retirement obligations based on construction progress, cost evaluation of future D&D expectations, and other judgmental considerations which impact the amount recorded in both construction work in progress and other long-term liabilities. Our asset retirement obligation liability balance as of December 31, 2007 was $4.4 million. Cost of sales in 2007 includes accretion of the asset retirement obligation of $0.2 million.
     DOE Technology License
     In December 2006, USEC and DOE signed an agreement licensing U.S. gas centrifuge technology to USEC for use in building new domestic uranium enrichment capacity. We will pay royalties to the U.S. government on annual revenues from sales of LEU produced in the American Centrifuge Plant. The royalty ranges from 1% to 2% of annual gross revenue from these sales. Payments are capped at $100 million over the life of the technology license.
     Risks and Uncertainties
     The successful construction and operation of the American Centrifuge Plant is dependent upon a number of factors, including satisfactory performance of the American Centrifuge technology at various stages of demonstration, overall cost and schedule, financing and the achievement of milestones under the 2002 DOE-USEC Agreement. Risks and uncertainties related to the demonstration, construction and deployment of the American Centrifuge technology are described in further detail in “Risk Factors”.
Nuclear Regulatory Commission — Regulation
     Our operations are subject to regulation by the NRC. The Paducah and Portsmouth GDPs are regulated by and are required to be recertified by the NRC every five years. The term of the current NRC certification expires December 31, 2008, and the NRC will evaluate the plants in connection with the renewal. The NRC also regulates the American Centrifuge Plant currently under construction and, in August 2006, assumed oversight of the American Centrifuge Demonstration Facility.
     The NRC could refuse to renew either or both of the certificates for our gaseous diffusion plants if it determines that: (1) we are foreign owned, controlled or dominated; (2) the issuance of a renewed certificate would be inimical to the maintenance of a reliable and economic domestic source of enrichment; (3) the issuance of a renewed certificate would be adverse to U.S. defense or security objectives; or (4) the issuance of a renewed certificate is otherwise not consistent with applicable laws or regulations in effect at the time of renewal. The same requirements apply to NRC’s issuance of the 30 year license for the American Centrifuge Plant. If the certificate for the Paducah GDP were not renewed, we could no longer produce LEU at the Paducah GDP, which would threaten our ability to make deliveries to customers and meet the minimum production requirements under the 2002 DOE-USEC Agreement, jeopardize our cash flows, and subject us to various penalties under our customer contracts and the 2002 DOE-USEC Agreement.
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     The NRC has the authority to issue notices of violation for violations of the Atomic Energy Act of 1954, NRC regulations, and conditions of licenses, certificates of compliance, or orders. The NRC has the authority to impose civil penalties for certain violations of its regulations. We have received notices of violation from NRC for violations of these regulations and certificate conditions. However, none of these has resulted in a fine during the past three years, and in each case, we took corrective action to bring the facilities into compliance with NRC regulations. We do not expect that any proposed notices of violation we have received will have a material adverse effect on our financial position or results of operations.
     Our operations require that we maintain security clearances that are overseen by the NRC and DOE in accordance with the National Industrial Security Program Operating Manual (“NISPOM”). These security clearances require that we provide a certification regarding foreign ownership, control or influence (“FOCI”), and the security clearances could be suspended or revoked based upon material changes to our FOCI certification, or other concerns that we might be subject to FOCI. The NRC staff has previously concluded that its NISPOM FOCI requirements are more comprehensive and prescriptive than the statutory prohibition of foreign ownership and that information sufficient to make a FOCI determination should be sufficient to enable NRC to satisfy its statutory responsibility to assure that we are not owned, controlled or dominated by an alien, a foreign company, or a foreign government.
Environmental Compliance
     Our operations are subject to various federal, state and local requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. Our operations generate low-level radioactive waste that is stored on-site or is shipped off-site for disposal at commercial facilities. In addition, our operations generate hazardous waste and mixed waste (i.e., waste having both a radioactive and hazardous component), most of which is shipped off-site for treatment and disposal. Because of limited treatment and disposal capacity, some mixed waste is being temporarily stored at DOE’s permitted storage facilities at the plants. We have entered into a consent decree with the State of Ohio that permits the continued storage of mixed waste at DOE’s permitted storage facilities and provides for a schedule for sending the waste to off-site treatment and disposal facilities. We previously had entered into a consent decree with the State of Kentucky, which was terminated in 2007 upon satisfaction of our obligations under the consent decree.
     Our operations generate depleted uranium that is stored at the plants. Depleted uranium is a result of the uranium enrichment process where the concentration of the U  235  isotope in depleted uranium is less than the concentration of .711% found in natural uranium. All liabilities arising out of the disposal of depleted uranium generated before July 28, 1998 are direct liabilities of DOE. The USEC Privatization Act requires DOE, upon our request, to accept for disposal the depleted uranium generated after the July 28, 1998 privatization date provided we reimburse DOE for its costs.
     The gaseous diffusion plants were operated by agencies of the U.S. government for approximately 40 years prior to July 28, 1998. As a result of such operation, there is contamination and other potential environmental liabilities associated with the plants. The Paducah GDP has been designated as a Superfund site under CERCLA, and both the Paducah and Portsmouth GDPs are undergoing investigations under the Resource Conservation and Recovery Act. Environmental liabilities associated with plant operations prior to July 28, 1998 are the responsibility of the U.S. government, except for liabilities relating to the disposal of certain identified wastes generated by USEC and stored at the plants. The USEC Privatization Act and the lease for the plants provide that DOE remains responsible for decontamination and decommissioning of the gaseous diffusion plants.
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     As described above under “The American Centrifuge Plant — Financial Assurance for Decommissioning”, we will be responsible for the decontamination and decommissioning of the American Centrifuge Plant.
     Reference is made to Management’s Discussion and Analysis of Financial Condition and Results of Operations and note 12 to the consolidated financial statements for information on operating costs relating to environmental compliance.
Occupational Safety and Health
     Our operations are subject to regulations of the Occupational Safety and Health Administration governing worker health and safety. We maintain a comprehensive worker safety program that establishes high standards for worker safety, directly involves our employees and monitors key performance indicators in the workplace environment.
Competition and Foreign Trade
     The highly competitive global uranium enrichment industry has four major producers of LEU:
 	•	 	USEC,	
 	 	 	 	
 	•	 	Urenco, a consortium of companies owned or controlled by the British and Dutch governments and by two private German utilities,	
 	 	 	 	
 	•	 	a multinational consortium controlled by AREVA, a company principally owned by the French government, and	
 	 	 	 	
 	•	 	the Russian Federal Agency for Atomic Energy, which sells LEU through TENEX, a Russian government-owned entity.	
     There are also smaller producers of LEU in China, Japan and Brazil that primarily serve a portion of their respective domestic markets.
     Global LEU suppliers compete primarily in terms of price and secondarily on reliability of supply and customer service. We believe that customers are attracted to our reputation as a reliable long-term supplier of enriched uranium and we intend to continue strengthening this reputation with the planned transition to the American Centrifuge Plant.
     Urenco, TENEX and producers in Japan, China and Brazil use centrifuge technology to produce LEU. Centrifuge technology is a more advanced technology than the gaseous diffusion process currently used by us and AREVA, which is also replacing its gaseous diffusion plant with a gas centrifuge plant. Gaseous diffusion plants generally have higher operating costs than gas centrifuge plants due to the significant amounts of electric power required by the gaseous diffusion process. Urenco has reported the capacity of its facilities was 9 million SWU per year at the end of 2006 and expects to have capacity of 11 million SWU per year at its European facilities by 2010.
     The Enrichment Technology Company (“ETC”) is a joint venture between AREVA and Urenco. AREVA has announced plans to install ETC-designed centrifuges to replace AREVA’s Georges Besse gaseous diffusion plant. Construction of the first section of the Georges Besse II centrifuge enrichment plant in France has commenced with first production expected in 2009 and full capacity of 7.5 million SWU per year expected by 2016. In addition, AREVA has stated that it is preparing to submit a license application to the NRC to build a proposed centrifuge uranium enrichment plant in the United States.
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     In June 2006, the NRC issued a license to Louisiana Energy Services (“LES”), a group controlled by Urenco, to construct and operate a gas centrifuge uranium enrichment plant in Lea County, New Mexico. LES commenced construction in August 2006, with operations expected to begin in 2009 and full capacity of 3 million SWU per year expected in 2013.
     All of our current competitors are owned or controlled, in whole or in part, by foreign governments. These competitors may make business decisions in both domestic and international markets that are influenced by political or economic policy considerations rather than exclusively by commercial considerations.
     In addition, General Electric’s nuclear energy business has an agreement with Silex Systems Limited, an Australian company, to license Silex’s uranium enrichment technology and begin a phased development process and potential future construction of a plant in the United States in the next decade. Activities are currently focused on construction of testing facilities and equipment at General Electric’s nuclear fuel fabrication plant in Wilmington, North Carolina.
     In addition to enrichment, LEU may be produced by downblending government stockpiles of highly enriched uranium. Governments control the timing and availability of highly enriched uranium released for this purpose and the release of this material to the market could impact prevailing market conditions. We have been the primary supplier of downblended highly enriched uranium made available by the U.S. and Russian governments. In 2007, the U.S. government selected a third party to downblend a quantity of U.S. highly enriched uranium. Most of this LEU is expected to be held in inventory by the U.S. government and not sold in the market. To the extent such LEU or other quantities of LEU from downblended highly enriched uranium are released into the market in future years for sale by others, these quantities would represent a source of competition.
     LEU that we supply to foreign customers is exported under the terms of international agreements governing nuclear cooperation between the United States and the country of destination or other entities. For example, exports to countries comprising the European Union take place within the framework of an agreement for cooperation (the “EURATOM Agreement”) between the United States and the European Atomic Energy Community, which, among other things, permits LEU to be exported from the United States to the European Union for as long as the EURATOM Agreement is in effect.
     Russian Suspension Agreement
     Imports of LEU and other uranium products produced in the Russian Federation are subject to restrictions imposed under the Russian Suspension Agreement. In July 2005, the Department of Commerce (“DOC”) and the International Trade Commission (“ITC”) each initiated a “sunset” review of the suspended antidumping duty investigation of uranium from the Russian Federation to determine whether termination of the suspended investigation, and the consequent termination of the agreement suspending that investigation (the “Russian Suspension Agreement”), would likely lead to:
 	•	 	a continuation or recurrence of dumping of Russian uranium products (a determination made by the DOC), and	
 	 	 	 	
 	•	 	a continuation or recurrence of material injury to the U.S. uranium industry, including to us (a determination made by the ITC).	
     We supported continuation of the Russian Suspension Agreement in the proceedings before both the DOC and ITC, and actively participated in those proceedings.
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     In 2006, the DOC and the ITC made affirmative determinations, meaning that, absent reversal on appeal, the Russian Suspension Agreement would not be terminated as a result of the sunset review. However, parties who opposed continuation of the Russian Suspension Agreement subsequently appealed the determinations of the DOC and the ITC to the U.S. Court of International Trade (“CIT”). They argued, among other things, that a decision of the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) in a separate proceeding involving imports of LEU from France required that imports of Russian LEU pursuant to enrichment services transactions should not have been considered by the DOC and the ITC in making their affirmative determinations in the sunset reviews, and should have been excluded from coverage under the Russian Suspension Agreement by the DOC.
     On September 26, 2007, the CIT remanded the DOC’s decision in the sunset review back to the DOC for reconsideration in light of the Federal Circuit decision. It also directed the DOC to reexamine its findings concerning the likelihood of continued or recurring dumping and the margin of dumping likely to prevail. On December 21, 2007, the DOC filed the results of its remand with the CIT. In the remand, the DOC applied the Federal Circuit’s precedent regarding the exclusion of LEU imports pursuant to enrichment services transactions, but again concluded that dumping of Russian uranium products was likely to continue or recur if the suspended investigation were terminated.
     On February 1, 2008, TENEX filed a motion to dismiss its appeal before the CIT of the DOC’s sunset review decision. This motion was filed pursuant to a provision of an amendment to the Russian Suspension Agreement (discussed below) that provides that the Russian government will terminate its legal challenge to the DOC’s sunset review when the amendment is brought into force. The CIT is expected to grant the motion, which will eliminate TENEX from the proceedings before the CIT. A coalition of U.S. utilities, known as the Ad Hoc Utilities Group (“AHUG”) is also pursuing a related appeal before the CIT and its appeal is not affected by TENEX’s motion. Separate appeals of the ITC’s sunset review determination brought by AHUG and a trading company, known as Nukem, Inc., are still pending before the CIT. In the litigation regarding the DOC sunset review, the CIT may consider the DOC’s remand redetermination, it may order a new redetermination, including a remand to consider solely the question of whether AHUG’s participation alone is sufficient to maintain the appeal, or it may decide that AHUG standing alone cannot bring an appeal of the DOC decision.
     In connection with the remand redetermination or on another basis, the DOC could reverse its earlier affirmative determination in the sunset review. Such a negative determination would result in termination of the Russian Suspension Agreement and the antidumping investigation it suspended. Termination of the Russian Suspension Agreement could result in a significant increase in sales of Russian-produced LEU in the United States that could depress prices and undermine our ability to sell the large quantity of LEU that we are committed to purchase under the Russian Contract as well as our ability to sell our own LEU production. We could face similar adverse impacts if the DOC decides to maintain the Russian Suspension Agreement in place, but narrows the scope of the investigation and the Russian Suspension Agreement in such a way that large quantities of Russian LEU pursuant to enrichment services transactions are permitted to be imported.
     The ITC’s sunset review decision mentioned above is also currently on appeal at the CIT. That appeal could also result in the termination of the suspended investigation, with the same negative effects described above.
     The CIT’s final decision in either appeal can be appealed to the Federal Circuit. Depending on the outcome of that appeal, the parties could request the U.S. Supreme Court to review the case.
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     On February 1, 2008, the DOC and the Russian Federal Atomic Energy Agency (Rosatom) signed an amendment to the Russian Suspension Agreement. The amendment establishes annual export quotas for the direct sale of Russian uranium products to U.S. utilities starting in 2011. During the period 2014 to 2020, the annual export quota equates to approximately 20% of each year’s projected U.S. consumption of nuclear fuel. In 2021, the suspended investigation (and the Russian Suspension Agreement) would be terminated, and the Russian government would have unrestricted access to the U.S. market thereafter. In addition to these export quotas, the amendment permits the Russian government to immediately begin to sell a stockpile of LEU containing about 400,000 SWU located in the United States, and to export uranium products for use in initial cores for any newly licensed U.S. nuclear reactor. The amendment also required the Russian government to submit a motion to dismiss its legal challenge to the DOC’s sunset review.
     In general, we support the amendment. We believe that the amendment provides substantial access to Russian uranium products to fuel U.S. nuclear reactors, particularly after the Russian Contract expires at the end of 2013. The amendment will also help maintain a stable market for uranium products, which is a necessary condition for the successful completion of the Russian Contract. At the same time, the amendment will ensure that the path to full Russian access by 2021 is sufficiently measured so that the U.S. fuel supply is not adversely affected by a sudden increase in Russian imports, and so that important projects to deploy new capacity, like the American Centrifuge Plant, can be fully financed and completed.
     However, the Russian government, importers of Russian LEU or others may seek to circumvent any quota limitations under the amendment by arguing that imports of Russian LEU pursuant to enrichment services transactions should be excluded from the quota under the authority of the Federal Circuit’s decision in the antidumping case involving French LEU (discussed above). If the DOC adopts this position, any quota on imports of Russian LEU under the amendment could be rendered ineffective as a means of controlling imports of Russian LEU.
     In comments filed with the DOC in December 2007 (after the amendment was initialed in November 2007), we urged the DOC to use all diplomatic, statutory and administrative measures at its disposal to ensure that imports of Russian uranium products, including imports of LEU pursuant to enrichment services transactions, do not exceed the export quota limits of the amendment and do not depress U.S. market prices. However, the DOC may conclude that it does not have the authority to restrict or regulate imports of LEU pursuant to enrichment services transactions similar to those examined in the Federal Circuit’s decision. Further, even if the DOC does take enforcement measures to ensure the quota limits are not exceeded under enrichment services transactions, the CIT or other court could conclude that such enforcement measures exceed the DOC’s authority and require that such measures not apply to imports of LEU pursuant to enrichment services transactions. In either case, exports of Russian LEU over and above the export quotas established in the amendment could depress market prices, and undermine our ability to secure the sales we need to maintain production at the Paducah GDP, fully implement the Russian Contract and deploy the American Centrifuge Plant.
     Government Investigation of LEU Imports from France
     In 2002, the DOC imposed antidumping and countervailing duty (anti-subsidy) orders on imports of LEU produced in France. Since 2002, these orders have been challenged and impacted by further judicial and administrative actions, and as a result of these challenges, the countervailing duty order was revoked in May 2007.
     In 2005, the Federal Circuit concluded that imports of French LEU pursuant to enrichment services transactions were not subject to the antidumping law because such transactions involved a sale of “services” rather than a sale of merchandise. Following that decision, the DOC issued a remand determination excluding imports pursuant to enrichment services transactions from the scope of the antidumping duty order and establishing a mechanism for the French enricher and U.S. utilities to certify that specific imports fall within that exclusion. The implementation of that remand decision has been held in abeyance until a final and conclusive court decision is issued in the appeal.
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     We and the U.S. government appealed the remand determination seeking to more clearly define how to apply the Federal Circuit’s 2005 decision. On September 21, 2007, the Federal Circuit declined to rule on our appeals, stating that it was premature for the Court to make a decision on how the 2005 decision would apply in practice until the DOC had actually reviewed specific imports involving enrichment services transactions. This had the following effects:
 	•	 	We now expect that the application of the Federal Circuit’s 2005 decision to individual imports of LEU from France will be decided in the first instance by the DOC, on a case by case basis based upon certifications and other documentation submitted by U.S. utilities and the French exporter.	
 	 	 	 	
 	•	 	The Federal Circuit’s ruling concluded the pending litigation before the Federal Circuit concerning the implementation of the Federal Circuit’s 2005 decision regarding the exclusion of enrichment services transactions from the antidumping law. It is now possible for any of the parties, including us, to seek review of the 2005 decision by the U.S. Supreme Court. If the U.S. Supreme Court were to agree to review the case, it could reverse or modify the 2005 decision.	
     We continue to believe that the 2005 decision created an unwarranted exception to the antidumping law that will adversely affect USEC and the ability of the U.S. government to ensure that unfairly priced imports of LEU do not undermine the viability of the U.S. uranium industry. Accordingly, we filed a request with the U.S. Supreme Court in February 2008 asking the Court to review the Federal Circuit’s decision. The Solicitor General of the United States, joined by the general counsels of the Commerce, Defense, Energy and State Departments, also filed a request seeking review of the decision. We anticipate that the Supreme Court will decide whether to grant these requests by the end of May 2008.
     On January 3, 2007, the DOC and the ITC initiated sunset reviews of the antidumping order against French LEU. On May 3, 2007, the DOC determined that termination of the antidumping order is likely to lead to a continuation or recurrence of dumping of French LEU. On December 19, 2007, the ITC published its decision that termination of the order is likely to lead to a continuation or recurrence of material injury to the U.S. enrichment industry. We supported both of these outcomes. The DOC’s final results have been challenged before the CIT, and the ITC’s final results could be challenged as well. A reversal of either determination could result in the revocation of the antidumping duty order at some point in the future. If the order is revoked, the absence of any limitation on dumped French LEU could undermine market prices for SWU and result in lost sales by us.
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Employees
     A summary of our employees by location follows:
 	 	 	 	 	 	 	
 	 	 	 	No. of Employees	
 	 	 	 	at December 31,	
Location	 	2007	 	2006	
Paducah GDP	 	Paducah, KY	 	1,169	 	1,147	
Portsmouth GDP	 	Piketon, OH	 	1,147	 	1,082	
NAC	 	Primarily Atlanta, GA	 	63	 	68	
 	 	Primarily Oak Ridge, TN	 	 	 	 	
American Centrifuge	 	and Piketon, OH	 	397	 	295	
Headquarters	 	Bethesda, MD	 	90	 	85	

 	 	Total Employees	 	2,866	 	2,677	
     The United Steelworkers (“USW”) and the Security, Police, Fire Professionals of America (“SPFPA”) represented 55% of the employees at the GDPs at December 31, 2007. The number of employees represented and the term of each contract follows:
 	 	 	 	 	
 	 	 	 	Contract	
 	 	Number of Employees	 	Term	
Paducah GDP:	 	 	 	 	
USW Local 5-550	 	563	 	July 2011	
SPFPA Local 111	 	77	 	March 2012	
 	 	 	 	 	
Portsmouth GDP:	 	 	 	 	
USW Local 5-689	 	536	 	May 2010	
SPFPA Local 66	 	93	 	(1)	

(1)	 	Contract expired August 4, 2007. USEC and SPFPA Local 66 continue to operate under the contract provisions. The union has worked without incident and has said it would provide 72 hours notice prior to any work stoppage. No work stoppage is anticipated and discussions between the parties continue.	
     In January 2008, we entered into an agreement with the USW and USW Local 5-689 resolving issues related to the scope of the existing collective bargaining agreement at the Portsmouth GDP and providing a path forward for labor relations at the American Centrifuge Plant. The agreement recognizes that the existing Portsmouth GDP collective bargaining agreement does not apply to the American Centrifuge Plant. The agreement provides a hiring preference for qualified USW-represented workers who apply for new jobs created by us for the American Centrifuge Plant. It also provides American Centrifuge Plant workers with an opportunity to decide on union representation through an expedited election conducted by the National Labor Relations Board. The agreement states that we will remain neutral in a union organizing campaign but will recognize the USW if a majority of eligible ACP employees elect to join the union.
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Available Information
     Our internet website is www.usec.com. We make available on our website, or upon request, without charge, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with, or furnished to, the Securities and Exchange Commission, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.
     Our code of business conduct provides a brief summary of the standards of conduct that are at the foundation of our 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 our website or upon request without charge. We will disclose on the website any amendments to, or waivers from, the code of business conduct that are required to be publicly disclosed.
     We also make available free of charge, on our website, or upon request, our Board of Directors Governance Guidelines and our Board committee charters.
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Item 1A. Risk Factors
Investors should carefully consider the risk factors below, in addition to the other information in this Annual Report on Form 10-K.
The long-term viability of our business depends on our ability to replace our current enrichment facility with the American Centrifuge Plant.
     We currently use a gaseous diffusion uranium enrichment technology at the Paducah gaseous diffusion plant (“Paducah GDP”) for approximately one-half of the LEU that we need to meet our delivery obligations to our customers and to generate uranium through underfeeding to satisfy our obligations under the Russian Contract. However, our competitors utilize or are in the process of transitioning to centrifuge uranium enrichment technology. Centrifuge technology is more efficient and operationally cost-effective than gaseous diffusion technology, which requires substantial amounts of electric power to enrich uranium. Given the significant increases in the cost of electric power we have experienced, we must transition to a lower operating cost technology in order to remain competitive in the long term.
     We are focused on developing and deploying an advanced uranium enrichment centrifuge technology, which we refer to as the American Centrifuge technology, as a replacement for our gaseous diffusion technology. We are not currently pursuing any strategies to replace our gaseous diffusion operations with alternatives other than the American Centrifuge Plant. As a result, if we are unable to successfully and timely demonstrate and deploy the American Centrifuge Plant on a cost-effective basis, due to the risks and uncertainties described in this section or for any other reasons, our gross profit margins, cash flows, liquidity and results of operations would be materially and adversely affected and our business may not remain viable.
We face a number of risks and uncertainties associated with the successful and timely demonstration, construction and deployment of the American Centrifuge technology.
     The American Centrifuge technology is expected to be more operationally cost-efficient than the gaseous diffusion technology that we currently depend on for LEU production at the Paducah GDP. However, the demonstration, construction and deployment of the American Centrifuge technology is a large and capital-intensive undertaking that is subject to numerous risks and uncertainties.
     We are demonstrating the American Centrifuge technology and are working toward beginning commercial plant operations in late 2009 and having approximately 11,500 centrifuge machines deployed in 2012. However, in the past we experienced substantial delays in demonstrating the American Centrifuge technology and these delays impacted our construction and deployment schedule and increased the overall costs of the project. The delays we experienced resulted from a variety of factors including the failure of certain materials to meet specifications, performance problems with, and failures of, certain centrifuge components and the time-consuming process of ensuring compliance with regulatory requirements. Due to our focus on resolving issues related to component performance that arose during Lead Cascade testing, our efforts to reduce the centrifuge machine cost through value engineering have not progressed as we anticipated.
     Our current deployment schedule and target cost estimate to deploy the American Centrifuge Plant is ambitious. To maintain this schedule, we have made, and expect to continue to make, key decisions, including decisions to expend or commit to expend large amounts of capital and resources, before we have received all relevant centrifuge machine performance data and confirmation of the American Centrifuge project’s costs, schedule and overall viability. We are currently looking at our deployment schedule as part of our bottom-up cost review. We are evaluating whether the project risk and cost can be improved by modifying items such as the timing of the final design release for the AC100 machine and value engineering efforts, when to begin making AC100 components for the commercial plant, and the ramp up to high-volume manufacturing. Therefore, a decision could be made to slow the pace of one or more steps in order to lower or manage the overall risk and cost of the project.
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     Additionally, our ability to meet the current schedule or any revised schedule depends on a number of factors that are outside of our control, including our reliance on third party suppliers for American Centrifuge components. The failure of any of our suppliers to provide their respective components as scheduled or at all could result in substantial delays in, or otherwise materially hamper, the deployment of the American Centrifuge Plant. There are a limited number of potential suppliers for these key components and finding alternate suppliers could be difficult, time consuming and costly.
     In addition, because such suppliers are few and due to our dependence on them for key components, our ability to obtain favorable contractual terms with these suppliers is limited. We have entered into and expect to enter into future agreements with suppliers in which we bear certain cost, schedule and performance risk. Although we will seek to manage these risks, we cannot provide any assurance that we will be able to. This could result in cost increases and unanticipated delays. Our inability to effectively integrate these suppliers and other key third party suppliers could also result in delays and otherwise increase our costs. Delays could also occur if we decide to search for alternate suppliers or to self-perform certain items that we previously anticipated outsourcing to third party suppliers.
     As a result of these and other factors, including factors and circumstances similar to those that have delayed us in the past, we may be unable to meet our current schedule or any revised schedule. Significant delays in our schedule could:
 	•	 	increase our costs for the project, both on an overall basis and in terms of the incremental costs we must incur to recover from delays,	
 	 	 	 	
 	•	 	cause us to fail to meet a milestone under the 2002 DOE-USEC Agreement, leading DOE to exercise the remedies described in the next risk factor,	
 	 	 	 	
 	•	 	make it more difficult for us to attract and retain customers who may want to contract for purchases of LEU beyond 2012 before we can enter into long-term contracts for the sale of LEU generated by the American Centrifuge Plant, and	
 	 	 	 	
 	•	 	extend the time under which we are contractually required to continue to operate our high-cost Paducah GDP.	
     Any of these outcomes could substantially reduce our revenues, gross profit margins, liquidity and cash flows and adversely affect the overall economics, ability to finance and the likelihood of successful deployment of the American Centrifuge Plant. This would have a material adverse impact on our business and prospects because we believe the long-term viability of our business depends on the successful deployment of the American Centrifuge Plant.
We are required to meet certain milestones under the 2002 DOE-USEC Agreement and our failure to meet these milestones or disagreements with DOE as to whether we met a milestone 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. To date, we believe we have achieved 12 of these milestones, including most recently a January 2008 milestone of having a financing commitment secured for a one million SWU per year centrifuge plant. We have reported this to DOE. However, DOE is not obligated under the 2002 DOE-USEC Agreement to provide any formal confirmation that we have met this or any other milestone and DOE could later challenge that we have met a milestone. In addition, the January 2008 financing milestone and the October 2007 milestone of having a Lead Cascade operational and generating product assay in a range useable by nuclear power plants, were originally scheduled for January 2007 and October 2006, respectively. In approving the extension of these milestones by one year in March 2007, DOE reserved its rights and remedies under the 2002 DOE-USEC Agreement.
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     Two mandatory milestones and one optional milestone remain:
 	•	 	January 2009: Begin American Centrifuge commercial plant operations at the facility in Piketon, Ohio;	
 	 	 	 	
 	•	 	March 2010: American Centrifuge Plant capacity at one million SWU per year; and	
 	 	 	 	
 	•	 	September 2011: American Centrifuge Plant (if expanded at our option) projected to have an annual capacity of 3.5 million SWU.	
     Our current schedule for deploying the American Centrifuge Plant is later than the schedule established for the January 2009, March 2010 and September 2011 milestones above. While we believe that we will reach a mutually acceptable agreement with DOE regarding rescheduling of these milestones, we cannot assure you that we will reach such an agreement.
     If DOE determines that we failed to comply with the terms of the 2002 DOE-USEC Agreement, including if DOE determines we did not meet one or more of the milestones that we believe we have met, then, unless such failure is determined to arise from causes beyond our control and without our fault or negligence, DOE could exercise one or more remedies under the 2002 DOE-USEC Agreement. These remedies could 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 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 removed as the sole Executive Agent under the Megatons-to-Megawatts program. Any of these actions could have a material adverse impact on our business and prospects. However, unless DOE were to challenge that we met any of the first 12 milestones, DOE’s remedies are now limited to circumstances in which failure to meet a milestone is attributable to gross negligence on our part in project planning or execution or where we constructively or formally abandon the project.
Deployment of the American Centrifuge technology will require additional external financial and other support that may be difficult to secure.
     We will require a significant amount of capital to achieve commercial deployment of the American Centrifuge Plant. Under our current deployment schedule, spending on the American Centrifuge project in 2008 is currently projected to be between $650 and $700 million. This is more than double the $244 million we spent in 2007 and more than the $615 million we have spent on the project to date through December 31, 2007. We cannot assure you that we will be able to obtain sufficient additional external financing and we cannot predict the cost or terms on which such financing will be available, if at all, to continue our operations and deployment of the American Centrifuge Plant.
     We have been actively involved in commenting on rules for a loan guarantee program sponsored by DOE, and in October 2007, final regulations were issued for the program. In December, federal legislation authorized funding levels for the program, including up to $2 billion for advanced facilities for the front end of the nuclear fuel cycle. We expect to apply for the program when DOE requests applications, however, the timing of this is uncertain and we cannot give any assurances that we will be invited to participate in the loan guarantee program in the timeframe we need to raise capital, if at all. We also cannot give any assurances that if we are invited to participate that sufficient funds will be allocated to our project.
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     Factors that could affect our ability to obtain financing or the cost of such financing could include:
 	•	 	the success of our demonstration of the American Centrifuge technology and the estimated costs, efficiency, timing and return on investment of the deployment of the American Centrifuge Plant (described below),	
 	 	 	 	
 	•	 	consequences of a failure to reach an agreement with DOE regarding future milestones under the 2002 DOE-USEC Agreement or the determination by DOE that we have not complied with a prior milestone that we believe we met,	
 	 	 	 	
 	•	 	the level of success of our current operations,	
 	 	 	 	
 	•	 	our ability to get loan guarantees or other support from the U.S. government,	
 	 	 	 	
 	•	 	competition for financing or loan guarantees from other uranium enrichment projects and nuclear-related projects generally,	
 	 	 	 	
 	•	 	the impact of reductions or changes in trade restrictions on imports of Russian and other foreign LEU and related uncertainties,	
 	 	 	 	
 	•	 	SWU prices,	
 	 	 	 	
 	•	 	USEC’s perceived competitive position and investor confidence in our industry and in us,	
 	 	 	 	
 	•	 	our ability to secure long-term SWU purchase commitments from customers at adequate prices and for adequate duration,	
 	 	 	 	
 	•	 	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 revolving credit facility and in our outstanding notes and any future financing arrangements that limit our operating and financial flexibility.	
     We cannot assure you that we will attract the capital we need to complete the American Centrifuge project in a timely manner or at all. If we do not, we might be forced to slow or stop spending on the project, which could result in delays and increased costs, and potentially make the project uneconomic. This would have a material adverse impact on our business and prospects because we believe the long-term viability of our business depends on the successful deployment of the American Centrifuge project.
Cost increases and uncertainty regarding the costs of the American Centrifuge Plant could adversely affect our ability to finance and deploy the American Centrifuge Plant.
     We established a target cost estimate in early 2007 for completing the American Centrifuge Plant of $2.3 billion, which included spending to date but did not include financing costs or a reserve for general contingencies. We are now in the midst of a bottom-up review of the cost to build the American Centrifuge Plant based on greater maturity of machine design and balance of plant design. We expect to complete and announce a budget for the project in the second quarter of 2008.
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Based on where we are in the bottom-up review, we expect that the project budget that we will establish in the second quarter will be about $3.5 billion, including expenditures to date but not including costs for financing or financial assurance. However, our review is not complete and we cannot assure investors that the project budget that we will announce will not be materially different. 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. Our overall financing needs for the ACP will also include additional costs not covered by our cost estimate or budget, such as financing costs, financial assurance requirements and operating costs related to commercial plant initial operations.
     As seen in other large construction projects currently underway, our costs are also under pressure. In addition, since we are completing machine design concurrent with developing manufacturing and balance of plant cost estimates, offsets to these upward cost pressures are difficult to quantify. Among the factors that are creating upward pressure on costs are higher than anticipated costs from our suppliers for project management, supervision, labor and overhead, and higher commodity and material prices. We also expect higher than anticipated demonstration costs as we continue to spend time working to reduce the manufacturing cost required per machine through value engineering.
     We cannot assure investors that costs associated with the ACP will not be materially higher than anticipated or that efforts that we take to mitigate 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 unexpected events occur. Further, several key variables such as the cost of raw materials to build the plant and general inflation, are outside our control and difficult to forecast. While the project budget that we expect to establish in the second quarter of 2008 will be based on greater maturity of machine and balance of plant design than the estimate established in early 2007, some of the key variables in our estimate are still difficult to quantify with certainty at this stage of the project, including the cost of manufacturing complex centrifuge machine components on a commercial scale. This manufacturing will be done by third parties and while our cost estimates reflect input from our project suppliers, we will not know the actual cost until we finalize the design of the centrifuge machines and enter into contractual arrangements with these project suppliers. Although there have been significant ACP procurements since our cost estimate was established in early 2007, we are still in negotiations with suppliers regarding significant additional procurements. 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 would have a material adverse impact on our business and prospects because we believe the long-term viability of our business depends on the successful deployment of the ACP.
Significant increases in the cost of the electric power supplied to the Paducah GDP have materially increased our overall production costs and may, in the future, increase our cost of sales to a level above the average prices we bill our customers.
     In 2006, we experienced an approximately 50% increase in our costs for electric power under our power contract with the Tennessee Valley Authority (“TVA”). Electric power constitutes approximately 70% of the production cost at the Paducah GDP. These higher costs for power have put significant pressure on our business and will continue to do so unless and until we are able to replace our existing gaseous diffusion operations with more efficient centrifuge technology. Our competitors utilize or are in the process of transitioning to centrifuge technology, which requires significantly less electric power than gaseous diffusion to enrich uranium.
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     Our current power contract with TVA runs through May 2012 and our price of power under the contract increases moderately each year through 2012. Our power costs are also subject to monthly adjustments to account for changes in TVA’s fuel and purchased-power costs, which means that our actual power costs could be greater than we anticipate. During 2007, the fuel cost adjustments under the TVA contract averaged 8%. We also purchase additional power during the summer months at market prices, which is the time of the year when market prices tend to be the highest, and which are subject to volatility.
     Capacity and prices under the TVA contract are only agreed upon through May 2012 and we have not yet contracted for power for periods beyond that time. If we want to purchase power to operate the Paducah GDP beyond May 2012, we may be unable to reach an acceptable agreement and we are at risk for additional power cost increases in the future.
     Although we are currently signing new contracts with customers in which prices for future deliveries are adjusted, in part, on the basis of changes in a power cost index, most of our sales contracts do not include provisions that permit us to pass through increases in power prices to our customers. As a result, our profit margins and cash flows under these older sales contracts are significantly reduced by the higher power costs we have experienced. Additionally, if our power costs rise unexpectedly, profit margins under new sales contracts that we are entering into may be similarly impacted to the extent the adjustments in the power cost index are not sufficient to account for increases in our power costs. Accordingly, if our power costs continue to rise and mitigating steps are unavailable or insufficient, production at the Paducah GDP could become increasingly uneconomic, which will adversely affect the long-term viability of our business.
     In accordance with the TVA power contract, we provide financial assurance to support our payment obligations to TVA, including providing an irrevocable letter of credit and making weekly prepayments based on the price and usage of power. In 2007, because of the increased volume of power we contracted for, the amount required for the letter of credit and weekly prepayments increased. A significant increase in the price we pay for power could further increase the amount of this financial assurance, which could adversely affect our liquidity and reduce capital resources otherwise available to fund the American Centrifuge project.
Deliveries of LEU under the Russian Contract account for approximately 50% of our supply mix and a significant delay or stoppage of deliveries could affect our ability to meet customer orders and could pose a significant risk to our continued operations and profitability.
     A significant delay in, or stoppage or termination of, deliveries of LEU from Russia under the Russian Contract or a failure of the LEU to meet the Russian Contract’s quality specifications, could adversely affect our ability to make deliveries to our customers. A delay, stoppage or termination could occur due to a number of factors, including logistical or technical problems with shipments, commercial or political disputes between the parties or their governments, or a failure or inability by either party to meet the terms of the Russian Contract.
     Because our annual LEU production capacity is less than our total delivery commitments to customers, an interruption of deliveries under the Russian Contract could, depending on the length of such an interruption, threaten our ability to fulfill these delivery commitments with adverse effects on our reputation, costs, results of operations, cash flows and long-term viability. Depending upon the reasons for the interruption and subject to limitations of liability and force majeure terms under our sales contracts, we could be required to compensate customers for a failure or delay in delivery.
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     In addition, TENEX has requested that we discuss revisions of the formula used to determine pricing for the SWU component of LEU delivered under the Russian Contract in 2009 and beyond. TENEX may also be negotiating pricing terms with the three Western companies to which it sells the natural uranium that we deliver to TENEX for the LEU delivered to us. Given recent increases in market prices for uranium and SWU, TENEX, as the executive agent for the Russian government party to the Russian Contract, will likely ask for higher prices from both us and the three Western companies. While we are not bound to agree to any change, TENEX could seek to force a change by refusing to deliver LEU or taking other steps to suspend or alter its performance in ways that are adverse to us. TENEX could take similar actions with respect to the Western companies. In either case, TENEX’s actions could have an adverse impact on our ability to receive LEU in a timely manner in order to meet our delivery commitments. Although we do not intend to agree to any terms that are less favorable than our current terms, we cannot assure you that the discussions with TENEX will not result in terms that are less favorable than current pricing terms or that may, over time, prove to be less favorable than current terms.
     The appointment of a substitute or additional executive agent pursuant to the U.S. government’s compliance with the terms of the Executive Agent agreement would require that all or part of the fixed quantity of LEU available each year under the Russian Contract be provided to the substitute or additional executive agent. This would not only reduce our access to LEU under the Russian Contract, but would also create a significant new competitor, which could impair our ability to meet our existing delivery commitments while reducing our ability to bid for new sales. Reduced access to LEU under the Russian Contract could also increase our costs and reduce our gross profit margins.
Changes in, or termination of, the Russian Suspension Agreement, or an inability to apply the limitations under the Russian Suspension Agreement to imports of Russian LEU, could lead to significantly increased competition from Russian LEU or, if replaced with tariffs, could increase our costs under the Russian Contract.
     The Russian Suspension Agreement is a 1992 agreement between the United States and Russia that today precludes Russian LEU from being sold for consumption in the United States except under the Russian Contract or under terms that came into force in February 2008 that permit a gradual introduction of Russian uranium products into the U.S. market through 2020. Termination of the Russian Suspension Agreement prior to 2021 could result in a significant increase in sales of Russian-produced LEU in the United States that could depress prices and undermine our ability to sell the large quantity of LEU that we are committed to purchase under the Russian HEU Contract as well as our ability to sell our own LEU production. This could substantially reduce our revenues, gross profit margins and cash flows, and adversely affect the economics of the American Centrifuge program and our ability to finance it.
     The Russian Suspension Agreement could be terminated (1) unilaterally by the Russian government upon 60 days notice or (2) as a result of periodic administrative procedures under U.S. international trade laws. For example, a “sunset review” of the Russian Suspension Agreement is conducted every five years by the Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”).
     Final determinations in the latest sunset reviews were made by the DOC in May 2006 and by the ITC in July 2006, and were in favor of maintaining the Russian Suspension Agreement. However, in response to an appeal by parties who opposed continuation of the Russian Suspension Agreement, in September 2007 the U.S. Court of International Trade (“CIT”) remanded the DOC’s sunset review decision to the DOC for reconsideration. On December 21, 2007, the DOC filed the results of its remand with the CIT. In the remand, the DOC applied a decision of the Federal Circuit in a separate proceeding involving imports of LEU from France and excluded LEU imports pursuant to enrichment services transactions, but again concluded that dumping of Russian uranium products was likely to continue or recur if the suspended investigation were terminated. The CIT will now either affirm the DOC’s decision or remand it again to the DOC for further reconsideration.
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     On February 1, 2008, TENEX filed a motion to dismiss its appeal before the CIT of the DOC’s sunset review decision. This motion was filed pursuant to a provision of an amendment to the Russian Suspension Agreement (discussed below). The CIT is expected to grant the motion, which will eliminate TENEX from the proceedings before the CIT. A coalition of U.S. utilities, known as the Ad Hoc Utilities Group (“AHUG”) is also pursuing a related appeal before the CIT and its appeal is not affected by TENEX’s motion. In the litigation regarding the DOC sunset review, the CIT may consider the DOC’s remand redetermination, it may order a new redetermination, including a remand to consider solely the question of whether AHUG’s participation alone is sufficient to maintain the appeal, or it may decide that AHUG standing alone cannot bring an appeal of the DOC decision.
     In connection with any future remand proceeding, the DOC may be required to expressly define the specific circumstances under which LEU imported pursuant to enrichment services transactions would be excluded from the investigation and the Russian Suspension Agreement. In connection with that determination or on another basis, the DOC could reverse its earlier affirmative determination in the sunset review. Such a negative determination would result in termination of the Russian Suspension Agreement and the antidumping investigation it suspended. We could face similar adverse impacts if the DOC decides to maintain the Russian Suspension Agreement in place, but narrows the scope of the investigation and the Russian Suspension Agreement in such a way that large quantities of Russian LEU pursuant to enrichment services transactions are permitted to be imported.
     The ITC’s sunset review decision mentioned above is also currently on appeal at the CIT. That appeal could also result in the termination of the suspended investigation, with the same negative effects described above.
     The CIT’s final decision in either appeal can be appealed to the Federal Circuit. Depending on the outcome of that appeal, the parties could request the U.S. Supreme Court to review the case.
     The Russian Federation may terminate the Russian Suspension Agreement upon 60 days notice to the DOC. If the Russian Federation were to exercise this right, the DOC would be required to recommence its 1991 antidumping investigation that was suspended as a result of the Russian Suspension Agreement, and would require importers of Russian LEU, including us under the Russian Contract, to post bonds to cover estimated duties on imports subject to that investigation. In this event, we would be required to post bonds to cover those duties, which would likely exceed 100% of the value of the imports. Further, if the investigation resulted in an antidumping order, we would have to pay the estimated duties on future imports of Russian LEU in cash. We would be obligated for both posting of the bonds and payment of duties unless a legal mechanism could be identified that would remove these obligations. In such a case, we anticipate that the U.S. government would seek to identify a means to reduce or eliminate this obligation. We believe that the cost of posting the bonds and paying any duties ultimately imposed on imports under the Russian Contract would significantly increase our cost of importing Russian LEU and could make the purchase of SWU under the Russian Contract uneconomic.
     On February 1, 2008, the DOC and the Russian Federal Atomic Energy Agency (Rosatom) signed an amendment to the Russian Suspension Agreement. The amendment establishes annual export quotas for the direct sale of Russian uranium products to U.S. utilities starting in 2011. During the period 2014 to 2020, the annual export quota equates to approximately 20% of each year’s projected U.S. consumption of nuclear fuel. In 2021, the suspended investigation (and the Russian Suspension Agreement) would be terminated, and the Russian government would have unrestricted access to the U.S. market thereafter. In addition to these export quotas, the amendment permits the Russian government to immediately begin to sell a stockpile of LEU containing about 400,000 SWU located in the United States to U.S. utilities, and to export uranium products for use in initial cores for any newly licensed U.S. nuclear reactor. The amendment also required the Russian government to submit a motion to dismiss its legal challenge to the DOC’s sunset review.
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     The Russian government, importers of Russian LEU or others may seek to circumvent any quota limitations under the amendment by arguing that imports of Russian LEU pursuant to enrichment services transactions should be excluded from the quota under the authority of the Federal Circuit’s decision in the antidumping case involving French LEU in which imports of French LEU pursuant to enrichment services transactions were excluded from the scope of the antidumping order imposed in that case. If the DOC adopts this position, any quota on imports of Russian LEU under the Russian Suspension Agreement amendment could be rendered ineffective as a means of controlling imports of Russian LEU to the extent such imports enter the United States pursuant to enrichment services transactions.
     In comments filed with the DOC in December 2007 after the amendment was initialed by U.S. and Russian officials, we urged the DOC to use all diplomatic, statutory and administrative measures at its disposal to ensure that imports of Russian uranium products, including imports of LEU pursuant to enrichment services transactions, do not exceed the export quota limits of the amendment and do not depress U.S. market prices. However, the DOC may conclude that it does not have the authority to restrict or regulate imports of LEU pursuant to enrichment services transactions similar to those examined in the Federal Circuit’s decision. Further, even if the DOC does take enforcement measures to ensure the quota limits are not exceeded under enrichment services transactions, the CIT or other court could conclude that such enforcement measures exceed the DOC’s authority and require that such measures not apply to imports of LEU pursuant to enrichment services transactions. In either case, exports of Russian LEU over and above the export quotas established in the amendment could depress market prices, and undermine our ability to secure the sales we need to maintain production at the Paducah plant, fully implement the Russian Contract and deploy the American Centrifuge plant.
     If Russia becomes dissatisfied with the benefits of the amendment, Russia could elect to terminate the Russian Suspension Agreement. Unless accompanied by equivalent limitations on imports or unless other steps are taken by the U.S. government to limit the impact on us, a termination of the Russian Suspension Agreement could result in a significant increase in sales of Russian LEU in the United States. This could depress prices and undermine our ability to sell the large quantity of LEU that we are committed to purchase under the Russian Contract as well as our ability to sell our own LEU production. This could substantially alter the economics of the American Centrifuge project and our ability to obtain financing for it, reduce our revenues, gross profit margins and cash flows and jeopardize our ability to secure the long-term sales contracts we need to continue operating our existing enrichment plant, implement the Russian Contract and pursue the deployment of the American Centrifuge Plant.
We depend on a single production facility in Paducah, Kentucky for approximately 50% of our LEU supply and significant or extended unscheduled interruptions in production could affect our ability to meet customer orders and pose a significant risk to, or could significantly limit, our continued operations and profitability.
     Our annual imports of Russian LEU under the Russian Contract account for only approximately one-half of the total amount of LEU that we need to meet our delivery obligations to customers. In addition, some customers do not permit us to deliver Russian LEU to them under their contracts with us. Accordingly, our production at the Paducah GDP is needed to meet our annual delivery commitments. An interruption of production at the Paducah GDP would result in a drawdown of our inventories of LEU. Depending on the length and severity of the production interruption, we could be unable to meet our annual delivery commitments, with adverse effects on our reputation, costs, results of operations, cash flows and long-term viability. Depending upon the reasons for the interruption and subject to limitations on our liability and force majeure terms under our sales contracts, we also could be required to compensate customers for our failure or delay in delivery.
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     Production interruptions at the Paducah GDP could be caused by a variety of factors, such as:
 	•	 	equipment breakdowns,	
 	 	 	 	
 	•	 	interruptions of electric power, including those interruptions permitted under the TVA power agreement, or an inability to purchase electric power at an acceptable price,	
 	 	 	 	
 	•	 	regulatory enforcement actions,	
 	 	 	 	
 	•	 	labor disruptions,	
 	 	 	 	
 	•	 	unavailability or inadequate supply of uranium feedstock,	
 	 	 	 	
 	•	 	natural or other disasters, including seismic activity in the vicinity of the Paducah GDP, which is located near the New Madrid fault line, or	
 	 	 	 	
 	•	 	accidents or other incidents.	
     The Paducah GDP is owned by the U.S. government. Our rights to the plant are defined under a lease agreement with DOE and the law that the lease agreement implements. Under the 2002 DOE-USEC Agreement, we could lose our right to extend the lease of the Paducah GDP and could be required to waive our exclusive right to lease the facility if we fail on more than one occasion within specified periods to meet certain production thresholds and fail to cure the deficiency. In addition, DOE could assume responsibility for operation of the Paducah GDP if we cease production at the Paducah GDP and fail to recommence production within time periods specified in the 2002 DOE-USEC Agreement. Without a lease to the Paducah GDP and absent access to other sources of LEU, we would be unable to meet our annual delivery commitments to customers once our available inventories were exhausted.
Our ability to retain key executives and managers is critical to the success of our business.
     The success of our business depends on our key executives, managers and other skilled personnel, some of whom were involved in the development of our American Centrifuge technology and many of whom have security clearances. We do not have employment agreements with our corporate executives or American Centrifuge project managers nor do we have key man insurance policies for them. If our executives, managers or other skilled personnel resign, retire or are terminated, or their service is otherwise interrupted, we may not be able to replace them in a timely manner and we could experience significant declines in productivity and delays in the deployment of our American Centrifuge project, on which the viability of our business depends.
The rights of our creditors under the documents governing our indebtedness may limit our operating and financial flexibility.
     Our revolving credit facility includes various operating and financial covenants that restrict our ability, and the ability of our subsidiaries, to, among other things, incur or prepay other indebtedness, grant liens, sell assets, make investments and acquisitions, consummate certain mergers and other fundamental changes, make certain capital expenditures and declare or pay dividends or other distributions. Complying with these covenants may make it more difficult for us to successfully execute our business strategy. For example, these covenants could limit our use of the credit facility for capital expenditures related to the American Centrifuge Plant. The revolving credit agreement also requires that we maintain a minimum level of available borrowings and contains reserve provisions that may reduce the available borrowings under the credit facility periodically.
     Our failure to comply with obligations under the revolving credit facility or other agreements such as the indenture governing our outstanding convertible notes and the 2002 DOE-USEC Agreement, or the occurrence of a “fundamental change” as defined in the indenture governing our outstanding convertible notes or the occurrence of a “material adverse effect” as defined in our credit facility, could result in an event of default under the credit facility. A default, if not cured or waived, could permit acceleration of our indebtedness. We cannot be certain that we will be able to remedy any default. If our indebtedness is accelerated, we cannot be certain that we will have funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.
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Changes in the price for SWU or uranium could affect our gross profit margins and ability to service our indebtedness and finance the American Centrifuge project.
     Changes in the price for SWU and uranium are influenced by numerous factors, such as:
 	•	 	LEU and uranium production levels and costs in the industry,	
 	 	 	 	
 	•	 	supply and demand shifts,	
 	 	 	 	
 	•	 	actions taken by governments to regulate, protect or promote trade in nuclear material, including the continuation of existing restrictions on unfairly priced imports,	
 	 	 	 	
 	•	 	actions taken by governments to narrow, reduce or eliminate limits on trade in nuclear material, including the removal of existing restrictions on unfairly priced imports,	
 	 	 	 	
 	•	 	actions of competitors,	
 	 	 	 	
 	•	 	exchange rates,	
 	 	 	 	
 	•	 	availability and cost of alternate fuels, and	
 	 	 	 	
 	•	 	inflation.	
     The long-term nature of our contracts with customers delays the impact of any material change in market prices and may prolong any adverse impact of low market prices on our gross profit margins. For example, even as prices increase and we secure new higher-priced contracts, we are contractually obligated to deliver LEU and uranium at lower prices under contracts signed prior to the increase. A decrease in the price for SWU could also affect our future ability to service our indebtedness and finance the American Centrifuge project.
     Additionally, an increase in the price for SWU could result in an increase in the price that we pay for the SWU component of Russian LEU because the price we are charged for the SWU component of Russian LEU under the Russian Contract is determined by a formula that employs an index of international and U.S. price points, which in turn reflects market prices. Although any increase may be moderated by the retrospective nature of the formula, a significant increase in the prices Russia charges us as a result of increasing price points due to significant increases in market prices would substantially increase our costs of sales and inventories. This increase, if not offset by increases in our sales prices, would adversely affect our cash flows and results of operations.
The release of excess government stockpiles of enriched uranium into the market could depress market prices and reduce demand for LEU from our company.
     Foreign governments have stockpiles of LEU that they could sell in the market. In addition, LEU may be produced by downblending stockpiles of highly enriched uranium owned by the U.S. and foreign governments. The release of these stockpiles into the market can depress prices and reduce demand for LEU from us, which could adversely affect our revenues, cash flows and results of operations.
The long-term nature of our customer contracts could adversely affect our results of operations in current and future years.
     As is typically the case in our industry, we sell nearly all of our LEU under long-term contracts. The prices that we charge under many of our existing contracts (particularly those reflecting terms agreed to prior to 2006) only increase based on an agreed upon inflation index. Therefore, prices under older contracts will not increase with market changes that result in increases in our actual costs, such as increased power costs or increases in the prices we pay under the Russian Contract, and do not permit us to take advantage of market increases in the price of SWU. We anticipate that these limitations, combined with our cost structure and our sensitivity to increased power costs due to the power-intensive gaseous diffusion technology that we currently depend on, could reduce our ability to cover our cost of sales with revenues earned under our customer contracts and could materially and adversely impact our gross profit margins and cash flows in current and future periods.
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     In addition, our older contracts give customers the flexibility to determine the amounts of natural uranium that they deliver to us, which can result in our receiving less uranium from customers than we transfer from our inventory to the Russian Federation under the Russian Contract. Over time, to the extent our inventory, including uranium generated through underfeeding, is insufficient to absorb the difference, we could be required to purchase uranium to continue to meet our obligations to the Russian Federation, which, depending on the market price of uranium, could have an adverse impact on our gross profit margins, cash flows, results of operations and liquidity.
We face significant competition from three major producers who may be less cost sensitive or may be favored due to national loyalties and from emerging competitors in the domestic market.
     We compete with three major producers of LEU, all of which are wholly or substantially owned by governments: AREVA (France), TENEX (Russia) and Urenco (Germany, Netherlands and the United Kingdom). Currently, these competitors utilize or are in the process of transitioning to more efficient and cost-effective technology to enrich uranium than we use at the Paducah GDP.
     In addition, Louisiana Energy Services, a group controlled by Urenco, has started to construct a 3 million SWU per year uranium enrichment plant in New Mexico, and AREVA has announced that it is preparing to build a proposed 3 million SWU per year centrifuge uranium enrichment plant in the United States. We also face potential competition from General Electric’s nuclear energy business, which has begun a phased development process of its Global Laser Enrichment technology based on technology licensed from Silex Systems Limited, an Australian company. General Electric has stated its plans to build a uranium enrichment plant in the United States with a target capacity of between 3.5 million and 6 million SWU per year.
     Our competitors may have greater financial resources than we do, including access to below-market financing terms. Our foreign competitors enjoy support from their government owners, which may enable them to be less cost- or profit-sensitive than we are. In addition, decisions by our foreign competitors may be influenced by political and economic policy considerations rather than commercial considerations. For example, our foreign competitors may elect to increase their production or exports of LEU, even when not justified by market conditions, thereby depressing prices and reducing demand for our LEU, which could adversely affect our revenues, cash flows and results of operations. Similarly, the elimination or weakening of existing restrictions on imports from our foreign competitors could adversely affect our revenues, cash flows and results of operations.
     A recent amendment to the Russian Suspension Agreement will increase the amount of commercial Russian uranium and LEU that can be delivered in future years in the U.S. market. Although these Russian imports are subject to limitations through 2020, the limitations may prove to be ineffective due to court decisions that limit the application of U.S. trade law to LEU imported under enrichment services transactions. However, even if the court decisions are reversed or the limitations otherwise prove to be effective, our belief that the limitations will preserve a stable U.S. market may prove to be wrong, and the quantity of Russian uranium products permitted under the limitations may depress market prices and result in reduced sales by us and reduced revenues.
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Our dependence on our largest customers could adversely affect us.
     Our 10 largest customers in our LEU segment represented 51% of our total revenue in 2007, and our three largest customers in our LEU segment represented 20% of our total revenue in 2007. To the extent our existing contracts with these customers include prices that are greater than the prices at which we could sell to others, a reduction in purchases from these customers, whether due to their decision to increase purchases from our competitors or for other reasons, including a disruption in their operations that reduces their need for LEU from us, could adversely affect our business and results of operations. Conversely, to the extent that our contracts with these customers include prices that are lower than the prices at which we could sell to others, a decision by these customers to exercise options under these contracts to purchase more from us also could adversely affect our business and results of operations.
     We are seeking to improve the pricing under new long-term contracts with our customers as existing contracts come up for renewal. However, because price is a significant factor in a customer’s choice of a supplier of LEU, when contracts come up for renewal, customers may reduce their purchases from us if we attempt to increase our prices in order to offset increases in our costs, resulting in the loss of new sales contracts. Moreover, once lost, customers may be difficult to regain because they typically purchase LEU under long-term contracts. Therefore, given the need to maintain existing customer relationships, particularly with our largest customers, our ability to raise prices in order to respond to increases in costs or other developments may be limited. In addition, because we have a fixed commitment to order LEU derived from at least 30 metric tons of highly enriched uranium each year under the Russian Contract and to purchase the approximately 5.5 million SWU deemed to be contained in such material, any reduction in purchases from us by our customers below the level required for us to resell both our own production and the Russian material could adversely affect our revenues, cash flows and results of operations.
Our ability to compete in certain foreign markets may be limited for political, legal and economic reasons.
     Agreements for cooperation between the U.S. government and various foreign governments or governmental agencies control the export of nuclear materials from the United States. If any of the agreements governing exports to countries in which our customers are located were to lapse, terminate or be amended, it is possible we would not be able to make sales or deliver LEU to customers in those countries. This could adversely affect our results of operations.
     Purchases of LEU by customers in the European Union are subject to a policy of the Euratom Supply Agency that seeks to limit foreign enriched uranium to no more than 20% of European Union consumption per year. Further, we are precluded from selling LEU in the Russian Federation by the absence of an agreement for cooperation that permits exports to Russia.
Recent court decisions reduce our ability to protect ourselves from unfairly priced imports, which could adversely affect our results of operations.
     Absent a successful appeal to the U.S. Supreme Court or a change in applicable law, recent decisions of the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit preclude the Department of Commerce from imposing antidumping and countervailing duties to offset unfairly priced LEU imported from foreign countries pursuant to enrichment services transactions. Under these rulings, we will be unable to use certain U.S. trade laws to protect us from unfairly priced LEU in the future if imported pursuant to enrichment services transactions, thereby increasing the possibility that our competitors will seek to increase market share by reducing prices to unfair levels. An increase in our competitors’ market share and the accompanying reduction in market prices could adversely affect our results of operations.
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Our future prospects are tied directly to the nuclear energy industry worldwide.
     Potential events that could affect either nuclear reactors under contract with us or the nuclear industry as a whole, include:
 	•	 	accidents, terrorism or other incidents at nuclear facilities or involving shipments of nuclear materials,	
 	 	 	 	
 	•	 	regulatory actions or changes in regulations by nuclear regulatory bodies, or decisions by agencies, courts or other bodies that limit our ability to seek relief under applicable trade laws to offset unfair competition or pricing by foreign competitors,	
 	 	 	 	
 	•	 	disruptions in other areas of the nuclear fuel cycle, such as uranium supplies or conversion,	
 	 	 	 	
 	•	 	civic opposition to, or changes in government policies regarding, nuclear operations,	
 	 	 	 	
 	•	 	business decisions concerning reactors or reactor operations,	
 	 	 	 	
 	•	 	the need for generating capacity, or	
 	 	 	 	
 	•	 	consolidation within the electric power industry.	
     These events could adversely affect us to the extent they result in a reduction or elimination of customers’ contractual requirements to purchase from us, the suspension or reduction of nuclear reactor operations, the reduction of supplies of raw materials, lower demand, burdensome regulation, disruptions of shipments or production, increased competition from third parties, increased operational costs or difficulties or increased liability for actual or threatened property damage or personal injury.
Changes to, or termination of, any of our agreements with the U.S. government, or deterioration in our relationship with the U.S. government, could adversely affect our results of operations.
     We, or our subsidiaries, are a party to a number of agreements and arrangements with the U.S. government that are important to our business, including:
 	•	 	leases for the gaseous diffusion plants and American Centrifuge facilities,	
 	 	 	 	
 	•	 	the Executive Agent agreement under which we are designated the U.S. Executive Agent and purchase the SWU component of LEU under the Russian Contract,	
 	 	 	 	
 	•	 	the 2002 DOE-USEC Agreement and other agreements that address issues relating to the domestic uranium enrichment industry and the American Centrifuge technology,	
 	 	 	 	
 	•	 	electric power purchase agreements with the Tennessee Valley Authority,	
 	 	 	 	
 	•	 	contract work for DOE and DOE contractors at the Portsmouth and Paducah GDPs, including maintenance of the Portsmouth GDP in preparation for a DOE decontamination and decommissioning program, and	
 	 	 	 	
 	•	 	NAC consulting and transportation activities.	
     Termination or expiration of one or more of these agreements, without replacement with an equivalent agreement or arrangement that accomplishes the same objectives as the terminated or expired agreement(s), could adversely affect our results of operations. In addition, deterioration in our relationship with the U.S. agencies that are parties to these agreements could impair or impede our ability to successfully implement these agreements, which could adversely affect our results of operations.
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Our existing U.S. government contracts are subject to continued appropriations by Congress and may be terminated if future funding is not made available.
     Approximately 9% of our revenue is from U.S. government contracts. All contract work for DOE, including Portsmouth GDP maintenance, cleanup of DOE-owned out-of-specification uranium and certain NAC consulting and transportation activities, is subject to the availability of DOE funding and congressional appropriations. If funds were not available, we could be required to terminate these operations and incur related termination costs. In addition, the criteria for awarding contracts to us may change such that we would not be eligible to compete for such contracts, which could adversely affect our results of operations.
     Revenue from U.S. government contract work is based on cost accounting standards and allowable costs that are subject to audit by the Defense Contract Audit Agency. Allowable costs include direct costs as well as allocations of indirect plant and corporate overhead costs. Audit adjustments could reduce the amounts we are allowed to bill for DOE contract work or require us to refund to DOE a portion of amounts already billed.
Our operations are highly regulated by the NRC and DOE.
     Our operations, including the Paducah and Portsmouth GDPs and NAC, are regulated by the NRC. In addition, the American Centrifuge Demonstration Facility and the construction and operation of the American Centrifuge Plant are licensed by the NRC, which regulates our activities at those facilities.
     Our gaseous diffusion plants are required to be recertified every five years and the term of the current certification expires on December 31, 2008. The NRC could refuse to renew either or both of the certificates if it determines that: (1) we are foreign owned, controlled or dominated; (2) the issuance of a renewed certificate would be inimical to the maintenance of a reliable and economic domestic source of enrichment; (3) the issuance of a renewed certificate would be adverse to U.S. defense or security objectives; or (4) the issuance of a renewed certificate is otherwise not consistent with applicable laws or regulations in effect at the time of renewal. The same requirements apply to NRC’s issuance of the 30 year license for the American Centrifuge Plant. If the certificate for the Paducah GDP were not renewed, we could no longer produce LEU at the Paducah GDP, which would threaten our ability to make deliveries to customers and meet the minimum production requirements under the 2002 DOE-USEC Agreement, jeopardize our cash flows, and subject us to various penalties under our customer contracts and the 2002 DOE-USEC Agreement.
     The NRC has the authority to issue notices of violation for violations of the Atomic Energy Act of 1954, NRC regulations and conditions of licenses, certificates of compliance, or orders. The NRC has the authority to impose civil penalties or additional requirements and to order cessation of operations for violations of its regulations. Penalties under NRC regulations could include substantial fines, imposition of additional requirements or withdrawal or suspension of licenses or certificates. Any penalties imposed on us could adversely affect our results of operations. The NRC also has the authority to issue new regulatory requirements or to change existing requirements. Changes to the regulatory requirements could also adversely affect our results of operations.
     Our American Centrifuge facilities in Oak Ridge and certain of our operations at our other facilities are subject to regulation by DOE. DOE has the authority to impose civil penalties and additional requirements which could adversely affect our results of operations.
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     Our operations require that we maintain security clearances that are overseen by the NRC and DOE in accordance with the National Industrial Security Program Operating Manual (“NISPOM”). These security clearances require that we provide a certification regarding foreign ownership, control or influence (“FOCI”), and the security clearances could be suspended or revoked based upon material changes to our FOCI certification, or other concerns that we might be subject to FOCI. The NRC staff has previously concluded that its NISPOM FOCI requirements are more comprehensive and prescriptive than the statutory prohibition of foreign ownership and that information sufficient to make a FOCI determination should be sufficient to enable NRC to satisfy its statutory responsibility to assure that we are not owned, controlled or dominated by an alien, a foreign company, or a foreign government.
Our certificate of incorporation gives us certain rights with respect to common stock held (beneficially or of record) by foreign persons. If levels of foreign ownership set forth in our certificate of incorporation are exceeded, we have the right, among other things, to redeem or exchange common stock held by foreign persons, and in certain cases, the applicable redemption price or exchange value may be equal to the lower of fair market value or a foreign person’s purchase price.
     Our certificate of incorporation gives us certain rights with respect to shares of our common stock held (beneficially or of record) by foreign persons. Specifically, if “foreign persons” (as defined in our certificate of incorporation to include, among others, individuals who are not U.S. citizens, entities that are organized under the laws of non-U.S. jurisdictions and entities that are controlled by individuals who are not U.S. citizens or by entities that are organized under the laws of non-U.S. jurisdictions) beneficially own in the aggregate more than 10% of our common stock, or if persons having a significant commercial relationship with a foreign uranium enrichment provider or a foreign competitor own any shares of our common stock, we may exercise certain rights. These rights include requesting information from holders (or proposed holders) of our securities, refusing to permit the transfer of securities to foreign persons, suspending or limiting voting rights of shares of stock held by foreign persons, redeeming or exchanging shares of our stock owned by foreign persons on terms set forth in our certificate of incorporation, and taking other actions that we deem necessary or appropriate to ensure compliance with the foreign ownership restrictions.
     In order to monitor and estimate the amount of our common stock held by foreign persons, we regularly review Schedule 13D and 13G filings with the SEC with respect to our common stock and other information available to us including monthly and quarterly reports listing major institutional holders of our common stock. However, it is very difficult to determine our level of foreign ownership as of any particular date due to a variety of factors including: the complexities associated with identifying whether a particular beneficial holder is a foreign person; the significant volume of our common stock that changes hands daily; and the fact that a number of our stockholders are under no obligation to report their ownership to us or to otherwise make such information public. As a result, we cannot assure you that on any given day the aggregate ownership of our common stock by foreign persons will not exceed the foreign ownership restrictions.
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     The terms and conditions of our rights with respect to our redemption or exchange right in respect of shares held by foreign persons are as follows:
 	•	 	Redemption price or exchange value: Generally the redemption price or exchange value for any shares of our common stock redeemed or exchanged would be their fair market value. However, if we redeem or exchange shares held by foreign persons and our Board in good faith determines that such foreign person knew or should have known that the foreign ownership restrictions in our certificate of incorporation were violated at the time of their purchase, the redemption price or exchange value is required to be the lesser of fair market value and the foreign person’s purchase price for the shares redeemed or exchanged.	
 	 	 	 	
 	•	 	Form of payment: Cash, securities or a combination, valued by our Board in good faith.	
 	 	 	 	
 	•	 	Notice: At least 30 days’ notice of redemption is required, however, if we have deposited the cash or securities for the redemption or exchange in trust for the benefit of the relevant foreign holders, we may redeem shares held by such holders on the same day that we provide notice.	
     Accordingly, there are situations in which foreign stockholders could lose the right to vote their shares or in which we may redeem or exchange shares held by foreign persons and in which such redemption or exchange could be at the lesser of fair market value and the foreign person’s purchase price for the shares redeemed or exchanged, which could result in a significant loss for that foreign person.
Our operations are subject to numerous federal, state and local environmental protection laws and regulations.
     We incur substantial costs for compliance with environmental laws and regulations, including the handling, treatment and disposal of hazardous, low-level radioactive and mixed wastes generated as a result of our operations. Unanticipated events or regulatory developments, however, could cause the amount and timing of future environmental expenditures to vary substantially from those expected.
     Under a cleanup agreement with the Environmental Protection Agency (“EPA”), we removed certain material from a site in South Carolina previously operated by Starmet CMI, one of our former contractors, that was attributable to quantities of depleted uranium we had sent there under a 1998 contract. In June 2007, we were contacted by the EPA concerning costs incurred by the EPA for additional cleanup at the Starmet site. We are currently in discussions with the EPA regarding these costs. At December 31, 2007, we had an accrued current liability related to these costs that is less than the amount spent by the EPA for the cleanup. The amount of this accrual could be insufficient. In addition, we could incur additional costs associated with our share of costs for cleanup of the Starmet site, resulting from a variety of factors, including a decision by federal or state agencies to recover costs for prior cleanup work or require additional remediation at the site.
     Pursuant to numerous federal, state and local environmental laws and regulations, we are required to hold multiple permits. Some permits require periodic renewal or review of their conditions, and we cannot predict whether we will be able to renew such permits or whether material changes in permit conditions will be imposed. Changes in permits could increase costs of producing LEU and reduce our profitability. An inability to secure or renew permits could prevent us from producing LEU needed to meet our delivery obligations to customers, which would threaten our ability to make deliveries to customers and meet the minimum production requirements under the 2002 DOE-USEC Agreement, adversely affect our reputation, costs, cash flows, results of operations and long-term viability, and subject us to various penalties under our customer contracts and the 2002 DOE-USEC Agreement.
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Our operations involve the use, transportation and disposal of toxic, hazardous and/or radioactive materials and could result in liability without regard to our fault or negligence.
     Our plant operations involve the use of toxic, hazardous and radioactive materials. A release of these materials could pose a health risk to humans or animals. If an accident were to occur, its severity could be significantly affected by the volume of the release and the speed of corrective action taken by plant emergency response personnel, as well as other factors beyond our control, such as weather and wind conditions. Actions taken in response to an actual or suspected release of these materials, including a precautionary evacuation, could result in significant costs for which we could be legally responsible. In addition to health risks, a release of these materials may cause damage to, or the loss of, property and may adversely affect property values.
     We lease facilities from DOE for the Paducah and Portsmouth GDPs, the American Centrifuge Plant and centrifuge test facilities in Piketon, Ohio and Oak Ridge, Tennessee. Pursuant to the Price-Anderson Act, DOE has indemnified us against claims for public liability (as defined in the Atomic Energy Act of 1954, as amended) arising out of or in connection with activities under those leases resulting from a nuclear incident or precautionary evacuation. If an incident or evacuation is not covered under the DOE indemnification, we could be financially liable for damages arising from such incident or evacuation, which could have an adverse effect on our results of operations and financial condition. In connection with international transportation of LEU, it is possible for a claim related to a nuclear incident occurring outside the United States to be asserted that would not fall within the DOE indemnification under the Price-Anderson Act.
     While DOE has provided indemnification pursuant to the Price-Anderson Act, there could be delays in obtaining reimbursement for costs from DOE and DOE may determine that not all costs are reimbursable under the indemnification.
     We do not maintain any nuclear liability insurance for our operations at the gaseous diffusion plants. Further, American Nuclear Insurers, the only provider of nuclear liability insurance, has declined to provide nuclear liability insurance to the American Centrifuge Plant due to past and present DOE operations on the site. In addition, the Price Anderson Act indemnification does not cover loss or damage to property located on our facilities.
     We are currently negotiating for the purchase of a manufacturing facility in Oak Ridge, Tennessee. We could be liable for damages that we are not indemnified for by the seller in connection with prior activities of the seller at this facility.
     NAC’s business involves providing products and services for the storage and transportation of toxic, hazardous and radioactive materials, which, if released or mishandled, could cause personal injury and property damage (including environmental contamination) or loss and could adversely affect property values. NAC obtains nuclear liability insurance to protect against third party liability resulting from a nuclear incident, but this insurance contains exclusions and limits and this insurance would not cover all potential liabilities.
     In our contracts, we seek to protect ourselves from liability, but there is no assurance that such contractual limitations on liability will be effective in all cases or that, in the case of NAC’s contracts, NAC’s insurance will cover all the liabilities NAC has assumed under those contracts. The costs of defending against a claim arising out of a nuclear incident or precautionary evacuation, and any damages awarded as a result of such a claim, could adversely affect our results of operations and financial condition.
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The dollar amount of our sales backlog, as stated at any given time, is not necessarily indicative of our future sales revenues.
     Backlog is the aggregate dollar amount of SWU and uranium that we expect to sell in future periods under contracts with customers. As of December 31, 2007, our sales backlog was an estimated $6.5 billion through 2015 ($6.0 billion through 2012, including $1.4 billion expected to be delivered during 2008). There can be no assurance that the revenues projected in our backlog will be realized, or, if realized, will result in profits. Backlog is partially based on customers’ estimates of their fuel requirements and certain other assumptions, including our estimates of selling prices and inflation rates. Such estimates are subject to change. For example, some of our contracts include pricing elements based on market prices prevailing at the time of delivery. We use an external composite forecast of future market prices in estimating the price that we will be entitled to charge under such contracts in the future. These forecasts may not be accurate, and therefore our estimate of future prices could be overstated. Pricing under some new contracts is subject, in part, to escalation based on a broad power price index. For purposes of the backlog, we assume increases to the power price index in line with overall inflation rates. However, because the index is not geared to general inflation rates, our estimates of future prices under these contracts could be inaccurate. Any inaccuracy in our estimates of future prices would add to the imprecision of our backlog estimate.
     For a variety of reasons, the amounts of SWU and uranium that we will sell in the future under our existing contracts, or the timing of customer purchases under those contracts, may differ from our estimates. Customers may not purchase as much as we predicted, or at the times we anticipated, as a result of operational difficulties, changes in fuel requirements or other reasons. Reduced purchases would reduce the revenues we actually receive from contracts included in the backlog. For example, our revenue could be reduced by actions of the NRC or nuclear regulators in foreign countries issuing orders to delay, suspend or shut down nuclear reactor operations within their jurisdictions, or by an interruption of our production of LEU or deliveries of Russian LEU to us, that we need to meet our delivery commitments to customers. Increases in our costs of production or other factors could cause sales included in our backlog to be at prices that are below our cost of sales, which could adversely affect our results of operations, and customers may purchase more under lower priced contracts than we predicted.
We use estimates in accounting for the future disposition of depleted uranium and changes in these estimates or in actual costs could affect our future financial results and liquidity.
     We currently store depleted uranium at the Paducah and Portsmouth GDPs and accrue estimated costs for its future disposition. The long-term liability for depleted uranium is dependent upon the volume of depleted uranium generated and estimated processing, transportation and disposal costs, which involves many assumptions. Our estimated cost and accrued liability are subject to change as new information becomes available, and an increase in the estimate would have an adverse effect on our results of operations.
     We anticipate that we will send most or all of our depleted uranium to DOE for disposition unless a more economic disposal option is available. DOE is constructing facilities at the Paducah and Portsmouth GDPs to process large quantities of depleted uranium owned by DOE. Under federal law, DOE would also process our depleted uranium if we provided it to DOE. If we were to dispose of our uranium in this way, we would be required to reimburse DOE for the related costs of disposal, including our pro rata share of capital costs.
     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 35% less than the unit disposition cost for financial assurance purposes, which includes contingencies and other potential costs as required by the NRC. Any increase in our estimated unit cost of disposal will require us to provide additional financial assurance and could adversely affect our liquidity. The amount of future depleted uranium disposal costs could also vary substantially from amounts accrued and an increase in our actual cost of disposal could have a material adverse impact on our results of operations in future years.
45

 
     Financial assurances are also provided for the ultimate decontamination and decommissioning of the American Centrifuge facilities to meet NRC and DOE requirements. The amount of these decontamination and decommissioning costs could vary from the amounts accrued.
Deferral of revenue recognition could result in volatility in our quarterly and annual results.
     We do not recognize revenue for sales of uranium or LEU until the uranium or LEU is physically delivered. Consequently, in sales transactions where we have received payment and title has transferred to the customer but delivery has not occurred because the terms of the agreement require us to hold the uranium to which the customer has title or because a customer encounters delays in taking delivery of LEU at our facilities, recognition of revenue is deferred until the uranium or LEU is physically delivered. This deferral can potentially be over an indefinite period and is outside our control and can result in volatility in our quarterly and annual results. If, in a given period, a significant amount of revenue is deferred or a significant amount of previously deferred revenue is recognized, earnings in that period will be affected, which could result in volatility in our quarterly and annual results. Additional information on our deferred revenue is provided in note 10 to our consolidated financial statements.
Our operating results may fluctuate significantly from quarter to quarter, and even year to year, which could have an adverse effect on our cash flows.
     Under customer contracts with us for the supply of LEU to meet requirements for specific time periods or specific reactor refuelings, our customers order LEU from us based on their refueling schedules for nuclear reactors, which generally range from 12 to 18 months, or in some cases up to 24 months. Customer payments for the SWU component of such LEU typically average $12 to $15 million per order. As a result, a relatively small change in the timing of customer orders due to a change in a customer’s refueling schedule may cause operating results to be substantially above or below expectations, which could have an adverse effect on our cash flows.
The levels of returns on pension and postretirement benefit plan assets, changes in interest rates and other factors affecting the amounts we have to contribute to fund future pension and postretirement benefit liabilities could adversely affect our earnings in future periods.
     Our earnings may be positively or negatively impacted by the amount of expense we record for our employee benefit plans. This is particularly true with expense for our pension and postretirement benefit plans. Generally Accepted Accounting Principles in the United States (“GAAP”) require that we calculate expense for the plans using actuarial valuations. These valuations are based on assumptions that we make relating to financial market and other economic conditions. Changes in key economic indicators can result in changes in the assumptions we use. The key year-end assumptions used to estimate pension and postretirement benefit expenses for the following year are the discount rate, the expected rate of return on plan assets, healthcare cost trend rates and the rate of increase in future compensation levels. For additional information and a discussion regarding how our financial statements can be affected by pension and postretirement benefit plan accounting policies, see Critical Accounting Estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and note 14 to our consolidated financial statements.
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Anti-takeover provisions in Delaware law and in our charter, bylaws and shareholder rights plan and in the indenture governing our convertible notes could delay or prevent an acquisition of USEC.
     We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of our company, even if a change of control would be beneficial to our existing shareholders. Our certificate of incorporation, or charter, establishes restrictions on foreign ownership of our securities. Other provisions of our charter and bylaws may make it more difficult for a third party to acquire control of us without the consent of our board of directors. We also have adopted a shareholder rights plan, which could increase the cost of, or prevent, a takeover attempt. These various restrictions could deprive shareholders of the opportunity to realize takeover premiums for their shares. Additionally, if a fundamental change occurs prior to the maturity date of our convertible notes, holders of the notes will have the right, at their option, to require us to repurchase all or a portion of their notes, and if a make-whole fundamental change occurs prior to the maturity date of our convertible notes, we will in some cases increase the conversion rate for a holder that elects to convert its notes in connection with such make-whole fundamental change. In addition, the indenture governing our convertible notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the notes. These and other provisions could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.
Item 1B. Unresolved Staff Comments
     None.
Item 3. Legal Proceedings
     DOE Contract Services Matter
     The U.S. Department of Justice (“DOJ”) asserted in a letter to us dated July 10, 2006 that DOE may have sustained damages in an amount that exceeds $6.9 million under our 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”) and related claims in connection with invoices submitted under that contract. We responded to DOJ’s letter in September 2006, stating that the government does not have any legitimate bases for asserting any FCA or related claims under the cold standby contract, and have been cooperating with DOJ and the DOE Office of Investigations with respect to their inquiries into this matter. In a supplemental 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 and two other cost-type contracts, again potentially in violation of the FCA, which allows for treble damages and civil penalties. DOJ invited a response by us, which we provided in early December 2007 and again in January 2008. We believe that the DOJ and DOE analyses are significantly flawed, and intend to defend vigorously any claim that might be asserted against us. As part of our continuing discussions with DOJ, we and DOJ agreed in August 2007 to extend the statute of limitations for this matter. That agreement was further extended in December 2007 and again in January 2008.
     Defense Contract Audit Agency Audit Inquiry
     In March 2007, in connection with an audit of fiscal year 2002 costs, the Defense Contract Audit Agency (“DCAA”) raised certain questions regarding the allowability, under the Federal Acquisition Regulation, of employee overtime costs associated with satisfaction by employees of mandatory qualification and certification standards. We conducted discussions with DCAA regarding these questions and provided a paper to DCAA in April 2007, explaining our position that such costs are allowable and recoverable. While DCAA indicated in a communication on or about April 25, 2007 that it intended to question such costs, no disallowance was made, nor were any potential impacts of disallowance quantified when DCAA issued its audit report for the fiscal year ended June 30, 2002. To the extent that this issue is raised again in the future, we will continue to try to work with DCAA and DOE to resolve any disagreements. We continue to believe that any disallowance of employee overtime costs associated with satisfaction of qualification and certification requirements would not be justified.
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     Environmental Matter
     USEC and certain federal agencies were identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, for a site in Barnwell, South Carolina, previously operated by Starmet CMI (“Starmet”), one of our former contractors. In February 2004, we entered into an agreement with the U.S. Environmental Protection Agency (“EPA”) to clean up certain areas at Starmet’s Barnwell site. Under the agreement, we were responsible for removing certain material from the site that was attributable to quantities of depleted uranium we had sent to the site. In December 2005, the EPA confirmed that we completed our clean-up obligations under the agreement.
     In June 2007, the EPA notified us that the agency had spent approximately $7.6 million in its remediation of retention ponds at the Barnwell site. The EPA indicated verbally that it would seek reimbursement of this amount from us and the federal agencies that had previously been identified as potentially responsible parties. It further suggested that our share of the reimbursement expense would be approximately $3.2 million. Based on this information, we accrued a current liability of $3.2 million in the second quarter of 2007. However, based on ongoing discussions with the EPA, we now believe the actual amount of our liability is in the range of $1.0 million to $3.2 million.
     Other
     We are 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 4. Submission of Matters to a Vote of Security Holders
     None.
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Executive Officers of the Company
     Executive officers are elected by and serve at the discretion of the Board of Directors. Executive officers at February 15, 2008 follow:
 	 	 	 	 	 	 	
Name	 	Age	 	Position	
John K. Welch	 	 	57	 	 	President and Chief Executive Officer	
 	 	 	 	 	 	 	
John C. Barpoulis	 	 	43	 	 	Senior Vice President and Chief Financial Officer	
 	 	 	 	 	 	 	
Philip G. Sewell	 	 	61	 	 	Senior Vice President, American Centrifuge and Russian HEU	
 	 	 	 	 	 	 	
Robert Van Namen	 	 	46	 	 	Senior Vice President, Uranium Enrichment	
 	 	 	 	 	 	 	
W. Lance Wright	 	 	60	 	 	Senior Vice President, Human Resources and Administration	
 	 	 	 	 	 	 	
John M.A. Donelson	 	 	43	 	 	Vice President, Marketing and Sales	
 	 	 	 	 	 	 	
Stephen S. Greene	 	 	50	 	 	Vice President, Finance and Treasurer	
 	 	 	 	 	 	 	
Victor N. Lopiano	 	 	57	 	 	Vice President, American Centrifuge	
 	 	 	 	 	 	 	
J. Tracy Mey	 	 	47	 	 	Controller and Chief Accounting Officer	
 	 	 	 	 	 	 	
E. John Neumann	 	 	60	 	 	Vice President, Government Relations	
 	 	 	 	 	 	 	
Russell B. Starkey, Jr.	 	 	65	 	 	Vice President, Operations	
     John K. Welch has been President and Chief Executive Officer since September 2005. Prior to joining USEC, Mr. Welch served as a consultant to several government and corporate entities. Mr. Welch was Executive Vice President and Group Executive, Marine Systems for General Dynamics Corporation from January 2000 to March 2003, and President of General Dynamics Electric Boat from 1995 to 2000.
     John C. Barpoulis has been Senior Vice President and Chief Financial Officer since August 2006. Mr. Barpoulis joined USEC as Vice President and Treasurer in March 2005 and served as Treasurer until February 2007. Prior to joining USEC, Mr. Barpoulis was Vice President and Treasurer of National Energy & Gas Transmission, Inc. (formerly a subsidiary of PG&E Corporation) and certain of its subsidiaries from 2003 to March 2005 and was Vice President and Assistant Treasurer from 2000 to 2003. National Energy & Gas Transmission, Inc. and certain of its subsidiaries filed for protection under Chapter 11 of the United States Bankruptcy Code in July 2003.
     Philip G. Sewell has been Senior Vice President, American Centrifuge and Russian HEU since September 2005. Mr. Sewell was Senior Vice President directing international activities and corporate development programs since August 2000 and assumed responsibility for the American Centrifuge program in April 2005. Prior to that, Mr. Sewell was Vice President, Corporate Development and International Trade from April 1998 to April 2005, and was Vice President, Corporate Development from 1993 to April 1998.
     Robert Van Namen has been Senior Vice President, Uranium Enrichment since September 2005. Mr. Van Namen was Senior Vice President directing marketing and sales activities from January 2004 to September 2005 and was Vice President, Marketing and Sales from January 1999 to January 2004. Prior to joining USEC, Mr. Van Namen was Manager of Nuclear Fuel for Duke Power Company.
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     W. Lance Wright has been Senior Vice President, Human Resources and Administration since February 2005, and was Vice President, Human Resources and Administration from August 2003 to February 2005. Prior to joining USEC, Mr. Wright was Vice President and Principal of Boyden Global Executive Search from 2002 to 2003, and previously held director and manager positions in Human Resources at ExxonMobil Corporation from 1986 to 2002.
     John M.A. Donelson has been Vice President, Marketing and Sales since December 2005 and was previously Director, North American and European Sales from June 2004 to December 2005, Director, North American Sales from August 2000 to June 2004 and Senior Sales Executive from July 1999 to August 2000.
     Stephen S. Greene has been Vice President, Finance and Treasurer since February 2007. Prior to joining USEC, Mr. Greene was a Vice President and Executive Director of Pace Global Energy Services, an energy consulting firm, from January 2006 to January 2007. Previously, Mr. Greene was a Vice President of Progress Energy, an electric utility holding company, and prior to that a Vice President of National Energy & Gas Transmission, Inc. (formerly a subsidiary of PG&E Corporation).
     Victor N. Lopiano has been Vice President, American Centrifuge since December 2005 and was Director, Projects in USEC’s corporate development department from January 2000 to December 2005. Mr. Lopiano joined USEC in 1996 as USEC’s senior manager at the Lawrence Livermore National Laboratory. Prior to joining USEC, Mr. Lopiano held senior management positions with various business units of ABB, Inc. over an 11-year period including Senior Vice President, Operations, ABB Environmental Systems; Vice President, ABB Project Services, Power Plant Systems; and Vice President, Engineering & Facility Operations, ABB Resource Recovery Systems.
     J. Tracy Mey has been Controller and Chief Accounting Officer since January 2007 and had been Controller since June 2005. Prior to joining USEC, Mr. Mey was Controller and Chief Accounting Officer of Power Services Company, a national energy company and former subsidiary of PG&E Corporation, from June 2004 to May 2005, and previously was Corporate Controller of National Energy & Gas Transmission, Inc. (formerly a subsidiary of PG&E Corporation) from 1994 to 2004.
     E. John Neumann has been Vice President, Government Relations since April 2004. Prior to joining USEC, Mr. Neumann was Vice President, Government Relations, for the Edison Electric Institute from 1995 to 2004.
     Russell B. Starkey, Jr. has been Vice President, Operations since February 2005 and was General Manager of the Paducah plant from October 2001 to February 2005, Training Manager from April 1998 to October 2001 and Senior Staff Consultant from October 1997 to April 1998. Prior to joining USEC, over a 25 year period, Mr. Starkey held a variety of senior management positions including General Manger, Robinson Nuclear Plant, Vice President, Brunswick Nuclear Plant, and Vice President, Nuclear Services at Carolina Power & Light Co. (now a subsidiary of Progress Energy).
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
     USEC’s common stock trades on the New York Stock Exchange under the symbol “USU.” High and low sales prices per share follow:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2007	 	2006	
 	 	High	 	Low	 	High	 	Low	
First Quarter ended March 31	 	$	16.62	 	 	$	12.13	 	 	$	15.84	 	 	$	11.08	 	
Second Quarter ended June 30	 	 	25.65	 	 	 	16.14	 	 	 	14.65	 	 	 	9.74	 	
Third Quarter ended September 30	 	 	22.31	 	 	 	9.56	 	 	 	12.18	 	 	 	9.19	 	
Fourth Quarter ended December 31	 	 	10.48	 	 	 	7.81	 	 	 	13.52	 	 	 	9.35	 	
     No cash dividends were paid in 2006 or 2007 and we have no intention to pay cash dividends in the foreseeable future.
     There are 250 million shares of common stock and 25 million shares of preferred stock authorized. At January 31, 2008, there were 110,489,000 shares of common stock issued and outstanding and approximately 55,000 beneficial holders of common stock. No preferred shares have been issued.
     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, 2007.
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Number of	 	 	 	 	
 	 	securities to be	 	 	 	 	
 	 	issued upon	 	Weighted-average	 	Number of securities	
 	 	exercise of	 	exercise price of	 	remaining available	
 	 	outstanding	 	outstanding	 	for future issuance	
 	 	options, warrants	 	options, warrants	 	under equity	
Plan category	 	and rights	 	and rights	 	compensation plans	
Equity compensation plans approved by security holders	 	 	1,318,000	 	 	$	10.23	 	 	 	7,191,000	(1)	
Equity compensation plans not approved by security holders	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	1,318,000	 	 	 	 	 	 	 	7,191,000	 	

 	 	 	
(1)	 	Includes 7,098,000 shares available for issuance under the USEC Inc. 1999 Equity Incentive Plan (net of awards which terminate or are cancelled without being exercised or that are settled for cash) and 93,000 shares available for issuance under the Employee Stock Purchase Plan.	
     The Board of Directors approved a shareholder rights plan in 2001. Each shareholder of record on May 9, 2001, received preferred stock purchase rights that trade together with USEC common stock and are not exercisable. In the absence of further action by the Board, the rights generally would become exercisable and allow the holder to acquire USEC common stock at a discounted price if a person or group acquires 15% or more of the outstanding shares of USEC common stock or commences a tender or exchange offer to acquire 15% or more of the common stock of USEC. However, any rights held by the acquirer would not be exercisable. The Board of Directors may direct USEC to redeem the rights at $.01 per right at any time before the tenth day following the acquisition of 15% or more of USEC common stock.
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Matters Affecting our Foreign Stockholders
     In order to aid in our compliance with certain regulatory requirements affecting us, which are described in “Business — Nuclear Regulatory Commission — Regulation”, our certificate of incorporation gives us certain rights with respect to shares of our common stock held (beneficially or of record) by foreign persons. Specifically, if “foreign persons” (as defined in our certificate of incorporation to include, among others, individuals who are not U.S. citizens, entities that are organized under the laws of non-U.S. jurisdictions and entities that are controlled by individuals who are not U.S. citizens or by entities that are organized under the laws of non-U.S. jurisdictions) beneficially own in the aggregate more than 10% of our common stock, or if persons having a significant commercial relationship with a foreign uranium enrichment provider or a foreign competitor own any shares of our common stock, we may exercise certain rights. These rights include requesting information from holders (or proposed holders) of our securities, refusing to permit the transfer of securities to foreign persons, suspending or limiting voting rights of shares of stock held by foreign persons, redeeming or exchanging shares of our stock owned by foreign persons on terms set forth in our certificate of incorporation, and taking other actions that we deem necessary or appropriate to ensure compliance with the foreign ownership restrictions.
     The terms and conditions of our rights with respect to our redemption or exchange right in respect of shares held by foreign persons are as follows:
 	•	 	Redemption price or exchange value: Generally the redemption price or exchange value for any shares of our common stock redeemed or exchanged would be their fair market value. However, if we redeem or exchange shares held by foreign persons and our Board in good faith determines that such foreign person knew or should have known that the foreign ownership restrictions in our certificate of incorporation were violated at the time of their purchase, the redemption price or exchange value is required to be the lesser of fair market value and the foreign person’s purchase price for the shares redeemed or exchanged.	
 	 	 	 	
 	•	 	Form of payment: Cash, securities or a combination, valued by our Board in good faith.	
 	 	 	 	
 	•	 	Notice: At least 30 days’ notice of redemption is required, however, if we have deposited the cash or securities for the redemption or exchange in trust for the benefit of the relevant foreign holders, we may redeem shares held by such holders on the same day that we provide notice.	
     Our certificate of incorporation gives our Board broad discretion in determining what rights, if any, to exercise if the foreign ownership levels set forth in our certificate of incorporation are exceeded. Our Board has adopted a policy applicable to foreign persons owning (beneficially or of record) shares of our common stock, which states that:
 	1.	 	Unless the Board determines that the further exercise of rights under our certificate of incorporation is necessary to maintain our regulatory compliance (whether as a result of a request or order of a regulatory authority or otherwise), the Board will seek to maintain our regulatory compliance by first limiting the voting rights of any such foreign person.	
 	 	 	 	
 	2.	 	To the extent that the Board determines that the exercise of our right of redemption or exchange is necessary to maintain our regulatory compliance (whether as a result of a request or order of a regulatory authority or otherwise), such redemption or exchange shall be taken only to the extent necessary, in the judgment of the Board, to maintain such regulatory compliance or comply with such request or order, shall be settled only in cash and in no event will we avail ourselves of the trust redemption right (unless otherwise required by law or to maintain our regulatory compliance).	
 	 	 	 	
 	3.	 	In no event will we exercise our right of redemption or exchange if the Board determines that such redemption or exchange is required to be made at the lesser of fair market value and the foreign person’s purchase price for the shares redeemed or exchanged.	
     Paragraphs 1 and 2 of the policy may only be amended or repealed upon 60 days’ prior public notice (unless a shorter period is required by law or to maintain regulatory compliance) if the Board determines that doing so is in the best interest of us and our stockholders. Paragraph 3 of the policy may only be amended or repealed to the extent necessary to ensure our regulatory compliance if, after we have exhausted all other rights under the certificate of incorporation or reasonably determined in consultation with the proper regulatory authorities that the exercise of such other rights would be insufficient to ensure regulatory compliance, the Board determines that doing so is necessary to maintain our regulatory compliance (whether as a result of a request or order of a regulatory authority or otherwise), but only to be settled in cash and upon 60 days’ prior public notice unless another form of settlement or a shorter period is required by law or to maintain our regulatory compliance.
52

 
     For additional information regarding the foreign ownership restrictions set forth in our certificate of incorporation, please refer to “Risk Factors — Risks Related to Our Business — Our certificate of incorporation gives us certain rights with respect to common stock held (beneficially or of record) by foreign persons. If levels of foreign ownership set forth in our certificate of incorporation are exceeded, we have the right, among other things, to redeem or exchange common stock held by foreign persons, and in certain cases, the applicable redemption price or exchange value may be equal to the lower of fair market value or a foreign person’s purchase price.”
Fourth Quarter 2007 Issuer Purchases of Equity Securities
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	(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	
October 1 — October 31	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
November 1 — November 30	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
December 1 — December 31	 	 	2,595	 	 	$	8.96	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	2,595	 	 	$	8.96	 	 	 	—	 	 	 	—	 	

 	 	 	
(1)	 	These purchases were not made pursuant to a publicly announced repurchase plan or program. Represents 2,595 shares of common stock surrendered to USEC to pay withholding taxes in connection with the vesting of restricted stock under the 1999 Equity Incentive Plan.	
In 2007, we did not make any unregistered sales of equity securities.
53

 
PERFORMANCE GRAPH
     The following graph shows a comparison of cumulative total returns for an investment in the common stock of USEC Inc., 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, 2002 in the Company’s common stock, the S&P 500 Index and the peer group, and reflects the reinvestment of dividends.

 	 	December 31,	 	December 31,	 	December 31,	 	December 31,	 	December 31,	 	December 31,	
 	 	2002	 	2003	 	2004	 	2005	 	2006	 	2007	
USEC Inc.	 	$	100.00	 	 	$	151.49	 	 	$	186.16	 	 	$	240.04	 	 	$	255.50	 	 	$	180.76	 	
S&P500 Index	 	$	100.00	 	 	$	128.68	 	 	$	142.68	 	 	$	149.69	 	 	$	173.32	 	 	$	182.84	 	
Peer Group Index1	 	$	100.00	 	 	$	129.29	 	 	$	147.76	 	 	$	164.32	 	 	$	192.73	 	 	$	239.89	 	

(1)	 	The Peer Group consists of: Air Products and Chemicals, Inc., Albemarle Corporation, Alcoa Inc., Constellation Energy Group, Inc., Dominion Resources, Inc., Duke Energy Corporation, Eastman Chemical Company, Exelon Corporation, Georgia Gulf Corporation, NL Industries, Inc., PPL Corporation, Praxair, Inc., Progress Energy, Inc., The Southern Company, and XCEL Energy Inc. In accordance with SEC requirements, the return for each issuer has been weighted according to the respective issuer’s stock market capitalization at the beginning of each year for which a return is indicated.	
54

 
Item 6. Selected Financial Data
     Selected financial data 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. Selected financial data have been derived from audited consolidated financial statements.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	
 	 	(millions, except per share data)	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Separative work units	 	$	1,570.5	 	 	$	1,337.4	 	 	$	1,085.6	 	 	$	1,027.3	 	 	$	1,110.8	 	
Uranium	 	 	163.5	 	 	 	316.7	 	 	 	261.3	 	 	 	224.0	 	 	 	159.9	 	
U.S. government contracts and other	 	 	194.0	 	 	 	194.5	 	 	 	212.4	 	 	 	165.9	 	 	 	166.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	1,928.0	 	 	 	1,848.6	 	 	 	1,559.3	 	 	 	1,417.2	 	 	 	1,436.7	 	

Cost of sales:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Separative work units and uranium	 	 	1,473.6	 	 	 	1,349.2	 	 	 	1,148.4	 	 	 	1,071.6	 	 	 	1,124.1	 	
U.S. government contracts and other	 	 	166.9	 	 	 	162.5	 	 	 	181.4	 	 	 	151.5	 	 	 	150.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total cost of sales	 	 	1,640.5	 	 	 	1,511.7	 	 	 	1,329.8	 	 	 	1,223.1	 	 	 	1,274.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	287.5	 	 	 	336.9	 	 	 	229.5	 	 	 	194.1	 	 	 	162.4	 	
Special charges	 	 	—	 	 	 	3.9	(1)	 	 	7.3	(2)	 	 	—	 	 	 	—	 	
Advanced technology costs	 	 	127.3	 	 	 	105.5	 	 	 	94.5	 	 	 	58.5	 	 	 	44.8	 	
Selling, general and administrative	 	 	45.3	 	 	 	48.8	 	 	 	61.9	 	 	 	64.1	 	 	 	69.4	 	
Other (income) expense, net	 	 	—	 	 	 	—	 	 	 	(1.0	)(3)	 	 	(1.7	)(4)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	114.9	 	 	 	178.7	 	 	 	66.8	 	 	 	73.2	 	 	 	48.2	 	
Interest expense	 	 	16.9	 	 	 	14.5	 	 	 	40.0	 	 	 	40.5	 	 	 	38.4	 	
Interest (income)	 	 	(33.8	)	 	 	(6.2	)	 	 	(10.5	)	 	 	(3.9	)	 	 	(5.4	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	131.8	 	 	 	170.4	 	 	 	37.3	 	 	 	36.6	 	 	 	15.2	 	
Provision for income taxes	 	 	35.2	 	 	 	64.2	 	 	 	15.0	 	 	 	13.1	 	 	 	6.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	96.6	 	 	$	106.2	 	 	$	22.3	 	 	$	23.5	 	 	$	9.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income per share —	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	1.04	 	 	$	1.22	 	 	$	.26	 	 	$	.28	 	 	$	.11	 	
Diluted	 	$	.94	 	 	$	1.22	 	 	$	.26	 	 	$	.28	 	 	$	.11	 	
Dividends per share	 	$	—	 	 	$	—	 	 	$	.55	 	 	$	.55	 	 	$	.55	 	
55

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	
 	 	(millions)	 	
Balance Sheet Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	886.1	(5)	 	$	171.4	 	 	$	259.1	 	 	$	174.8	 	 	$	214.1	 	
Inventories:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current	 	 	1,153.4	 	 	 	900.0	 	 	 	974.3	 	 	 	1,009.4	 	 	 	883.2	 	
Long-term	 	 	—	 	 	 	24.2	 	 	 	71.4	 	 	 	156.2	 	 	 	266.1	 	
Total assets	 	 	3,087.8	 	 	 	1,861.4	 	 	 	2,080.8	 	 	 	2,003.4	 	 	 	2,134.8	 	
Current portion of long-term debt	 	 	—	 	 	 	—	 	 	 	288.8	 	 	 	—	 	 	 	—	 	
Long-term debt	 	 	725.0	(5)	 	 	150.0	 	 	 	150.0	 	 	 	475.0	 	 	 	500.0	 	
Other long-term liabilities	 	 	337.5	 	 	 	300.3	 	 	 	270.2	 	 	 	244.4	 	 	 	256.0	 	
Stockholders’ equity	 	 	1,309.5	(5)	 	 	986.0	 	 	 	907.6	 	 	 	918.7	 	 	 	923.6	 	

(1)	 	Special charges of $3.9 million in 2006 include a $2.6 million impairment of an intangible asset established in 2004 relating to the acquisition of NAC, $1.5 million related to consolidation of office space in connection with the 2005 restructuring plan, and special credits totaling $0.2 million representing changes in estimate of costs for termination benefits charged in 2005.	
 	 	 	
(2)	 	The plan to restructure headquarters and field operations resulted in special charges of $7.3 million in 2005 related to termination benefits, principally consisting of severance benefits.	
 	 	 	
(3)	 	Other income in 2005 includes $1.0 million from customs duties paid to USEC as a result of trade actions.	
 	 	 	
(4)	 	Other income in 2004 includes income of $4.4 million from customs duties paid to USEC as a result of trade actions, partly offset by an expense of $2.7 million for acquired-in-process research and development expense relating to the acquisition of NAC.	
 	 	 	
(5)	 	In September 2007, we raised net proceeds, after underwriter commissions and offering expenses, of approximately $775 million through the concurrent issuance of 23 million shares of common stock and $575 million in aggregate principal amount of convertible notes.	
56

 
Item 7. 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 financial statements and related notes appearing elsewhere in this report.
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, either directly or through our subsidiaries United States Enrichment Corporation and NAC International Inc. (“NAC”):
 	•	 	supply LEU to both domestic and international utilities for use in about 150 nuclear reactors worldwide,	
 	 	 	 	
 	•	 	are demonstrating and deploying what we anticipate will be the world’s most efficient uranium enrichment technology, known as the American Centrifuge,	
 	 	 	 	
 	•	 	are the exclusive executive agent for the U.S. government under a nuclear nonproliferation program with Russia, known as Megatons to Megawatts,	
 	 	 	 	
 	•	 	perform contract work for the U.S. Department of Energy (“DOE”) and its contractors at the Paducah and Portsmouth gaseous diffusion plants (“GDPs”), and	
 	 	 	 	
 	•	 	provide transportation and storage systems for spent nuclear fuel and provide nuclear and energy consulting services, including nuclear materials tracking.	
      Low Enriched Uranium
     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 U 235  and depleted uranium having a lower percentage of U 235 . 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 the 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 LEU at the Paducah GDP in Paducah, Kentucky, and we acquire LEU from Russia under a contract, which we refer to as the Russian Contract, to purchase the SWU component of LEU recovered from dismantled nuclear weapons from the former Soviet Union for use as fuel in commercial nuclear power plants.
      Our View of the Business Today
     The outlook for the nuclear industry continues to brighten as a convergence of supportive government policy, public acceptance and environmental concerns about climate change have encouraged utilities to begin the process of building new nuclear reactors in the United States for the first time in four decades. Although no new reactors are yet under construction in the United States, several U.S. utilities have filed applications for construction and operating licenses for new reactors with the U.S. Nuclear Regulatory Commission (“NRC”) and more than a dozen more utilities are expected to apply for licenses over the next two years. While this is a new development for the United States, a number of new reactors have been built internationally in the past decade. The World Nuclear Association’s reference forecast estimates that 107 reactors will be added to the existing fleet of approximately 440 operating reactors worldwide by 2020, while 42 reactors may be shut down by that date. If this forecast proves accurate, new reactors will result in a net increase of 81 gigawatts of nuclear generating capacity worldwide by 2020, representing a 22% increase. In addition, the NRC has granted 20-year extensions of operating licenses for approximately 50 reactors in the United States.
57

 
     Uranium prices have increased substantially in the past three years, which has prompted utilities to seek to substitute incrementally more SWU in their orders for the LEU needed to fabricate nuclear fuel assemblies. This increased demand for SWU and higher production costs for gaseous diffusion enrichment plants in the United States and France due to increases in electric power costs have been two drivers for a 28% increase in market prices for SWU over the past two years. Looking forward, market supply and demand fundamentals suggest that SWU prices should stay firm as new reactors are ordered and built in the markets we serve, unless the balance of supply and demand in the United States is adversely affected by imports of unfairly priced LEU. Several new uranium enrichment facilities that use centrifuge technology are expected to be built globally over the next decade but two large gaseous diffusion enrichment plants, including our Paducah GDP, are expected to be retired by the end of that period. With increased demand from new reactors, the closure of the less-efficient gaseous diffusion plants and the addition of new centrifuge enrichment facilities, uranium enrichment capacity should stay near equilibrium with demand through 2015.
     These factors have combined to provide the best business environment for the nuclear fuel industry in many years, which we believe provides a strong foundation for USEC’s substantial investment in the American Centrifuge Plant (“ACP”). Nonetheless, we face challenges over the next several years as gross profit margins will remain tight due to electric power costs at the Paducah GDP and purchase costs from Russia that will likely increase at a faster rate than we can recover in higher average prices billed to customers. We have obtained financing for the next phase of building the ACP but we still must obtain substantial capital in an uncertain financial marketplace to complete the project. Additionally, this is a highly technical project that requires thousands of complex machines to be assembled, installed and operated within the next several years. We believe we have the management team in place to successfully meet these challenges and that our performance in 2007 provides a track record of accomplishment.
     As we began 2007, we said it would be a critical year for USEC. We identified a number of risks to our business that we would focus on mitigating. At year end, we can report the following actions during 2007 that reduced our risk profile. We:
 	•	 	Negotiated a five-year power contract with Tennessee Valley Authority (“TVA”) that helps us manage our power costs by providing relative price predictability for our largest production cost.	
 	 	 	 	
 	•	 	Received a NRC construction and operating license for the ACP following an intense, 33-month review by the regulator.	
 	 	 	 	
 	•	 	Began construction of the ACP in Piketon, Ohio in May, about one month after the NRC license was issued. This met a milestone under the 2002 agreement with DOE.	
 	 	 	 	
 	•	 	Entered into several major contracts with key vendors for essential materials and parts for the ACP, reducing our exposure to volatile commodity prices for steel and carbon fiber.	
 	 	 	 	
 	•	 	Initiated the Lead Cascade testing program in late August that involved the first group of American Centrifuge prototype machines operating in a closed-loop cascade configuration. These machines are achieving a number of key objectives through the integrated testing program and produced nuclear fuel at commercial product assay levels, which met an October 2007 milestone with DOE.	
 	 	 	 	
 	•	 	In September, we raised net proceeds of approximately $775 million through a concurrent issuance of common stock and $575 million of convertible notes. We believe this new capital, along with an existing $400 million credit facility and anticipated cash flow from operations, was sufficient to meet a January 2008 DOE milestone regarding financing.	
58

 
     Electricity is the largest production cost component for uranium enrichment using the gaseous diffusion process. In 2000, we entered into a 10-year agreement to purchase electricity from TVA for the Paducah GDP that recognized the unique nature of our attractive power load profile. However, the price paid was subject to negotiation for electricity delivered after May 2006. Because energy costs were volatile in 2006, USEC and TVA signed a one-year pricing agreement at that time that increased the price we pay for power by approximately 50% and introduced a fuel-cost adjustment provision that allows TVA to pass on fuel-related costs to us each month. We reopened negotiations with TVA in 2007 and developed a five-year pricing agreement that extends our power purchases by two years through May 31, 2012. This agreement with TVA improves our financial outlook over the next several years because we have increased certainty of power costs and have the ability to increase production of LEU at Paducah or to underfeed the enrichment process to obtain uranium for resale or other obligations.
     We are entering a critical period as we transition our sources of enrichment production. Over the next several years we will seek to effectively manage the ramp up in American Centrifuge Plant capacity, determine the end date for commercial production from the Paducah GDP and conclude the Megatons to Megawatts program in 2013. Our business and financial profile will reflect the combined characteristics of our sources of enrichment, particularly the gaseous diffusion and centrifuge operating environments. During this transition period, we will also be looking at the potential expansion of ACP beyond the initial 3.8 million SWU plant, which could be done incrementally once the initial ACP construction phase is complete.
     The lease with DOE on our Paducah GDP facility provides us with flexibility within our current enrichment process to help us through this critical transitional period. We are operating our gaseous diffusion plant in Paducah, Kentucky at the highest efficiency in decades. Our plan for the Paducah GDP beyond the current lease term is dependent upon the successful and timely startup of the American Centrifuge Plant, the availability and cost of electric power beyond the expiration of our contract with TVA in May 2012, the demand for enrichment and other market conditions, the amount that we may need to spend to maintain the gaseous diffusion facility, and the timing and nature of any potential tails re-enrichment program on behalf of the U.S. government. We have had discussions with DOE regarding the potential for us to re-enrich at the Paducah GDP uranium contained in cylinders of depleted uranium, also known as “tails,” owned by the U.S. government. To date, no program has been established, but we believe the U.S. government recognizes the value of the remaining concentration of U 235 in these tails and that we are the logical agent to reclaim that value. We expect to make a decision regarding a lease extension of the Paducah GDP in the first half of 2008.
     The transition period has several challenges and opportunities. For example, the natural uranium inventory we acquired in conjunction with the privatization of USEC in 1998 had been largely sold at the end of 2007, potentially resulting in lower revenue, gross profit and cash flow from operations going forward. However, our ability to underfeed the enrichment process at Paducah allows us to obtain additional uranium supplies as we optimize our use of electric power as a substitute for uranium feed stock. We can sell the uranium by-product obtained in this manner at today’s higher market prices to supplement LEU sales and cash flow. Because we expect to make future uranium sales opportunistically and the revenue from these sales will not be recognized until uranium is delivered as the uranium component of LEU, revenue and net income will be more volatile and less predictable.
     We also face potential uncertainty and instability in the enrichment market during this transition period as a result of recent court rulings on trade cases involving imports of LEU from France. Appellate courts have concluded that imports of LEU under enrichment services transactions are not subject to U.S. trade law intended to prevent dumping of unfairly priced LEU in the U.S. market. We disagree with this conclusion, and in February 2008, we filed a request with the U.S. Supreme Court asking the Court to review these decisions. The Solicitor General of the United States, joined by the general counsels of the Commerce, Defense, Energy and State Departments, also filed a request seeking review of the decision. We anticipate that the Supreme Court will decide whether to grant these requests by the end of May 2008.
59

 
     We also support federal actions that would, in effect, declare that LEU imported under uranium enrichment transactions is subject to U.S. trade law. Without a judicial reversal, a legislative clarification, or other action to ensure that all LEU remains subject to U.S. trade law, the U.S. nuclear fuel market could be subjected to dumping that would make it very difficult to finance an overhaul of domestic nuclear fuel capacity, including deployment of the American Centrifuge Plant. We believe that preserving the U.S. government’s ability to prevent dumping of imported LEU irrespective of how the transaction is structured is essential to providing the market stability needed to deploy a new generation of enrichment capacity on American soil.
     The manner in which Russian uranium products are introduced into the U.S. market in the next few years and after the Megatons to Megawatts program concludes in 2013 is essential to our transition and to our long-term success. Russia has a large, vertically integrated nuclear power industry with excess capacity to enrich uranium. Through the Megatons to Megawatts program, Russia provides roughly half of the LEU used to fuel U.S. reactors today. The governments of the United States and Russia recently signed an amendment to the Russian Suspension Agreement that sets the terms for the measured introduction of Russian uranium products, including LEU, directly into the U.S. market primarily after the Megatons to Megawatts program concludes through 2020. We see the amendment as a balanced approach to provide Russia increased access to American nuclear utilities while assuring a stable domestic market that will allow new enrichment capacity to be financed and constructed. It is critical, however, that the quotas under the amendment be strictly enforced to maintain market stability. We believe there is strong support from the U.S. government for maintaining market stability during this important transition period.
     The amendment to the Russian Suspension Agreement will provide a temporary restraint on imports during this transition period when we will be ramping up American Centrifuge capacity. At the end of this transition period, our goal is to have fully transitioned to centrifuge technology and to have re-established American preeminence in nuclear fuel technology. Given that we estimate a 70% reduction in our production cost compared to the current gaseous diffusion process, excluding depreciation, this technology conversion should reduce our power requirements, make our cost structure more predictable and improve our gross profit margin. Our challenge is to timely complete our value engineering and design of the American Centrifuge machines, re-establish the industrial infrastructure to build these finely tuned machines, develop the manufacturing process and quality assurance regimen, and then assemble, install and start up several hundred machines a month during peak periods.
     2007 was a year of progress for the American Centrifuge program. Early in the year, we announced that tests had shown improved performance of 350 SWU per machine, per year. This improvement added approximately 300,000 SWU to the previously expected plant capacity of 3.5 million SWU. In April, we completed a two-and-a-half year process of obtaining a construction and operating license for the American Centrifuge Plant in Piketon, Ohio. The NRC conducted a thorough environmental and safety review before issuing the 30-year operating license. We began construction on the plant a month later. During the summer months, we assembled, installed and tested a group of centrifuge machines connected in a cascade configuration. This phase of integrated testing of the machines in a closed-loop configuration is referred to as the Lead Cascade test program. We set out a number of key objectives for the program that we continue to achieve. These tests confirmed the design and performance of the prototype centrifuge machine and verified predictions of our analytical performance models. We also met an important milestone in our revised agreement with DOE of demonstrating the ability for the American Centrifuge technology to produce nuclear fuel at commercial product assay levels.
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     As we continue this integrated testing program, we are preparing to finalize the components in the first series of plant production centrifuges that will be manufactured by our strategic suppliers. We refer to this centrifuge design as the AC100 series centrifuge machine. Through individual machine testing and our Lead Cascade test program, we have identified improvements in design and assembly that are being integrated into the AC100 machine. We believe these improvements will ensure reliable operation and help us to achieve lower cost targets through high-volume manufacturing by our suppliers. The initial design release for the AC100 machine is scheduled for the end of March 2008. Using the specifications from this design release, we and our strategic suppliers will begin to make various components and test these first AC100 designs under a variety of operating conditions at our Oak Ridge facilities over a six-month period. In addition, our strategic suppliers will proceed with their manufacturing facilitization efforts with the goal of assembling and installing a cascade of 30 to 40 AC100 machines, based on the initial design release, in late 2008. We will then begin integrated testing of these machines in early 2009. The final design for the first series of AC100 machines that will be produced in large quantities for ACP will reflect any improvements learned during individual machine testing and subsequent integrated testing.
     We will continue to transfer the American Centrifuge technology to our strategic suppliers as they prepare their facilities for high-volume manufacturing. We are leasing the existing “brick and mortar” of the American Centrifuge Plant from DOE that encompasses more than a million square feet of floor space, but there are significant balance-of-plant facilities that must be prepared. We will continue the plant build out during 2008, including the refurbishment of the feed and withdrawal facility needed for commercial operations. We also expect to continue our research and development efforts as the first phase of the plant is built. We will incorporate improvements at specific planned points as we build out the initial capacity of ACP to its 3.8 million annual SWU production capacity. New analytic capability and computer-aided manufacturing methods provide an opportunity to develop more productive and less costly machines as we seek to enhance our capability in centrifuge technology and develop a new series of machines. This will result in continued development spending that will be expensed.
     We established a target cost estimate in early 2007 for completing the ACP of $2.3 billion, which included spending to date but did not include financing costs or a reserve for general contingencies. At that time, we also established our current schedule for deployment of ACP. During 2007, we saw variances in spending and commitments for components for the ACP from corresponding amounts in our target cost estimate of approximately 15%, which helped to form our view that a reserve for general contingencies of approximately 15% to 20% was reasonable at the time. We have insight into more than $1 billion of ACP costs through costs of $615 million incurred through December 31, 2007 and near-term commitments. Our spending and commitments to date have remained within the 15% to 20% contingency band we had previously viewed as reasonable.
     We are now in the midst of a thorough, bottom-up review of the cost to build the plant based on greater maturity of machine design and balance of plant design. We expect to complete and announce a budget for the project in the second quarter of 2008. Our current negotiations with suppliers regarding the significant scope of work that remains indicate that overall costs for the ACP will be higher than we previously estimated. As seen in other large construction projects currently underway, our costs are also under pressure. In addition, since we are completing machine design concurrent with developing manufacturing and balance of plant cost estimates, offsets to these upward cost pressures are difficult to quantify. Among the factors that are creating upward pressure on costs are higher than anticipated costs from our suppliers for project management, supervision, labor and overhead, and higher commodity and materials prices. We also expect higher than anticipated demonstration costs as we continue to spend time working to reduce the manufacturing cost required per machine through value engineering.
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     Based on where we are in the bottom-up review of the target cost estimate, we expect that the project budget that we will establish in the second quarter will be about $3.5 billion, including expenditures to date, but not including costs for financing or financial assurance. We are continuing to evaluate bids received and negotiate with our suppliers. We are also continuing our design and value engineering efforts to lower the overall project cost. However, we may not be successful in our negotiations and value engineering efforts, and there may be further upward pressure on costs as we establish the project budget over the next several months. We expect to spend between $650 and $700 million in 2008, with most of the spending in 2008 being capitalized.
     As part of our bottom-up review we are also looking at the ACP deployment schedule. We are evaluating whether the project risk and cost can be improved by modifying items such as the timing of the final design release for the AC100 machine and value engineering efforts, when to begin making AC100 components for the commercial plant, and the ramp up to high-volume manufacturing. Therefore, a decision could be made to slow the pace of one or more steps in order to lower or manage the overall risk and cost of the project.
     With a revised, bottom-up cost estimate in hand, we expect to approach the debt markets in late 2008 to raise the remainder of the capital needed to build the initial 3.8 million SWU centrifuge plant. In preparation for that, we expect to begin entering into long-term contracts with our utility customers for the initial output of the ACP over the next year. We have been actively involved in commenting on rules for a loan guarantee program sponsored by DOE, and in October 2007, final regulations were issued for the program. In December 2007, federal legislation authorized funding levels for the program, including up to $2 billion for advanced facilities for the front end of the nuclear fuel cycle that includes uranium enrichment. We expect to apply for a guarantee under the program when DOE requests applications over the next several months. Because DOE has the ability to evaluate our project and the classified American Centrifuge technology in a way that the financial markets cannot, we currently view the loan guarantee program as the preferred path for obtaining debt financing. On a parallel path, however, we continue to evaluate and prepare for an alternative approach to debt markets in late 2008.
     The USEC management team is committed to meeting these substantial challenges. We are encouraged by the achievements of the past year, the improving market for our products, and the brighter prospects for the nuclear fuel industry. We look forward to playing a key role in the global resurgence of nuclear power and being the supplier of choice for our customers.
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 approximately 35% of revenue from our LEU segment in 2007. 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 or uranium from us or long-term requirements contracts under which our customers are obligated to purchase a percentage of their SWU or uranium requirements from us. Under requirements contracts, customers only make purchases if the reactor has requirements. The timing of requirements is associated with reactor refueling outages.
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     Backlog is the aggregate dollar amount of SWU and uranium that we expect to sell in future periods under contracts with customers. At December 31, 2007, we had contracts with customers aggregating an estimated $6.5 billion through 2015 ($6.0 billion through 2012, including $1.4 billion expected to be delivered in 2008), compared with $7.0 billion at December 31, 2006. Backlog is partially based on customers’ estimates of their fuel requirements and certain other assumptions, including our estimates of selling prices and inflation rates. Such estimates are subject to change. Some contracts include pricing elements based on market prices prevailing at the time of delivery. We use an external composite forecast of future market prices in our estimate. Pricing under some new contracts is subject to escalation based on a broad power price index. For purposes of the backlog, we assume increases to the power price index in line with overall inflation rates.
     Our revenues and operating results can fluctuate significantly from quarter to quarter, and in some cases, year to year. 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 $12 to $15 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 delay, suspend or shut down nuclear reactor operations within their jurisdictions.
     Our financial performance over time can be significantly affected by changes in prices for SWU. The SWU price indicator for new long-term contracts, as published by TradeTech in Nuclear Market Review, is an indication of base-year prices under new long-term SWU 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. Following are the long-term SWU price indicator, the long-term price for uranium hexafluoride, as calculated using indicators published in Nuclear Market Review, and the spot price indicator for uranium hexafluoride:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31,	
 	 	2007	 	2006	 	2005	
Long-term SWU price indicator ($/SWU)	 	$	143.00	 	 	$	136.00	 	 	$	113.00	 	
Uranium hexafluoride:	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term price composite ($/KgU)	 	 	260.47	 	 	 	192.54	 	 	 	106.06	 	
Spot price indicator ($/KgU)	 	 	241.00	 	 	 	199.00	 	 	 	106.00	 	
     A substantial portion of our earnings and cash flows in recent years has been derived from sales of uranium and, as a result, our inventory of uranium available for sale has been reduced. We will continue to supplement our supply of uranium by underfeeding the production process at the Paducah GDP and by purchasing uranium from suppliers in connection with specific customer contracts. 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 vary our production process to underfeed uranium based on the economics of the cost of electric power relative to the price of uranium. Uranium prices in the market have continued to make underfeeding economical despite increases in power costs. Under the June 2007 amendment to our TVA power contract, we have a greater supply of electric power available to underfeed the production process and increase our SWU production.
     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. Our older contracts give customers the flexibility to determine the amounts of natural uranium that they deliver to us, which can result in our receiving less uranium from customers than we transfer from our inventory to the Russian Federation under the Russian Contract. Our new SWU sales contracts and certain older contracts that we have renegotiated require customers to deliver a greater amount of natural uranium to us.
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     Although we have reduced supplies of uranium available for sale compared with prior years, we expect to opportunistically sell uranium inventory in excess of internal needs. The recognition of revenue and earnings for uranium sales is deferred until uranium or LEU to which the customer has title is physically delivered rather than at the time title transfers to the customer. The timing of revenue recognition for uranium sales is uncertain.
     Our contracts with customers are denominated in U.S. dollars, and although revenue has not been directly affected by changes in the foreign exchange rate of the U.S. dollar, we may have a competitive price advantage or disadvantage obtaining new contracts in a competitive bidding process depending upon the weakness or strength of the U.S. dollar. Costs of our primary competitors are denominated in the major European currencies.
      Revenue from U.S. Government Contracts
     We perform and earn revenue from contract work for DOE and DOE contractors at the Paducah and Portsmouth GDPs, including contracts for maintenance of the Portsmouth GDP in cold shutdown and processing DOE-owned out-of-specification uranium. DOE and USEC have periodically extended the Portsmouth GDP maintenance program, most recently through September 30, 2008. We expect that the processing of out-of-specification uranium for DOE will continue through September 2008. Continuation of U.S. government contracts is subject to DOE funding and Congressional appropriations.
     Revenue from U.S. government contracts is based on allowable costs determined under government cost accounting standards. 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”). DCAA has completed their review of the final settlement of allowable costs proposed by us for the fiscal year ended June 2002, with no significant findings or adjustment to the amounts we claim. However, additional information was requested by DOE concerning costs related to a reduction in force during fiscal 2002. This information was supplied as requested. DCAA is currently in the process of reviewing the final settlement of the amounts we claim for the six months ended December 2002 and the years ended December 2003, 2004 and 2005. Also refer to “DOE Contract Services Matter” and “Defense Contract Audit Agency Audit Inquiry” in note 13 to the Consolidated Condensed Financial Statements. Revenue from U.S. government contracts includes revenue from NAC.
      Cost of Sales
     Cost of sales for SWU and uranium is based on the amount of SWU and uranium sold during the period and is determined by a combination of inventory levels and costs, production costs, and purchase costs. 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. Under the monthly moving average inventory cost method that we use, coupled with our inventories of SWU and uranium, 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 have agreed to purchase approximately 5.5 million SWU each calendar year for the remaining term of the Russian Contract through 2013. Purchases under the Russian Contract are approximately 50% of our supply mix. Prices are determined using a discount from an index of international and U.S. price points, including both long-term and spot prices. A multi-year retrospective view of the index is used to minimize the disruptive effect of short-term market price swings. Increases in these price points in recent years have resulted, and likely will continue to result, in increases to the index used to determine prices under the Russian Contract. Officials of the Russian government have announced that Russia will not extend the Russian Contract or the government-to-government agreement it implements, beyond 2013. Accordingly, we do not anticipate that we will purchase significant quantities of Russian SWU after 2013.
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     We provide for the remainder 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. In 2007, the power load at the Paducah GDP averaged 1,510 megawatts and we expect the average power load at the Paducah GDP to increase to approximately 1,675 megawatts in 2008. We purchase electric power for the Paducah GDP under a power purchase agreement signed with TVA in 2000. Beginning in June 2006, pricing under the TVA power contract increased by about 50%, and was also subject to a fuel cost adjustment to reflect changes in TVA’s fuel costs, purchased power costs, and related costs. The increase in electric power costs from the pre-2006 pricing significantly increased our overall LEU production costs and reduced our cash flows, and negatively affects our gross profit margin as higher production costs are reflected in cost of sales under our monthly moving average cost of inventory.
     Effective June 1, 2007, we amended the TVA power contract to provide for the quantity and pricing of power purchases for the five-year period June 1, 2007 through May 31, 2012, extending the overall term of the power contract by two additional years to May 31, 2012. Pricing under the TVA power contract consists of a summer and a non-summer base energy price through May 31, 2008. Beginning June 1, 2008, the price consists of a year-round base energy price that increases moderately based on a fixed, annual schedule. All years are subject to a fuel cost adjustment provision. During 2007, the fuel cost adjustment resulted in an average 8% increase over base prices. The impact of future fuel cost adjustments is uncertain and our cost of power could fluctuate in the future above or below the agreed increases in the base energy price.
     The quantity of power purchases under the TVA contract generally ranges from 300 megawatts in the summer months (June — August) to up to 2,000 megawatts in the non-summer months. This is an increase from previous quantities in the non-summer months. During the last two years of the contract, the quantity of non-summer power purchases will be reduced to a maximum of 1,650 megawatts at all hours. This is designed to provide a transition down for the TVA power system because of the significant amount of power being purchased by us. Consistent with past practice, we also purchased from TVA and another supplier, at market-based prices, an additional 600 megawatts of power during the summer months of 2007.
     We are required to provide financial assurance to support our payment obligations to TVA. These include a letter of credit and weekly prepayments based on the price and usage of power. These financial assurances were increased in 2007 because of the increased quantities in the non-summer months effective June 1, 2007.
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      American Centrifuge Technology Costs
     Expenditures related to American Centrifuge technology for the twelve months ended December 31, 2007, 2006, and 2005, as well as cumulative expenditures as of December 31, 2007, follow (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Cumulative as of	 	
 	 	2007	 	 	2006	 	 	2005	 	 	December 31, 2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenditures, including accruals (A)	 	$	244.4	 	 	$	144.5	 	 	$	108.7	 	 	$	615.1	 	

Amount expensed as part of advanced technology costs	 	$	125.9	 	 	$	103.3	 	 	$	92.7	 	 	$	433.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amount capitalized as part of construction work in progress (B)	 	$	118.5	 	 	$	41.2	 	 	$	16.0	 	 	$	181.8	 	

(A)	 	Total expenditures are all American Centrifuge costs including, but not limited to, demonstration facility, licensing activities, commercial plant facility, program management, and interest related costs and accrued asset retirement obligations capitalized.	
 	 	 	
(B)	 	Amounts capitalized include interest of $6.3 million in 2007, $3.1 million in 2006 and $0.7 million in 2005. Cumulative capitalized interest at December 31, 2007 is $10.3 million. Amount excludes prepayments made to suppliers for services not yet performed of $16.9 million.	
     For discussions of the financing plan for the American Centrifuge program, see “Management’s Discussion and Analysis — Liquidity and Capital Resources.” For discussions of the target cost estimate for the American Centrifuge program, see “The American Centrifuge Plant — Project Cost and Schedule Update.” Risks and uncertainties related to the demonstration, construction and deployment of the American Centrifuge technology are described in Item 1A, “Risk Factors” of this report.
     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. MAGNASTOR, or Modular, Advanced Generation, Nuclear All-purpose Storage System, consists of a concrete cask and a welded stainless steel transportation storage canister with a welded closure lid to safely store spent nuclear fuel. A license application for the MAGNASTOR storage system was submitted in 2004 and withdrawn in February 2007 as a result of NRC comments that further analysis regarding the basket design and structural stability were required in order for them to complete their review. NAC submitted a revised license application in August 2007 with expanded confirmatory analysis. We expect final certification in early 2009. The fabricability of the MAGNASTOR design was demonstrated in the fourth quarter of 2006 with the fabrication of a prototype basket. The transportation license application is expected to be submitted in 2008.
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      Critical Accounting Estimates
     Our significant accounting policies are summarized in note 1 to our consolidated financial statements, which were prepared in accordance with generally accepted accounting principles. Included within these policies are certain policies that require critical accounting estimates and judgments. Critical accounting estimates are those that require management to make assumptions about matters that are uncertain at the time the estimate is made and for which different estimates, often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but are inherently uncertain and unpredictable, could have a material impact on our operating results and financial condition. It is also possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. We are also subject to risks and uncertainties that may cause actual results to differ from estimated amounts, such as the healthcare environment, legislation and regulation.
     The sensitivity analyses used below are not intended to provide a reader with our predictions of the variability of the estimates used. Rather, the sensitivities used are included to allow the reader to understand a general cause and effect of changes in estimates.
     We have identified the following to be our critical accounting estimates:
      Pension and Postretirement Health and Life Benefit Costs and Obligations
     We provide retirement benefits under defined benefit pension plans and postretirement health and life benefit plans. The valuation of benefit obligations and costs is based on provisions of the plans and actuarial assumptions that involve judgments and estimates. Changes in actuarial assumptions could impact benefit obligations and benefit costs, as follows:
 	•	 	The weighted average expected return on benefit plan assets was 8.0% for 2007 and is 8.0% for 2008. The expected return is based on historical returns and expectations of future returns for the composition of the plans’ equity and debt securities. A 0.5% decrease in the expected return on plan assets would increase annual pension costs by $3.9 million and postretirement health and life costs by $0.4 million.	
 	 	 	 	
 	•	 	A weighted average discount rate of 6.2% was used at December 31, 2007 to calculate the net present value of benefit obligations. The discount rate is the estimated rate at which the benefit obligations could be effectively settled on the measurement date and is based on yields of high quality fixed income investments whose cash flows match the timing and amount of expected benefit payments of the plans. A 0.5% reduction in the discount rate would increase the valuation of pension benefit obligations by $47.7 million and postretirement health and life benefit obligations by $9.6 million, and the resulting changes in the valuations would increase annual pension costs by $1.0 million and postretirement health and life costs by $1.0 million.	
 	 	 	 	
 	•	 	The healthcare costs trend rates are 9.0% projected in 2008 reducing to 5.0% in 2014. The healthcare costs trend rate represents our estimate of the annual rate of increase in the gross cost of providing benefits. The trend rate is a reflection of health care inflation assumptions, changes in healthcare utilization and delivery patterns, technological advances, and changes in the health status of our plan participants. A 1% increase in the healthcare cost trend rates would increase postretirement health benefit obligations by about $8.7 million and would increase costs by about $1.1 million.	
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      Costs for the Future Disposition of Depleted Uranium and GDP Lease Turnover Costs
     SWU and uranium inventories include estimates and judgments for production quantities and production costs. Production costs include estimates of future expenditures for the conversion, transportation and disposition of depleted uranium, the treatment and disposal of hazardous, low-level radioactive and mixed wastes, and GDP lease turnover costs. An increase or decrease in production costs has an effect on inventory costs and cost of sales over current and future periods.
     We store depleted uranium generated from our operations at the Paducah and Portsmouth GDPs and accrue estimated costs for its future disposition. We anticipate that we will send most or all of our depleted uranium to DOE for disposition unless a more economic disposal option becomes available. DOE is constructing facilities at the Paducah and Portsmouth GDPs to process large quantities of depleted uranium owned by DOE. Under federal law, DOE would also process our depleted uranium if we provided it to DOE for disposal. If we were to dispose of our depleted uranium in this way, we would be required to reimburse DOE for the related costs of disposing 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 uranium 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. Our estimate of the unit cost is periodically reviewed as additional information becomes available, and was increased by 9% in 2007.
     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 35% 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.
     Lease turnover costs are estimated and accrued for the Paducah and Portsmouth GDPs. For the operating Paducah GDP, the balance of expected costs is being accrued over the expected productive life of the plant. Costs of returning the GDPs to DOE in acceptable condition include removing uranium deposits as required and removing USEC-generated waste. Significant estimates and judgments relate to staffing and other costs associated with the planning, execution and documentation of the lease turnover requirements.
     The amount and timing of future costs could vary from amounts accrued. Accrued liabilities for depleted uranium and lease turnover costs are $98.3 million and $56.9 million, respectively, as of December 31, 2007.
      American Centrifuge Technology Costs
     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.
     Capitalized costs relating to the American Centrifuge technology include NRC licensing of the American Centrifuge Plant in Piketon, Ohio, engineering activities, construction of centrifuge machines and equipment, leasehold improvements and other costs directly associated with the commercial plant. Capitalized centrifuge costs are recorded in property, plant and equipment as part of construction work in progress. The continued capitalization of such costs is subject to ongoing review and successful project completion. Our move from a demonstration phase to a commercial plant phase during the second half of 2007 in which significant expenditures are capitalized was based on management’s judgment that the technology has a high probability of commercial success and meets internal targets related to physical control, technical achievement and economic viability. If conditions change and deployment were no longer probable, costs that were previously capitalized would be charged to expense.
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     As we continue construction of the American Centrifuge Plant, we create asset retirement obligations based on our requirements to decontaminate and decommission (“D&D”) the facility. The present value of an asset retirement obligation is recognized as a liability and an equivalent amount is recognized as part of the capitalized asset cost. The liability is accreted, or increased, over time for the time value of money. The accretion is charged to cost of sales. Upon commencement of commercial operations, the asset cost will be depreciated over the shorter of the asset life or the expected lease period. During each reporting period, we reassess and revise the estimate of asset retirement obligations based on construction progress, cost evaluation of future D&D expectations, and other judgmental considerations.
      Income Taxes
     During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. To the extent that the final tax outcome of these matters is different than the amounts that were initially recorded, such differences will impact the income tax provision in the period in which such determination is made. If the provision for income taxes increases/decreases by 1% of income from continuing operations, net income would have declined/improved by $1.3 million in 2007.
     Accounting for income taxes involves estimates and judgments relating to the tax bases of assets and liabilities and the future recoverability of deferred tax assets. In assessing the realization of deferred tax assets, we determine whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income in future years when deferred tax assets are recoverable or are expected to reverse. Factors that may affect estimates of future taxable income include, but are not limited to, competition, changes in revenue, costs or profit margins, market share and developments related to the American Centrifuge technology. We have determined that it is more likely than not that deferred tax assets will be realized. At December 31, 2007, our net deferred tax assets were $229.6 million.
     Determining the need for or the amount of a valuation allowance involves judgments, estimates and assumptions. We review historical results, forecasts of taxable income based upon business plans, eligible carryforward periods, periods over which deferred tax assets are expected to reverse, developments related to the American Centrifuge technology, tax planning opportunities, and other relevant considerations. The underlying assumptions may change from period to period. In the event we were to determine that it is more likely than not that all or some of the deferred tax assets will not be realized in future years, a valuation allowance would result.
     In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before the related tax benefit may be recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2007, the liability for unrecognized tax benefits, included in other long-term liabilities, was $10.8 million and accrued interest and penalties totaled $1.9 million.
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Results of Operations
     Segment Information
     We have two reportable segments measured and presented through the gross profit line of our income statement: the low enriched uranium (“LEU”) segment with two components, separative work units (“SWU”) and uranium, and the U.S. government contracts 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 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 year presented below and have been eliminated in consolidation. Segment information for the years ended December 31, 2007, 2006 and 2005 follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	U.S. Government	 	 	 	 	
 	 	LEU Segment	 	 	Contracts Segment	 	 	Total	 	
2007	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	1,734.0	 	 	$	194.0	 	 	$	1,928.0	 	
Cost of sales	 	 	1,473.6	 	 	 	166.9	 	 	 	1,640.5	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit.	 	$	260.4	 	 	$	27.1	 	 	$	287.5	 	

2006	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	1,654.1	 	 	$	194.5	 	 	$	1,848.6	 	
Cost of sales	 	 	1,349.2	 	 	 	162.5	 	 	 	1,511.7	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit.	 	$	304.9	 	 	$	32.0	 	 	$	336.9	 	

2005	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	1,346.9	 	 	$	212.4	 	 	$	1,559.3	 	
Cost of sales	 	 	1,148.4	 	 	 	181.4	 	 	 	1,329.8	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit.	 	$	198.5	 	 	$	31.0	 	 	$	229.5	 	
 	 	 	 	 	 	 	 	 	 	
      Revenue
     Total revenue increased $79.4 million (or 4%) in 2007 compared to 2006 and $289.3 million (or 19%) in 2006 compared to 2005, primarily driven by an increase in revenue from the LEU segment of $79.9 million (or 5%) in 2007 compared to 2006 and $307.2 million (or 23%) in 2006 compared to 2005. Revenue from the LEU segment for the years ended December 31, 2007, 2006 and 2005 follow (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
SWU Revenue	 	$	1,570.5	 	 	$	1,337.4	 	 	$	1,085.6	 	
Uranium Revenue	 	 	163.5	 	 	 	316.7	 	 	 	261.3	 	
 	 	 	 	 	 	 	 	 	 	
Total LEU Revenue	 	$	1,734.0	 	 	$	1,654.1	 	 	$	1,346.9	 	
 	 	 	 	 	 	 	 	 	 	
     Revenue from the sales of SWU increased $233.1 million (or 17%) in 2007 compared to 2006. In 2007, the volume of SWU sold increased 8% and the average price billed to customers increased 9%. The increase in volume reflects net increases in purchases by customers and the timing of utility customer refuelings. The increase in the average price reflects higher prices charged to customers under contracts signed in recent years, price increases from contractual provisions for inflation and market adjustments, and the mix of deliveries under newer versus older contracts.
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     Revenue from the sales of SWU increased $251.8 million (or 23%) in 2006 compared to 2005. In 2006, the volume of SWU sold increased 18% and the average price billed to customers increased 5%. The increase in volume reflects net increases in purchases by customers and the timing of utility customer refuelings. The increase in the average price reflects higher prices charged to customers under contracts signed in recent years, price increases from contractual provisions for inflation, and the mix of deliveries under newer versus older contracts.
     Under SWU barter contracts, USEC exchanges SWU for uranium. Revenue from the sales of SWU under barter contracts, based on the estimated fair value of uranium received in exchange for SWU, was $50.8 million in 2007, $12.5 million in 2006 and $11.9 million in 2005.
     Revenue from sales of uranium declined $153.2 million (or 48%) in 2007 compared to 2006. The average price for uranium delivered increased 29% in 2007 and the volume of uranium sold declined 60%. In 2006, revenue from sales of uranium increased $55.4 million (or 21%) compared to 2005. The average price for uranium delivered increased 45% in 2006 and the volume of uranium sold declined 17%. The increases in average price reflect higher-priced contracts signed with customers in recent years. The decreased volumes of uranium sold reflect declines in our inventory of uranium available for sale.
     Revenue from our U.S. government contracts segment follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
Contract work at Portsmouth	 	$	157.4	 	 	$	156.7	 	 	$	167.5	 	
Contract work at Paducah	 	 	11.5	 	 	 	11.6	 	 	 	17.2	 	
NAC	 	 	25.1	 	 	 	26.2	 	 	 	27.7	 	
 	 	 	 	 	 	 	 	 	 	
U.S. government contracts segment revenue	 	$	194.0	 	 	$	194.5	 	 	$	212.4	 	
 	 	 	 	 	 	 	 	 	 	
     Revenue from the U.S. government contracts segment declined slightly in 2007 compared to 2006. The net decline in contract work at NAC was partially offset by an additional scope of work performed under the cold shutdown contract at the Portsmouth GDP. The increase in revenue at Portsmouth was partially offset by a reduction resulting from the completion of the legacy centrifuge equipment removal project in August 2006.
     Revenue from the U.S. government contracts segment declined $17.9 million (or 8%) in 2006 compared to 2005, primarily due to declines in DOE and other contract work at the Portsmouth and Paducah GDPs. Contract work to provide support services to DOE contractors at both GDPs was reduced in 2006 compared to 2005, and the removal of legacy equipment and refurbishment of the centrifuge process buildings at the Portsmouth GDP was completed in August 2006. Revenue at the Portsmouth GDP also decreased in 2006 compared to 2005 as a result of the final settlement of the project-to-date incentive fee earned on the cold standby contract in 2005 that was not replicated in 2006. These reductions in 2006 revenues compared to 2005 were partially offset by additional work associated with the remediation of out-of-specification uranium for DOE during the year.
     Cost of Sales
     Cost of sales for SWU and uranium increased $124.4 million (or 9%) in 2007 and $200.8 million (or 17%) in 2006 compared to the corresponding prior periods, resulting primarily from increases in the volume of SWU sold of 8% in 2007 and 18% in 2006. Cost of sales per SWU was 7% higher in 2007 and 2% higher in 2006 reflecting increases in average inventory costs. 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.
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     Production costs increased $157.2 million (or 25%) in 2007 compared to 2006, primarily due to increases in the cost of electric power. Production levels increased 9% in 2007 and unit production costs increased 14%. The cost for electric power increased $147.3 million, reflecting an increase in the average cost per megawatt hour and an increase in megawatt hours purchased. The average cost per megawatt hour increased 22% in 2007, reflecting higher prices under the TVA power contract effective June 2006. The utilization of electric power, a measure of production efficiency, was about the same as in 2006.
     Production costs increased $97.6 million (or 18%) in 2006 compared to 2005. Production levels increased 4% in 2006 and unit production costs increased 13%. The cost for electric power increased $98.0 million, reflecting an increase in the average cost per megawatt hour and an increase in megawatt hours purchased. The average cost per megawatt hour increased 25% in 2006. The utilization of electric power was about the same as in 2005.
     Purchase costs for the SWU component of LEU under the Russian Contract increased $23.4 million in 2007 compared to 2006 and $7.9 million in 2006 compared to 2005 due to increases in the market-based purchase cost per SWU. Purchase prices paid under the Russian Contract are set by a market-based pricing formula and have increased as market prices have increased in recent years.
     Cost of sales for the U.S. government contracts segment increased $4.4 million (or 3%) in 2007 compared to 2006, primarily due to sales of lower margin contract services at NAC. Cost of sales for the U.S. government contracts segment declined $18.9 million (or 10%) in 2006 compared to 2005, primarily due to declines in DOE and other contract work at the Portsmouth and Paducah GDPs as highlighted in the revenue discussion. Portsmouth and Paducah expenses were $15.3 million less in 2006 compared to 2005 and reflect reduced contract work as well as a reduction in field operations staffing implemented at the end of 2005. In addition, NAC reduced its overall cost of sales by $3.6 million from 2005 to 2006 reflecting cost reduction initiatives and staff reductions taken during the year.
     Gross Profit
     Gross profit for the LEU segment declined $44.5 million (or 15%) in 2007 compared to 2006. The positive impact of increases in SWU and uranium sales prices in recent years was reduced in 2007 compared to 2006 as higher production and purchase costs were recognized in cost of sales. In addition, the decline in uranium sales reflects reduced uranium available for sale. Our gross profit margin was approximately 15% in 2007 compared to 18% in 2006. Gross profit for the LEU segment increased $106.4 million (or 54%) in 2006 compared to 2005. Our gross profit margin was approximately 15% in 2005.
     Gross profit for the U.S. government contracts segment declined $4.9 million (or 15%) in 2007 compared to 2006 due to sales of lower margin contract services at NAC. Gross profit for the U.S. government contracts segment increased $1.0 million (or 3%) in 2006 compared to 2005. NAC contributed $2.0 million of the increased gross profit in 2006 compared to 2005 as cost reductions exceeded reduced revenues. Offsetting NAC’s increase were declines in DOE and other contract work at the Portsmouth and Paducah GDPs, as well as the lack of incentive fees and nonrecurring items that occurred in 2005. Offsetting some of these declines in 2006 were favorable increases in allowable benefit costs used to invoice government contracts.
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     Non-Segment Information
     The following table presents elements of the accompanying Consolidated Statements of Income that are not categorized by segment (amounts in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	$	287.5	 	 	$	336.9	 	 	$	229.5	 	
Special charges	 	 	—	 	 	 	3.9	 	 	 	7.3	 	
Advanced technology costs	 	 	127.3	 	 	 	105.5	 	 	 	94.5	 	
Selling, general and administrative	 	 	45.3	 	 	 	48.8	 	 	 	61.9	 	
Other (income)	 	 	—	 	 	 	—	 	 	 	(1.0	)	
 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	114.9	 	 	 	178.7	 	 	 	66.8	 	
Interest expense	 	 	16.9	 	 	 	14.5	 	 	 	40.0	 	
Interest (income)	 	 	(33.8	)	 	 	(6.2	)	 	 	(10.5	)	
 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	131.8	 	 	 	170.4	 	 	 	37.3	 	
Provision for income taxes	 	 	35.2	 	 	 	64.2	 	 	 	15.0	 	

Net income	 	$	96.6	 	 	$	106.2	 	 	$	22.3	 	
 	 	 	 	 	 	 	 	 	 	
     Special Charges
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 	 	(in millions)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Special charges for organizational restructuring	 	$	—	 	 	$	1.3	 	 	$	7.3	 	
Special charge for intangible asset impairment	 	 	—	 	 	 	2.6	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	
 	 	$	—	 	 	$	3.9	 	 	$	7.3	 	
 	 	 	 	 	 	 	 	 	 	
     We restructured our organization in late 2005. This included staff reductions at our headquarters and field operations and the elimination of some senior positions, resulting in the realignment of responsibilities under a smaller senior management team. The organizational restructuring resulted in special charges for termination benefits of $7.3 million in 2005, facility related charges of $1.5 million in 2006, and $0.2 million in credits in 2006 representing changes in estimates of costs for termination benefits.
     In 2006, a special charge of $2.6 million resulted from the impairment of an intangible asset related to the 2004 acquisition of NAC. The amount allocated to customer contracts and relationships from the NAC acquisition was $3.9 million, including $3.4 million related to the management of the Nuclear Materials Management and Safeguards System (“NMMSS”) for DOE. This value was based on a three-year, $25 million contract extension that runs through September 2008, and further renewals that were anticipated through 2017. In late 2006, DOE verbally communicated to NAC that the NMMSS contract will be set aside for a small business after the contract expires in 2008, and DOE issued a solicitation seeking qualified small businesses with an interest to bid. The special charge represents an impairment of the intangible asset since NAC is not considered a qualified small business as defined by DOE.
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     Advanced Technology Costs
     Advanced technology costs increased $21.8 million (or 21%) in 2007 compared to 2006, and $11.0 million (or 12%) in 2006 compared to 2005, reflecting increased demonstration costs for the American Centrifuge technology.
     Advanced technology costs also include research and development efforts undertaken for NAC, relating primarily to its new generation MAGNASTOR™ storage system. NAC-related advanced technology costs were $1.3 million in 2007, $2.1 million in 2006 and $1.8 million in 2005.
     Selling, General and Administrative
     Selling, general, and administrative expenses declined $3.5 million (or 7%) in 2007 compared to 2006, reflecting a reversal of a previously accrued tax penalty of $3.4 million. We reached agreement with the IRS during the second quarter of 2007 on certain deductions related to expenditures made in the tax return years 1998 through 2000. Consulting expenses declined $0.8 million in 2007 compared to 2006. Offsetting these improvements were increased stock-based compensation expenses resulting primarily from vesting of participants in our equity compensation plans.
     Selling, general, and administrative expenses declined $13.1 million (or 21%) in 2006 compared to 2005, reflecting reductions in salaries and employee benefit expenses from the organizational restructuring of headquarters that was announced in September 2005. Salaries and employee benefit expenses declined $4.7 million, consulting expenses declined $1.0 million and office lease expenses declined $1.0 million compared to the prior year. Expenses in 2005 include a charge of $7.6 million in connection with the settlement of the executive termination matters with our former president and chief executive officer.
     Other (Income)
     In December 2005, we received $1.0 million from U.S. Customs and Border Protection as a distribution of countervailing duties to injured domestic producers under the Continued Dumping and Subsidy Offset Act of 2000. The duties were paid to us as reimbursement of certain qualifying expenses we incurred following the issuance of countervailing duty orders in 2002 against LEU from Germany, the Netherlands, and the United Kingdom.
     Operating Income
     Operating income declined $63.8 million (or 36%) in 2007 compared to 2006. The decline reflects lower gross profits and higher American Centrifuge demonstration costs.
     Operating income increased $111.9 million (or 168%) in 2006 compared to 2005. The increase reflects higher gross profits principally in the LEU business segment and lower selling, general and administrative expenses, slightly offset by higher American Centrifuge demonstration costs.
     Interest Expense and Interest Income
     Interest expense increased $2.4 million (or 17%) in 2007 compared to 2006 due to accrued interest on our $575.0 million of convertible notes issued in September 2007, and increases of accrued interest for taxes. The increase is partly offset by an increase of $3.2 million in capitalized interest related to American Centrifuge and our repayment of $288.8 million of our 6.625% senior notes on the scheduled maturity date in January 2006.
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     Interest expense declined $25.5 million (or 64%) in 2006 compared to 2005. The decline resulted primarily from our repayment of the 6.625% senior notes in January 2006, and an increase of $2.4 million in capitalized interest related to American Centrifuge.
     Interest income increased $27.6 million (or 445%) in 2007 compared to 2006 due, in large part, to reversals of previously accrued interest expense on taxes and interest expense recorded upon the adoption of FIN 48 effective January 1, 2007. These reversals relate to the expiration of the U.S. federal statute of limitations with respect to tax return years 1998 through 2003 and agreement on outstanding matters reached with the IRS during the second quarter of 2007. The increase in interest income is also due to increased cash and investment balances resulting from the proceeds from our issuances of convertible notes and common stock in September 2007.
     Interest income declined $4.3 million (or 41%) in 2006 compared to 2005 due to reduced cash and investment balances following the senior note repayment and interest income earned in 2005 on inventory balances maintained at nuclear fuel fabricators.
     Provision for Income Taxes
     The provision for income taxes in 2007 was $35.2 million with an overall effective income tax rate of 27%. We recorded the effects of $12.6 million of tax benefits due to reversals of accruals previously recorded and those associated with the adoption of FIN 48 effective January 1, 2007. Excluding these effects, our effective tax rate would have been 36% in 2007. The most significant items in the remaining difference between the effective tax rate in 2007 as compared to the statutory federal and state income tax rate include the positive effects related to our manufacturing deduction and research and other tax credits.
     The provision for income taxes in 2006 was $64.2 million with an overall effective income tax rate of 38%. Differences between the effective tax rate in 2006 as compared to the statutory federal and state income tax rate include the effects of state deferred tax asset reductions offset by research and other tax credits.
     The provision for income taxes in 2005 was $15.0 million with an overall effective income tax rate of 40%. We recorded negative effects on deferred tax assets from reductions in the Kentucky and Ohio tax rates in 2005. Excluding the effects of the Kentucky and Ohio deferred tax asset reduction, our effective tax rate would have been 30% in 2005. The most significant items in the remaining difference in the effective rates between 2006 and 2005 reflect accruals of a nontaxable Medicare subsidy, research and other tax credits, and other nondeductible expenses.
     Net Income
     Net income declined $9.6 million (or $.18 per share) in 2007 compared to 2006, reflecting the after-tax impacts of lower gross profits and higher American Centrifuge demonstration costs, partly offset by $22.1 million of tax-related effects from the impact of reversals of accruals previously recorded and those associated with the adoption of FIN 48, released upon the U.S. federal statute of limitations expiration with respect to tax return years 1998 through 2003 and the completion of the IRS examination for all tax years through 2003. The decline in net income per share also reflects our issuance of 23 million shares of common stock in September 2007.
     Net income increased $83.9 million (or $.96 per share) in 2006 compared to 2005. The improvement primarily reflects the after-tax impacts of higher gross profits in the LEU business segment and decreases in interest expense as well as lower selling, general and administrative expenses, slightly offset by higher American Centrifuge demonstration costs.
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2008 Outlook
     USEC has historically delivered LEU containing 10 to 12 million SWU annually. Deliveries in 2004 were at the low end of that range while deliveries in 2006 were at the high end of that range. Due to movement in the timing of customer deliveries into 2007, the refueling schedule for customer nuclear reactors and customers ordering more SWU in order to deliver less uranium in response to sharply higher uranium prices, deliveries in 2007 were above that historic average. Because a majority of the reactors served by USEC are refueled on an 18-to-24 month cycle, we anticipate a decline in deliveries in 2008, followed by delivery levels in 2009 roughly similar to 2007.
     USEC expects total revenue in a range of $1.7 to $1.78 billion in 2008. Revenue from SWU is expected to be in a range of $1.3 to $1.35 billion. We expect SWU volume to be down 15% to 20% and average price billed to customers to be nearly unchanged from 2007. Uranium revenue is expected to be relatively flat compared to 2007 at approximately $200 million, but the recognition of revenue from uranium will be subject to the timing of the uranium in LEU deliveries. While we have a view of the timing of uranium revenue recognition based on anticipated LEU deliveries, an increase in uranium revenue in 2008 from what we are projecting would substantially improve the gross profit margin. We expect uranium volume to decline 10% but the average price billed to customers to rise by 20%. Revenue from government services and other is expected to total approximately $215 million.
     The price of electric power continues to play an important role in our production costs but a five-year power agreement signed with the Tennessee Valley Authority in 2007 will moderate the increase compared to the past two years. The price we will pay Russia for LEU purchased under the Megatons to Megawatts program is expected to increase by about 10% in 2008 compared to 2007. This price is set under a multi-year retrospective view of market prices and the long-term price for SWU has increased 24% in the past two years. The cost of sales, reflecting higher production and purchase costs rolling though our inventory, is increasing faster than our average price billed to customers, putting pressure on our gross profit margin. We expect our gross profit margin in 2008 will be roughly 13% to 14%, compared to 14.9% in 2007.
     Below the gross profit line, USEC expects selling, general and administrative expense to be approximately $55 million and net interest to be positive by approximately $9 million. We anticipate our income tax rate will be close to the combined federal and state statutory rate. At this time, we are in the midst of updating our project budget for the American Centrifuge Plant. Although a substantial portion of the roughly $650 to $700 million in ACP spending in 2008 will be capitalized, we are continuing development and demonstration efforts that are expensed. We continue our efforts to identify improvements in design, assembly and operations that can help to ensure reliability and lower the cost of the AC100 machine. We expect to expense roughly $125 million of advanced technology spending during 2008.
     The ranges involved in our guidance for SWU revenue and gross profit margin create a wider than usual range for net income guidance for 2008. USEC expects net income in 2008 in the range of $25 to $45 million. Our earnings 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 net income are:
 	•	 	The timing of recognition of previously deferred revenue and deferred revenue related to uranium deliveries;	
 	 	 	 	
 	•	 	Movement and timing of customer orders;	
 	 	 	 	
 	•	 	Changes in inflation and in SWU and uranium market prices;	
 	 	 	 	
 	•	 	Additional uranium sales made possible by underfeeding the production process at the Paducah GDP; and	
 	 	 	 	
 	•	 	The amount of spending on the American Centrifuge plant that is classified as expense.	
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     Cash flow used in operations in 2008 is expected to be $60 to $80 million. The reduction in cash flow compared to 2007 is a result of lower expected SWU sales and timing of orders expected to be delivered in the fourth quarter of 2008. Other factors include higher disbursements for electric power as we build LEU inventory for future deliveries and increased costs for purchases from Russia under the Megatons to Megawatts program. Cash flow used in operations in 2008 reflects our expectation to expense roughly $125 million in advanced technology spending. We expect cash flow from operations to significantly improve in 2009. We expect revenue in December 2008 to account for about 15% of 2008 total revenue and we will collect that cash in early 2009. We also expect SWU sales volumes in 2009 to return to levels seen in 2007 and for average prices billed to customers to improve.
Liquidity and Capital Resources
     We provide for our liquidity requirements through our cash balances, working capital, access to our bank credit facility and through the net proceeds from our September 2007 issuances of convertible notes and common stock. We anticipate that our cash, expected internally generated cash flow from operations and available borrowings under our revolving credit facility will be sufficient over the next 12 months to meet our cash needs, including the funding of American Centrifuge project activities and the repayment of the January 2009 senior notes. However, under our current schedule and anticipating the additional maturity and progress of the American Centrifuge project, we expect that we will seek to raise debt for the American Centrifuge project in late 2008. Additional funds may be necessary sooner than we currently anticipate in the event of changes in schedule, increases above our target cost estimate, unanticipated prepayments to suppliers, increases in financial assurance, unanticipated costs due to delivery delays under the Russian Contract, cost overruns or any shortfall in our estimated levels of operating cash flow, or to meet other unanticipated expenses. We cannot assure you that we will be able to obtain additional financing on a timely basis, on acceptable terms, or at all. See “Risk Factors —  Deployment of the American Centrifuge technology will require additional external financial and other support that may be difficult to secure. ”
     The change in cash and cash equivalents from our Consolidated Statements of Cash Flows are as follows on a summarized basis (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
Net cash provided by operating activities	 	$	109.2	 	 	$	278.1	 	 	$	188.9	 	
Net cash (used in) investing activities	 	 	(170.4	)	 	 	(79.6	)	 	 	(26.3	)	
Net cash provided by (used in) financing activities	 	 	775.9	 	 	 	(286.2	)	 	 	(78.3	)	
 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	$	714.7	 	 	$	(87.7	)	 	$	84.3	 	
 	 	 	 	 	 	 	 	 	 	
     Operating Activities
     During 2007, we generated net cash flow from operating activities of $109.2 million. Results of operations of $96.6 million and $39.5 million in non-cash adjustments for depreciation and amortization contributed to our operating cash. Results of operations include approximately $22.1 million of non-cash related reversals of tax-related accruals previously recorded and those associated with the adoption of FIN 48. These increases in cash flow were slightly offset by the timing of other balance sheet items.
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     During 2006, we generated net cash flow from operating activities of $278.1 million. Results of operations contributed $106.2 million to cash flow and $36.7 million in non-cash adjustments for depreciation and amortization. A reduction in net inventory balances of $176.1 million period to period also contributed to cash flow, as we sold from existing inventories as well as from current production. Reductions in accounts payable and other liabilities reduced cash flow from operations by $82.1 million during the period, principally from tax payments, prepayment modifications under the amended TVA contract, and payments to our former president and chief executive officer in settlement of his claims. The timing of other balance sheet items, principally the timing of accounts receivable collections, also contributed to the increase in cash flow.
     During 2005, we generated net cash flow from operating activities of $188.9 million. Results of operations contributed $22.3 million of cash flow and $35.0 million in non-cash adjustments for depreciation and amortization. Cash flow in 2005 had benefited from a net inventory reduction or liquidation of $76.3 million and an increase in the amount owed from timing of payments for the SWU component of LEU acquired by us under the Russian Contract of $21.9 million. In addition, $42.0 million of deferred profits relating to LEU and uranium that were sold but not shipped during the year increased cash flow. These increases in cash flow were slightly offset by the timing of other balance sheet items.
     Investing Activities
     Capital expenditures were $137.2 million in 2007, $44.8 million in 2006 and $26.3 million in 2005. Capital expenditures during these periods are principally associated with the American Centrifuge Plant, including prepayments made to suppliers for services not yet performed of $16.9 million. Cash flows used in investing activities also include interest-earning cash deposits of $33.2 million in 2007 and $34.8 million in 2006 as collateral for surety bonds. The surety bonds represent financial assurance relating primarily to the future disposition of depleted uranium generated in our enrichment process and American Centrifuge decontamination and decommissioning.
     Financing Activities
     In September 2007, we raised net proceeds, after underwriter commissions and offering expenses, of approximately $775 million through the concurrent issuance of 23 million shares of common stock and $575.0 million in aggregate principal amount of convertible notes. Other issuances of common stock, primarily from the exercise of stock options, and related tax benefit provided cash flow from financing activities of $0.5 million in 2007, $2.5 million in 2006, and $8.8 million in 2005. There were 110.6 million shares of common stock outstanding at December 31, 2007, compared with 87.1 million at December 31, 2006, an increase of 23.5 million shares (or 27%) and 86.6 million at December 31, 2005, or an increase from 2005 to 2006 of 0.5 million shares (or 1%).
     During 2007, aggregate borrowings and repayments under our bank credit facility amounted to $75.1 million, and the peak amount borrowed was $61.4 million. There were no short-term borrowings under the revolving credit facility at December 31, 2007 or at December 31, 2006.
     We repaid the remaining principal balance of our 6.625% senior notes of $288.8 million on the scheduled maturity date of January 20, 2006 using cash on hand and borrowing under our bank credit facility of approximately $78.5 million. We repaid the $78.5 million borrowing with funds from operations by the end of January 2006.
     In February 2006, the Board of Directors voted to discontinue paying a common stock dividend in order to redirect those funds to reduce the level of external financing needed for construction of the American Centrifuge Plant. Dividends paid to stockholders amounted to $47.3 million in 2005 (or a quarterly rate of $0.1375 per share).
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     Working Capital
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	
 	 	(millions)	 	
Cash and cash equivalents	 	$	886.1	 	 	$	171.4	 	
Accounts receivable — trade	 	 	252.9	 	 	 	215.9	 	
Current inventories, net	 	 	831.1	 	 	 	843.1	 	
Other current assets and liabilities, net	 	 	(255.3	)	 	 	(246.4	)	
 	 	 	 	 	 	 	
Working capital	 	$	1,714.8	 	 	$	984.0	 	
 	 	 	 	 	 	 	
     Our issuance of 23 million shares of common stock and $575.0 million of convertible notes contributed to the increase in cash and cash equivalents at December 31, 2007. The slight decline in net current inventories reflects a reduction in SWU and uranium quantities of approximately 20% offset by increases in average costs. The decrease in SWU quantities was planned based on expected near-term deliveries as of year-end, whereas the decrease in uranium quantities reflects declining uranium inventories available for sale.
     Capital Structure and Financial Resources
     At December 31, 2007, our long-term debt consisted of $575.0 million in 3.0% convertible senior notes due October 1, 2014 and $150.0 million of 6.75% senior notes due January 20, 2009. These notes are unsecured obligations and rank on a parity with all of our other unsecured and unsubordinated indebtedness. We may, from time to time, purchase our outstanding 6.75% senior notes for cash in open market purchases and/or privately negotiated transactions. We will evaluate any such transactions in light of then existing market conditions, taking into account our current liquidity and prospects for future access to capital. The amounts involved in any such transactions, individually or in the aggregate, may be material. Our debt to total capitalization ratio was 36% at December 31, 2007 and 13% at December 31, 2006.
     In August 2005, we entered into a five-year, syndicated bank credit facility, providing up to $400.0 million in revolving credit commitments, including up to $300.0 million in letters of credit, secured by assets of USEC Inc. and our subsidiaries. The credit facility is available to finance working capital needs, refinance existing debt and fund capital programs, including the American Centrifuge project. Borrowings under the facility are subject to limitations based on established percentages of eligible accounts receivable and inventory. Financing costs of $3.5 million related to the facility were deferred and amortized over the five-year life.
     Utilization of the revolving credit facility at December 31, 2007 and December 31, 2006 follows (in millions):
 	 	 	 	 	 	 	 	 	
 	 	December 31,	
 	 	2007	 	2006	
Short-term borrowings	 	$	—	 	 	$	—	 	
Letters of credit	 	 	38.4	 	 	 	35.8	 	
Available credit	 	 	361.6	 	 	 	346.2	 	
     Borrowings under the credit facility 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, and will fluctuate during the quarter. Qualifying assets are reduced by certain reserves, principally a reserve for future obligations to DOE with respect to the turnover of the gaseous diffusion plants at the end of the term of the lease of these facilities. As a result of the capital we raised from the issuance of common stock and convertible notes in September 2007, qualifying assets are no longer reduced by a $150.0 million reserve referred to in the agreement as the “senior note reserve”.
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     The revolving credit facility contains various reserve provisions that reduce available borrowings under the facility periodically or restrict the use of borrowings, including covenants that can periodically limit us to $50.0 million in capital expenditures based on available liquidity levels. Other reserves under the revolving credit facility, such as availability reserves and borrowing base reserves, are customary for credit facilities of this type.
     Outstanding borrowings under the facility bear interest at a variable rate equal to, based on our election, either:
 	•	 	the sum of (1) the greater of the JPMorgan Chase Bank prime rate and the federal funds rate plus1/2 of 1% plus (2) a margin ranging from 0.25% to 0.75% based upon collateral availability, or	
 	 	 	 	
 	•	 	the sum of LIBOR plus a margin ranging from 2.0% to 2.5% based on collateral availability.	
     The revolving 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 inventory, and payment of dividends or other distributions. Failure to satisfy the covenants would constitute an event of default under the revolving credit facility. As of December 31, 2007, we were in compliance with all of the covenants. In September 2007, the revolving credit facility was amended to specifically permit the issuance of our convertible senior notes, and any conversion of the convertible senior notes into common stock.
     Our current credit ratings are as follows:
 	 	 	 	 	
 	 	Standard & Poor's	 	Moody's	
Corporate credit/family rating
3.0% convertible senior notes
6.75% senior notes
Outlook
	 	B-
CCC
CCC
Negative	 	B3
unrated
Caa2
Negative	
     We do not have any debt obligations that are accelerated or in which interest rates increase in the event of a credit rating downgrade, although reductions in our credit ratings may increase the cost and reduce the availability of financing to us in the future.
     Even with the proceeds of our securities issuance in September 2007, we will still need to raise a significant amount of additional capital to complete the American Centrifuge project. Under our current schedule and anticipating the additional maturity and progress of the project, we expect that we will seek to raise debt in late 2008.
     We have been pursuing the possibility of U.S. government loan guarantees under authorized programs to support financing of the American Centrifuge. We have been an active participant in these programs, submitting a pre-application in December 2006 and also provided feedback to DOE in response to its Notice of Proposed Rulemaking for the loan guarantee program. In October 2007, DOE finalized its regulations for the program. DOE also invited 16 non-nuclear projects to submit full applications for a loan guarantee. The American Centrifuge project was not among those invited to submit a full application at that time. However, in December 2007, federal legislation authorized funding levels for the program, including up to $2 billion for advanced facilities for the front end of the nuclear fuel cycle, which includes uranium enrichment. We expect to apply for a guarantee under the program when DOE requests applications, which we expect to be later this year.
     If further progress is not made on a loan guarantee program, or we are not successful obtaining a loan guarantee, we expect to seek to obtain financing from the debt markets. However, the availability of public market financing for a large capital project such as American Centrifuge is extremely limited in the current market environment.
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     Financial Assurances 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 coming year. The financial assurance requirements for 2008, principally the amount associated with disposition of depleted uranium, total $188.3 million, or $33.6 million greater than 2007. The increase primarily reflects an increase in the quantity of depleted uranium, and to a lesser extent, an increase in the unit disposition cost. The unit disposition cost for purposes of the financial assurance requirement includes additional contingencies and other potential costs to meet NRC requirements. The financial assurance requirements for 2008 are covered by a combination of a $24.1 million letter of credit and $164.2 million under surety bonds. The amount of financial assurance needed in the future could increase by an estimated $30 to $40 million per year depending on production volumes and the estimated unit disposition cost defined by the NRC requirement.
     The liability for the disposition of depleted uranium generated to date, included in long-term liabilities, increased $26.8 million to $98.3 million at December 31, 2007, compared with December 31, 2006. The increase primarily reflects depleted uranium generated in 2007 and, to a lesser extent, an increase in the estimated unit disposition cost. 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.
     Financial assurances are also provided for the ultimate decontamination and decommissioning (“D&D”) of the American Centrifuge facilities. At the conclusion of the 36-year lease period in 2043, assuming no further extensions, we are obligated to return these leased facilities to DOE in a condition that meets NRC requirements and in the same condition as the facilities were in when they were leased to us (other than due to normal wear and tear). We are required to provide financial assurance to the NRC incrementally based on facility construction and centrifuge installation achieved to date as well as anticipated in the coming year. We are also required to provide financial assurance to DOE in an amount equal to our current estimate of costs to comply with lease turnover requirements, less the amount of financial assurance required of us by the NRC for decommissioning. As of December 31, 2007, we have provided financial assurance to the NRC and DOE in the form of surety bonds totaling $41.6 million that supports estimated construction progress through May 2008. The surety bonds are partially collateralized with interest-earning cash deposits.
     USEC’s financial assurance requirements will increase commensurate with facility construction and operations and our projection of activity for the following year. 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 current estimate of the total cost related to NRC requirements is $317.7 million in 2006 dollars, and the projected total incremental lease turnover cost related to DOE is estimated to be $27.6 million in 2006 dollars. We anticipate adding approximately $42 million of financial assurance during 2008, as construction progresses, through issuance of surety bonds, partially collateralized with interest-earning cash deposits. By the end of 2009, the total amount of D&D-related financial assurance for facility construction and centrifuge installation could be roughly $230 million. Financial assurance will also be required for the disposition of depleted uranium generated from future centrifuge operations.
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     The differences in recording our long-term liability for depleted uranium disposition and asset retirement obligation compared to the financial assurance amounts are more fully explained in note 12 of the notes to the consolidated financial statements.
     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 assurances, related liabilities and cash collateral follows (in millions):
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	
Depleted Uranium:	 	 	 	 	 	 	 	 	
Long-term liability for depleted uranium disposition	 	$	98.3	 	 	$	71.5	 	

Financial assurance primarily for depleted uranium:	 	 	 	 	 	 	 	 	
Letters of credit	 	$	24.1	 	 	$	24.1	 	
Surety bonds	 	 	164.2	 	 	 	130.6	 	
 	 	 	 	 	 	 	
Total financial assurance for depleted uranium	 	$	188.3	 	 	$	154.7	 	

Decontamination and decommissioning (“D&D”) of American Centrifuge:	 	 	 	 	 	 	 	 	
Long-term liability for asset retirement obligation	 	$	4.4	 	 	$	8.8	 	

Financial assurance related to D&D:	 	 	 	 	 	 	 	 	
Letters of credit	 	$	—	 	 	$	—	 	
Surety bonds	 	 	41.6	 	 	 	8.8	 	
 	 	 	 	 	 	 	
Total financial assurance related to D&D	 	$	41.6	 	 	$	8.8	 	

Other financial assurance:	 	 	 	 	 	 	 	 	
Letters of credit	 	$	14.3	 	 	$	11.7	 	
Surety bonds	 	 	2.2	 	 	 	3.6	 	
 	 	 	 	 	 	 	
Total other financial assurance	 	$	16.5	 	 	$	15.3	 	

Total financial assurance:	 	 	 	 	 	 	 	 	
Letters of credit	 	$	38.4	 	 	$	35.8	 	
Surety bonds	 	 	208.0	 	 	 	143.0	 	
 	 	 	 	 	 	 	
Total financial assurance	 	$	246.4	 	 	$	178.8	 	

Cash collateral deposit for surety bonds	 	$	97.0	 	 	$	60.8	 	
 	 	 	 	 	 	 	
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     Contractual Commitments
     USEC had contractual commitments at December 31, 2007, estimated as follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	2009 —	 	 	2011 —	 	 	 	 	 	 	 	
 	 	2008	 	 	2010	 	 	2012	 	 	Thereafter	 	 	Total	 	
Financing (1):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt	 	$	—	 	 	$	150.0	 	 	$	—	 	 	$	575.0	 	 	$	725.0	 	
Interest on long-term debt	 	 	27.5	 	 	 	39.6	 	 	 	34.5	 	 	 	34.5	 	 	 	136.1	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	27.5	 	 	 	189.6	 	 	 	34.5	 	 	 	609.5	 	 	 	861.1	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchase Commitments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Power for the Paducah GDP (2)	 	 	508.2	 	 	 	1,029.5	 	 	 	712.4	 	 	 	—	 	 	 	2,250.1	 	
SWU and uranium for resale (3)	 	 	599.5	 	 	 	1,329.0	 	 	 	1,480.7	 	 	 	695.4	 	 	 	4,104.6	 	
American Centrifuge (4)	 	 	38.9	 	 	 	43.1	 	 	 	37.2	 	 	 	—	 	 	 	119.2	 	
Other (5)	 	 	19.4	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	19.4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	1,166.0	 	 	 	2,401.6	 	 	 	2,230.3	 	 	 	695.4	 	 	 	6,493.3	 	

Expected payments on operating leases	 	 	7.4	 	 	 	12.1	 	 	 	9.1	 	 	 	64.3	 	 	 	92.9	 	
Other long-term liabilities (6)	 	 	12.4	 	 	 	64.8	 	 	 	10.3	 	 	 	250.0	 	 	 	337.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	1,213.3	 	 	$	2,668.1	 	 	$	2,284.2	 	 	$	1,619.2	 	 	$	7,784.8	 	

 	 	 	
(1)	 	The 6.750% senior notes amounting to $150.0 million are due January 20, 2009, and the 3.0% convertible senior notes amounting to $575.0 million are due October 1, 2014, assuming no conversion to shares of common stock.	
 	 	 	
(2)	 	Capacity under the TVA power purchase agreement is fixed. Prices are subject to monthly fuel cost adjustments to reflect changes in TVA’s fuel costs, purchased power costs, and related costs.	
 	 	 	
(3)	 	Commitments to purchase SWU and uranium for resale include commitments to purchase SWU under the Russian Contract and to purchase uranium from suppliers. Prices under the Russian Contract are determined using a discount from an index of international and U.S. price points, including both long-term and spot prices. A multi-year retrospective view of the index is used to minimize the disruptive effect of any short-term price swings. Actual amounts will vary based on changes in the price points.	
 	 	 	
(4)	 	Supply agreements for the purchase of materials, goods and services for the manufacture of centrifuge machines to be used in the American Centrifuge Plant. Prices for minimum purchase commitments above are subject to adjustment for inflation. Contractual provisions for termination payments total $47 million for these agreements.	
 	 	 	
(5)	 	Purchase commitments are enforceable and legally binding and consist of purchase orders or contracts issued to vendors and suppliers to procure materials and services.	
 	 	 	
(6)	 	Other long-term liabilities reported on the balance sheet include pension benefit obligations and postretirement health and life benefit obligations amounting to $153.6 million, accrued depleted uranium disposition costs of $98.3 million, the long-term portion of accrued lease turnover costs of $52.2 million and the liability for unrecognized tax benefits of $10.8 million.	
     Off-Balance Sheet Arrangements
     In December 2006, DOE signed an agreement with us licensing U.S. gas centrifuge technology to USEC for use in building new domestic uranium enrichment capacity. We will pay royalties to the U.S. government on annual revenues from sales of LEU produced in the American Centrifuge Plant. The royalty ranges from 1% to 2% of annual gross revenue from these sales. Payments are capped at $100 million over the life of the technology license. Other than the letters of credit issued under the credit facility, the surety bonds and certain contractual commitments discussed above, there were no material off-balance sheet arrangements, obligations, or other relationships at December 31, 2007 or 2006.
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Environmental Matters
     In addition to estimated costs for the future disposition of depleted uranium, we incur costs for matters relating to compliance with environmental laws and regulations, including the handling, treatment and disposal of hazardous, low-level radioactive and mixed wastes generated as a result of its operations. Environmental liabilities associated with GDP operations prior to July 28, 1998, are the responsibility of the U.S. government, except for liabilities relating to certain identified wastes generated by us and stored at the GDPs. DOE remains responsible for decontamination and decommissioning of the GDPs. Operating costs for environmental compliance, including estimated costs relating to the future disposition of depleted uranium, amounted to $44.9 million in 2007, $32.2 million in 2006, and $32.3 million in 2005.
     USEC and certain federal agencies were identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, for a site in Barnwell, South Carolina, previously operated by Starmet CMI (“Starmet”), one of our former contractors. In February 2004, we entered into an agreement with the U.S. Environmental Protection Agency (“EPA”) to clean up certain areas at Starmet’s Barnwell site. Under the agreement, we were responsible for removing certain material from the site that was attributable to quantities of depleted uranium we had sent to the site. In December 2005, the EPA confirmed that we completed our clean-up obligations under the agreement.
     In June 2007, the EPA notified us that the agency had spent approximately $7.6 million in its remediation of retention ponds at the Barnwell site. The EPA indicated verbally that it would seek reimbursement of this amount from us and the federal agencies that had previously been identified as potentially responsible parties. It further suggested that our share of the reimbursement expense would be approximately $3.2 million. Based on this information, we accrued a current liability of $3.2 million in the second quarter of 2007. However, based on ongoing discussions with the EPA, we now believe the actual amount of our liability is in the range of $1.0 million to $3.2 million.
New Accounting Standards Not Yet Implemented
     Reference is made to new accounting standards not yet implemented in note 1 of the notes to the consolidated financial statements for information on new accounting standards.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
     At December 31, 2007, the balance sheet carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and payables under the Russian Contract approximate fair value because of the short-term nature of the instruments.
     We have not entered into financial instruments for trading purposes. At December 31, 2007, the fair value of our debt and related balance sheet carrying amounts follow (in millions):
 	 	 	 	 	 	 	 	 	
 	 	Balance Sheet	 	 	Fair	 	
 	 	Carrying Amount	 	 	Value	 	
Debt:	 	 	 	 	 	 	 	 	
6.75% senior notes due January 20, 2009	 	$	150.0	 	 	$	142.7	 	
3.0% convertible senior notes due October 1, 2014	 	 	575.0	 	 	 	568.0	 	
 	 	 	 	 	 	 	
 	 	$	725.0	 	 	$	710.7	 	
 	 	 	 	 	 	 	
     The fair value of the 6.75% senior notes is based on a credit-adjusted spread over U.S. Treasury securities with similar maturities and the fair value of the 3.0% convertible senior notes is based on quoted market prices.
     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” and “Results of Operations — Cost of Sales”),	
 	 	 	 	
 	•	 	commodity price risk for raw materials needed for construction of the American Centrifuge Plant, that could affect the overall cost of the project (refer to Item 1A. Risk Factors —  Cost increases and uncertainty regarding the costs of the American Centrifuge Plant could adversely affect our ability to finance and deploy the American Centrifuge Plant. ), and	
 	 	 	 	
 	•	 	interest rate risk relating to any outstanding borrowings at variable interest rates under the $400.0 million revolving credit agreement (refer to “Liquidity and Capital Resources — Capital Structure and Financial Resources”).	
Item 8. Consolidated Financial Statements and Supplementary Data
     Our consolidated financial statements, together with related notes and the report of PricewaterhouseCoopers LLP, our independent registered public accounting firm, are set forth on the pages indicated in Part IV, Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
     None.
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Item 9A. Controls and Procedures
     Disclosure Controls and Procedures
     USEC maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by USEC in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
     As of the end of the period covered by this report, USEC carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date of, this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that disclosure controls and procedures were effective.
     Management’s Annual Report on Internal Control Over Financial Reporting
     USEC’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) and for an assessment of the effectiveness of internal control over financial reporting. USEC’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
     A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     Management assessed the effectiveness of USEC’s internal control over financial reporting as of December 31, 2007, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2007.
     The effectiveness of USEC’s internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
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     Changes in Internal Control Over Financial Reporting
     There have not been any changes in internal control over financial reporting during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, USEC’s internal control over financial reporting.
Item 9B. Other Information
     None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
     Certain information regarding executive officers is included in Part I of this annual report. Additional information concerning directors, executive officers and corporate governance is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the annual meeting of shareholders scheduled to be held on April 24, 2008.
Item 11. Executive Compensation
     Information concerning management compensation is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the annual meeting of shareholders scheduled to be held on April 24, 2008.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
     Information concerning security ownership of certain beneficial owners and management and related stockholder matters is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the annual meeting of shareholders scheduled to be held on April 24, 2008.
Item 13. Certain Relationships and Related Transactions, and Director Independence
     Information concerning certain relationships and related transactions and director independence is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the annual meeting of shareholders scheduled to be held on April 24, 2008.
Item 14. Principal Accountant Fees and Services
     Information concerning principal accountant fees and services is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the annual meeting of shareholders scheduled to be held on April 24, 2008.
87

 
PART IV
Item 15. Exhibits and Financial Statement Schedules
 	(a)	 	(1) Consolidated Financial Statements	
 	 	 	 	
 	 	 	Reference is made to the consolidated financial statements appearing elsewhere in this annual report.	
 	 	 	 	
 	 	 	(2) Financial Statement Schedules	
 	 	 	 	
 	 	 	No financial statement schedules are required to be filed as part of this annual report.	
 	 	 	 	
 	 	 	(3) Exhibits	
 	 	 	 	
 	 	 	The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report and such Exhibit Index is incorporated herein by reference. The accompanying Exhibit Index identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report, and such listing is incorporated herein by reference.	
88

 
SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) 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.
 	 	
February 26, 2008 	/s/ John K. Welch  	 	
 	John K. Welch 	 	
 	President and Chief Executive Officer 	 	
 	
     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.
 	 	 	 	 	
Signature	 	Title	 	Date	
 	 	 	 	 	
/s/ John K. Welch
  John K. Welch	 	President and Chief Executive Officer
(Principal Executive Officer) and Director	 	February 26, 2008	
 	 	 	 	 	
/s/ John C. Barpoulis
  John C. Barpoulis	 	Senior Vice President and Chief Financial Officer
(Principal Financial Officer)	 	February 26, 2008	
 	 	 	 	 	
/s/ J. Tracy Mey
  J. Tracy Mey	 	Controller and Chief Accounting Officer
(Principal Accounting Officer)	 	February 26, 2008	
 	 	 	 	 	
/s/ James R. Mellor
  James R. Mellor	 	Chairman of the Board 	 	February 26, 2008	
 	 	 	 	 	
/s/ Michael H. Armacost
  Michael H. Armacost	 	Director 	 	February 26, 2008	
 	 	 	 	 	
/s/ Joyce F. Brown
  Joyce F. Brown	 	Director 	 	February 26, 2008	
 	 	 	 	 	
/s/ Joseph T. Doyle
  Joseph T. Doyle	 	Director 	 	February 26, 2008	
 	 	 	 	 	
/s/ H. William Habermeyer
  H. William Habermeyer	 	Director 	 	February 26, 2008	
 	 	 	 	 	
/s/ John R. Hall
  John R. Hall	 	Director 	 	February 26, 2008	
 	 	 	 	 	
/s/ William J. Madia
  William J. Madia	 	Director 	 	February 26, 2008	
 	 	 	 	 	
/s/ W. Henson Moore
  W. Henson Moore	 	Director 	 	February 26, 2008	
 	 	 	 	 	
/s/ Joseph F. Paquette, Jr.
  Joseph F. Paquette, Jr.	 	Director 	 	February 26, 2008	
89

 
USEC Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 	 	 	
 	 	Page	
 	 	 	
Report of Independent Registered Public Accounting Firm	 	91	
 	 	 	
Consolidated Balance Sheets	 	92	
 	 	 	
Consolidated Statements of Income	 	93	
 	 	 	
Consolidated Statements of Cash Flows	 	94	
 	 	 	
Consolidated Statements of Stockholders’ Equity	 	95	
 	 	 	
Notes to Consolidated Financial Statements	 	96 – 127	
90

 
Report of Independent Registered Public Accounting Firm
To Board of Directors and Stockholders of USEC Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of USEC Inc. and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in  Internal Control — Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 15 to the consolidated financial statements, the Company changed the manner in which it accounts for stock based compensation as of January 1, 2006. As discussed in Note 14 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit pension and other postretirement plans as of December 31, 2006. As discussed in Note 6 to the consolidated financial statements, the Company changed the manner in which it accounts for income taxes as of January 1, 2007.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
McLean, Virginia
February 22, 2008
91

 
USEC Inc.
CONSOLIDATED BALANCE SHEETS
(millions, except share and per share data)
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	
ASSETS	 	 	 	 	 	 	 	 	
Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	886.1	 	 	$	171.4	 	
Accounts receivable — trade	 	 	252.9	 	 	 	215.9	 	
Inventories:	 	 	 	 	 	 	 	 	
Separative work units	 	 	677.3	 	 	 	701.7	 	
Uranium	 	 	465.9	 	 	 	189.1	 	
Materials and supplies	 	 	10.2	 	 	 	9.2	 	
 	 	 	 	 	 	 	
Total Inventories	 	 	1,153.4	 	 	 	900.0	 	
Deferred income taxes	 	 	49.5	 	 	 	24.0	 	
Other current assets	 	 	88.7	 	 	 	97.8	 	
 	 	 	 	 	 	 	
Total Current Assets	 	 	2,430.6	 	 	 	1,409.1	 	
Property, Plant and Equipment, net	 	 	292.2	 	 	 	189.9	 	
Other Long-Term Assets	 	 	 	 	 	 	 	 	
Deferred income taxes	 	 	180.1	 	 	 	156.2	 	
Deposit for surety bonds	 	 	97.0	 	 	 	60.8	 	
Pension asset	 	 	67.1	 	 	 	13.8	 	
Inventories	 	 	—	 	 	 	24.2	 	
Bond financing costs, net	 	 	13.8	 	 	 	—	 	
Goodwill	 	 	6.8	 	 	 	6.8	 	
Intangibles	 	 	0.2	 	 	 	0.6	 	
 	 	 	 	 	 	 	
Total Other Long-Term Assets	 	 	365.0	 	 	 	262.4	 	
 	 	 	 	 	 	 	
Total Assets	 	$	3,087.8	 	 	$	1,861.4	 	
 	 	 	 	 	 	 	
LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	
Current Liabilities	 	 	 	 	 	 	 	 	
Accounts payable and accrued liabilities	 	$	162.2	 	 	$	129.1	 	
Payables under Russian Contract	 	 	112.2	 	 	 	105.3	 	
Inventories owed to customers and suppliers	 	 	322.3	 	 	 	56.9	 	
Deferred revenue and advances from customers	 	 	119.1	 	 	 	133.8	 	
 	 	 	 	 	 	 	
Total Current Liabilities	 	 	715.8	 	 	 	425.1	 	
Long-Term Debt	 	 	725.0	 	 	 	150.0	 	
Other Long-Term Liabilities	 	 	 	 	 	 	 	 	
Depleted uranium disposition	 	 	98.3	 	 	 	71.5	 	
Postretirement health and life benefit obligations	 	 	130.6	 	 	 	128.7	 	
Pension benefit liabilities	 	 	23.0	 	 	 	20.2	 	
Other liabilities	 	 	85.6	 	 	 	79.9	 	
 	 	 	 	 	 	 	
Total Other Long-Term Liabilities	 	 	337.5	 	 	 	300.3	 	
Commitments and Contingencies (Note 13)	 	 	 	 	 	 	 	 	
Stockholders’ Equity	 	 	 	 	 	 	 	 	
Preferred stock, par value $1.00 per share, 25,000,000 shares authorized, none issued	 	 	—	 	 	 	—	 	
Common stock, par value $.10 per share, 250,000,000 shares authorized, 123,320,000 and 100,320,000 shares issued	 	 	12.3	 	 	 	10.0	 	
Excess of capital over par value	 	 	1,186.2	 	 	 	970.6	 	
Retained earnings	 	 	215.2	 	 	 	137.5	 	
Treasury stock, 12,741,000 and 13,178,000 shares	 	 	(92.9	)	 	 	(95.5	)	
Accumulated other comprehensive loss, net of tax	 	 	(11.3	)	 	 	(36.6	)	
 	 	 	 	 	 	 	
Total Stockholders’ Equity	 	 	1,309.5	 	 	 	986.0	 	
 	 	 	 	 	 	 	
Total Liabilities and Stockholders’ Equity	 	$	3,087.8	 	 	$	1,861.4	 	
 	 	 	 	 	 	 	
See notes to consolidated financial statements.
92

 
USEC Inc.
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share data)
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	
Separative work units	 	$	1,570.5	 	 	$	1,337.4	 	 	$	1,085.6	 	
Uranium	 	 	163.5	 	 	 	316.7	 	 	 	261.3	 	
U.S. government contracts and other	 	 	194.0	 	 	 	194.5	 	 	 	212.4	 	
 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	1,928.0	 	 	 	1,848.6	 	 	 	1,559.3	 	
 	 	 	 	 	 	 	 	 	 	
Cost of sales:	 	 	 	 	 	 	 	 	 	 	 	 	
Separative work units and uranium	 	 	1,473.6	 	 	 	1,349.2	 	 	 	1,148.4	 	
U.S. government contracts and other	 	 	166.9	 	 	 	162.5	 	 	 	181.4	 	
 	 	 	 	 	 	 	 	 	 	
Total cost of sales	 	 	1,640.5	 	 	 	1,511.7	 	 	 	1,329.8	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	287.5	 	 	 	336.9	 	 	 	229.5	 	
Special charges	 	 	—	 	 	 	3.9	 	 	 	7.3	 	
Advanced technology costs	 	 	127.3	 	 	 	105.5	 	 	 	94.5	 	
Selling, general and administrative	 	 	45.3	 	 	 	48.8	 	 	 	61.9	 	
Other (income)	 	 	—	 	 	 	—	 	 	 	(1.0	)	
 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	114.9	 	 	 	178.7	 	 	 	66.8	 	
Interest expense	 	 	16.9	 	 	 	14.5	 	 	 	40.0	 	
Interest (income)	 	 	(33.8	)	 	 	(6.2	)	 	 	(10.5	)	
 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	131.8	 	 	 	170.4	 	 	 	37.3	 	
Provision for income taxes	 	 	35.2	 	 	 	64.2	 	 	 	15.0	 	
 	 	 	 	 	 	 	 	 	 	
Net income	 	$	96.6	 	 	$	106.2	 	 	$	22.3	 	
 	 	 	 	 	 	 	 	 	 	
Net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	1.04	 	 	$	1.22	 	 	$	.26	 	
Diluted	 	$	.94	 	 	$	1.22	 	 	$	.26	 	
Weighted average number of shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	93.0	 	 	 	86.6	 	 	 	86.1	 	
Diluted	 	 	105.8	 	 	 	86.8	 	 	 	86.6	 	
Dividends per share	 	$	—	 	 	$	—	 	 	$	.55	 	
See notes to consolidated financial statements.
93

 
USEC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
Cash Flows From Operating Activities	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	96.6	 	 	$	106.2	 	 	$	22.3	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	39.5	 	 	 	36.7	 	 	 	35.0	 	
Deferred income taxes	 	 	(40.6	)	 	 	(13.4	)	 	 	(43.2	)	
Impairment of intangible asset	 	 	—	 	 	 	2.6	 	 	 	—	 	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable — (increase) decrease	 	 	(37.0	)	 	 	40.8	 	 	 	(18.2	)	
Inventories — net (increase) decrease	 	 	36.2	 	 	 	176.1	 	 	 	76.3	 	
Payables under Russian Contract — increase (decrease)	 	 	6.9	 	 	 	(6.3	)	 	 	21.9	 	
Deferred revenue, net of deferred costs — increase (decrease)	 	 	5.1	 	 	 	(3.7	)	 	 	42.0	 	
Accrued depleted uranium disposition	 	 	26.8	 	 	 	24.5	 	 	 	19.8	 	
Accounts payable and other liabilities — increase (decrease)	 	 	(25.1	)	 	 	(82.1	)	 	 	26.2	 	
Other, net	 	 	0.8	 	 	 	(3.3	)	 	 	6.8	 	
 	 	 	 	 	 	 	 	 	 	
Net Cash Provided by Operating Activities	 	 	109.2	 	 	 	278.1	 	 	 	188.9	 	

Cash Flows Used in Investing Activities	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(137.2	)	 	 	(44.8	)	 	 	(26.3	)	
Deposits for surety bonds	 	 	(33.2	)	 	 	(34.8	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	
Net Cash (Used in) Investing Activities	 	 	(170.4	)	 	 	(79.6	)	 	 	(26.3	)	

Cash Flows Provided by (Used in) Financing Activities	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings under credit facility	 	 	75.1	 	 	 	133.8	 	 	 	4.7	 	
Repayments under credit facility	 	 	(75.1	)	 	 	(133.8	)	 	 	(4.7	)	
Repayment and repurchases of senior notes, including premiums	 	 	—	 	 	 	(288.8	)	 	 	(36.3	)	
Tax benefit related to stock-based compensation	 	 	0.9	 	 	 	0.4	 	 	 	—	 	
Proceeds from issuance of convertible senior notes	 	 	575.0	 	 	 	—	 	 	 	—	 	
Payments made for deferred financing costs	 	 	(14.3	)	 	 	(0.3	)	 	 	(3.5	)	
Common stock issued, net of issuance costs	 	 	214.3	 	 	 	2.5	 	 	 	8.8	 	
Dividends paid to stockholders	 	 	—	 	 	 	—	 	 	 	(47.3	)	
 	 	 	 	 	 	 	 	 	 	
Net Cash Provided by (Used in) Financing Activities	 	 	775.9	 	 	 	(286.2	)	 	 	(78.3	)	
 	 	 	 	 	 	 	 	 	 	
Net Increase (Decrease)	 	 	714.7	 	 	 	(87.7	)	 	 	84.3	 	
Cash and Cash Equivalents at Beginning of Period	 	 	171.4	 	 	 	259.1	 	 	 	174.8	 	
 	 	 	 	 	 	 	 	 	 	
Cash and Cash Equivalents at End of Period	 	$	886.1	 	 	$	171.4	 	 	$	259.1	 	

Supplemental Cash Flow Information	 	 	 	 	 	 	 	 	 	 	 	 	
Interest paid	 	$	6.9	 	 	$	19.3	 	 	$	32.6	 	
Income taxes paid	 	 	101.9	 	 	 	107.3	 	 	 	38.7	 	
See notes to consolidated financial statements.
94

 
USEC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions, except per share data)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Common	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	 	 	 	
 	 	Stock,	 	 	Excess of	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Other	 	 	 	 	 	 	 	
 	 	Par Value	 	 	Capital	 	 	 	 	 	 	 	 	 	 	Deferred	 	 	Compre-	 	 	Total	 	 	Compre-	 	
 	 	$.10 per	 	 	over	 	 	Retained	 	 	Treasury	 	 	Comp-	 	 	hensive	 	 	Stockholders’	 	 	hensive	 	
 	 	Share	 	 	Par Value	 	 	Earnings	 	 	Stock	 	 	ensation	 	 	Income (Loss)	 	 	Equity	 	 	Income (Loss)	 	
Balance at December 31, 2004	 	$	10.0	 	 	$	963.9	 	 	$	56.3	 	 	$	(109.2	)	 	$	(1.6	)	 	$	(0.7	)	 	$	918.7	 	 	 	 	 	
Common stock issued:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from exercise of stock options	 	 	—	 	 	 	0.3	 	 	 	—	 	 	 	5.1	 	 	 	—	 	 	 	—	 	 	 	5.4	 	 	 	—	 	
Restricted and other stock issued, net of amortization	 	 	—	 	 	 	6.4	 	 	 	—	 	 	 	4.6	 	 	 	(1.1	)	 	 	—	 	 	 	9.9	 	 	 	—	 	
Dividends paid to stockholders	 	 	—	 	 	 	—	 	 	 	(47.3	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(47.3	)	 	 	—	 	
Minimum pension liability, net of income tax benefit of $0.9 million	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1.4	)	 	 	(1.4	)	 	 	(1.4	)	
Net income	 	 	—	 	 	 	—	 	 	 	22.3	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	22.3	 	 	 	22.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2005	 	 	10.0	 	 	 	970.6	 	 	 	31.3	 	 	 	(99.5	)	 	 	(2.7	)	 	 	(2.1	)	 	 	907.6	 	 	$	20.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common stock issued:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from exercise of stock options	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2.1	 	 	 	—	 	 	 	—	 	 	 	2.1	 	 	 	—	 	
Restricted and other stock issued, net of amortization	 	 	—	 	 	 	2.7	 	 	 	—	 	 	 	1.9	 	 	 	—	 	 	 	—	 	 	 	4.6	 	 	 	—	 	
Eliminate deferred compensation under SFAS No. 123(R)	 	 	—	 	 	 	(2.7	)	 	 	—	 	 	 	—	 	 	 	2.7	 	 	 	—	 	 	 	—	 	 	 	—	 	
Reduction in minimum pension liability, net of income tax of $0.5 million	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1.1	 	 	 	1.1	 	 	 	1.1	 	
Recognition of funding status of retirement plans under SFAS No. 158, net of income tax benefit of $26.9 million	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(35.6	)	 	 	(35.6	)	 	 	—	 	
Net income	 	 	—	 	 	 	—	 	 	 	106.2	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	106.2	 	 	 	106.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2006	 	 	10.0	 	 	 	970.6	 	 	 	137.5	 	 	 	(95.5	)	 	 	—	 	 	 	(36.6	)	 	 	986.0	 	 	$	107.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Implementation of FIN 48, net of income tax benefit of $7.5 million (Note 6)	 	 	—	 	 	 	—	 	 	 	(18.9	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(18.9	)	 	 	—	 	
Common stock issued:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from issuance of common stock	 	 	2.3	 	 	 	211.5	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	213.8	 	 	 	—	 	
Proceeds from exercise of stock options	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.8	 	 	 	—	 	 	 	—	 	 	 	0.8	 	 	 	—	 	
Restricted and other stock issued, net of amortization	 	 	—	 	 	 	4.1	 	 	 	—	 	 	 	1.8	 	 	 	—	 	 	 	—	 	 	 	5.9	 	 	 	—	 	
Amortization of actuarial losses and prior service costs (credits) and valuation revisions, net of income tax of $14.8 million	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	25.3	 	 	 	25.3	 	 	 	25.3	 	
Net income	 	 	—	 	 	 	—	 	 	 	96.6	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	96.6	 	 	 	96.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2007	 	$	12.3	 	 	$	1,186.2	 	 	$	215.2	 	 	$	(92.9	)	 	$	—	 	 	$	(11.3	)	 	$	1,309.5	 	 	$	121.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See notes to consolidated financial statements.
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USEC Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
     USEC Inc. (“USEC”) is a global energy company and is a leading supplier of low enriched uranium (“LEU”) for commercial nuclear power plants.
     Customers typically provide uranium to us as part of their enrichment contracts. Customers are billed for the separative work units (“SWU”) deemed to be contained in the LEU delivered to them. SWU is a standard unit of measurement that represents the effort required to transform a given amount of uranium into two streams: enriched uranium having a higher percentage of U 235  and depleted uranium having a lower percentage of U 235 . The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment.
Consolidation
     The consolidated financial statements include the accounts of USEC Inc., its principal subsidiary, United States Enrichment Corporation, and its other subsidiaries including NAC International Inc. (“NAC”). All material intercompany transactions are eliminated. Certain amounts in the notes to the consolidated financial statements have been reclassified to conform with the current presentation.
Cash and Cash Equivalents
     Cash and cash equivalents include temporary cash investments with original maturities of three months or less.
Inventories
     Inventories of SWU and uranium are valued at the lower of cost or market. Market is based on the terms of long-term contracts with customers, and, for uranium not under contract, market is based primarily on published long-term price indicators at the balance sheet date. SWU and uranium inventory costs are determined using the monthly moving average cost method.
     SWU costs are based on production costs at the plants and purchase costs under the Russian Contract. Production costs consist principally of electric power, labor and benefits, depleted uranium disposition cost estimates, materials, depreciation and amortization and maintenance and repairs. The cost of the SWU component of LEU purchased under the Russian Contract is recorded at acquisition cost plus related shipping costs.
     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. The quantity of uranium that is earned or added to uranium inventory from underfeeding is accounted for as a byproduct of the enrichment process. Production costs are allocated to the uranium earned based on the net realizable value of the uranium, and the remainder of production costs is allocated to SWU inventory costs.
Revenue
     Revenue is derived from sales of the SWU component of LEU, from sales of both the SWU and uranium components of LEU, and from sales of uranium. Revenue is recognized at the time LEU or uranium is delivered under the terms of contracts with domestic and international electric utility customers. USEC often advance ships LEU to nuclear fuel fabricators for scheduled or anticipated orders from utility customers. Based on customer orders, USEC generally arranges for the transfer of title of LEU from USEC to the customer for the specified quantity of LEU at the fuel fabricator. Revenue is recognized when delivery of LEU to the customer occurs at the fuel fabricator. Some customers take title and delivery of LEU at the Paducah plant, and revenue is recognized when delivery of LEU to the customer is complete.
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     Certain customers make advance payments to be applied against future orders or deliveries. Advances from customers are reported as deferred revenue, and revenue is recognized as LEU is delivered. Under SWU barter contracts, USEC exchanges SWU for uranium. Revenue from the sale of SWU under barter contracts is recognized at the time LEU is delivered and is based on the fair market value of the uranium received in exchange for SWU. Revenue from SWU barter contracts amounted to $50.8 million in 2007, $12.5 million in 2006, and $11.9 million in 2005.
     USEC performs contract work primarily for the U.S. Department of Energy (“DOE”) and DOE contractors. U.S. government contract revenue includes billings for fees and reimbursements for allowable costs that are determined in accordance with the terms of the underlying contracts. USEC records revenue as work is performed and as fees are earned. Amounts representing contract change orders or revised provisional billing rates are accrued and included in revenue when they can be reliably estimated and realization is probable. Revenues determined based on allowable costs include pension and other allocated costs that are determined in accordance with government cost accounting standards, whereas costs and expenses reflected in the financial statements are determined in accordance with generally accepted accounting principles. The final settlement of the allowable costs submitted for reimbursement is subject to audit by the Defense Contract Audit Agency (“DCAA”). DCAA has completed their review of the final settlement of allowable costs proposed by USEC for the fiscal year ended June 2002, with no significant findings or adjustment to the amounts USEC claimed. However, additional information was requested by DOE concerning costs related to a reduction in force during fiscal 2002. This information was supplied as requested. DCAA is currently in the process of reviewing the final settlement of the amounts USEC claims for the six months ended December 2002 and the years ended December 2003, 2004 and 2005. Revenue relevant to the reimbursement of allowable costs for subsequent years is also subject to the results of DCAA audits and reviews.
Advanced Technology Costs
     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 include Nuclear Regulatory Commission (“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.
     Capitalized costs relating to the American Centrifuge technology include NRC licensing of the American Centrifuge Plant in Piketon, Ohio, engineering activities, construction of centrifuge machines and equipment, leasehold improvements and other costs directly associated with the commercial plant. Capitalized centrifuge costs are recorded in property, plant and equipment as part of construction work in progress. Amounts capitalized include interest of $6.3 million in 2007, $3.1 million in 2006 and $0.7 million in 2005. The continued capitalization of costs is subject to ongoing review and successful project completion. USEC’s move from a demonstration phase to a commercial plant phase during the second half of 2007 in which significant expenditures are capitalized was based on management’s judgment that the technology has a high probability of commercial success and meets internal targets related to physical control, technical achievement and economic viability. If conditions change and deployment were no longer probable, costs that were previously capitalized would be charged to expense.
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     In 2002, USEC and DOE signed an agreement (“2002 DOE-USEC Agreement”) in which both USEC and DOE made long-term commitments directed at resolving issues related to the stability and security of the domestic uranium enrichment industry. Discussion of USEC’s commitments related to American Centrifuge project milestones under the 2002 DOE-USEC Agreement is provided in note 13.
Property, Plant and Equipment
     Construction work in progress is recorded at acquisition or construction cost. Upon being placed into service, costs are transferred to leasehold improvements or machinery and equipment at which time depreciation and amortization commences.
     USEC leases the Paducah gaseous diffusion plant (“GDP”) located in Paducah, Kentucky and the Portsmouth GDP located in Piketon, Ohio from DOE. Leasehold improvements and machinery and equipment are recorded at acquisition cost and depreciated on a straight line basis over the shorter of the useful life of the assets or the expected productive life of the plant, which is 2010 for the Paducah GDP commensurate with the existing lease agreement. Maintenance and repair costs are charged to production costs as incurred.
Lease Turnover Costs and Asset Retirement Obligations
     Property, plant and equipment assets related to the GDPs at December 31, 2007 are not subject to an asset retirement obligation. At the end of the lease, ownership of plant and equipment that USEC leaves at the GDPs transfers to DOE, and responsibility for decontamination and decommissioning of the GDPs remains with DOE. USEC estimates and accrues lease turnover costs. For the operating Paducah GDP, the balance of expected costs is being accrued over the expected productive life of the plant. Costs of returning the GDPs to DOE in acceptable condition include removing uranium deposits as required and removing USEC-generated waste. Liabilities for lease turnover costs are based on current-dollar cost estimates and are not discounted.
     USEC also leases facilities in Piketon, Ohio from DOE for the American Centrifuge Plant. USEC owns all capital improvements and, unless otherwise consented to by DOE, must remove them by the conclusion of the lease term. At the conclusion of the 36-year lease period in 2043, assuming no further extensions, USEC is obligated to return these leased facilities to DOE in a condition that meets NRC requirements and in the same condition as the facilities were in when they were leased to USEC (other than due to normal wear and tear).
     Decontamination and decommissioning requirements for the American Centrifuge Plant create an asset retirement obligation. As construction of the American Centrifuge Plant takes place, the present value of the related asset retirement obligation is recognized as a liability. An equivalent amount is recognized as part of the capitalized asset cost. The liability is accreted, or increased, over time for the time value of money. The accretion is charged to cost of sales in the LEU segment. Upon commencement of commercial operations, the asset cost will be depreciated over the shorter of the asset life or the expected lease period.
     During each reporting period, USEC reassesses and revises the estimate of the asset retirement obligation based on construction progress, cost evaluation of future decommissioning expectations, and other judgmental considerations which impact the amount recorded in both construction work in progress and other long-term liabilities.
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Long-Lived Assets
     USEC evaluates the carrying value of long-lived assets by performing impairment tests whenever adverse conditions or changes in circumstances indicate a possible impairment loss. Impairment tests are based on a comparison of estimated future cash flows to the carrying values of long-lived assets. If impairment is indicated, the asset carrying value is reduced to fair market value or, if fair market value is not readily available, the asset is reduced to a value determined by applying a discount rate to expected cash flows.
Environmental Costs
     Environmental costs relating to operations are accrued and charged to inventory costs as incurred. Estimated environmental costs, including depleted uranium disposition and waste disposal, are accrued where environmental assessments indicate that storage, treatment or disposal is probable and costs can be reasonably estimated. USEC stores depleted uranium at the Paducah and Portsmouth GDPs for future disposition. Changes in the estimated unit disposal cost result in charges to cost of sales for the accumulated quantity of depleted uranium. Liabilities for waste and depleted uranium disposition are based on current-dollar cost estimates and are not discounted.
Financial Instruments
     The balance sheet carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and payables under the Russian Contract approximate fair value because of the short-term nature of the instruments.
Concentrations of Credit Risk
     Credit risk could result from the possibility of a customer failing to perform or pay according to the terms of a contract. Extension of credit is based on an evaluation of each customer’s financial condition. USEC regularly monitors credit risk exposure and takes steps to mitigate the likelihood of such exposure resulting in a loss.
Stock-Based Compensation
     USEC has stock-based compensation plans available to grant restricted stock, restricted stock units, non-qualified stock options, performance awards and other stock-based awards to key employees and non-employee directors, as well as an employee stock purchase plan. USEC accounts for stock-based compensation under the fair value recognition provisions of Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Share-Based Payment”. Additional information is provided in note 15.
Deferred Income Taxes
     USEC follows the asset and liability approach to account for deferred income taxes. Deferred tax assets and liabilities are recognized for the anticipated future tax consequences of temporary differences between the balance sheet carrying amounts of assets and liabilities and their respective tax bases. Deferred income taxes are based on income tax rates in effect for the years in which temporary differences are expected to reverse. The effect on deferred income taxes of a change in income tax rates is recognized in income when the change in rates is enacted in the law. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets may not be realized.
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Use of Estimates
     The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts presented and disclosed in the consolidated financial statements. Significant estimates and judgments include, but are not limited to, pension and postretirement health and life benefit costs and obligations, costs for the conversion, transportation and disposition of depleted uranium, accounting treatment for expenditures on American Centrifuge, plant lease turnover costs, the tax bases of assets and liabilities, the future recoverability of deferred tax assets, and determination of the valuation allowance for deferred tax assets. Actual results may differ from such estimates, and estimates may change if the underlying conditions or assumptions change.
New Accounting Standards Not Yet Implemented
     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value when required or permitted under other accounting pronouncements, and expands the disclosures on fair value measurements. In February 2008, the FASB deferred SFAS No. 157 as it relates to non-financial assets and liabilities as defined. SFAS No. 157 will be effective beginning with USEC’s first quarter of 2008 for financial assets and liabilities and effective beginning with USEC’s first quarter of 2009 for non-financial assets and liabilities. USEC does not expect the initial adoption of SFAS No. 157 will have a material impact on its financial position or results of operations for the first quarter of 2008. USEC has not yet determined whether adoption of the statement will have a material effect on its financial position or results of operations for the first quarter of 2009.
     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective beginning with USEC’s first quarter of 2008, and USEC has elected not to apply the fair value option to any of its financial instruments.
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2. ACCOUNTS RECEIVABLE, OTHER CURRENT ASSETS, ACCOUNTS PAYABLE AND ACCRUED LIABILITES
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	
 	 	(millions)	 	
Accounts receivable — trade, net (1):	 	 	 	 	 	 	 	 	
Utility customers:	 	 	 	 	 	 	 	 	
Trade receivables	 	$	160.9	 	 	$	174.3	 	
Unbilled revenue (2)	 	 	53.3	 	 	 	2.0	 	
 	 	 	 	 	 	 	
 	 	 	214.2	 	 	 	176.3	 	
 	 	 	 	 	 	 	
Department of Energy (3):	 	 	 	 	 	 	 	 	
U.S. government contracts	 	 	24.9	 	 	 	19.8	 	
Unbilled revenue	 	 	13.8	 	 	 	19.8	 	
 	 	 	 	 	 	 	
 	 	 	38.7	 	 	 	39.6	 	
 	 	 	 	 	 	 	
 	 	$	252.9	 	 	$	215.9	 	
 	 	 	 	 	 	 	
Other current assets:	 	 	 	 	 	 	 	 	
Deferred costs relating to deferred revenue	 	$	58.3	 	 	$	78.4	 	
Prepaid items	 	 	30.4	 	 	 	19.4	 	
 	 	 	 	 	 	 	
 	 	$	88.7	 	 	$	97.8	 	
 	 	 	 	 	 	 	
Accounts payable and accrued liabilities:	 	 	 	 	 	 	 	 	
Trade payables	 	$	47.3	 	 	$	21.6	 	
Compensation and benefits	 	 	49.5	 	 	 	46.3	 	
Accrued interest payable on long-term debt	 	 	9.6	 	 	 	5.2	 	
Accrued income taxes payable	 	 	4.2	 	 	 	7.4	 	
Other accrued liabilities	 	 	51.6	 	 	 	48.6	 	
 	 	 	 	 	 	 	
 	 	$	162.2	 	 	$	129.1	 	

 	 	 	
(1)	 	Valuation and allowances for doubtful accounts were $17.4 million at December 31, 2007 and $14.4 million at December 31, 2006.	
 	 	 	
(2)	 	Unbilled revenue for utility customers represents price adjustments for past deliveries that are not yet billable under the applicable contracts, of which $51.5 million will be billed in the first quarter of 2008.	
 	 	 	
(3)	 	Billings for contract services related to DOE are invoiced based on provisional billing rates approved by DOE. Unbilled revenue represents the difference between actual costs incurred and invoiced amounts. USEC expects to invoice and collect the unbilled amounts as provisional billing rates are revised, submitted to and approved by DOE.	
3. PURCHASE OF SEPARATIVE WORK UNITS UNDER RUSSIAN CONTRACT
     USEC is the U.S. government’s exclusive executive agent (“Executive Agent”) in connection with a government-to-government nonproliferation agreement between the United States and the Russian Federation. Under the agreement, USEC has been designated by the U.S. government to order LEU derived from dismantled Soviet nuclear weapons. In January 1994, USEC, as Executive Agent for the U.S. government, signed a commercial agreement (“Russian Contract”) with a Russian government entity known as OAO Techsnabexport (“TENEX”, or “the Russian Executive Agent”), Executive Agent for the Federal Agency for Atomic Energy of the Russian Federation, to implement the program.
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     USEC has agreed to purchase approximately 5.5 million SWU each calendar year for the remaining term of the Russian Contract through 2013. Over the life of the 20-year Russian Contract, USEC expects to purchase about 92 million SWU contained in LEU derived from 500 metric tons of highly enriched uranium, and as of December 31, 2007, USEC had purchased 59 million SWU contained in LEU derived from 322 metric tons of highly enriched uranium. Purchases under the Russian Contract approximate 50% of USEC’s supply mix. Prices are determined using a discount from an index of international and U.S. price points, including both long-term and spot prices. A multi-year retrospective view of the index is used to minimize the disruptive effect of any short-term market price swings. Increases in these price points in recent years have resulted, and likely will continue to result, in increases to the index used to determine prices under the Russian Contract.
     The Russian Contract provides that, after the end of 2007, the parties may agree on appropriate adjustments, if necessary, to ensure that the Russian Executive Agent receives at least approximately $7.6 billion for the SWU component over the 20-year term of the Russian Contract through 2013. From inception of the Russian Contract in 1994 through December 31, 2007, USEC has purchased the SWU component of LEU at an aggregate cost of approximately $5.1 billion. Purchases of SWU under the Russian Contract are expected to be approximately $0.5 billion per year through 2013.
4. INVENTORIES
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	
 	 	(millions)	 	
Current assets:	 	 	 	 	 	 	 	 	
Separative work units	 	$	677.3	 	 	$	701.7	 	
Uranium	 	 	465.9	 	 	 	189.1	 	
Materials and supplies	 	 	10.2	 	 	 	9.2	 	
 	 	 	 	 	 	 	
 	 	 	1,153.4	 	 	 	900.0	 	
Long-term assets:	 	 	 	 	 	 	 	 	
Uranium	 	 	—	 	 	 	24.2	 	
 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Inventories owed to customers and suppliers	 	 	(322.3	)	 	 	(56.9	)	
 	 	 	 	 	 	 	
Inventories, net	 	$	831.1	 	 	$	867.3	 	
 	 	 	 	 	 	 	
Inventories Owed to Customers and Suppliers
     Generally, title to uranium provided by customers as part of their enrichment contracts does not pass 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. Uranium provided by customers for which title passed to USEC is recorded on the balance sheet at estimated fair values of $2.8 million at December 31, 2007 and $4.3 million at December 31, 2006.
     Additionally, USEC owed SWU and uranium inventories to fabricators with a cost totaling $319.5 million at December 31, 2007 and $52.6 million at December 31, 2006. 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 on the fabricator’s books. 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.
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Uranium Provided by Customers and Suppliers
     USEC held uranium with estimated fair values of approximately $5.8 billion at December 31, 2007, and $5.1 billion at December 31, 2006, 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 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.
5. PROPERTY, PLANT AND EQUIPMENT
     A summary of changes in property, plant and equipment follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Capital	 	 	Transfers	 	 	 	 	 	 	Capital	 	 	Transfers	 	 	 	 	
 	 	December 31,	 	 	Expenditures	 	 	and	 	 	December 31,	 	 	Expenditures	 	 	and	 	 	December 31,	 	
 	 	2004	 	 	(Depreciation)	 	 	Retirements	 	 	2005	 	 	(Depreciation)	 	 	Retirements	 	 	2006	 	
Construction work in progress	 	$	13.3	 	 	$	28.0	 	 	$	(12.3	)	 	$	29.0	 	 	$	53.9	 	 	$	(11.1	)	 	$	71.8	 	
Leasehold improvements	 	 	157.1	 	 	 	—	 	 	 	4.4	 	 	 	161.5	 	 	 	—	 	 	 	6.5	 	 	 	168.0	 	
Machinery and equipment	 	 	174.3	 	 	 	0.4	 	 	 	5.0	 	 	 	179.7	 	 	 	1.2	 	 	 	1.1	 	 	 	182.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	344.7	 	 	 	28.4	 	 	 	(2.9	)	 	 	370.2	 	 	 	55.1	 	 	 	(3.5	)	 	 	421.8	 	
Accumulated depreciation and amortization	 	 	(166.7	)	 	 	(34.7	)	 	 	2.4	 	 	 	(199.0	)	 	 	(36.3	)	 	 	3.4	 	 	 	(231.9	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	178.0	 	 	$	(6.3	)	 	$	(0.5	)	 	$	171.2	 	 	$	(18.8	)	 	$	(0.1	)	 	$	189.9	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Capital	 	 	Transfers	 	 	 	 	
 	 	December 31,	 	 	Expenditures	 	 	and	 	 	December 31,	 	
 	 	2006	 	 	(Depreciation)	 	 	Retirements	 	 	2007	 	
Construction work in progress	 	$	71.8	 	 	$	141.5	 	 	$	(20.6	)	 	$	192.7	 	
Leasehold improvements	 	 	168.0	 	 	 	—	 	 	 	3.8	 	 	 	171.8	 	
Machinery and equipment	 	 	182.0	 	 	 	2.7	 	 	 	6.3	 	 	 	191.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	421.8	 	 	 	144.2	 	 	 	(10.5	)	 	 	555.5	 	
Accumulated depreciation and amortization	 	 	(231.9	)	 	 	(37.4	)	 	 	6.0	 	 	 	(263.3	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	189.9	 	 	$	106.8	 	 	$	(4.5	)	 	$	292.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
     Capital expenditures include items in accounts payable at year-end for which cash is expended in the following period and capitalized asset retirement obligations.
6. INCOME TAXES
Provision
     The provision for income taxes from continuing operations is as follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
Current:	 	 	 	 	 	 	 	 	 	 	 	 	
Federal	 	$	68.3	 	 	$	70.4	 	 	$	51.7	 	
State and local	 	 	7.5	 	 	 	7.2	 	 	 	6.5	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	75.8	 	 	 	77.6	 	 	 	58.2	 	
 	 	 	 	 	 	 	 	 	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	
Federal	 	 	(41.2	)	 	 	(14.4	)	 	 	(42.4	)	
State and local	 	 	0.6	 	 	 	1.0	 	 	 	(0.8	)	
 	 	 	 	 	 	 	 	 	 	
 	 	 	(40.6	)	 	 	(13.4	)	 	 	(43.2	)	
 	 	 	 	 	 	 	 	 	 	
 	 	$	35.2	 	 	$	64.2	 	 	$	15.0	 	
 	 	 	 	 	 	 	 	 	 	
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Deferred Taxes
     Future tax consequences of temporary differences between the carrying amounts for financial reporting purposes and USEC’s estimate of the tax bases of its assets and liabilities result in deferred tax assets and liabilities, as follows (in millions):
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	
Deferred tax assets:	 	 	 	 	 	 	 	 	
Plant lease turnover and other exit costs	 	$	23.9	 	 	$	23.4	 	
Employee benefits costs	 	 	57.4	 	 	 	68.6	 	
Inventory	 	 	28.7	 	 	 	7.6	 	
Property, plant and equipment	 	 	66.9	 	 	 	40.8	 	
Tax intangibles	 	 	4.4	 	 	 	5.4	 	
Deferred costs for depleted uranium	 	 	38.7	 	 	 	26.1	 	
Net operating loss carryforwards	 	 	1.9	 	 	 	1.9	 	
Accrued expenses	 	 	7.3	 	 	 	6.9	 	
Other	 	 	3.4	 	 	 	2.2	 	
 	 	 	 	 	 	 	
 	 	$	232.6	 	 	$	182.9	 	
Valuation allowance	 	 	(1.8	)	 	 	(1.4	)	
 	 	 	 	 	 	 	
Deferred tax assets, net of valuation allowance	 	 	230.8	 	 	 	181.5	 	

Deferred tax liabilities:	 	 	 	 	 	 	 	 	
Prepaid expenses	 	 	1.2	 	 	 	1.3	 	
 	 	 	 	 	 	 	
Deferred tax liabilities	 	 	1.2	 	 	 	1.3	 	
 	 	 	 	 	 	 	
 	 	$	229.6	 	 	$	180.2	 	
 	 	 	 	 	 	 	
     The valuation allowances of $1.8 and $1.4 million at December 31, 2007 and 2006, respectively, reduce deferred tax assets and were recorded as a result of the acquisition of NAC, and relate to state net operating losses that are available to offset future taxable income of NAC. The NAC state net operating losses currently expire through 2023. A valuation allowance is provided if it is more likely than not that all or a portion of a deferred tax asset will not be realized. Tax benefits earned or expected to be earned from the net operating losses are recorded as reductions to goodwill and have been reflected in the balance. The goodwill amount will not be deductible for income tax purposes. The $0.4 million increase to the valuation allowance recorded in 2007 increased the deferred tax provision. The valuation allowance increase was primarily due to a decrease in the state effective tax rate. The deferred tax asset, net of valuation allowance, is more likely than not to be realized in future years based on an assessment of positive and negative available evidence.
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Effective Tax Rate
     A reconciliation of income taxes calculated based on the federal statutory income tax rate of 35% and the effective tax rate follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	
 	 	2007	 	2006	 	2005	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal statutory tax rate	 	 	35	%	 	 	35	%	 	 	35	%	
State income taxes, net of federal	 	 	3	 	 	 	2	 	 	 	2	 	
Export tax incentives	 	 	(1	)	 	 	(1	)	 	 	(1	)	
Nontaxable accrual of Medicare subsidy	 	 	—	 	 	 	—	 	 	 	(6	)	
Research and other tax credits	 	 	(1	)	 	 	(1	)	 	 	(5	)	
Manufacturing deduction	 	 	(1	)	 	 	—	 	 	 	—	 	
Other nondeductible expenses	 	 	—	 	 	 	1	 	 	 	2	 	
Impact of state rate changes on deferred taxes	 	 	1	 	 	 	2	 	 	 	12	 	
FIN 48 uncertain tax positions (see below)	 	 	(9	)	 	 	—	 	 	 	—	 	
Other	 	 	—	 	 	 	—	 	 	 	1	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	27	%	 	 	38	%	 	 	40	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
     USEC recorded negative effects on deferred tax assets, as shown in the reconciliation above, for the impact of state rate changes on deferred taxes due to reductions in the Kentucky and Ohio state tax rates during 2007, 2006 and 2005.
FIN 48 Uncertain Tax Positions
     In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before the related tax benefit may be recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
     USEC adopted the provisions of FIN 48 effective January 1, 2007. As a result of implementing FIN 48, USEC recognized a $31.1 million increase in the liability for unrecognized tax benefits. This increase resulted in a $7.5 million decrease in the January 1, 2007 retained earnings balance and a $23.6 million increase in the deferred tax assets. Implementation of FIN 48 also resulted in an additional $11.4 million decrease in the January 1, 2007 retained earnings balance for accrued interest and penalties. The liability for unrecognized tax benefits was $38.5 million at January 1, 2007, of which $19.5 million would impact the effective tax rate, if recognized. The liability for unrecognized tax benefits decreased $27.7 million and the tax provision decreased $12.6 million in 2007. These decreases were primarily a result of the expiration of the federal statute of limitations for all tax years through 2003, the resolution of an issue with the Internal Revenue Service (“IRS”) and the completion of the IRS examination. The $12.6 million tax provision decrease reduced the 2007 effective tax rate by 9% as shown in the rate reconciliation above. At December 31, 2007, the liability for unrecognized tax benefits, included in other long-term liabilities, was $10.8 million. Included in the liability balance at December 31, 2007, are $3.4 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility and $7.4 million of tax positions that would impact the effective tax rate, if recognized. USEC believes that it is reasonably possible that the liability for unrecognized tax benefits could decrease by up to $1.3 million in the next 12 months due to the expiration of the statute of limitations.
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     A reconciliation of the beginning and ending amount of unrecognized benefits is as follows (in millions):
 	 	 	 	 	
Balance at January 1, 2007	 	$	38.5	 	
Additions to tax positions of prior years	 	 	5.6	 	
Reductions to tax positions of prior years	 	 	(4.2	)	
Additions for tax positions of current year	 	 	1.1	 	
Settlements	 	 	(12.2	)	
Statute expiration	 	 	(18.0	)	
 	 	 	 	
Balance at December 31, 2007	 	$	10.8	 	
 	 	 	 	
     USEC and its subsidiaries file income tax returns with the U.S. government and various states and foreign jurisdictions. In the third quarter of 2007, the IRS completed USEC’s federal income tax return examination for tax years 1998 through 2003. At December 31, 2007, the federal statute of limitations is closed with respect to all tax years through 2003. In 2007, the IRS commenced an examination of USEC’s federal income tax returns for tax years 2004 through 2006. At December 31, 2007, the applicable Kentucky and Ohio statutes of limitations for tax years 2003 forward and 2004 forward, respectively, had not yet expired.
     USEC recognizes accrued interest as a component of interest expense and accrued penalties as a component of selling, general and administrative expense in the consolidated statement of income, which is consistent with the reporting for these items in periods prior to the implementation of FIN 48. After implementation of FIN 48, USEC’s balance of accrued interest and penalties was $19.5 million at January 1, 2007. Expenses for accrued interest and penalties recorded during 2007 totaled $3.3 million. During 2007, $16.4 million of previously accrued interest and penalties were reversed as a result of the expiration of the federal statute of limitations and the completion of the IRS examination for all tax years through 2003. The reversal of previously accrued interest was recorded as interest income and the reversal of the previously accrued penalties was recorded as a reduction to selling, general and administrative expense. As a result of settling the IRS examination, USEC made an interest payment to the IRS of $3.5 million in September 2007 and interest payments totaling $1.0 million to various states in December 2007. At December 31, 2007, accrued interest and penalties totaled $1.9 million.
7. GOODWILL AND INTANGIBLES
     USEC acquired NAC in 2004, allocating $7.5 million of the purchase cost to goodwill and $3.9 million to intangible assets related to customer contracts and relationships. As part of the acquisition, a tax-related valuation allowance of $2.3 million was established primarily for state net operating losses that are available to offset future taxable income of NAC. During 2006, USEC recognized $0.7 million of tax benefits earned or expected to be earned from the net operating losses. The offset to these benefits was recorded as a reduction to goodwill. The goodwill amount is not deductible for income tax purposes.
     The amount allocated to intangible assets included $3.4 million related to the management of the Nuclear Materials Management and Safeguards System (“NMMSS”) for DOE. This value was based on a three-year, $25 million contract extension that runs through September 2008, and further renewals that were anticipated through 2017. In late 2006, DOE verbally communicated to NAC that the NMMSS contract will be set aside for a small business after the contract expires in 2008, and DOE issued a solicitation seeking qualified small businesses with an interest to bid. A special charge of $2.6 million in 2006 represents an impairment of the intangible asset since NAC is not considered a qualified small business as defined by DOE. The special charge was calculated after analyzing cash flow projections and comparing the results to the estimated fair value of the assets acquired at the date of acquisition. The remaining portion of intangible assets relating to the NMMSS contract has an expected life terminating in 2008.
106

 
     Intangible assets related to NAC’s customer contracts and relationships reflect the special charge and amortization as follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Gross	 	 	 	 	 	 	 	
 	 	Carrying	 	 	Accumulated	 	 	 	 	
 	 	Amount	 	 	Amortization	 	 	Net	 	
December 31, 2004	 	$	3.9	 	 	$	—	 	 	$	3.9	 	
2005 amortization expense	 	 	—	 	 	 	(0.3	)	 	 	(0.3	)	
 	 	 	 	 	 	 	 	 	 	
December 31, 2005	 	 	3.9	 	 	 	(0.3	)	 	 	3.6	 	
2006 amortization expense and special charge	 	 	(2.6	)	 	 	(0.4	)	 	 	(3.0	)	
 	 	 	 	 	 	 	 	 	 	
December 31, 2006	 	 	1.3	 	 	 	(0.7	)	 	 	0.6	 	
2007 amortization expense	 	 	—	 	 	 	(0.4	)	 	 	(0.4	)	
 	 	 	 	 	 	 	 	 	 	
December 31, 2007	 	$	1.3	 	 	$	(1.1	)	 	$	0.2	 	
 	 	 	 	 	 	 	 	 	 	
8. DEBT
Long-Term Debt
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	
 	 	(millions)	 	
3.0% convertible senior notes, due October 1, 2014	 	$	575.0	 	 	$	—	 	
6.75% senior notes, due January 20, 2009	 	 	150.0	 	 	 	150.0	 	
 	 	 	 	 	 	 	
 	 	$	725.0	 	 	$	150.0	 	
 	 	 	 	 	 	 	
     Convertible Senior Notes due 2014
     In September 2007, USEC issued $575.0 million in convertible notes. The notes bear interest at a rate of 3.0% per annum payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2008. As part of this issuance, USEC paid underwriting discounts and accrued related offering expenses of $14.3 million. These costs are deferred and will be amortized using the effective interest rate method over the life of the convertible notes. Amortization from issuance to December 31, 2007 was $0.5 million. The notes will mature on October 1, 2014.
     The notes are senior unsecured obligations and rank equally with all existing and future senior unsecured debt of USEC Inc. and senior to all subordinated debt of USEC Inc. The notes are structurally subordinated to all existing and future liabilities of subsidiaries of USEC Inc. and will be effectively subordinated to existing and future secured indebtedness of USEC Inc. to the extent of the value of the collateral.
     Holders may convert their notes to common stock at their option on any day prior to the close of business on the scheduled trading day immediately preceding August 1, 2014 only under the following circumstances: (1) during the five business day period after any five consecutive trading day period in which the price per note for each trading day of that measurement period was less than 98% of the product of the last reported sale price of USEC Inc. common stock and the conversion rate on each such day; (2) during any calendar quarter (and only during such quarter), if the last reported sale price of USEC Inc. common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (3) upon the occurrence of specified corporate events. The notes will be convertible, regardless of the foregoing circumstances, at any time from, and including, August 1, 2014 through the scheduled trading day immediately preceding the maturity date of the notes. The notes were not eligible for conversion as of December 31, 2007.
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     Upon conversion, for each $1,000 in principal amount outstanding, USEC will deliver a number of shares of USEC Inc. common stock equal to the conversion rate. The initial conversion rate for the notes is 83.6400 shares of common stock per $1,000 in principal amount of notes, equivalent to an initial conversion price of approximately $11.956 per share of common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued interest. In addition, if a make-whole fundamental change (as defined in the indenture governing the notes) occurs prior to the maturity date of the notes, USEC will in some cases increase the conversion rate for a holder that elects to convert its notes in connection with such make-whole fundamental change.
     Subject to certain exceptions, holders may require USEC to repurchase for cash all or part of their notes upon a fundamental change (as defined in the indenture governing the notes) at a price equal to 100% of the principal amount of the notes being repurchased plus any accrued and unpaid interest up to, but excluding, the relevant repurchase date. USEC may not redeem the notes prior to maturity.
     At December 31, 2007, the fair value of the convertible notes, based on quoted market prices, was $568.0 million, compared with the balance sheet carrying amount of $575.0 million.
     Senior Notes due 2009
     Senior notes bearing interest at 6.75% amounted to $150.0 million in aggregate principal amount at December 31, 2007 and December 31, 2006. The senior notes are due January 20, 2009, and interest is paid every six months in arrears on January 20 and July 20. The senior notes are unsecured obligations and rank on parity with all other unsecured and unsubordinated indebtedness of USEC Inc. The senior notes are not subject to any sinking fund requirements. The senior notes may be redeemed by USEC at any time at a redemption price equal to the principal amount plus any accrued interest up to the redemption date plus a make-whole premium.
     At December 31, 2007, the fair value of the senior notes calculated based on a credit-adjusted spread over U.S. Treasury securities with similar maturities was $142.7 million, compared with the balance sheet carrying amount of $150.0 million.
Revolving Credit Facility
     In August 2005, USEC entered into a five-year, syndicated bank credit facility, providing up to $400.0 million in revolving credit commitments, including up to $300.0 million in letters of credit, secured by assets of USEC Inc. and its subsidiaries. There were no short-term borrowings under the revolving credit facility at December 31, 2007 or at December 31, 2006. In 2007, aggregate borrowings and repayments amounted to $75.1 million, and the peak amount outstanding was $61.4 million. Letters of credit issued under the facility amounted to $38.4 million at December 31, 2007 and $35.8 million at December 31, 2006. Availability under the credit facility was $361.6 million at December 31, 2007 and $346.2 million at December 31, 2006.
     The revolving credit facility is available to finance working capital needs, refinance existing debt and fund capital programs, including the American Centrifuge project. Borrowings under the credit facility 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, and will fluctuate during the year. Qualifying assets are reduced by certain reserves, principally a reserve for future obligations to DOE with respect to the turnover of the GDPs at the end of the term of the lease of these facilities. As a result of the capital USEC raised from the issuance of common stock and convertible notes in September 2007, qualifying assets are no longer reduced by a $150.0 million reserve referred to in the agreement as the “senior note reserve”.
108

 
     The revolving credit facility contains various reserve provisions that reduce available borrowings under the facility periodically or restrict the use of borrowings, including covenants that can periodically limit USEC to $50.0 million in capital expenditures based on available liquidity levels. Other reserves under the revolving credit facility, such as availability reserves and borrowing base reserves, are customary for credit facilities of this type.
     Outstanding borrowings under the facility bear interest at a variable rate equal to, based on USEC’s election, either:
 	•	 	the sum of (1) the greater of the JPMorgan Chase Bank prime rate and the federal funds rate plus1/2 of 1% plus (2) a margin ranging from .25% to .75% based upon collateral availability, or	
 	 	 	 	
 	•	 	the sum of LIBOR plus a margin ranging from 2.0% to 2.5% based on collateral availability.	
     The revolving 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 inventory, and payment of dividends or other distributions. Failure to satisfy the covenants would constitute an event of default under the revolving credit facility. In September 2007, the revolving credit facility was amended to specifically permit the issuance of the convertible senior notes described above, and any conversion of the convertible senior notes into common stock.
     A failure by USEC to comply with obligations under the revolving credit facility or other agreements such as the indenture governing USEC’s outstanding convertible notes and the 2002 DOE-USEC Agreement, or the occurrence of a “fundamental change” as defined in the indenture governing USEC’s outstanding convertible notes or the occurrence of a “material adverse effect” as defined in USEC’s credit facility, could result in an event of default under the credit facility. A default, if not cured or waived, could permit acceleration of USEC’s indebtedness.
     Financing costs of $3.5 million and $0.3 million to obtain and amend the credit facility, respectively, were deferred and are being amortized over the life of the facility.
Other
     In January 2006, USEC repaid the remaining balance of its 6.625% senior notes of $288.8 million on the scheduled maturity date.
109

 
9. 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 that is subject to repurchase. For diluted net income per share, the numerator is increased by interest expense on the convertible notes, net of tax, and the denominator is increased by the weighted average number of shares resulting from the convertible notes, assuming full conversion, and the potentially dilutive stock compensation awards.
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 	 	(in millions)	 	
Numerator:	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	96.6	 	 	$	106.2	 	 	$	22.3	 	
Interest expense on convertible notes — net of tax	 	 	2.9	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	
Net income if-converted	 	$	99.5	 	 	$	106.2	 	 	$	22.3	 	

Denominator:	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares	 	 	93.4	 	 	 	86.9	 	 	 	86.3	 	
Less: Weighted average unvested restricted stock	 	 	0.4	 	 	 	0.3	 	 	 	0.2	 	
 	 	 	 	 	 	 	 	 	 	
Denominator for basic calculation	 	 	93.0	 	 	 	86.6	 	 	 	86.1	 	

Weighted average effect of dilutive securities:	 	 	 	 	 	 	 	 	 	 	 	 	
Convertible notes	 	 	12.5	 	 	 	—	 	 	 	—	 	
Stock compensation awards	 	 	0.3	 	 	 	0.2	 	 	 	0.5	 	
 	 	 	 	 	 	 	 	 	 	
Denominator for diluted calculation	 	 	105.8	 	 	 	86.8	 	 	 	86.6	 	

Net income per share — basic	 	$	1.04	 	 	$	1.22	 	 	$	.26	 	
 	 	 	 	 	 	 	 	 	 	
Net income per share — diluted	 	$	.94	 	 	$	1.22	 	 	$	.26	 	
 	 	 	 	 	 	 	 	 	 	
     Options 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.
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
Options excluded from diluted earnings per share calculation:	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Options to purchase common stock (in millions)	 	 	.1	 	 	 	.4	 	 	 	.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercise price	 	$	16.90	 	 	$	11.88 to $16.90	 	 	$	13.25 to $16.90	 	
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10. DEFERRED REVENUE AND ADVANCES FROM CUSTOMERS
     Deferred revenue and advances from customers were as follows (in millions):
 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	
Deferred revenue	 	$	116.4	 	 	$	129.4	 	
Advances from customers	 	 	2.7	 	 	 	4.4	 	
 	 	 	 	 	 	 	
 	 	$	119.1	 	 	$	133.8	 	
 	 	 	 	 	 	 	
     In a number of sales transactions, title to uranium or LEU is transferred to the customer and USEC receives payment under normal credit terms without physically delivering the uranium or LEU to the customer. This may occur because the terms of the agreement require USEC to hold the uranium to which the customer has title, or because the customer encounters brief delays in taking delivery of LEU at USEC’s facilities. In such cases, recognition of revenue does not occur at the time title to uranium or LEU transfers to the customer but instead is deferred until the uranium or LEU to which the customer has title is physically delivered. Related costs associated with deferred revenue, reported in other current assets, totaled $58.3 million at December 31, 2007 and $78.4 million at December 31, 2006.
11. ORGANIZATIONAL RESTRUCTURING
     USEC restructured its organization in late 2005. This included staff reductions at its corporate headquarters and field operations and the elimination of some senior positions, resulting in the realignment of responsibilities under a smaller senior management team. The organizational restructuring resulted in special charges for termination benefits of $7.3 million in 2005, facility related charges of $1.5 million in 2006, and $0.2 million in credits in 2006 representing changes in estimates of costs for termination benefits.
     A summary of special charges for organizational restructuring and the related balance sheet account information follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Paid	 	 	Balance	 	 	Special	 	 	Paid	 	 	Balance	 	
 	 	Special	 	 	and	 	 	Dec. 31,	 	 	Charge	 	 	and	 	 	Dec. 31,	 	
 	 	Charge	 	 	Utilized	 	 	2005	 	 	(Credit)	 	 	Utilized	 	 	2006	 	
Workforce reductions:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate	 	$	4.5	 	 	$	(2.7	)	 	$	1.8	 	 	$	—	 	 	$	(1.8	)	 	$	—	 	
Field operations	 	 	2.8	 	 	 	(1.5	)	 	 	1.3	 	 	 	(0.2	)	 	 	(1.1	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Facility related charges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1.5	 	 	 	(1.5	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	7.3	 	 	$	(4.2	)	 	$	3.1	 	 	$	1.3	 	 	$	(4.4	)	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Organizational restructuring costs are not classified by segment as USEC utilizes gross profit as its segment measure.
12. ENVIRONMENTAL COMPLIANCE
     Environmental compliance costs include the handling, treatment and disposal of hazardous substances and wastes. Pursuant to the USEC Privatization Act, environmental liabilities associated with the Paducah and Portsmouth GDPs prior to July 28, 1998 are the responsibility of the U.S. government, except for liabilities relating to certain identified wastes generated by USEC and stored at the GDPs.
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Depleted Uranium
     USEC stores depleted uranium at the Paducah and Portsmouth GDPs and accrues estimated costs for its future disposition. USEC anticipates that it will send most or all of its depleted uranium to DOE for disposition unless a more economic disposal option becomes available. DOE is constructing facilities at the Paducah and Portsmouth GDPs to process large quantities of depleted uranium owned by DOE. Under federal law, DOE would also process USEC’s depleted uranium if provided to DOE. If we were to dispose of our uranium this way, USEC would be required to reimburse DOE for the related disposition costs of our depleted uranium, including a 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 USEC’s depleted uranium has not been determined. The long-term liability for depleted uranium disposition is dependent upon the volume of depleted uranium generated and estimated processing, transportation and disposal costs. USEC’s estimate of the unit disposal cost is based primarily on estimated cost data obtained from DOE without consideration given to contingencies or reserves. USEC’s estimate is periodically reviewed as additional information becomes available, and was increased by 9% in 2007. USEC’s estimate of the unit disposition cost for accrual purposes is approximately 35% less than the unit disposition cost for financial assurance purposes, which includes contingencies and other potential costs as required by the NRC.
     Compliance with NRC regulations requires that USEC provide financial assurance regarding the cost of the eventual disposition of USEC’s depleted uranium and stored wastes. The financial assurance requirement is based on our year-end liability plus expected volume increases over the coming year, including NRC required contingencies, totaling to an annual projected required amount. At December 31, 2007, the financial assurance requirements in place for 2008, principally the amount associated with disposition of depleted uranium, total $188.3 million and are covered by a combination of a $24.1 million letter of credit and $164.2 million under surety bonds.
     USEC’s estimated cost and accrued liability for depleted uranium disposition, as well as related financial assurances USEC provides, are subject to change as additional information becomes available.
Stored Wastes
     USEC’s operations generate hazardous, low-level radioactive and mixed wastes. The storage, treatment, and disposal of wastes are regulated by federal and state laws. USEC utilizes offsite treatment and disposal facilities and stores wastes at the Paducah and Portsmouth GDPs pursuant to permits, orders and agreements with DOE and various state agencies. Liabilities accrued for the treatment and disposal of stored wastes generated by USEC’s operations amounted to $4.7 million at December 31, 2007 and $6.0 million at December 31, 2006.
GDP Lease Turnover
     At the conclusion of the GDP lease with DOE, USEC may leave the property in an “as is” condition, but must remove all wastes generated by USEC, which are subject to off-site disposal, and must place the GDPs in a safe shutdown condition. Accrued liabilities for lease turnover costs amounted to $56.9 million at December 31, 2007 and $55.5 million at December 31, 2006.
American Centrifuge Decontamination and Decommissioning
     Financial Assurance
     USEC leases facilities in Piketon, Ohio from DOE for the American Centrifuge Plant. At the conclusion of the 36-year lease period in 2043, assuming no further extensions, USEC is obligated to return these leased facilities to DOE in a condition that meets NRC requirements and in the same condition as the facilities were in when they were leased to USEC (other than due to normal wear and tear). USEC owns all capital improvements at the American Centrifuge Plant and, unless otherwise consented to by DOE, must remove them by the conclusion of the lease term. USEC is required to provide financial assurance to the NRC incrementally based on facility construction and centrifuge installation achieved to date as well as anticipated in the coming year. USEC is also required to provide financial assurance to DOE in an amount equal to its current estimate of costs to comply with lease turnover requirements, less the amount of financial assurance required of USEC by the NRC for decontamination and decommissioning (“D&D”). As of December 31, 2007, USEC has provided financial assurance to the NRC and DOE for 2008 in the form of surety bonds totaling $41.6 million.
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     The financial assurance requirements will increase each year commensurate with the status of facility construction and operations and USEC’s projection of activity for the following year. As part of USEC’s license to operate the American Centrifuge Plant, USEC provides the NRC with a projection of the total D&D cost. The current estimate of the total cost related to NRC requirements is $317.7 million in 2006 dollars, and the projected total incremental lease turnover cost related to DOE is estimated to be $27.6 million in 2006 dollars. Financial assurance will also be required for the disposition of depleted uranium generated from future centrifuge operations.
     Asset Retirement Obligations
     Commensurate with the American Centrifuge Plant commercial lease signed in December 2006, USEC recorded the financial assurance amount for 2006 of $8.8 million as the estimate of the present value of the asset retirement obligation at year end. In 2007, USEC reassessed and revised the estimate of the asset retirement obligation reducing the amount recorded in both construction work in progress and other long-term liabilities. The estimate is also revised for any changes in long-term inflation rate assumptions. Additional retirement obligations are recognized as construction progress continues. Changes in USEC’s asset retirement obligation liability balance since December 31, 2006 follow (in millions):
 	 	 	 	 	
Balance at December 31, 2006	 	$	8.8	 	
Additional retirement obligation and revision of estimate	 	 	(4.6	)	
Time value accretion	 	 	0.2	 	
 	 	 	 	
Balance at December 31, 2007	 	$	4.4	 	
 	 	 	 	
Surety Bond Collateral
     Other long-term assets at December 31, 2007 include interest-earning cash deposits of $97.0 million provided as collateral for surety bonds relating primarily to depleted uranium and American Centrifuge decontamination and decommissioning.
13. COMMITMENTS AND CONTINGENCIES
Power Contracts and Commitments
     The gaseous diffusion process uses significant amounts of electric power to enrich uranium. USEC purchases most of the electric power for the Paducah GDP from the Tennessee Valley Authority (“TVA”). In June 2007, the power purchase agreement with TVA was amended for delivery of electric power through May 2012. Capacity under the agreement is fixed. As of December 31, 2007, USEC is obligated to make minimum payments under the agreement, whether or not it takes delivery of electric power, of approximately $2.3 billion through May 2012. USEC’s costs are subject to monthly fuel cost adjustments to reflect changes in TVA’s fuel costs, purchased power costs, and related costs.
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American Centrifuge Technology
     USEC is working to develop and deploy the American Centrifuge technology as a replacement for the gaseous diffusion technology used at the Paducah GDP. The 2002 DOE-USEC Agreement contains specific project milestones relating to the American Centrifuge Plant. USEC believes it has achieved the first 12 of the 15 milestones. Under the 2002 DOE-USEC Agreement, if, for reasons within USEC’s control, USEC fails to meet one or more milestones and it is determined that the resulting delay would substantially impact USEC’s ability to begin commercial operations on schedule, DOE could take a number of actions that could have a material adverse impact on USEC’s business. These actions include terminating the 2002 DOE-USEC Agreement, recommending that USEC be removed as the sole Executive Agent under the Megatons-to-Megawatts program, which could reduce or terminate USEC’s access to Russian LEU, or revoking USEC’s access to DOE’s U.S. centrifuge technology that USEC requires for the American Centrifuge project and requiring USEC to transfer its rights in U.S. centrifuge technology and facilities to DOE royalty free. Unless DOE were to challenge that USEC met any of the first 12 milestones, DOE’s remedies are now limited to circumstances in which a failure results from gross negligence or project abandonment by USEC.
     Under its current deployment schedule, USEC is working toward beginning commercial plant operations of the American Centrifuge Plant in late 2009 and having approximately 11,500 machines deployed in 2012, which USEC expects to operate at a production rate of about 3.8 million SWU per year, based on its current estimates of machine output and plant availability. This schedule is later than the schedule established by the remaining three milestones contained in the 2002 DOE-USEC Agreement of beginning commercial plant operations in January 2009, reaching a plant capacity of 1 million SWU in March 2010 and, at USEC’s option, reaching a plant capacity of 3.5 million SWU in September 2011. USEC anticipates reaching agreement with DOE regarding rescheduling these milestones at a later date. However, USEC cannot provide any assurances that it will reach an agreement or that DOE will not assert its rights under the agreement.
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”) 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 any legitimate bases for asserting any FCA or related claims under the cold standby contract, and has been cooperating with DOJ and the DOE Office of Investigations with respect to their inquiries into this matter. In a supplemental 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 and two other cost-type contracts, again potentially in violation of the FCA, which allows for treble damages and civil penalties. DOJ invited a response by USEC, which USEC provided in early December 2007 and again in January 2008. USEC believes that the DOJ and DOE analyses are significantly flawed, and no loss has been accrued. USEC intends to defend vigorously any claim that might be asserted against it. As part of USEC’s continuing discussions with DOJ, USEC and DOJ agreed in August 2007 to extend the statute of limitations for this matter. That agreement was further extended in December 2007 and again in January 2008.
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     Defense Contract Audit Agency Audit Inquiry
     In March 2007, in connection with an audit of fiscal year 2002 costs, the Defense Contract Audit Agency (“DCAA”) raised certain questions regarding the allowability, under the Federal Acquisition Regulation, of employee overtime costs associated with satisfaction by employees of mandatory qualification and certification standards. USEC conducted discussions with DCAA regarding these questions and provided a paper to DCAA in April 2007, explaining USEC’s position that such costs are allowable and recoverable. While DCAA indicated in a communication on or about April 25, 2007 that it intended to question such costs, no disallowance was made, nor were any potential impacts of disallowance quantified when DCAA issued its audit report for the fiscal year ended June 30, 2002. However, additional information was requested by DOE concerning costs related to a reduction in force during fiscal 2002. This information was supplied as requested. To the extent that any issue is raised again in the future, USEC will continue to try to work with DCAA and DOE to resolve any disagreements. USEC continues to believe that any disallowance of employee overtime costs associated with satisfaction of qualification and certification requirements would not be justified, and no loss has been accrued.
     Environmental Matter
     USEC and certain federal agencies were identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, for a site in Barnwell, South Carolina, previously operated by Starmet CMI (“Starmet”), one of USEC’s former contractors. In February 2004, USEC entered into an agreement with the U.S. Environmental Protection Agency (“EPA”) to clean up certain areas at Starmet’s Barnwell site. Under the agreement, USEC was responsible for removing certain material from the site that was attributable to quantities of depleted uranium USEC had sent to the site. In December 2005, the EPA confirmed that USEC completed its clean-up obligations under the agreement.
     In June 2007, the EPA notified USEC that the agency had spent approximately $7.6 million in its remediation of retention ponds at the Barnwell site. The EPA indicated verbally that it would seek reimbursement of this amount from USEC and the federal agencies that had previously been identified as potentially responsible parties. It further suggested that USEC’s share of the reimbursement expense would be approximately $3.2 million. Based on this information, USEC accrued a current liability of $3.2 million in the second quarter of 2007. However, based on ongoing discussions with the EPA, USEC now believes the actual amount of its liability is in the range of $1.0 million to $3.2 million.
     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.
Lease Commitments
     Operating costs incurred under the operating leases with DOE for the Paducah, Piketon, and Oak Ridge facilities, and leases for office space and equipment amounted to $8.3 million in 2007, $9.1 million in 2006 and $10.8 million in 2005. Future estimated minimum lease payments and expected lease administration payments follow (in millions):
 	 	 	 	 	
2008	 	$	7.4	 	
2009	 	 	6.4	 	
2010	 	 	5.7	 	
2011	 	 	5.3	 	
2012	 	 	3.8	 	
Thereafter	 	 	64.3	 	
 	 	 	 	
 	 	$	92.9	 	
 	 	 	 	
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     Except as provided in the 2002 DOE-USEC Agreement, USEC has the right to extend the lease for the GDPs indefinitely and may terminate the lease in its entirety or with respect to one of the plants at any time upon two years’ notice.
     The initial term of the American Centrifuge lease expires June 30, 2009, but can be extended at USEC’s option under specified conditions in five-year increments. After the first five-year extension, USEC has the option to extend the lease term for additional five-year terms ending in 2043. Thereafter, USEC has the right to extend the American Centrifuge lease for up to an additional 20 years, through 2063, if it agrees to demolish the existing buildings leased to USEC after the lease term expires. USEC has the option, with DOE’s consent, to expand the leased property to meet its needs until the earlier of September 30, 2013 or the expiration or termination of the GDP lease. USEC may terminate the American Centrifuge lease upon three years’ notice. DOE may terminate the lease for default, including default under the 2002 DOE-USEC Agreement.
     USEC has office space and equipment leases for our corporate headquarters in Bethesda, Maryland through November 2016, for our NAC operations in Norcross, Georgia through February 2012, and for a Washington, D.C. office through June 2008.
DOE Technology License
     USEC has a non-exclusive license in DOE inventions that pertain to enriching uranium using gas centrifuge technology. The license agreement with DOE provides for annual royalty payments beginning January 1, 2009 based on a varying percentage (one percent up to two percent) of USEC’s annual revenues from sales of the SWU component of LEU produced by USEC at the American Centrifuge Plant and any other facility using DOE centrifuge technology. There is a minimum annual royalty payment of $100,000 and the maximum cumulative royalty over the life of the license is $100 million.
14. PENSION AND POSTRETIREMENT HEALTH AND LIFE BENEFITS
     There are approximately 7,300 employees and retirees covered by defined benefit pension plans providing retirement benefits based on compensation and years of service, and approximately 4,000 employees, retirees and dependents covered by postretirement health and life benefit plans. DOE retained the obligation for postretirement health and life benefits for workers who retired prior to July 28, 1998. Pursuant to the supplemental executive retirement plans (“SERP”) and pension restoration plan, USEC provides executive officers additional retirement benefits in excess of qualified plan limits imposed by tax law.
     In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, requiring the recognition in the balance sheet of the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability, and an offsetting adjustment to accumulated other comprehensive income (loss), a component of stockholders’ equity. SFAS No. 158 requires prospective application, and was effective beginning with USEC’s financial statements at December 31, 2006. SFAS No. 158 requires balance sheet recognition of net actuarial losses and prior service costs and benefits (items that are deferred and recognized as net periodic benefit costs in the statement of income over time). SFAS No. 158 also requires that plan assets and benefit obligations be measured at the year-end balance sheet date, which is consistent with USEC’s practice. SFAS No. 158 does not impact the measurement of plan assets and benefit obligations, nor the determination of the amount of net periodic benefit cost in the statement of income.
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     Changes in the projected benefit obligations and plan assets and the funded status of the plans follow (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Postretirement Health	 	
 	 	Defined Benefit Pension Plans	 	 	and Life Benefit Plans	 	
 	 	Years Ended	 	 	Years Ended	 	
 	 	December 31,	 	 	December 31,	 	
 	 	2007	 	 	2006	 	 	2007	 	 	2006	 	
Changes in Benefit Obligations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations at beginning of year	 	$	744.4	 	 	$	742.2	 	 	$	202.2	 	 	$	202.7	 	
Actuarial (gains) losses, net	 	 	(31.7	)	 	 	(16.9	)	 	 	(5.0	)	 	 	(7.5	)	
Plan amendments	 	 	—	 	 	 	0.7	 	 	 	—	 	 	 	—	 	
Service costs	 	 	17.9	 	 	 	18.3	 	 	 	4.1	 	 	 	4.7	 	
Interest costs	 	 	43.1	 	 	 	40.7	 	 	 	11.8	 	 	 	11.0	 	
Gross benefits paid	 	 	(36.3	)	 	 	(40.6	)	 	 	(9.7	)	 	 	(8.9	)	
Other	 	 	(0.4	)	 	 	—	 	 	 	—	 	 	 	—	 	
Less federal subsidy on benefits paid	 	 	N/A	 	 	 	N/A	 	 	 	0.2	 	 	 	0.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations at end of year	 	 	737.0	 	 	 	744.4	 	 	 	203.6	 	 	 	202.2	 	

Changes in Plan Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets at beginning of year	 	 	737.7	 	 	 	684.7	 	 	 	73.5	 	 	 	69.6	 	
Actual return on plan assets	 	 	70.2	 	 	 	77.5	 	 	 	6.1	 	 	 	7.1	 	
USEC contributions	 	 	9.8	 	 	 	16.1	 	 	 	3.1	 	 	 	5.7	 	
Benefits paid	 	 	(36.3	)	 	 	(40.6	)	 	 	(9.7	)	 	 	(8.9	)	
Other	 	 	(0.5	)	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets at end of year	 	 	780.9	 	 	 	737.7	 	 	 	73.0	 	 	 	73.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Funded (Unfunded) status at end of year	 	 	43.9	 	 	 	(6.7	)	 	 	(130.6	)	 	 	(128.7	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amounts recognized in assets and liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noncurrent assets	 	$	67.1	 	 	$	13.8	 	 	$	—	 	 	$	—	 	
Current liabilities	 	 	(0.2	)	 	 	(0.3	)	 	 	—	 	 	 	—	 	
Noncurrent liabilities	 	 	(23.0	)	 	 	(20.2	)	 	 	(130.6	)	 	 	(128.7	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	43.9	 	 	$	(6.7	)	 	$	(130.6	)	 	$	(128.7	)	

Amounts recognized in accumulated other comprehensive income, pre-tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net actuarial loss (gain)	 	$	26.0	 	 	$	71.3	 	 	$	26.2	 	 	$	33.9	 	
Prior service cost (credit)	 	 	9.2	 	 	 	11.0	 	 	 	(37.4	)	 	 	(51.9	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	35.2	 	 	$	82.3	 	 	$	(11.2	)	 	$	(18.0	)	

Assumptions used to determine benefit obligations at end of year:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Discount rate	 	 	6.21	%	 	 	5.75	%	 	 	5.96	%	 	 	5.75	%	
Compensation increases	 	 	4.25	 	 	 	4.00	 	 	 	4.25	 	 	 	4.00	 	
     Projected benefit obligations for the defined benefit pension plans and the postretirement health and life benefit plans were discounted at weighted average rates of 6.21% and 5.96%, respectively, to determine the present values of the obligations as of December 31, 2007. The discount rates are the estimated rates at which the benefit obligations could be effectively settled on the measurement date and are based on yields of high quality fixed income investments whose cash flows match the timing and amount of expected benefit payments of the plans.
     The current portion of underfunded plan liabilities represents the expected benefit payments for the following year in excess of the fair value of the plan assets at year-end. Therefore, the current liability reflects projected benefit payments for SERP and the pension restoration plan in the following year.
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     Projected benefit obligations are based on actuarial assumptions including future increases in compensation. Accumulated benefit obligations are based on actuarial assumptions but do not include possible future increases in compensation. The accumulated benefit obligation for all defined benefit pension plans was $661.9 million at December 31, 2007 and $669.1 million at December 31, 2006. The accumulated benefit obligation for the defined benefit plan with an accumulated benefit obligation in excess of the fair value of plan assets was $31.3 million at December 31, 2007, and $26.6 million at December 31, 2006. Those plans with an accumulated benefit obligation in excess of plan assets had plan assets with a fair value of $16.7 million at December 31, 2007 and $13.6 million at December 31, 2006.
     The expected cost of providing pension benefits is accrued over the years employees render service, and actuarial gains and losses are amortized over the employees’ average future service life. For postretirement health and life benefits, actuarial gains and losses and prior service costs or benefits are amortized over the employees’ average remaining years of service from age 40 until the date of full benefit eligibility.
     In 2006, the Pension Protection Act eliminated the sunset provision of the Economic Growth and Tax Reconciliation Relief Act (“EGTRRA”), which would have decreased the annual compensation back to an indexed pre-EGTRRA amount. The impact was a net increase of $0.4 million in the liability and is reflected as a plan amendment.
     USEC began receiving federal subsidy payments in 2006 in connection with a change in Medicare law affecting corporations that sponsor prescription drug benefits. The Medicare Prescription Drug Improvement and Modernization Act of 2003 provides prescription drug benefits under Medicare (“Medicare Part D”) as well as federal subsidy payments to sponsors of plans that provide prescription drug benefits that are at least actuarially equivalent to Medicare Part D. USEC, in consultation with its actuaries, has determined that the prescription drug provisions of its postretirement health benefit plan are at least actuarially equivalent to Medicare Part D.
     The components of net benefit costs for pension and postretirement health and life benefit plans were as follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Postretirement Health	 	 	
 	 	Defined Benefit Pension Plans	 	 	and Life Benefit Plans	 	 	
 	 	Years Ended December 31,	 	 	Years Ended December 31,	 	 	
 	 	2007	 	 	2006	 	 	2005	 	 	2007	 	 	2006	 	 	2005	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service costs	 	$	17.9	 	 	$	18.3	 	 	$	16.7	 	 	$	4.1	 	 	$	4.7	 	 	$	7.2	 	 	
Interest costs	 	 	43.1	 	 	 	40.7	 	 	 	39.7	 	 	 	11.8	 	 	 	11.0	 	 	 	14.4	 	 	
Expected return on plan assets (gains)	 	 	(58.0	)	 	 	(53.8	)	 	 	(54.9	)	 	 	(5.6	)	 	 	(5.5	)	 	 	(5.5	)	 	
Amortization of prior service costs (credit)	 	 	1.8	 	 	 	1.7	 	 	 	1.7	 	 	 	(14.5	)	 	 	(14.5	)	 	 	(0.9	)	 	
Amortization of actuarial (gains) losses, net	 	 	1.3	 	 	 	5.3	 	 	 	3.2	 	 	 	2.2	 	 	 	2.6	 	 	 	1.5	 	 	
Settlements	 	 	—	 	 	 	—	 	 	 	(4.9	)	 	 	—	 	 	 	—	 	 	 	—	 	 	
Curtailment losses	 	 	—	 	 	 	—	 	 	 	0.6	 	 	 	—	 	 	 	—	 	 	 	0.1	 	 	
Other special charges	 	 	0.1	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net benefit costs	 	$	6.2	 	 	$	12.2	 	 	$	2.1	 	 	$	(2.0	)	 	$	(1.7	)	 	$	16.8	 	 	

Assumptions used to determine net benefit costs:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Discount rate	 	 	5.75	%	 	 	5.50	%	 	 	5.75	%	 	 	5.75	%	 	 	5.50	%	 	 	5.75	%	 	
Expected return on plan assets	 	 	8.00	 	 	 	8.00	 	 	 	8.50	 	 	 	8.00	 	 	 	8.00	 	 	 	8.50	 	 	
Compensation increases	 	 	4.00	 	 	 	3.75	 	 	 	3.75	 	 	 	4.00	 	 	 	3.75	 	 	 	3.75	 	 	
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     The change in the postretirement health and life benefit obligation for the year ended December 31, 2005 reflects the institution of a $100,000 lifetime cap on post-age 65 claims for medical and drug coverage under the postretirement health benefit plan. The institution of the cap reduced the postretirement health benefit obligation by $66.4 million which is being amortized over the average remaining years of service until full eligibility.
     The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic pension benefit cost during 2008 are $0.7 million and $1.7 million, respectively. The estimated net loss and prior service cost credit for the postretirement health and life plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2008 are $0.7 million and $(14.5) million, respectively.
     The expected return on plan assets is based on the weighted average of long-term return expectations for the composition of the plans’ equity and debt securities. Expected returns for each asset class are based on historical returns and expectations of future returns. Independent investment advisors manage assets in each category to maximize investment returns within reasonable and prudent levels of risk. Risk is reduced by diversifying plan assets in a broad mix of asset classes and by following a strategic asset allocation approach. Asset classes and target weights are adjusted periodically to optimize the long-term portfolio risk/return tradeoff, to provide liquidity for benefit payments, and to align portfolio risk with the underlying obligations.
     Healthcare cost trend rates used to measure postretirement health benefit obligations follow:
 	 	 	 	 	 	 	 	 	
 	 	December 31,	
 	 	2007	 	2006	
Healthcare cost trend rate for the following year	 	 	9	%	 	 	9	%	
Long-term rate that the healthcare cost trend rate gradually declines to	 	 	5	%	 	 	5	%	
Year that the healthcare cost trend rate is expected to reach the long-term rate	 	 	2014	 	 	 	2011	 	
A one-percentage-point change in the assumed healthcare cost trend rates would have an effect on the postretirement health benefit obligation and costs, as follows (in millions):
 	 	 	 	 	 	 	 	 	
 	 	One Percentage Point	
 	 	Increase	 	Decrease	
Postretirement health benefit obligation	 	$	8.7	 	 	$	(8.0	)	
Net benefit costs	 	$	1.1	 	 	$	(1.0	)	
Benefit Plan Assets
     The allocation of plan assets between equity and debt securities and the target allocation range by asset category follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Percentage of	 	Target	
 	 	Plan Assets	 	Allocation	
 	 	December 31,	 	Range	
 	 	2007	 	2006	 	2007	
Defined Benefit Pension Plans:	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	60	%	 	 	64	%	 	 	50-70	%	
Debt securities	 	 	40	 	 	 	36	 	 	 	30-50	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	100	%	 	 	100	%	 	 	 	 	

Postretirement Health and Life Benefit Plans:	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	65	%	 	 	68	%	 	 	55-75	%	
Debt securities	 	 	35	 	 	 	32	 	 	 	25-45	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	100	%	 	 	100	%	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
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Benefit Plan Cash Flows
     USEC expects cash contributions to the plans in 2008 will be as follows: $10.0 million for the defined benefit pension plans and $2.4 million for the postretirement health and life benefit plans.
     Estimated future benefit plan payments and expected subsidies from Medicare follow (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Postretirement Health	 	Expected	
 	 	Defined Benefit	 	and Life Benefit	 	Subsidies	
 	 	Pension Plans	 	Plans	 	From Medicare	
2008	 	$	37.3	 	 	$	10.6	 	 	$	0.3	 	
2009	 	 	39.2	 	 	 	12.2	 	 	 	0.4	 	
2010	 	 	40.3	 	 	 	14.0	 	 	 	0.6	 	
2011	 	 	42.0	 	 	 	15.7	 	 	 	0.7	 	
2012	 	 	50.1	 	 	 	17.1	 	 	 	0.9	 	
2013 to 2017	 	 	256.8	 	 	 	104.6	 	 	 	8.3	 	
Other Plans
     USEC sponsors a 401(k) defined contribution plan for employees. Employee contributions are matched at established rates. Amounts contributed are invested in securities, and the funds are administered by an independent trustee. USEC’s matching cash contributions amounted to $6.6 million in 2007, $6.1 million in 2006 and $6.1 million in 2005. Under the 401(k) restoration plan, executive officers contribute and USEC matches contributions in excess of amounts eligible under the 401(k) plan. USEC’s matching contributions amounted to $0.1 million in 2007, $0.1 million in 2006 and less than $0.1 million in 2005.
15. STOCK-BASED COMPENSATION
     USEC has stock-based compensation plans available to grant restricted stock, restricted stock units, non-qualified stock options, performance awards and other stock-based awards to key employees and non-employee directors, as well as an employee stock purchase plan. A summary of stock-based compensation costs follows (in millions).
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2007	 	 	2006	 	 	2005	 	
Total stock-based compensation costs:	 	 	 	 	 	 	 	 	 	 	 	 	
Restricted stock and restricted stock units	 	$	5.2	 	 	$	3.5	 	 	$	4.8	 	
Stock options, performance awards and other	 	 	0.8	 	 	 	0.8	 	 	 	—	(a)	
Less: costs capitalized as part of inventory	 	 	(0.3	)	 	 	(0.3	)	 	 	(0.1	)	
 	 	 	 	 	 	 	 	 	 	
Expense included in selling, general and administrative	 	$	5.7	 	 	$	4.0	 	 	$	4.7	 	
 	 	 	 	 	 	 	 	 	 	
Total after-tax expense	 	$	3.6	 	 	$	2.6	 	 	$	2.9	 	

 	 	 	
(a)	 	Prior to January 1, 2006, the fair value of compensation related to stock options and the employee stock purchase plan was disclosed but not recognized as a cost. Refer to  Accounting for Stock-Based Compensation under SFAS No. 123(R)  below.	
     As of December 31, 2007, there was $4.6 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted, of which $3.6 million relates to restricted shares and restricted stock units, and $1.0 million relates to stock options. That cost is expected to be recognized over a weighted-average period of 1.6 years.
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     Of the 14.1 million shares of common stock approved by stockholders for issuance under USEC’s equity incentive plan, there were 7,098,000 shares available for future awards under the plan at December 31, 2007 (excluding outstanding awards which terminate or are cancelled without being exercised or that are settled for cash), including 4,838,000 shares available for grants of stock options and 2,260,000 shares available for restricted stock or restricted stock units, performance awards and other stock-based awards. USEC’s practice is to issue shares under stock-based compensation plans from treasury stock.
      Restricted Stock and Restricted Stock Units
     Under the long-term incentive program established in April 2006, the target award denominated in shares of USEC stock is determined based on the average closing price of USEC’s common stock in the calendar month prior to the beginning of the performance period. The awards are then marked to market each period, with 80% of the adjustment based on the ending price of USEC’s common stock. The remaining 20% is based on a market condition and is valued using a Monte Carlo model. Compensation cost for these awards is generally recognized over a three-year service period. The awards can be settled in cash or USEC stock, or can be deferred for future settlement at the employee’s discretion. Since there is the potential for cash settlement, the awards are classified as a liability. Non-employee directors are granted restricted stock units as part of their compensation for serving on the Board of Directors. The restricted stock units vest over one or three years.
     The fair value of restricted stock is determined based on the closing price of USEC’s common stock on the grant date. Compensation cost for restricted stock is amortized to expense on a straight-line basis over the vesting period, which, depending on the grant, is amortized ratably over a one-, three- or five-year period. Sale of such shares is restricted prior to the date of vesting. A summary of restricted shares activity for the year ended December 31, 2007 follows (shares in thousands):
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Weighted-Average	
 	 	 	 	 	 	Grant-Date	
 	 	Shares	 	Fair Value	
Restricted Shares at December 31, 2006	 	 	798	 	 	$	10.28	 	
Granted	 	 	313	 	 	 	13.26	 	
Vested	 	 	(300	)	 	 	11.77	 	
Forfeited	 	 	(23	)	 	 	12.93	 	
 	 	 	 	 	 	 	 	 	
Restricted Shares at December 31, 2007	 	 	788	 	 	$	10.82	 	
 	 	 	 	 	 	 	 	 	
      Stock Options
     The intrinsic value of an option, if any, represents the excess of the fair value of the common stock over the exercise price. The determination of the fair value of stock option awards is affected by USEC’s stock price and a number of complex and subjective variables. Fair value is estimated using the Black-Scholes option pricing model, which includes a number of assumptions including USEC’s estimates of stock price volatility, employee stock option exercise behaviors, future dividend payments, and risk-free interest rates.
     The expected term of options granted is estimated as the average of the vesting term and the contractual term of the option, as illustrated in SEC Staff Accounting Bulletin No. 107, “Share-Based Payment”. Future stock price volatility is estimated based on historical volatility for the recent period equal to the expected term of the options. The risk-free interest rate for the expected option term is based on the U.S. Treasury yield curve in effect at the time of grant. No cash dividends are expected in the foreseeable future and therefore an expected dividend yield of zero is used in the option valuation model. Historical data are used to estimate pre-vesting option forfeitures at the time of grant. Estimates for option forfeitures are revised in subsequent periods if actual forfeitures differ from those estimates. Compensation expense is recognized for stock option awards that are expected to vest.
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     Assumptions used to value option grants in the three years ended December 31, 2007, 2006 and 2005 follow:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
Risk-free interest rate	 	 	4.5	%	 	 	4.6	%	 	 	3.8	%	
Expected dividend yield	 	 	—	 	 	 	—	 	 	 	4	%	
Expected volatility	 	 	42	%	 	 	41	%	 	 	42	%	
Expected option life	 	3.5 years	 	3.5 years	 	3.5 years	
Weighted-average grant date fair value	 	$	4.77	 	 	$	4.21	 	 	$	4.07	 	
Options granted	 	 	258,000	 	 	 	288,000	 	 	 	361,000	 	
     Stock options vest or become exercisable in equal annual installments over a one to three year period and expire 5 or 10 years from the date of grant. A summary of stock option activity follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Weighted-Average	 	 	 	 	
 	 	Stock	 	 	Weighted-	 	 	Remaining	 	 	Aggregate	 	
 	 	Options	 	 	Average	 	 	Contractual	 	 	Intrinsic Value	 	
 	 	(thousands)	 	 	Exercise Price	 	 	Term (years)	 	 	(millions)	 	
Outstanding at December 31, 2006	 	 	1,212	 	 	 	9.45	 	 	 	 	 	 	 	 	 	
Granted	 	 	258	 	 	 	13.24	 	 	 	 	 	 	 	 	 	
Exercised	 	 	(107	)	 	 	7.71	 	 	 	 	 	 	 	 	 	
Forfeited or expired	 	 	(45	)	 	 	12.60	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding at December 31, 2007	 	 	1,318	 	 	$	10.23	 	 	 	3.4	 	 	$	1.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercisable at December 31, 2007	 	 	896	 	 	$	9.09	 	 	 	3.2	 	 	$	1.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
     The total intrinsic value of options exercised was $1.0 million, $1.3 million and $4.8 million during the years ended December 31, 2007, 2006 and 2005, respectively. Cash received from the exercise of stock options during the years ended December 31, 2007, 2006 and 2005 was $0.8 million, $2.1 million and $5.4 million, respectively.
     Stock options outstanding and options exercisable at December 31, 2007, follow (options in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Weighted Average	 	 	
 	 	 	 	 	 	Remaining	 	 	
Stock Exercise	 	 	 	 	 	Contractual Life in	 	 	
Price	 	Options Outstanding	 	Years	 	Options Exercisable	
$3.63 to $7.00	 	 	216	 	 	 	4.3	 	 	 	216	 	
7.02 to 7.13	 	 	151	 	 	 	4.1	 	 	 	151	 	
8.05	 	 	104	 	 	 	1.2	 	 	 	104	 	
8.50	 	 	142	 	 	 	3.6	 	 	 	142	 	
10.44 to 11.88	 	 	103	 	 	 	2.7	 	 	 	70	 	
12.09	 	 	233	 	 	 	3.3	 	 	 	76	 	
12.19 to 14.28	 	 	282	 	 	 	4.0	 	 	 	50	 	
16.90	 	 	87	 	 	 	2.3	 	 	 	87	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	1,318	 	 	 	3.4	 	 	 	896	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
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     Employee Stock Purchase Plan
     Under the employee stock purchase plan, participating employees may purchase shares of USEC Inc. common stock at 85% of the market price at the end of the six-month offer period. There is a minimum holding period of one year. Employees can elect to designate up to 10% of their compensation to purchase common stock under the plan. USEC is required to recognize the compensation costs for the discounts provided under the plan effective January 1, 2006. USEC recognized expense of $0.1 million in each of the years ended December 31, 2007 and 2006 related to this plan. Shares purchased by employees amounted to 53,720 in 2007 and 57,000 in 2006. At December 31, 2007, there were 93,000 remaining shares available for purchase under the plan.
     Accounting for Stock-Based Compensation under SFAS No. 123(R)
     Effective January 1, 2006, USEC adopted the provisions of SFAS No. 123(R), “Share-Based Payment”, whereby compensation cost relating to share-based payments is recognized in the financial statements. Accordingly, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized over the requisite service period, which is either immediate recognition if the employee is eligible to retire, or on a straight-line basis until the earlier of either the date of retirement eligibility or the end of the nominal vesting period. Prior to January 1, 2006, USEC accounted for share-based compensation in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees”, with pro forma disclosures in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. Under APB No. 25, USEC recognized expense for restricted stock and restricted stock units in the income statement and disclosed the fair value of compensation related to stock options and the employee stock purchase plan.
     The following table illustrates the effect on net income for the year ended December 31, 2005 under the pro forma disclosure requirements of SFAS No. 123 (in millions, except per share data):
 	 	 	 	 	
 	 	2005	 	
Net income, as reported	 	$	22.3	 	
Add — Stock-based compensation expense included in reported results, net of tax	 	 	3.0	 	
Deduct — Stock-based compensation expense determined under the fair-value method, net of tax	 	 	(6.0	)	
 	 	 	 	
Pro forma net income	 	$	19.3	 	

Net income per share — basic and diluted:	 	 	 	 	
As reported	 	$	.26	 	
Pro forma	 	 	.22	 	
     Prior to adoption of SFAS No. 123(R), USEC used a straight-line amortization of stock-based compensation over the nominal vesting period. Under SFAS No. 123(R), compensation cost for stock-based awards granted after the adoption is recognized over the requisite service period. USEC has determined that application of the nominal vesting period approach to the unvested outstanding awards at the end of 2005 and application of the requisite service period approach to stock-based compensation awarded beginning in 2006 did not have a material impact on the consolidated financial statements for the year ended December 31, 2006.
     Under the modified prospective transition method, prior periods have not been revised for comparative purposes. The valuation provisions of SFAS No. 123(R) apply to new grants and to grants that were outstanding as of the effective date and are subsequently modified. Estimated compensation for grants that were outstanding as of the effective date will be recognized over the remaining service period using the compensation cost estimated for the pro forma disclosures under SFAS No. 123. The impact of adopting SFAS No. 123(R) was immaterial to basic and diluted earnings per share.
123

 
     On December 12, 2005, USEC accelerated the vesting of all outstanding and unvested stock options with an exercise price greater than the closing price on December 12, 2005 of $12.41 per share. Options to purchase 131,509 shares, including 21,000 shares held by non-employee directors, having an exercise price of either $13.98 or $16.90 per share, became exercisable immediately as a result of the vesting acceleration. The accelerated vesting did not result in the recognition of compensation expense since the options had no intrinsic value. The primary purpose of the acceleration was to eliminate the future compensation expense USEC would otherwise recognize in the consolidated statements of income with respect to these options once SFAS No.123(R) became effective in 2006. In addition, because these options had exercise prices in excess of current market values, and were not fully achieving their original objectives of incentive compensation and retention, the Board of Directors believed the acceleration might have a positive effect on morale, retention, and perceptions of option value. The financial effect of this acceleration was to reduce compensation expense in USEC’s pre-tax earnings by $0.3 million in 2006, $0.2 million in 2007 and $0.1 million in 2008.
     Prior to the effective date of SFAS No. 123(R), the benefits of tax deductions in excess of recognized compensation expense related to the exercise of stock options and disqualifying dispositions are presented as operating cash flows on USEC’s consolidated statement of cash flows. Effective January 1, 2006, in accordance with SFAS No. 123(R), the gross windfall tax benefits are classified as financing cash flows, and amounted to $0.9 million for the year ended December 31, 2007 and $0.4 million for the year ended December 31, 2006. USEC elected to use the long-form method to calculate its historical pool of windfall tax benefits.
16. STOCKHOLDERS’ EQUITY
Common Stock
     Changes in the number of shares of common stock outstanding follow (in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Shares	 	Treasury	 	Shares	
 	 	Issued	 	Stock	 	Outstanding	
Balance at December 31, 2004	 	 	100,320	 	 	 	(15,171	)	 	 	85,149	 	
Common stock issued	 	 	—	 	 	 	1,422	 	 	 	1,422	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2005	 	 	100,320	 	 	 	(13,749	)	 	 	86,571	 	
Common stock issued	 	 	—	 	 	 	571	 	 	 	571	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2006	 	 	100,320	 	 	 	(13,178	)	 	 	87,142	 	
Common stock issued	 	 	23,000	 	 	 	437	 	 	 	23,437	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2007	 	 	123,320	 	 	 	(12,741	)	 	 	110,579	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
     In September 2007, USEC issued 23 million shares of common stock raising net proceeds of approximately $214 million after underwriter commissions and offering expenses.
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Preferred Stock Purchase Rights
     In April 2001, the Board of Directors approved a shareholder rights plan, under which shareholders of record on May 9, 2001 received rights that initially trade together with USEC common stock and are not exercisable. In the absence of further action by the Board, the rights generally would become exercisable and allow the holder to acquire USEC common stock at a discounted price if a person or group acquires 15% or more of the outstanding shares of USEC common stock or commences a tender or exchange offer to acquire 15% or more of the common stock of USEC. However, any rights held by the acquirer would not be exercisable. The Board of Directors may direct USEC to redeem the rights at $.01 per right at any time before the tenth day following the acquisition of 15% or more of USEC common stock by a person or group.
17. REVENUE BY GEOGRAPHIC AREA, MAJOR CUSTOMERS AND SEGMENT INFORMATION
     Revenue attributed to domestic and foreign customers, including customers in a foreign country representing 10% or more of total revenue, follows (in millions):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
United States	 	$	1,310.6	 	 	$	1,109.5	 	 	$	1,074.1	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign:	 	 	 	 	 	 	 	 	 	 	 	 	
Japan	 	 	274.7	 	 	 	389.8	 	 	 	224.2	 	
Other	 	 	342.7	 	 	 	349.3	 	 	 	261.0	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	617.4	 	 	 	739.1	 	 	 	485.2	 	
 	 	 	 	 	 	 	 	 	 	
 	 	$	1,928.0	 	 	$	1,848.6	 	 	$	1,559.3	 	
 	 	 	 	 	 	 	 	 	 	
     Other than the U.S. government, USEC’s 10 largest customers represented 51% of revenue and USEC’s three largest customers represented 20% of revenue in 2007. Revenue from U.S. government contracts represented 9% of revenue in 2007, 10% of revenue in 2006 and 13% of revenue in 2005. No other customer represented more than 10% of revenue.
     USEC has two reportable segments measured and presented through the gross profit line of the income statement: the low enriched uranium (“LEU”) segment with two components, separative work units (“SWU”) and uranium, and the U.S. government contracts segment. The LEU segment is USEC’s 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 segment includes work performed for DOE and DOE contractors at the Portsmouth and Paducah GDPs as well as nuclear energy services and technologies provided by NAC. Intersegment sales were less than $0.1 million in each of 2007, 2006 and 2005 and have been eliminated in consolidation.
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 	 	Years Ended December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 	 	(millions)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	 	 	 	 	 	 	 	 	 	 	 	
LEU segment:	 	 	 	 	 	 	 	 	 	 	 	 	
Separative work units	 	$	1,570.5	 	 	$	1,337.4	 	 	$	1,085.6	 	
Uranium	 	 	163.5	 	 	 	316.7	 	 	 	261.3	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	1,734.0	 	 	 	1,654.1	 	 	 	1,346.9	 	
U.S. government contracts segment	 	 	194.0	 	 	 	194.5	 	 	 	212.4	 	
 	 	 	 	 	 	 	 	 	 	
 	 	$	1,928.0	 	 	$	1,848.6	 	 	$	1,559.3	 	

Segment Gross Profit	 	 	 	 	 	 	 	 	 	 	 	 	
LEU segment	 	$	260.4	 	 	$	304.9	 	 	$	198.5	 	
U.S. government contracts segment	 	 	27.1	 	 	 	32.0	 	 	 	31.0	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	287.5	 	 	 	336.9	 	 	 	229.5	 	
Advanced technology costs	 	 	127.3	 	 	 	105.5	 	 	 	94.5	 	
Selling, general, and administrative	 	 	45.3	 	 	 	48.8	 	 	 	61.9	 	
Other, net	 	 	—	 	 	 	3.9	 	 	 	6.3	 	
 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	114.9	 	 	 	178.7	 	 	 	66.8	 	
Interest (income) expense, net	 	 	(16.9	)	 	 	8.3	 	 	 	29.5	 	
 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	$	131.8	 	 	$	170.4	 	 	$	37.3	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 	 	(millions)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	
LEU segment	 	$	3,036.4	 	 	$	1,800.1	 	 	$	2,008.5	 	
U.S. government contracts segment	 	 	51.4	 	 	 	61.3	 	 	 	72.3	 	
 	 	 	 	 	 	 	 	 	 	
 	 	$	3,087.8	 	 	$	1,861.4	 	 	$	2,080.8	 	
 	 	 	 	 	 	 	 	 	 	
     USEC’s long-term or long-lived assets include property, plant and equipment and other assets reported on the balance sheet at December 31, 2007, all of which were located in the United States.
126

 
18. QUARTERLY FINANCIAL DATA (Unaudited)
     The following table summarizes quarterly and annual results of operations (in millions, except per share data):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	March 31,	 	 	June 30,	 	 	Sept. 30,	 	 	Dec. 31,	 	 	Year	 	
 	 	2007	 	 	2007	 	 	2007	 	 	2007	 	 	2007	 	
Revenue	 	$	465.0	 	 	$	211.1	 	 	$	634.7	 	 	$	617.2	 	 	$	1,928.0	 	
Cost of sales	 	 	391.8	 	 	 	183.4	 	 	 	522.7	 	 	 	542.6	 	 	 	1,640.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	73.2	 	 	 	27.7	 	 	 	112.0	 	 	 	74.6	 	 	 	287.5	 	
Advanced technology costs	 	 	33.7	 	 	 	35.6	 	 	 	30.8	 	 	 	27.2	 	 	 	127.3	 	
Selling, general and administrative	 	 	12.5	 	 	 	11.5	 	 	 	9.0	 	 	 	12.3	 	 	 	45.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	 	27.0	 	 	 	(19.4	)	 	 	72.2	 	 	 	35.1	 	 	 	114.9	 	
Interest expense	 	 	3.5	 	 	 	2.4	 	 	 	3.3	 	 	 	7.7	 	 	 	16.9	 	
Interest (income)	 	 	(9.9	)	 	 	(7.9	)	 	 	(3.9	)	 	 	(12.1	)	 	 	(33.8	)	
Provision (benefit) for income taxes	 	 	(5.9	)	 	 	(0.5	)	 	 	27.2	 	 	 	14.4	 	 	 	35.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	39.3	 	 	$	(13.4	)	 	$	45.6	 	 	$	25.1	 	 	$	96.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	.45	 	 	$	(.15	)	 	$	.52	 	 	$	.22	 	 	$	1.04	 	
Diluted	 	$	.45	 	 	$	(.15	)	 	$	.51	 	 	$	.13	 	 	$	.94	 	
Average number of shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	86.8	 	 	 	87.1	 	 	 	87.9	 	 	 	110.1	 	 	 	93.0	 	
Diluted	 	 	87.2	 	 	 	87.1	 	 	 	89.8	 	 	 	122.3	 	 	 	105.8	 	

 	 	March 31,	 	 	June 30,	 	 	Sept. 30,	 	 	Dec. 31,	 	 	Year	 	
 	 	2006	 	 	2006	 	 	2006	 	 	2006	 	 	2006	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	361.3	 	 	$	525.3	 	 	$	417.8	 	 	$	544.2	 	 	$	1,848.6	 	
Cost of sales	 	 	269.3	 	 	 	445.7	 	 	 	365.7	 	 	 	431.0	 	 	 	1,511.7	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	92.0	 	 	 	79.6	 	 	 	52.1	 	 	 	113.2	 	 	 	336.9	 	
Special charges (1)	 	 	1.5	 	 	 	—	 	 	 	(0.1	)	 	 	2.5	 	 	 	3.9	 	
Advanced technology costs	 	 	19.8	 	 	 	27.3	 	 	 	23.9	 	 	 	34.5	 	 	 	105.5	 	
Selling, general and administrative	 	 	11.7	 	 	 	14.1	 	 	 	10.9	 	 	 	12.1	 	 	 	48.8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	59.0	 	 	 	38.2	 	 	 	17.4	 	 	 	64.1	 	 	 	178.7	 	
Interest expense	 	 	4.7	 	 	 	3.5	 	 	 	3.2	 	 	 	3.1	 	 	 	14.5	 	
Interest (income)	 	 	(1.8	)	 	 	(0.5	)	 	 	(1.7	)	 	 	(2.2	)	 	 	(6.2	)	
Provision for income taxes	 	 	21.5	 	 	 	13.6	 	 	 	6.0	 	 	 	23.1	 	 	 	64.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	34.6	 	 	$	21.6	 	 	$	9.9	 	 	$	40.1	 	 	$	106.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	.40	 	 	$	.25	 	 	$	.11	 	 	$	.46	 	 	$	1.22	 	
Diluted	 	$	.40	 	 	$	.25	 	 	$	.11	 	 	$	.46	 	 	$	1.22	 	
Average number of shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	86.3	 	 	 	86.6	 	 	 	86.7	 	 	 	86.8	 	 	 	86.6	 	
Diluted	 	 	86.6	 	 	 	86.9	 	 	 	86.9	 	 	 	87.0	 	 	 	86.8	 	

(1)	 	Special charges consisted of a $1.5 million charge related to consolidation of office space in connection with the 2005 restructuring plan, credits of $0.2 million representing changes in estimate of costs for termination benefits charged in 2005, and a $2.6 million impairment of an intangible asset established in 2004 relating to the acquisition of NAC.	
     The calculation of net income per share and average number of shares outstanding on a dilutive basis for the years ended December 31, 2007, 2006 and 2005 is provided in note 9. No dilutive effect is recognized in periods in which a net loss has occurred.
127

 
GLOSSARY
American Centrifuge — An advanced uranium enrichment technology based on the proven workable U.S. centrifuge technology developed by DOE in the mid-1980s.
American Centrifuge Demonstration Facility — Demonstration facility in Piketon, Ohio where USEC has installed and is operating centrifuge machines as part of its Lead Cascade test program to demonstrate the American Centrifuge technology.
American Centrifuge Plant (“ACP”) — USEC’s planned commercial uranium enrichment facility using centrifuge technology. USEC plans to install thousands of centrifuge machines and operate the facility in the gas centrifuge enrichment plant buildings in Piketon, Ohio owned by DOE.
Assay — The concentration of U235 expressed by percentage of weight in a given quantity of uranium ore, uranium hexafluoride, uranium oxide or other uranium form. An assay of 3% to 5% U 235  is required for most commercial nuclear power plants.
Centrifuge — A technology for enriching uranium by spinning uranium hexafluoride at high speed and using centrifugal force to separate the heavier U 238  from the lighter U 235 .
CERCLA — The Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. 9601 et seq.), a federal law passed in 1980 by the Superfund Amendments and Reauthorization Act. The act created a government trust fund, commonly known as Superfund, to investigate and clean up abandoned or uncontrolled hazardous waste sites.
Depleted Uranium — Uranium hexafluoride that is depleted in the U235 isotope as a result of the enrichment process.
DOC — The U.S. Department of Commerce.
DOE — The U.S. Department of Energy.
Downblending —The diluting or mixing of highly enriched uranium with depleted or natural uranium to produce low enriched uranium with a concentration of U 235  of less than 5% for use in commercial nuclear reactors.
Enrichment — The step in the nuclear fuel cycle that increases the weight percent of U235 relative to U238 in order to make uranium usable as a fuel for nuclear power reactors.
EPA — The U.S. Environmental Protection Agency.
Freon — The trade name for a group of chlorofluorocarbons (CFCs) used primarily as a refrigerant. The Paducah GDP uses Freon as the primary process coolant. The production of Freon in the United States was terminated in 1995.
Gaseous Diffusion — A means of enriching uranium hexafluoride, which is heated to a gas and passed repeatedly through a porous barrier to separate the heavier U 238  from the lighter U 235 . The gas that diffuses through the barrier becomes increasingly more concentrated or enriched.
128

 
Highly Enriched Uranium —Uranium enriched in the isotope U235 to an assay equal to or greater than 20%.
Isotope — One or more atoms of an element having the same atomic number but different mass number.
Lead Cascade — An array of full-size centrifuge machines operating in a closed-loop configuration, from which samples are withdrawn for testing purposes and the enriched and depleted uranium streams are recombined into feed material.
Low Enriched Uranium (“LEU”) — Uranium enriched in the isotope U235 to an assay of less than 20%. Commercial grade LEU typically has an assay of 3% to 5% and is used as fuel in nuclear reactors for the generation of electric power.
Megatons to Megawatts — The Russian Contract.
Megawatt (“MW”) — A megawatt equals 1,000 kilowatts. One megawatt-hour represents one hour of electricity consumption at a constant rate of 1 MW.
Natural Uranium — Uranium that has not been enriched or depleted in the isotope U235.
NMMSS — The Nuclear Materials Management and Safeguards System of the DOE and NRC.
NRC — The U.S. Nuclear Regulatory Commission.
Paducah GDP — The Paducah gaseous diffusion plant in Paducah, Kentucky.
Portsmouth GDP — The Portsmouth gaseous diffusion plant in Piketon, Ohio.
Price-Anderson Act — Price-Anderson Nuclear Industry Indemnities Act of 1957, as amended, provides a system of indemnification for certain legal liability resulting from a nuclear incident in connection with contractual activity for DOE.
Russian Contract — Contract, dated January 14, 1994, between USEC and TENEX to implement the Agreement between the United States and the Russian Federation Concerning the Disposition of Highly Enriched Uranium Extracted from Nuclear Weapons. Under the contract, USEC serves as Executive Agent for the United States Government, and TENEX serves as Executive Agent for the Federal Agency for Atomic Energy of the Russian Federation.
Russian Suspension Agreement — A 1992 agreement between the U.S. Commerce Department and the Russian Ministry of Atomic Energy (later succeeded by the Russian Federal Atomic Energy Agency), suspending an antidumping investigation against imports of Russian uranium products that had resulted in preliminary duties in excess of 100% of the value of the imports.
Separative Work Unit (“SWU”) — The standard measure of enrichment in the uranium enrichment industry is a separative work unit or SWU. A SWU represents the effort that is required to transform a given amount of natural uranium into two streams of uranium, one enriched in the U 235  isotope and the other depleted in the U 235  isotope, and is measured using a standard formula based on the physics of uranium enrichment. The amount of enrichment contained in LEU under this formula is commonly referred to as the SWU component.
Technetium — A byproduct from the operation of nuclear reactors and a contaminant in natural uranium.
129

 
TENEX — OAO Techsnabexport, Executive Agent for the Federal Agency for Atomic Energy of the Russian Federation under the Russian Contract.
TVA — Tennessee Valley Authority, a federally-chartered corporation that supplies electric power to the Paducah gaseous diffusion plant.
Underfeeding — A mode of operation that uses or feeds less uranium but requires more SWU in the enrichment process, which requires more electric power.
Uranium — One of the heaviest elements found in nature. Approximately 993 of every 1000 uranium atoms are U238 while approximately seven atoms are U 235 , which can be made to split, or fission, and generate heat energy.
Uranium Hexafluoride — Uranium chemical compound produced from converting natural uranium oxide into a fluoride at a conversion plant. Uranium hexafluoride is the feed material for uranium enrichment plants.
130

 
EXHIBIT INDEX
 	 	 	
Exhibit No.	 	Description	
 	
3.1	 	Certificate of Incorporation of USEC Inc., incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1, filed June 29, 1998 (Commission file number 333-57955).	
 	 	 	
3.2	 	Certificate of Increase to the Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on September 25, 2007 (Commission file number 1-14287).	
 	 	 	
3.3	 	Amended and Restated Bylaws of USEC Inc., dated December 13, 2007, incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on December 13, 2007 (Commission file number 1-14287).	
 	 	 	
4.1	 	Indenture, dated January 15, 1999, between USEC Inc. and First Union National Bank, incorporated by reference to Exhibit 4.2 of the Annual Report on Form 10-K for the fiscal year ended June 30, 1999 (Commission file number 1-14287).	
 	 	 	
4.2	 	Rights Agreement, dated April 24, 2001, between USEC Inc. and Fleet National Bank, as Rights Agent, including the form of Certificate of Designation, Preferences and Rights as Exhibit A, the form of Rights Certificates as Exhibit B and the Summary of Rights as Exhibit C, incorporated by reference to Exhibit 4.3 of the Registration Statement on Form 8-A filed April 24, 2001 (Commission file number 1-14287).	
 	 	 	
4.3	 	Indenture dated September 28, 2007, between USEC Inc. and Wells Fargo Bank, N.A., incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed on September 28, 2007 (Commission file number 1-14287).	
 	 	 	
10.1	 	Lease Agreement between the United States Department of Energy (“DOE”) and the United States Enrichment Corporation, dated as of July 1, 1993, including notice of exercise of option to renew, incorporated by reference to Exhibit 10.1 of the Registration Statement on Form S-1, filed June 29, 1998 (Commission file number 333-57955).	
 	 	 	
10.2	 	Supplemental Agreement No. 1 to the Lease Agreement between DOE and the United States Enrichment Corporation, dated as of December 7, 2006, incorporated by reference to Exhibit 10.2 of the Annual Report on Form 10-K for the year ended December 31, 2006 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to confidential treatment under Rule 24b-2).	
 	 	 	
10.3	 	Contract between United States Enrichment Corporation, Executive Agent of the United States of America, and AO Techsnabexport, Executive Agent of the Ministry of Atomic Energy, Executive Agent of the Russian Federation, dated January 14, 1994, as amended (“Russian Contract”) incorporated by reference to Exhibit 10.17 of the Registration Statement on Form S-1, filed June 29, 1998 (Commission file number 333-57955).	
 	 	 	
10.4	 	Amendment No. 11, dated June 1998, to Russian Contract, incorporated by reference to Exhibit 10.4 of the Annual Report on Form 10-K for the year ended December 31, 2005 (Commission file number 1-14287).	
 	 	 	
10.5	 	Amendment No. 12, dated March 4, 1999, to Russian Contract, incorporated by reference to Exhibit 10.36 of the Annual Report on Form 10-K for the fiscal year ended June 30, 1999 (Commission file number 1-14287).	
 	 	 	
10.6	 	Amendment No. 13, dated November 11, 1999, to Russian Contract, incorporated by reference to Exhibit 10.6 of the Annual Report on Form 10-K for the year ended December 31, 2005 (Commission file number 1-14287).	
 	 	 	
10.7	 	Amendment No. 14, dated October 27, 2000, to Russian Contract, incorporated by reference to Exhibit 10.7 of the Annual Report on Form 10-K for the year ended December 31, 2005 (Commission file number 1-14287).	
131

 
 	 	 	
Exhibit No.	 	Description	
 	
10.8	 	Amendment No. 15, dated January 18, 2001, to Russian Contract, incorporated by reference to Exhibit 10.8 of the Annual Report on Form 10-K for the year ended December 31, 2005 (Commission file number 1-14287).	
 	 	 	
10.9	 	Amendment No. 17, dated December 5, 2007, to Russian Contract. (Certain information has been omitted and filed separately pursuant to a request for confidential treatment under Rule 24b-2). (a)	
 	 	 	
10.10	 	Memorandum of Agreement, dated April 6, 1998, between the Office of Management and Budget and United States Enrichment Corporation relating to post-privatization liabilities, incorporated by reference to Exhibit 10.18 of the Registration Statement on Form S-1, filed June 29, 1998 (Commission file number 333-57955).	
 	 	 	
10.11	 	Memorandum of Agreement, dated April 20, 1998, between DOE and United States Enrichment Corporation for transfer of natural uranium and highly enriched uranium and for blending down of highly enriched uranium, incorporated by reference to Exhibit 10.20 of the Registration Statement on Form S-1, filed June 29, 1998 (Commission file number 333-57955).	
 	 	 	
10.12	 	Memorandum of Agreement entered into as of April 18, 1997, between the United States, acting by and through the United States Department of State and the DOE, and United States Enrichment Corporation for United States Enrichment Corporation to serve as the United States Government’s Executive Agent under the Agreement between the United States and the Russian Federation concerning the disposal of highly enriched uranium extracted from nuclear weapons, incorporated by reference to Exhibit 10.25 of the Registration Statement on Form S-1/A, filed July 21, 1998 (Commission file number 333-57955).	
 	 	 	
10.13	 	Memorandum of Agreement, entered into as of June 30, 1998, between DOE and United States Enrichment Corporation regarding certain worker benefits, incorporated by reference to Exhibit 10.27 of the Registration Statement on Form S-1/A, filed July 21, 1998 (Commission file number 333-57955).	
 	 	 	
10.14	 	Power Contract between Tennessee Valley Authority and United States Enrichment Corporation, dated July 11, 2000 (“TVA Power Contract”), incorporated by reference to Exhibit 10.45 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to confidential treatment under Rule 24b-2).	
 	 	 	
10.15	 	Supplement No. 1 dated March 2, 2006 to TVA Power Contract, incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to confidential treatment under Rule 24b-2).	
 	 	 	
10.16	 	Supplement No. 2 dated March 2, 2006 to TVA Power Contract, incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to confidential treatment under Rule 24b-2).	
 	 	 	
10.17	 	Amendatory Agreement (Supplement No. 3) dated April 3, 2006 to TVA Power Contract, incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to confidential treatment under Rule 24b-2).	
 	 	 	
10.18	 	Amendatory Agreement (Supplement No. 4) dated June 1, 2007 to Power Contract between Tennessee Valley Authority and United States Enrichment Corporation, incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to a request for confidential treatment under Rule 24b-2).	
 	 	 	
10.19	 	Agreement, dated June 17, 2002, between DOE and USEC Inc., incorporated by reference to Exhibit 10.54 of the current report on Form 8-K filed June 21, 2002 (Commission file number 1-14287).	
132

 
 	 	 	
Exhibit No.	 	Description	
 	
10.20	 	Modification 1 to Agreement dated June 17, 2002 between DOE and USEC Inc., dated August 20, 2002, incorporated by reference to Exhibit 10.15 of the Annual Report on Form 10-K for the year ended December 31, 2005 (Commission file number 1-14287).	
 	 	 	
10.21	 	Cooperative Research and Development Agreement, Development of an Economically Attractive Gas Centrifuge Machine and Enrichment Process, by and between UT-Battelle, LLC, under its DOE Contract, and USEC Inc., dated June 30, 2000, Amendment A, dated July 12, 2002, and Amendment B, dated September 11, 2002, incorporated by reference to Exhibit 10.58 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (Commission file number 1-14287).	
 	 	 	
10.22	 	Amendment C to the Cooperative Research and Development Agreement, Development of an Economically Attractive Gas Centrifuge Machine and Enrichment Process, by and between UT-Battelle, LLC, under its DOE Contract, and USEC Inc., dated February 28, 2007, incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (Commission file number 1-14287).	
 	 	 	
10.23	 	Amendment D to the Cooperative Research and Development Agreement, Development of an Economically Attractive Gas Centrifuge Machine and Enrichment Process, by and between UT-Battelle, LLC, under its DOE Contract, and USEC Inc., dated August 10, 2007, incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. (Commission file number 1-14287).	
 	 	 	
10.24	 	Administrative Order on Consent for Removal Action in the Matter of Starmet CMI, dated February 6, 2004, between the United States Environmental Protection Agency, United States Enrichment Corporation, DOE and United States Department of the Army, incorporated by reference to Exhibit 10.64 of the Annual Report on Form 10-K for the year ended December 31, 2003 (Commission file number 1-14287).	
 	 	 	
10.25	 	Memorandum of Understanding between USEC Inc. and DOE, dated October 22, 2004, Effectuating the Transfer of Natural Uranium Hexafluoride for Affected Inventory, incorporated by reference to Exhibit 10.68 of the current report on Form 8-K filed October 28, 2004 (Commission file number 1-14287).	
 	 	 	
10.26	 	Memorandum of Agreement between USEC Inc. and DOE, dated as of December 10, 2004, for the Continued Operation of Portsmouth S&T Facilities for the Processing of Affected Inventory in Fiscal Year 2005 and Thereafter, incorporated by reference to Exhibit 10.75 of the current report on Form 8-K filed December 16, 2004 (Commission file number 1-14287).	
 	 	 	
10.27	 	Amendment No. 1 to the December 10, 2004 Memorandum of Agreement between DOE and USEC Inc., dated May 16, 2005, incorporated by reference to Exhibit 10.23 of the Annual Report on Form 10-K for the year ended December 31, 2005 (Commission file number 1-14287).	
 	 	 	
10.28	 	Amendment No. 2 to the December 10, 2004 Memorandum of Agreement between DOE and USEC Inc., dated February 9, 2006, incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (Commission file number 1-14287).	
 	 	 	
10.29	 	Amendment No. 3 to the December 10, 2004 Memorandum of Agreement between DOE and USEC Inc., dated June 23, 2006, incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (Commission file number 1-14287).	
 	 	 	
10.30	 	Amendment No. 4 to the December 10, 2004 Memorandum of Agreement between DOE and USEC Inc., dated September 18, 2006, incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (Commission file number 1-14287).	
 	 	 	
10.31	 	Amendment No. 5 to the December 10, 2004 Memorandum of Agreement between DOE and USEC Inc., dated November 30, 2006, incorporated by reference to Exhibit 10.29 of the Annual Report on Form 10-K for the year ended December 31, 2006 (Commission file number 1-14287).	
133

 
 	 	 	
Exhibit No.	 	Description	
 	
10.32	 	Amended and Restated Revolving Credit Agreement dated as of August 18, 2005 among USEC Inc., United States Enrichment Corporation, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative and collateral agent, J.P. Morgan Securities, Inc., Merrill Lynch Capital and Goldman Sachs Credit Partners, L.P., as joint book managers and joint lead arrangers, Merrill Lynch Capital and Goldman Sachs Credit Partners, L.P., as co-syndication agents, GMAC Commercial Finance LLC and Wachovia Bank, National Association, as co-documentation agents, and CIT Capital Securities, LLC, as co-agent, incorporated by reference to Exhibit 10.83 of the Current Report on Form 8-K filed on August 23, 2005 (Commission file number 1-14287).	
 	 	 	
10.33	 	First Amendment to Amended and Restated Revolving Credit Agreement dated as of August 18, 2005 among USEC Inc., United States Enrichment Corporation, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative and collateral agent, and the other financial institutions named therein, dated March 6, 2006, incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (Commission file number 1-14287).	
 	 	 	
10.34	 	Second Amendment to Amended and Restated Revolving Credit Agreement among USEC Inc., United States Enrichment Corporation, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative and collateral agent, and the other financial institutions named therein, dated October 16, 2006, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on October 19, 2006 (Commission file number 1-14287).	
 	 	 	
10.35	 	Third Amendment dated September 21, 2007 to the Amended and Restated Revolving Credit Agreement, dated as of August 18, 2005, among USEC Inc., United States Enrichment Corporation, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative and collateral agent, and the other financial institutions named therein, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on September 25, 2007 (Commission file number 1-14287).	
 	 	 	
10.36	 	Amended and Restated Omnibus Pledge and Security agreement dated as of August 18, 2005 by USEC Inc., United States Enrichment Corporation, NAC Holding Inc. and NAC International Inc., in favor of JPMorgan Chase Bank, N.A., as administrative and collateral agent for the lenders, incorporated by reference to Exhibit 10.84 of the Current Report on Form 8-K filed on August 23, 2005 (Commission file number 1-14287).	
 	 	 	
10.37	 	License dated December 7, 2006 between the United States of America, as represented by DOE, as licensor, and USEC Inc., as licensee, incorporated by reference to Exhibit 10.34 of the Annual Report on Form 10-K for the year ended December 31, 2006 (Commission file number 1-14287).	
 	 	 	
10.38	 	Contract dated June 25, 2007 between USEC Inc. and BWXT Services, Inc., incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to a request for confidential treatment under Rule 24b-2).	
 	 	 	
10.39	 	Contract dated as of August 16, 2007 between USEC Inc., ATK Space Systems Inc., a subsidiary of Alliant Techsystems, and Hexcel Corporation, incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to a request for confidential treatment under Rule 24b-2).	
 	 	 	
10.40	 	Contract dated August 30, 2007 between USEC Inc. and Major Tool and Machine, Inc., incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 (Commission file number 1-14287). (Certain information has been omitted and filed separately pursuant to a request for confidential treatment under Rule 24b-2).	
 	 	 	
10.41	 	Form of Director and Officer Indemnification Agreement, incorporated by reference to Exhibit 10.25 of the Registration Statement on Form S-1/A, filed July 21, 1998 (Commission file number 333-57955). (b)	
 	 	 	
10.42	 	Form of Change in Control Agreement with executive officers. (a)(b)	
 	 	 	
10.43	 	Form of Change in Control Agreement with senior executive officers. (a)(b)	
 	 	 	
10.44	 	USEC Inc. 1999 Equity Incentive Plan, incorporated by reference to Exhibit 10.35 of the Registration Statement on Form S-8, No. 333-71635, filed February 2, 1999. (b)	
134

 
 	 	 	
Exhibit No.	 	Description	
 	
10.45	 	First Amendment to the USEC Inc. 1999 Equity Incentive Plan, incorporated by reference to Annex B of Schedule 14A filed March 31, 2004, with respect to the 2004 annual meeting of shareholders (Commission file number 1-14287). (b)	
 	 	 	
10.46	 	Second Amendment to the USEC Inc. 1999 Equity Incentive Plan, dated November 1, 2007. (a)(b)	
 	 	 	
10.47	 	Form of Employee Nonqualified Stock Option Agreement, incorporated by reference to Exhibit 4.4 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (Commission file number 1-14287). (b)	
 	 	 	
10.48	 	Form of Employee Restricted Stock Award Agreement (stock in lieu of annual incentive), incorporated by reference to Exhibit 4.6 of the Annual Report on Form 10-K for the year ended December 31, 2004 (Commission file number 1-14287). (b)	
 	 	 	
10.49	 	Form of Employee Restricted Stock Award Agreement (three year vesting), incorporated by reference to Exhibit 4.7 of the Annual Report on Form 10-K for the year ended December 31, 2004 (Commission file number 1-14287). (b)	
 	 	 	
10.50	 	Form of Non-Employee Director Nonqualified Stock Option Agreement, incorporated by reference to Exhibit 4.8 of the Annual Report on Form 10-K for the year ended December 31, 2004 (Commission file number 1-14287). (b)	
 	 	 	
10.51	 	Form of Non-Employee Director Restricted Stock Award Agreement — Founder’s Stock and Incentive Stock, incorporated by reference to Exhibit 4.9 of the Annual Report on Form 10-K for the year ended December 31, 2004 (Commission file number 1-14287). (b)	
 	 	 	
10.52	 	Form of Non-Employee Director Restricted Stock Award Agreement — Annual Retainers and Meeting Fees, incorporated by reference to Exhibit 4.10 of the Annual Report on Form 10-K for the year ended December 31, 2004 (Commission file number 1-14287). (b)	
 	 	 	
10.53	 	Form of Non-Employee Director Restricted Stock Unit Award Agreement (Annual Retainers and Meeting Fees). (a)(b)	
 	 	 	
10.54	 	Form of Non-Employee Director Restricted Stock Unit Award Agreement (Incentive Awards). (a)(b)	
 	 	 	
10.55	 	USEC Inc. Pension Restoration Plan, as amended and restated, dated November 1, 2007. (a)(b)	
 	 	 	
10.56	 	USEC Inc. 401(k) Restoration Plan, incorporated by reference to Exhibits 10.41(a) through (f) of the Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 (Commission file number 1-14287). (b)	
 	 	 	
10.57	 	USEC Inc. Supplemental Executive Retirement Plan, dated April 7, 1999 and amended April 25, 2001, incorporated by reference to Exhibit 10.51 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2001 (Commission file number 1-14287). (b)	
 	 	 	
10.58	 	Summary Sheet for 2006 Non-Employee Director Compensation, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 18, 2006 (Commission file number 1-14287). (b)	
 	 	 	
10.59	 	Summary Sheet for 2007 Non-Employee Director Compensation, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (Commission file number 1-14287). (b)	
 	 	 	
10.60	 	Summary of Compensation Arrangements for Certain Executive Officers, incorporated by reference to Exhibit 10.90 of the Current Report on Form 8-K filed on September 16, 2005 (Commission file number 1-14287). (b)	
 	 	 	
10.61	 	Summary of Compensation Arrangement with James R. Mellor, incorporated by reference to Exhibit 10.61 of the Annual Report on Form 10-K for the year ended December 31, 2006 (Commission file number 1-14287). (b)	
135

 
 	 	 	
Exhibit No.	 	Description	
 	
10.62	 	Summary of 2006 Annual Performance Objectives for Executive Officers, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on February 10, 2006 (Commission file number 1-14287). (b)	
 	 	 	
10.63	 	Summary of 2007 Annual Performance Objectives for Executive Officers, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on February 14, 2007 (Commission file number 1-14287). (b)	
 	 	 	
10.64	 	USEC Inc. 2006 Supplemental Executive Retirement Plan, as amended and restated, dated November 1, 2007. (a)(b)	
 	 	 	
10.65	 	Executive Incentive Plan Summary Plan Description, incorporated by reference to Exhibit 10.1 of the current report on Form 8-K filed on April 28, 2006 (Commission file number 1-14287). (b)	
 	 	 	
10.66	 	Summary of Employment Arrangement for Chief Financial Officer, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K/A filed on September 11, 2006 (Commission File Number 1-14287). (b)	
 	 	 	
10.67	 	USEC Inc. Executive Deferred Compensation Plan, dated November 1, 2007. (a)(b)	
 	 	 	
10.68	 	USEC Inc. Director Deferred Compensation Plan, dated November 1, 2007. (a)(b)	
 	 	 	
21	 	Subsidiaries of USEC Inc. (a)	
 	 	 	
23.1	 	Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. (a)	
 	 	 	
31.1	 	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). (a)	
 	 	 	
31.2	 	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). (a)	
 	 	 	
32	 	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (a)	
 	 	 	
99.1	 	Letter from U.S. Department of State, dated August 23, 2002, in compliance with Rule 0-6 of the Securities Exchange Act of 1934, incorporated by reference to Exhibit 99.4 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (Commission file number 1-14287).	
 	 	 	
99.2	 	Annual CEO Certification dated May 11, 2007, as filed with the New York Stock Exchange. (a)	

(a)	 	Filed herewith	
 	 	 	
(b)	 	Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of this report.	
136

 
EXHIBIT 10.9
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS.
THE CONFIDENTIAL REDACTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH REDACTIONS.
DE-AC01-93NE50067,
08843672/50067-02
Amendment No. 017
      Amendment No. 017, signed as of December 3, 2007, to Contract No. DE-AC01-93NE50067, 08843672/50067-02 entered into January 14, 1994 (the “Contract”) by and between United States Enrichment Corporation (“USEC”), Executive Agent of the United States of America, and Joint Stock Company “Techsnabexport” (“TENEX”), Executive Agent of the Federal Atomic Energy Agency, Russian Federation (“Rosatom”), Executive Agent of the Russian Federation. (USEC and TENEX, acting in their capacities as Executive Agents, are referred to herein individually as a “Party” and collectively as the “Parties”). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Contract.
      Pursuant to Part 1, Sections H.04 and H.12(c) of the Contract, USEC and TENEX hereby agree as follows:
      SECTION 1. Notwithstanding any provision to the contrary in the Contract, USEC shall pay a per SWU price of ***** for the SWU component of low enriched uranium (LEU) delivered to USEC under Contract in 2008.
      SECTION 2. Both Parties shall seek to ensure that deliveries are made according to the delivery schedule for 2008 agreed by the Parties as of the date they signed this Amendment (the “Delivery Schedule”). However, notwithstanding the requirements of such Delivery Schedule, the initial deliveries of LEU in calendar year 2008 shall begin after all required approvals or endorsements of this Amendment by the Government of the Russian Federation have been obtained by TENEX and confirmation of the U.S. State Department, as the authorized agency of the U.S. Government, that USEC is authorized to sign this Amendment (or that the approval of the U.S. Government is not required) has been obtained by USEC (as described in Section 8 below). TENEX shall use its reasonable efforts to secure such Russian Government approvals or endorsements and USEC shall use its reasonable efforts to secure such U.S. Government confirmation.
      SECTION 3. Notwithstanding any provision to the contrary in the Contract, if approval or endorsement of this Amendment by the government of the Russian Federation (or its authorized agency(ies)) is obtained after January 1, 2008, the Delivery Schedule shall be subject to readjustment within 2008, by mutual agreement of the Parties, taking into account the following issues: (1) State Budget commitments of the Russian Executive Agent; and/or (2) production commitments of Russian enrichment facilities; and/or (3) logistical problems that may make it difficult and/or impossible for TENEX or USEC to adhere to the Delivery Schedule. The initial deliveries shall begin after the readjusted Delivery Schedule has been approved by Rosatom and signed by the Parties.

 
      SECTION 4. In Part I, Section G.04, the first sentence of the third paragraph (as amended by Amendment 11 to the Contract) is deleted and the last paragraph (as amended by Amendment 16 to the Contract) hereby is amended as follows: *****
      SECTION 5. *****.
      SECTION 6. Except as amended hereby, the Contract shall remain unchanged and in full force and effect.
      SECTION 7. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute one and the same instrument.
      SECTION 8. This Amendment shall enter into force and effect, the rights and obligations of the Parties under this Amendment shall arise and the Parties shall be bound by the obligations and entitled to the rights as set forth in this Amendment upon and as of the first day by which (i) the approval or endorsement of this Amendment by the Government of the Russian Federation or its authorized agency(ies) of the Government of the Russian Federation has been obtained and (ii) written confirmation that USEC, as the Executive Agent for the United States of America, is authorized to sign this Amendment (or confirmation that the approval of the U.S. Government is not required) has been obtained from the U.S. State Department as authorized agency of the U.S. Government. TENEX shall notify USEC as soon as such approval or endorsement of the Government of the Russian Federation or its authorized agency(ies) has been obtained and USEC shall notify TENEX as soon as such written confirmation has been obtained from the U.S. State Department.
      IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the date first written above.
 	 	 	 	 	 	 	 	
UNITED STATES ENRICHMENT
CORPORATION
 	 	JOINT STOCK COMPANY
“TECHSNABEXPORT”
 	 	
By:  	/s/ Philip G. Sewell  	 	By:  	/s/ Alexey A. Grigoriev  	 	
 	Philip G. Sewell
Senior Vice President	 	 	Alexey A. Grigoriev
General Director	 	

 

 
EXHIBIT 10.42
CHANGE IN CONTROL AGREEMENT
VP FORM
     AGREEMENT (this “Agreement”) by and between USEC Inc., a Delaware corporation (the “Company”) and                       (the “Executive”) dated as of                       ,                       , effective January 1, 2008.
     WHEREAS, the Executive is currently an employee of the Company;
     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is essential to the best interests of the Company and its shareholders to foster the continued employment of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined in Section 1 hereof) of the Company;
     WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Executive in the Executive’s assigned duties without distraction in the face of potentially disturbing circumstances arising from any possible Change in Control of the Company; and
     WHEREAS, the Board has concluded that the interests of the Company described above can be best satisfied by agreeing to make certain payments to the Executive if the Executive’s employment is terminated following a Change in Control;
     NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below:
     “Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by the Company, (ii) any entity in which the Company has a significant equity interest and (iii) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, in each case as determined by the Committee.
     “Cause” shall mean any of the following:
     (i) the engaging by the Executive in willful misconduct that is injurious to the Company or its Affiliates;
     (ii) the embezzlement or misappropriation of funds or property of the Company or its Affiliates by the Executive, or the conviction of the Executive of a felony or the entrance of a plea of guilty or nolo contendere by the Executive to a felony; or
     (iii) the willful failure or refusal by the Executive to substantially perform his or her duties or responsibilities that continues after demand for substantial performance is delivered by the Company to the Executive that specifically identifies the manner in which the Company believes the Executive has not substantially performed his or her

 
duties (other than (a) any such failure resulting from the Executive’s incapacity due to Disability, or (b) any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason).
For purposes of this definition, no act, or failure to act, on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by him or her not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive’s employment shall not be deemed to have been terminated for Cause unless (A) a reasonable notice shall have been given to him or her setting forth in reasonable detail the reasons for the Company’s intentions to terminate for Cause, and if such termination is pursuant to clause (i) or (iii) above, and the damage to the Company is curable, only if the Executive has been provided a period of ten business days from receipt of such notice to cease the actions or inactions, and he or she has not done so; (B) an opportunity shall have been provided for the Executive together with his or her counsel, to be heard before the Board; and (C) if such termination is pursuant to clause (i) or (iii) above, delivery shall have been made to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of a majority of the non-management members of the Board he or she was guilty of conduct set forth in clause (i) or (iii) above, and specifying the particulars thereof in reasonable detail. Any determination of Cause made by the Company in accordance with the foregoing procedure shall be made by the Company, in its sole discretion. Any such determination shall be final and binding on the Executive.
     “Change in Control” shall mean the following and shall be deemed to have occurred if any of the following events shall have occurred:
     (i) any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act or Persons acting as a group (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Shares), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company by reason of having acquired such securities during the 12-month period ending on the date of the most recent acquisition (not including any securities acquired directly from the Company or its Affiliates) representing thirty percent (30%) or more of the total voting power of the Company’s then outstanding voting securities;
     (ii) the majority of members of the Company’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of the appointment;
     (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, resulting in a change described in (i), (ii), (iv) or (v) of this definition, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by
2

 
being converted into voting securities of the surviving or parent entity) more than sixty percent (60%) of the total voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person, directly or indirectly, acquired forty percent (40%) or more of the total voting power of the Company’s then outstanding securities (not including any securities acquired directly from the Company or its Affiliates);
     (iv) a complete liquidation of the Company involving the sale to any Person or group of at least forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before the liquidation; or
     (v) the sale or disposition by the Company to any Person or group of all or substantially all of the Company’s assets, but in no event less than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before such sale or disposition (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the total voting power of the voting securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
     “Code” shall mean the Internal Revenue Code of 1986, as amended.
     “Committee” shall mean the Compensation Committee of the Company’s Board of Directors.
     “Disability” shall mean that the Executive has become totally and permanently disabled as defined or described in the Company’s long term disability benefit plan applicable to executive officers as in effect at the time the Executive’s disability is incurred.
     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
     “Good Reason” shall mean, without the Executive’s express written consent, any of the following, unless such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
     (i) the Executive is removed from the Executive’s position as in effect immediately prior to the Change in Control for any reason other than (A) by reason of death, Disability or Retirement or (B) for Cause; provided that such action results in a material diminution of Executive’s authority, duties or responsibilities;
     (ii) the Executive is assigned any duties inconsistent in a material respect with the Executive’s position (including status, offices, titles and reporting relationships), authority, duties or responsibilities as in effect immediately prior to the Change in Control if such assignment results in a material diminution in such position, authority, duties or responsibilities (excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly following notice thereof given by the Executive);
3

 
     (iii) the Company materially breaches any agreement under which the Executive provides services;
     (iv) the Executive’s annual base salary or annual bonus opportunity as in effect immediately prior to the Change in Control (or thereafter if higher) is reduced (except for across-the-board reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company); provided such reduction is a material diminution of Executive’s base compensation or a material breach of any agreement under which the Executive provides services;
     (v) the failure by the Company to continue to provide the Executive with benefits at least as favorable in the aggregate as those enjoyed by the Executive under the Company’s pension, life insurance, medical, health and accident, disability, travel, deferred compensation and savings plans in which the Executive was participating at the time of the Change in Control, the taking of any action by the Company that would directly or indirectly materially reduce such benefits in the aggregate or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control unless such material fringe benefit is replaced with a comparable benefit, or the failure by the Company to continue to provide the Executive with the number of paid vacation days to which the Executive is entitled; provided such reduction in benefits and compensation is a material breach of any agreement under which the Executive provides services;
     (vi) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 9 hereof;
     (vii) any relocation of the Executive’s principal place of business from its location as of the date immediately preceding a Change in Control, by more than fifty(50) miles; or
     (viii) any purported termination of the Executive’s employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(b) hereof, which termination for purposes of this Agreement shall be ineffective.
Notwithstanding the foregoing, a termination shall not be treated as a termination for Good Reason unless the Executive shall have delivered a Notice of Termination stating that the Executive intends to terminate employment for Good Reason within ninety (90) days, and such Termination must occur within two years, of the Executive’s having actual knowledge of the initial occurrence of one or more of such events, provided, in each such event, the Company fails to cure within thirty (30) days of receipt of such Notice of Termination. For purposes of this Agreement, any good faith determination of “Good Reason” or good faith determination of the Company’s failure to cure within the thirty (30) day period made by the Executive shall be conclusive.
     “Retirement” shall mean the Executive’s Separation from Service initiated by the Executive after attainment by the Executive of age sixty-five (65).
4

 
     “Section 409A Penalties” shall have the meaning set forth in Section 14 of this Agreement.
     “Specified Employee” shall mean any person described in Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i) as determined from time to time by the Committee in its discretion.
     “Shares” shall mean shares of common stock, $0.10 par value, of the Company, or such other securities of the Company as may be designated by the Committee from time to time.
     “Termination of Employment” shall mean and be interpreted in a manner consistent with the definition of “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h). The Company retains the right and discretion to specify, and may specify, whether a Termination of Employment occurs for individuals providing services to the Company immediately prior to an asset purchase transaction in which the Company is the seller, who provide services to a buyer after and in connection with such asset purchase transaction; provided, such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4).
2. Term of Agreement. The term of this Agreement will commence as of the date hereof (the “Effective Date”) and shall continue in effect until the third anniversary of the Effective Date, unless further extended or sooner terminated as hereinafter provided. Commencing on the first anniversary of the Effective Date, and on each anniversary of such date thereafter (each, an “Anniversary Date”), the term shall automatically be extended for one additional year unless the Board of Directors of the Company (the “Board”) gives notice to the Executive, at least two months prior to such Anniversary Date, that it does not wish to extend the term. Notwithstanding the foregoing, upon the occurrence of a Change in Control during the term of this Agreement, this Agreement shall continue in effect for a period of three years from the date of such Change in Control, unless sooner terminated as hereinafter provided.
3. Termination Following Change in Control.
     (a) If a Change in Control shall have occurred, upon a Termination of Employment during the term of this Agreement by the Company without Cause, or by the Executive for Good Reason, the Executive shall be entitled to the benefits provided in Section 4 hereof.
     (b) Notice of Termination. Following a Change in Control, any purported Termination of Employment by the Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and shall specify the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the
5

 
Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights under this Agreement.
     (c) Date of Termination. Following a Change in Control, “Date of Termination” shall mean the date within the term of the Agreement specified in the Notice of Termination, which shall not be less than thirty (30) nor more than sixty (60) days from the date such Notice of Termination is given, (except for a termination pursuant to paragraph (vi) of the definition of Good Reason, in which event the date upon which any succession referred to therein becomes effective shall be deemed the Date of Termination, or a Termination of Employment by the Company for Cause, in which event the date such notice is received shall be the Date of Termination).
4. Compensation upon Termination without Cause or for Good Reason. Following a Change in Control, upon any Termination of Employment of the Executive by the Company without Cause (other than because of death, Disability or Retirement), or any Termination of Employment by the Executive for Good Reason, in any case, during the term of this Agreement, in lieu of any severance benefits Executive would otherwise be eligible to receive under any employment agreement with the Company or under the Company’s severance plan, if any, as in effect immediately prior to the Change in Control, the Executive shall be entitled to the following benefits and payments:
     (a) A cash lump sum payment (payable within ten days of the Date of Termination) of full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given or, if higher, at the rate in effect immediately prior to the reduction giving rise (pursuant to clause (iv) of the definition of Good Reason) to such termination, plus all other amounts to which the Executive is entitled under any compensation or benefit plan of the Company at the time such payments are due under the terms of such plans;
     (b) A cash lump sum payment (payable within ten (10) days of the Date of Termination) equal to two (2) times the sum of the Final Salary and the Final Average Bonus. “Final Salary” means the Executive’s annual base salary as in effect on the Date of Termination or, if higher, the Executive’s annual base salary in effect immediately prior to the reduction giving rise (pursuant to clause (iv) of the definition of Good Reason) to such termination. “Final Average Bonus” means the average of the three most recent annual bonuses paid to Executive prior to the Date of Termination, whether such annual bonuses are paid in the form of cash or in grants of restricted common stock of the Company or restricted stock units under the USEC Inc. Annual Incentive Program (which, under the USEC Inc. Annual Incentive Program, generally vests one(1) year after the date of grant);  provided ,  however , that (i) any annual bonus paid to Executive that was pro-rated or otherwise adjusted because Executive was not employed by the Company during the entire period to which such bonus related shall be annualized for purposes of the calculation of the Executive’s Final Average Bonus; (ii) if Executive has experienced a change in position that has affected Executive’s annual bonus opportunity (whether or not such change in position is accompanied by a change in title), any annual bonus paid to Executive with respect to a period prior to such change in position shall not be include in the calculation of the Executive’s Final Average Bonus; (iii) if Executive shall not have been paid at least three annual bonuses prior to the Date of Termination that are includable in the calculation of Executive’s Final Average Bonus, then Executive’s Final Average Bonus shall be an amount equal to the
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average of such lesser number of annual bonuses (or, if just one annual bonus, an amount equal to such bonus); and (iv) if Executive shall not have been paid at least one annual bonus prior to the Date of Termination that is includable in the calculation of Executive’s Final Average Bonus, Executive’s Final Average Bonus shall be an amount equal to Executive’s annual target bonus as in effect on the Date of Termination or, if higher, the Executive’s annual target bonus in effect immediately prior to the reduction giving rise (pursuant to clause (iv) of the definition of Good Reason) to such termination. Final Average Bonus shall not include any amount of cash or equity paid or granted as part of any long term incentive plan or program that the Company in its sole discretion may elect to maintain from time to time;
     (c) Subject to the Executive’s continued compliance with Section 7 hereof and the limitation in Section 12, life, accident and health insurance benefits substantially similar to those that the Executive was receiving immediately prior to the Change in Control (or thereafter, if higher) until the earlier to occur of (i) the second anniversary of the Date of Termination or (ii) such time as the Executive is covered by comparable programs of a subsequent employer. Benefits otherwise receivable by the Executive pursuant to this Section 4(c) shall be reduced to the extent comparable benefits are actually received during the two-year period following termination, and any such benefits actually received by the Executive shall be reported to the Company.
     (d) In addition to all other amounts payable under this Section 4, the Executive shall be entitled to receive all benefits payable under any other plan or agreement relating to retirement benefits (including plans or agreements of any successor following a Change in Control) in accordance with the terms of such plan or agreement; provided that, to the extent permitted by applicable law, the Executive shall be credited under such plans or agreements (including plans and agreements of any successor) with two years’ additional service with the Company after the Date of Termination for all purposes, including vesting, eligibility and benefit accrual; provided that if the benefit attributable to such service cannot be paid from a tax-qualified plan of the Company, such benefit shall be provided as an additional benefit (before offsets) under any supplemental executive retirement plan or restoration-type plan in which the Executive participates, and if the Executive participates in no such plan, such benefit shall be paid in a cash lump sum (payable within ten days of the Date of Termination); provided that in no event shall such benefit be duplicated under two or more arrangements.
5. Full Settlement; Mitigation. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. The Executive shall not be required to mitigate the amount of any payment or benefit provided for in Section 4 hereof by seeking other employment or otherwise, nor (except as specifically provided in Section 4 hereof) shall the amount of any payment or benefit provided for in Section 4 hereof be reduced by any compensation earned by the Executive as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise.
6. Certain Tax Consequences. Whether or not the Executive becomes entitled to the payments and benefits described in Section 4 hereof, if any of the payments or benefits received or to be received by the Executive in connection with a change in ownership or control of the
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Company (as defined in section 280G of the Code (a “Statutory Change in Control”)) or the Executive’s Termination of Employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Statutory Change in Control or any person affiliated with the Company or such person) (collectively, the “Severance Benefits”) will be subject to any excise tax (the “Excise Tax”) imposed under section 4999 of the Code, then, subject to Section 6(c), the Company shall pay to the Executive an additional amount equal to the Excise Tax (the Excise Tax Payment”).
     For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax:
     (a) all of the Severance Benefits shall be treated as “parachute payments” within the meaning of Code section 280G(b)(2), and all “excess parachute payments” within the meaning of Code section 280G(b)(1) shall be treated as subject to the Excise Tax, unless, in the opinion of tax counsel selected by the Company’s independent auditors and reasonably acceptable to the Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Code section 280G(b)(4)(A), or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Code section 280G(b)(4)(B), in excess of the “Base Amount” as defined in Code section 280G(b)(3) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax; and
     (b) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company’s independent auditors in accordance with the principles of Code section 280G(d)(3) and (4).
     In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of Termination of Employment of the Executive, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined (the “Reduced Excise Tax”), the difference of the Excise Tax Payment and the Reduced Excise Tax. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the Termination of Employment of the Executive (including by reason of any payment the existence or amount of which could not be determined at the time of the Excise Tax Payment), the Company shall make an additional Excise Tax payment in respect of such excess (plus any interest or penalties payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits.
     (c) Notwithstanding any contrary provision of this Agreement, the Severance Benefits shall be reduced to the extent necessary so that no portion of such Severance Benefits shall be subject to the Excise Taxes, but only if the sum of (A) the net amount of such Severance Benefits, without reduction (but after imposition of the total amount of taxes under federal, state and local law) plus (B) the amount of the Excise Tax Payment in respect of such excess plus any interest or penalties payable by the Executive with respect to such excess (but after imposition of the total amount of taxes under federal, state and local law applicable to such additional
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payment) exceeds the net amount of such Severance Benefits, as so reduced (and after the imposition of the total amount of taxes under federal, state and local law on such amounts or benefits).
7. Confidential Information; Non-Solicitation; Non-Competition. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret, proprietary, or confidential materials, knowledge, data or any other information relating to the Company or any of its affiliated companies, and their respective businesses (“Confidential Information”), which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and that shall not have been or now or hereafter have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the term of this Agreement and (a) for a period of five years thereafter with respect to Confidential Information that does not include trade secrets, and (b) any time thereafter with respect to Confidential Information that does include trade secrets, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any Confidential Information to anyone other than the Company and those designated by it.
     In addition, the Executive shall not, at any time during the term of this Agreement and for a period of two years thereafter, (a) engage or become interested as an owner (other than as an owner of less than five percent (5%) of the stock of a publicly owned company), stockholder, partner, director, officer, employee (in an executive capacity), consultant or otherwise in any business that is competitive with any business conducted by the Company or any of its affiliated companies during the term of this Agreement or as of the Date of Termination, as applicable, or (b) recruit, solicit for employment, hire or engage any employee or consultant of the Company or any person who was an employee or consultant of the Company within two (2) years prior to the Date of Termination. The Executive acknowledges that these provisions are necessary for the Company’s protection and are not unreasonable, since he would be able to obtain employment with companies whose businesses are not competitive with those of the Company and its affiliated companies and would be able to recruit and hire personnel other than employees of the Company. The duration and the scope of these restrictions on the Executive’s activities are divisible, so that if any provision of this paragraph is held or deemed to be invalid, that provision shall be automatically modified to the extent necessary to make it valid.
8. Remedies. The Executive acknowledges that a violation or attempted violation on the Executive’s part of Section 7 will cause irreparable damage to the Company, and the Executive therefore agrees that the Company shall be entitled as a matter of right to an injunction, out of any court of competent jurisdiction, restraining any violation or further violation of such promises by the Executive or the Executive’s employees, partners or agents. The Executive agrees that such right to an injunction is cumulative and in addition to whatever other remedies the Company may have under law or equity.
9. Successors; Binding Agreement.
     (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to
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the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as defined above and any successor to its business and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term “Company” shall also mean any Affiliate of the Company to which the Executive may be transferred and the Company shall cause such successor employer to be considered the “Company” and to be bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term “Company” shall not mean any Affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the “Company” and to be bound by the terms of this Agreement and this Agreement shall be amended to so provide. Failure of the Company to obtain an assumption and agreement as described in this Section 9(a) prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive’s employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
     (b) This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee or other designee or, if there is no such designee, to the Executive’s estate.
10. Notices. Any notice, request, instruction or other document given under this Agreement shall be in writing and shall be addressed and delivered, in the case of the Company, to the Secretary of the Company at the principal office of the Company and, in the case of the Executive, to the Executive’s address as shown in the records of the Company or to such other address as may be designated in writing by either party.
11. Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
12. In-Kind Benefits and Reimbursements. In-kind benefits and reimbursements provided under this Agreement during any tax year of the Executive shall not affect in-kind benefits or reimbursements to be provided in any other tax year of the Executive and are not subject to liquidation or exchange for another benefit. Notwithstanding any other provision of this Agreement, reimbursements must be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense was incurred.
13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition
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or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.
14. Governing Law; Avoidance of Section 409A Penalty. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. Notwithstanding any other provision of this Agreement, in the event of a payment to be made, or a benefit to be provided, pursuant to this Agreement based upon Executive’s Termination of Employment at a time when the Executive is determined to be a Specified Employee by the Committee in its sole discretion and such payment or provision of such benefit is not exempt or otherwise permitted under Section 409A of the Code without the imposition of Section 409A Penalties, such payment shall not be made, and such benefit shall not be provided, before the date which is six (6) months and one day after the Executive’s Termination of Employment . All payments or benefits delayed pursuant to this Section shall be aggregated into one lump sum payment following the first day of the seventh month after Executive’s Termination of Employment in accordance with the Company’s normal payroll practices.
     This Agreement is intended to be written, administered, interpreted and construed in a manner such that no payment or benefits provided under the Agreement become subject to (a) the gross income inclusion set forth within Code Section 409A(a)(1)(A) or (b) the interest and additional tax set forth within Code Section 409A(a)(1)(B) (together, referred to herein as the “Section 409A Penalties”), including, where appropriate, the construction of defined terms to have meanings that would not cause the imposition of Section 409A Penalties. In no event shall the Company be required to provide a tax gross-up payment to Executive with respect to Section 409A Penalties.
15. Validity. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
16. Counterparts. This Agreement may be signed in several counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
17. Arbitration. Except as otherwise provided in Section 8 hereof, the parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers’ compensation claims) arising out of or relating in any way to this Agreement, its termination or any Termination of Employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration
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proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns.
18. Status Prior to Change in Control. Nothing contained in this Agreement shall impair or interfere in any way with the Executive’s right to terminate employment or the right of the Company to terminate the Executive’s employment with or without Cause prior to a Change in Control. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive.
19. Legal Fees. The Company shall pay the Executive’s reasonable legal fees and expenses that may be incurred by the Executive in contesting or disputing any Termination of Employment following a Change in Control or in seeking to obtain or enforce any right or benefit provided by this Agreement, if the Executive is the prevailing party in connection with any such dispute.
20. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter herein and supersedes any prior agreements between the Company and the Executive. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein.
     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
 	 	 	 	 	
 	USEC INC.
 	 	
 	By:  	 	 	
 	 	W. Lance Wright 	 	
 	 	Senior Vice President, Human Resources
and Administration 	 	

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EXHIBIT 10.43
CHANGE IN CONTROL AGREEMENT
     AGREEMENT (this “Agreement”) by and between USEC Inc., a Delaware corporation (the “Company”) and                        (the “Executive”) dated as of                       ,                      , effective January 1, 2008.
     WHEREAS, the Executive is currently an employee of the Company;
     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is essential to the best interests of the Company and its shareholders to foster the continued employment of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined in Section 1 hereof) of the Company;
     WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Executive in the Executive’s assigned duties without distraction in the face of potentially disturbing circumstances arising from any possible Change in Control of the Company; and
     WHEREAS, the Board has concluded that the interests of the Company described above can be best satisfied by agreeing to make certain payments to the Executive if the Executive’s employment is terminated following a Change in Control;
     NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below:
     “Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by the Company, (ii) any entity in which the Company has a significant equity interest and (iii) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, in each case as determined by the Committee.
     “Cause” shall mean any of the following:
     (i) the engaging by the Executive in willful misconduct that is injurious to the Company or its Affiliates;
     (ii) the embezzlement or misappropriation of funds or property of the Company or its Affiliates by the Executive, or the conviction of the Executive of a felony or the entrance of a plea of guilty or nolo contendere by the Executive to a felony; or
     (iii) the willful failure or refusal by the Executive to substantially perform his or her duties or responsibilities that continues after demand for substantial performance is delivered by the Company to the Executive that specifically identifies the manner in which the Company believes the Executive has not substantially performed his or her

 
duties (other than (a) any such failure resulting from the Executive’s incapacity due to Disability, or (b) any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason).
For purposes of this definition, no act, or failure to act, on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by him or her not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive’s employment shall not be deemed to have been terminated for Cause unless (A) a reasonable notice shall have been given to him or her setting forth in reasonable detail the reasons for the Company’s intentions to terminate for Cause, and if such termination is pursuant to clause (i) or (iii) above, and the damage to the Company is curable, only if the Executive has been provided a period of ten business days from receipt of such notice to cease the actions or inactions, and he or she has not done so; (B) an opportunity shall have been provided for the Executive together with his or her counsel, to be heard before the Board; and (C) if such termination is pursuant to clause (i) or (iii) above, delivery shall have been made to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of a majority of the non-management members of the Board he or she was guilty of conduct set forth in clause (i) or (iii) above, and specifying the particulars thereof in reasonable detail. Any determination of Cause made by the Company in accordance with the foregoing procedure shall be made by the Company, in its sole discretion. Any such determination shall be final and binding on the Executive.
     “Change in Control” shall mean the following and shall be deemed to have occurred if any of the following events shall have occurred:
          (i) any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act or Persons acting as a group (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Shares), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company by reason of having acquired such securities during the 12-month period ending on the date of the most recent acquisition (not including any securities acquired directly from the Company or its Affiliates) representing thirty percent (30%) or more of the total voting power of the Company’s then outstanding voting securities;
          (ii) the majority of members of the Company’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of the appointment;
          (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, resulting in a change described in (i), (ii), (iv) or (v) of this definition, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by
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being converted into voting securities of the surviving or parent entity) more than sixty percent (60%) of the total voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person, directly or indirectly, acquired forty percent (40%) or more of the total voting power of the Company’s then outstanding securities (not including any securities acquired directly from the Company or its Affiliates);
          (iv) a complete liquidation of the Company involving the sale to any Person or group of at least forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before the liquidation; or
          (v) the sale or disposition by the Company to any Person or group of all or substantially all of the Company’s assets, but in no event less than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before such sale or disposition (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the total voting power of the voting securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
     “Code” shall mean the Internal Revenue Code of 1986, as amended.
     “Committee” shall mean the Compensation Committee of the Company’s Board of Directors.
     “Disability” shall mean that the Executive has become totally and permanently disabled as defined or described in the Company’s long term disability benefit plan applicable to executive officers as in effect at the time the Executive’s disability is incurred.
     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
     “Good Reason” shall mean, without the Executive’s express written consent, any of the following, unless such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
          (i) the Executive is removed from the Executive’s position as in effect immediately prior to the Change in Control for any reason other than (A) by reason of death, Disability or Retirement or (B) for Cause; provided that such action results in a material diminution of Executive’s authority, duties or responsibilities;
          (ii) the Executive is assigned any duties inconsistent in a material respect with the Executive’s position (including status, offices, titles and reporting relationships), authority, duties or responsibilities as in effect immediately prior to the Change in Control if such assignment results in a material diminution in such position, authority, duties or responsibilities (excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly following notice thereof given by the Executive);
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          (iii) the Company materially breaches any agreement under which the Executive provides services;
          (iv) the Executive’s annual base salary or annual bonus opportunity as in effect immediately prior to the Change in Control (or thereafter if higher) is reduced (except for across-the-board reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company); provided such reduction is a material diminution of Executive’s base compensation or a material breach of any agreement under which the Executive provides services;
          (v) the failure by the Company to continue to provide the Executive with benefits at least as favorable in the aggregate as those enjoyed by the Executive under the Company’s pension, life insurance, medical, health and accident, disability, travel, deferred compensation and savings plans in which the Executive was participating at the time of the Change in Control, the taking of any action by the Company that would directly or indirectly materially reduce such benefits in the aggregate or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control unless such material fringe benefit is replaced with a comparable benefit, or the failure by the Company to continue to provide the Executive with the number of paid vacation days to which the Executive is entitled; provided such reduction in benefits and compensation is a material breach of any agreement under which the Executive provides services;
          (vi) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 9 hereof;
          (vii) any relocation of the Executive’s principal place of business from its location as of the date immediately preceding a Change in Control, by more than fifty(50) miles; or
          (viii) any purported termination of the Executive’s employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(b) hereof, which termination for purposes of this Agreement shall be ineffective.
Notwithstanding the foregoing, a termination shall not be treated as a termination for Good Reason unless the Executive shall have delivered a Notice of Termination stating that the Executive intends to terminate employment for Good Reason within ninety (90) days, and such Termination must occur within two years, of the Executive’s having actual knowledge of the initial occurrence of one or more of such events, provided, in each such event, the Company fails to cure within thirty (30) days of receipt of such Notice of Termination. For purposes of this Agreement, any good faith determination of “Good Reason” or good faith determination of the Company’s failure to cure within the thirty (30) day period made by the Executive shall be conclusive.
     “Retirement” shall mean the Executive’s Separation from Service initiated by the Executive after attainment by the Executive of age sixty-five (65).
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     “Section 409A Penalties” shall have the meaning set forth in Section 14 of this Agreement.
     “Specified Employee” shall mean any person described in Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i) as determined from time to time by the Committee in its discretion.
     “Shares” shall mean shares of common stock, $0.10 par value, of the Company, or such other securities of the Company as may be designated by the Committee from time to time.
     “Termination of Employment” shall mean and be interpreted in a manner consistent with the definition of “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h). The Company retains the right and discretion to specify, and may specify, whether a Termination of Employment occurs for individuals providing services to the Company immediately prior to an asset purchase transaction in which the Company is the seller, who provide services to a buyer after and in connection with such asset purchase transaction; provided, such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4).
2. Term of Agreement. The term of this Agreement will commence as of the date hereof (the “Effective Date”) and shall continue in effect until the third anniversary of the Effective Date, unless further extended or sooner terminated as hereinafter provided. Commencing on the first anniversary of the Effective Date, and on each anniversary of such date thereafter (each, an “Anniversary Date”), the term shall automatically be extended for one additional year unless the Board of Directors of the Company (the “Board”) gives notice to the Executive, at least two months prior to such Anniversary Date, that it does not wish to extend the term. Notwithstanding the foregoing, upon the occurrence of a Change in Control during the term of this Agreement, this Agreement shall continue in effect for a period of three years from the date of such Change in Control, unless sooner terminated as hereinafter provided.
3. Termination Following Change in Control.
     (a) If a Change in Control shall have occurred, upon a Termination of Employment during the term of this Agreement by the Company without Cause, or by the Executive for Good Reason, the Executive shall be entitled to the benefits provided in Section 4 hereof.
     (b) Notice of Termination. Following a Change in Control, any purported Termination of Employment by the Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and shall specify the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company under this Agreement or preclude the
5

 
Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights under this Agreement.
     (c) Date of Termination. Following a Change in Control, “Date of Termination” shall mean the date within the term of the Agreement specified in the Notice of Termination, which shall not be less than thirty (30) nor more than sixty (60) days from the date such Notice of Termination is given, (except for a termination pursuant to paragraph (vi) of the definition of Good Reason, in which event the date upon which any succession referred to therein becomes effective shall be deemed the Date of Termination, or a Termination of Employment by the Company for Cause, in which event the date such notice is received shall be the Date of Termination).
4. Compensation upon Termination without Cause or for Good Reason. Following a Change in Control, upon any Termination of Employment of the Executive by the Company without Cause (other than because of death, Disability or Retirement), or any Termination of Employment by the Executive for Good Reason, in any case, during the term of this Agreement, in lieu of any severance benefits Executive would otherwise be eligible to receive under any employment agreement with the Company or under the Company’s severance plan, if any, as in effect immediately prior to the Change in Control, the Executive shall be entitled to the following benefits and payments:
     (a) A cash lump sum payment (payable within ten days of the Date of Termination) of full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given or, if higher, at the rate in effect immediately prior to the reduction giving rise (pursuant to clause (iv) of the definition of Good Reason) to such termination, plus all other amounts to which the Executive is entitled under any compensation or benefit plan of the Company at the time such payments are due under the terms of such plans;
     (b) A cash lump sum payment (payable within ten (10) days of the Date of Termination) equal to two and one-half (21/2) times the sum of the Final Salary and the Final Average Bonus. “Final Salary” means the Executive’s annual base salary as in effect on the Date of Termination or, if higher, the Executive’s annual base salary in effect immediately prior to the reduction giving rise (pursuant to clause (iv) of the definition of Good Reason) to such termination. “Final Average Bonus” means the average of the three most recent annual bonuses paid to Executive prior to the Date of Termination, whether such annual bonuses are paid in the form of cash or in grants of restricted common stock of the Company or restricted stock units under the USEC Inc. Annual Incentive Program (which, under the USEC Inc. Annual Incentive Program, generally vests one(1) year after the date of grant);  provided ,  however , that (i) any annual bonus paid to Executive that was pro-rated or otherwise adjusted because Executive was not employed by the Company during the entire period to which such bonus related shall be annualized for purposes of the calculation of the Executive’s Final Average Bonus; (ii) if Executive has experienced a change in position that has affected Executive’s annual bonus opportunity (whether or not such change in position is accompanied by a change in title), any annual bonus paid to Executive with respect to a period prior to such change in position shall not be include in the calculation of the Executive’s Final Average Bonus; (iii) if Executive shall not have been paid at least three annual bonuses prior to the Date of Termination that are includable in the calculation of Executive’s Final Average Bonus, then Executive’s Final Average Bonus
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shall be an amount equal to the average of such lesser number of annual bonuses (or, if just one annual bonus, an amount equal to such bonus); and (iv) if Executive shall not have been paid at least one annual bonus prior to the Date of Termination that is includable in the calculation of Executive’s Final Average Bonus, Executive’s Final Average Bonus shall be an amount equal to Executive’s annual target bonus as in effect on the Date of Termination or, if higher, the Executive’s annual target bonus in effect immediately prior to the reduction giving rise (pursuant to clause (iv) of the definition of Good Reason) to such termination. Final Average Bonus shall not include any amount of cash or equity paid or granted as part of any long term incentive plan or program that the Company in its sole discretion may elect to maintain from time to time;
     (c) Subject to the Executive’s continued compliance with Section 7 hereof and the limitation in Section 12, life, accident and health insurance benefits substantially similar to those that the Executive was receiving immediately prior to the Change in Control (or thereafter, if higher) until the earlier to occur of (i) the 30 month anniversary of the Date of Termination or (ii) such time as the Executive is covered by comparable programs of a subsequent employer. Benefits otherwise receivable by the Executive pursuant to this Section 4(c) shall be reduced to the extent comparable benefits are actually received during the 30 month period following termination, and any such benefits actually received by the Executive shall be reported to the Company.
     (d) In addition to all other amounts payable under this Section 4, the Executive shall be entitled to receive all benefits payable under any other plan or agreement relating to retirement benefits (including plans or agreements of any successor following a Change in Control) in accordance with the terms of such plan or agreement; provided that, to the extent permitted by applicable law, the Executive shall be credited under such plans or agreements (including plans and agreements of any successor) with two and one-half years’ additional service with the Company after the Date of Termination for all purposes, including vesting, eligibility and benefit accrual; provided that if the benefit attributable to such service cannot be paid from a tax-qualified plan of the Company, such benefit shall be provided as an additional benefit (before offsets) under any supplemental executive retirement plan or restoration-type plan in which the Executive participates, and if the Executive participates in no such plan, such benefit shall be paid in a cash lump sum (payable within ten days of the Date of Termination); provided that in no event shall such benefit be duplicated under two or more arrangements.
5. Full Settlement; Mitigation. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. The Executive shall not be required to mitigate the amount of any payment or benefit provided for in Section 4 hereof by seeking other employment or otherwise, nor (except as specifically provided in Section 4 hereof) shall the amount of any payment or benefit provided for in Section 4 hereof be reduced by any compensation earned by the Executive as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise.
6. Certain Tax Consequences. Whether or not the Executive becomes entitled to the payments and benefits described in Section 4 hereof, if any of the payments or benefits received or to be received by the Executive in connection with a change in ownership or control of the
7

 
Company (as defined in section 280G of the Code (a “Statutory Change in Control”)) or the Executive’s Termination of Employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Statutory Change in Control or any person affiliated with the Company or such person) (collectively, the “Severance Benefits”) will be subject to any excise tax (the “Excise Tax”) imposed under section 4999 of the Code, then, subject to Section 6(c), the Company shall pay to the Executive an additional amount equal to the Excise Tax (the Excise Tax Payment”).
     For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax:
     (a) all of the Severance Benefits shall be treated as “parachute payments” within the meaning of Code section 280G(b)(2), and all “excess parachute payments” within the meaning of Code section 280G(b)(1) shall be treated as subject to the Excise Tax, unless, in the opinion of tax counsel selected by the Company’s independent auditors and reasonably acceptable to the Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Code section 280G(b)(4)(A), or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Code section 280G(b)(4)(B), in excess of the “Base Amount” as defined in Code section 280G(b)(3) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax; and
     (b) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company’s independent auditors in accordance with the principles of Code section 280G(d)(3) and (4).
     In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of Termination of Employment of the Executive, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined (the “Reduced Excise Tax”), the difference of the Excise Tax Payment and the Reduced Excise Tax. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the Termination of Employment of the Executive (including by reason of any payment the existence or amount of which could not be determined at the time of the Excise Tax Payment), the Company shall make an additional Excise Tax payment in respect of such excess (plus any interest or penalties payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits.
     (c) Notwithstanding any contrary provision of this Agreement, the Severance Benefits shall be reduced to the extent necessary so that no portion of such Severance Benefits shall be subject to the Excise Taxes, but only if the sum of (A) the net amount of such Severance Benefits, without reduction (but after imposition of the total amount of taxes under federal, state and local law) plus (B) the amount of the Excise Tax Payment in respect of such excess plus any interest or penalties payable by the Executive with respect to such excess (but after imposition of the total amount of taxes under federal, state and local law applicable to such additional
8

 
payment) exceeds the net amount of such Severance Benefits, as so reduced (and after the imposition of the total amount of taxes under federal, state and local law on such amounts or benefits).
7. Confidential Information; Non-Solicitation; Non-Competition. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret, proprietary, or confidential materials, knowledge, data or any other information relating to the Company or any of its affiliated companies, and their respective businesses (“Confidential Information”), which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and that shall not have been or now or hereafter have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the term of this Agreement and (a) for a period of five years thereafter with respect to Confidential Information that does not include trade secrets, and (b) any time thereafter with respect to Confidential Information that does include trade secrets, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any Confidential Information to anyone other than the Company and those designated by it.
     In addition, the Executive shall not, at any time during the term of this Agreement and for a period of two and one-half years thereafter, (a) engage or become interested as an owner (other than as an owner of less than five percent (5%) of the stock of a publicly owned company), stockholder, partner, director, officer, employee (in an executive capacity), consultant or otherwise in any business that is competitive with any business conducted by the Company or any of its affiliated companies during the term of this Agreement or as of the Date of Termination, as applicable, or (b) recruit, solicit for employment, hire or engage any employee or consultant of the Company or any person who was an employee or consultant of the Company within two (2) years prior to the Date of Termination. The Executive acknowledges that these provisions are necessary for the Company’s protection and are not unreasonable, since he would be able to obtain employment with companies whose businesses are not competitive with those of the Company and its affiliated companies and would be able to recruit and hire personnel other than employees of the Company. The duration and the scope of these restrictions on the Executive’s activities are divisible, so that if any provision of this paragraph is held or deemed to be invalid, that provision shall be automatically modified to the extent necessary to make it valid.
8. Remedies. The Executive acknowledges that a violation or attempted violation on the Executive’s part of Section 7 will cause irreparable damage to the Company, and the Executive therefore agrees that the Company shall be entitled as a matter of right to an injunction, out of any court of competent jurisdiction, restraining any violation or further violation of such promises by the Executive or the Executive’s employees, partners or agents. The Executive agrees that such right to an injunction is cumulative and in addition to whatever other remedies the Company may have under law or equity.
9. Successors; Binding Agreement.
     (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to
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the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as defined above and any successor to its business and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term “Company” shall also mean any Affiliate of the Company to which the Executive may be transferred and the Company shall cause such successor employer to be considered the “Company” and to be bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term “Company” shall not mean any Affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the “Company” and to be bound by the terms of this Agreement and this Agreement shall be amended to so provide. Failure of the Company to obtain an assumption and agreement as described in this Section 9(a) prior to the effective date of a succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to under this Agreement if the Executive were to terminate the Executive’s employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
     (b) This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee or other designee or, if there is no such designee, to the Executive’s estate.
10. Notices. Any notice, request, instruction or other document given under this Agreement shall be in writing and shall be addressed and delivered, in the case of the Company, to the Secretary of the Company at the principal office of the Company and, in the case of the Executive, to the Executive’s address as shown in the records of the Company or to such other address as may be designated in writing by either party.
11. Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
12. In-Kind Benefits and Reimbursements. In-kind benefits and reimbursements provided under this Agreement during any tax year of the Executive shall not affect in-kind benefits or reimbursements to be provided in any other tax year of the Executive and are not subject to liquidation or exchange for another benefit. Notwithstanding any other provision of this Agreement, reimbursements must be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense was incurred.
13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition
10

 
or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.
14. Governing Law; Avoidance of Section 409A Penalty. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. Notwithstanding any other provision of this Agreement, in the event of a payment to be made, or a benefit to be provided, pursuant to this Agreement based upon Executive’s Termination of Employment at a time when the Executive is determined to be a Specified Employee by the Committee in its sole discretion and such payment or provision of such benefit is not exempt or otherwise permitted under Section 409A of the Code without the imposition of Section 409A Penalties, such payment shall not be made, and such benefit shall not be provided, before the date which is six (6) months and one day after the Executive’s Termination of Employment . All payments or benefits delayed pursuant to this Section shall be aggregated into one lump sum payment following the first day of the seventh month after Executive’s Termination of Employment in accordance with the Company’s normal payroll practices.
     This Agreement is intended to be written, administered, interpreted and construed in a manner such that no payment or benefits provided under the Agreement become subject to (a) the gross income inclusion set forth within Code Section 409A(a)(1)(A) or (b) the interest and additional tax set forth within Code Section 409A(a)(1)(B) (together, referred to herein as the “Section 409A Penalties”), including, where appropriate, the construction of defined terms to have meanings that would not cause the imposition of Section 409A Penalties. In no event shall the Company be required to provide a tax gross-up payment to Executive with respect to Section 409A Penalties.
15. Validity. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
16. Counterparts. This Agreement may be signed in several counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
17. Arbitration. Except as otherwise provided in Section 8 hereof, the parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers’ compensation claims) arising out of or relating in any way to this Agreement, its termination or any Termination of Employment, including whether such dispute is arbitrable, shall be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive shall still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim shall be submitted to arbitration instead of a court or jury. The arbitration
11

 
proceeding shall be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made. The decision of the arbitrator(s), including determination of the amount of any damages suffered, shall be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns.
18. Status Prior to Change in Control. Nothing contained in this Agreement shall impair or interfere in any way with the Executive’s right to terminate employment or the right of the Company to terminate the Executive’s employment with or without Cause prior to a Change in Control. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive.
19. Legal Fees. The Company shall pay the Executive’s reasonable legal fees and expenses that may be incurred by the Executive in contesting or disputing any Termination of Employment following a Change in Control or in seeking to obtain or enforce any right or benefit provided by this Agreement, if the Executive is the prevailing party in connection with any such dispute.
20. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter herein and supersedes any prior agreements between the Company and the Executive. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein.
     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
 	 	 	 	 	
 	USEC INC.
 	 	
 	By:  	 	 	
 	 	W. Lance Wright 	 	
 	 	Senior Vice President, Human Resources and Administration 	 	

 	  	 	 	

 	
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EXHIBIT 10.46
SECOND AMENDMENT TO THE
USEC INC. 1999 EQUITY INCENTIVE PLAN
     WHEREAS, Section 14(a) of the USEC Inc. 1999 Equity Incentive Plan (the “Plan”) authorizes the Board of Directors (the “Board”) of USEC Inc., a Delaware corporation (the “Company”), to amend the Plan at any time; and
     WHEREAS, the Board now finds it desirable and in the best interests of the Company to amend the Plan to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).
     NOW, THEREFORE, the Plan is amended as set forth below, effective as of January 1, 2008:
1. The definition of “Change in Control” in Section 2 of the Plan is amended to read in its entirety as follows:
“Change in Control” shall mean, unless otherwise defined in the applicable Award Agreement, a change in control of the Company, which will be deemed to have occurred if:
     (i) any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act or Persons acting as a group (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Shares), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company by reason of having acquired such securities during the 12-month period ending on the date of the most recent acquisition (not including any securities acquired directly from the Company or its Affiliates) representing 30% or more of the combined voting power of the Company’s then outstanding voting securities;
     (ii) the majority of members of the Company’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of the appointment;
     (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, resulting in a change described in (i), (ii), (iv) or (v) of

 
this definition, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) more than 60% of the total voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person, directly or indirectly, acquired 40% or more of the total voting power of the Company’s then outstanding securities (not including any securities acquired directly from the Company or its Affiliates); or
     (iv) a complete liquidation of the Company involving the sale to any Person or group of at least 40% of the total gross fair market value of all of the assets of the Company immediately before the liquidation; or
     (v) the sale or disposition by the Company to any Person or group of all or substantially all of the Company’s assets, but in no event less than 40% of the total gross fair market value of all of the assets of the Company immediately before such acquisition (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 60% of the total voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
2. Section 4(b) of the Plan is amended by changing the period at the end thereof to a comma and adding the following:
and (C) with respect to any Award no such adjustment shall be authorized to the extent that such adjustment would cause the Plan or the Award to violate Treasury Regulation Section 1.409A-1(b)(5)(v).
3. Section 12 of the Plan is amended to read in its entirety as follows:
Termination of Employment/Service. The Committee shall have the full power and authority to determine the terms and conditions that shall apply to any Award upon a “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h), including a termination by the Company without Cause, by a Participant voluntarily, or by reason of death, Disability or Retirement. The Committee retains the right and discretion to specify, and may specify, whether a separation from service occurs for individuals providing services to the Company immediately prior to an asset purchase transaction in which the Company or an Affiliate is the seller, who provide services to a buyer after and in connection with such asset purchase
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transaction; provided, such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4).
4. Section 14(a) of the Plan is amended by adding the following at the end thereof:
Notwithstanding anything herein to the contrary, no such amendment or termination of the Plan shall result in any acceleration or delay in the payment of any amount due under this Plan except to the extent such acceleration or delay would not result in the imposition of Section 409A Penalties.
5. Section 15(f) of the Plan is amended by changing the period at the end thereof to a semicolon and adding the following to the end thereof:
provided that any additional cash payment will be made no later than the end of the Participant’s taxable year next following the taxable year in which the Participant remits such taxes.
6. Section 15(k) of the Plan is amended to read in its entirety as follows:
(k) Governing Law; Avoidance of Section 409A Penalty. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to the conflict of law principles thereof. The Company intends for the Plan, as described herein and as may be subsequently amended from time to time, to be written, construed and operated (and the Plan shall be written, construed and operated) in a manner such that no amounts granted or payable under the Plan become subject to (i) the gross income inclusion set forth within Code Section 409A(a)(1)(A) or (ii) the interest and additional tax set forth within Code Section 409A(a)(1)(B) (together, referred to herein as the “Section 409A Penalties”). Notwithstanding any other provision of this Plan, acceleration or postponement of payment of any grant or amount or any other action (including amendment or termination of the Plan) shall be permitted and effective only to the extent such would not result in amounts payable under the Plan becoming subject to the Section 409A Penalties.
     IN WITNESS WHEREOF, this Second Amendment has been executed by a duly authorized officer of USEC Inc. as of November 1, 2007.
 	 	 	 	 	
 	USEC INC.
 	 	
 	By:  	/s/ W. Lance Wright  	 	
 	 	SVP, Human Resources & Administration 	 	

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EXHIBIT 10.53
USEC Inc.
Non-Employee Director Restricted Stock Unit Award Agreeme nt
(Annual Retainers and Meeting Fees)
     RESTRICTED STOCK UNIT AWARD AGREEMENT (the “Agreement”) dated as of                      ___, ___between USEC Inc., a Delaware corporation (the “Company”) and                                            (the “Participant”):
RECITALS:
     The Company has adopted and maintains the USEC Inc. 1999 Equity Incentive Plan as amended from time to time (the “Plan”), which Plan as amended from time to time is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan.
     The Committee has determined that it is in the best interests of the Company and its shareholders to grant the restricted stock unit awards provided for herein to the Participant pursuant to the Plan and the terms set forth herein to further align the interests of non-employee directors of the Company to the interests of shareholders.
     This Agreement shall apply to restricted stock unit awards made from time to time after the date hereof representing Participant’s annual retainers and meeting fees, as set forth on Exhibit A hereto as such Exhibit A may be augmented from time to time.
     NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows:
     1. Grant of the Award.
     (a) The Company from time to time will grant to the Participant Awards (the “Awards”) of Restricted Stock Units (the “Restricted Stock Units”) in the amounts, on the dates of grant, and labeled as “annual retainer”, “annual RSU grant”, “meeting fees” or otherwise in each case as set forth in Exhibit A hereto, subject to the terms and conditions set forth in this Agreement and the Plan.
     (b) In addition, as of each date as of which the Company pays a dividend on Shares before the date (the “Payment Date”) payment is due in respect of the Restricted Stock Units in accordance with Section 2(a) hereof, the Company will grant to the Participant an additional number of Restricted Stock Units (the “Dividend Equivalent Restricted Stock Units”) equal to (i) the product of (A) the dividend per Share payable on the record date relating to such dividend payment date, and (B) the number of Restricted Stock Units held by the Participant on such dividend payment date, divided by (ii) the Fair Market Value of a Share on the dividend payment date. Dividend Equivalent Restricted Stock Units shall become vested (or be forfeited) at the same time and on the same conditions as the Restricted Stock Units to which they relate. Except as provided in this Section 1(b) Dividend Equivalent Restricted Stock Units will be subject to all of the terms and conditions of this Agreement and all references in this Agreement to Restricted Stock Units shall include Dividend Equivalent Restricted Stock Units unless the context requires otherwise.

 
     (c) The number of Restricted Stock Units and any Dividend Equivalent Restricted Stock Units shall be subject to adjustment as provided in Section 4(b) of the Plan.
     2. Vesting.
     (a) Subject to subsection (b) below, the Participant’s rights in his or her Restricted Stock Units shall become vested and nonforfeitable upon the first to occur of (i) the first anniversary of the date of grant of such Restricted Stock Units, (ii) the date the Participant attains eligibility for Retirement, (iii) the date the Participant has a Termination of Service (defined below) by reason of death or Disability, or (iv) the date of a Change in Control of the Company. Restricted Stock Units that are granted to a Participant on or after attainment of eligibility for Retirement shall be vested and nonforfeitable immediately upon the date of grant.
     (b) Notwithstanding subsection (a) above, in the event that the Participant has a Termination of Service for Cause, all Restricted Stock Units held by the Participant as of the date of such termination of service shall be canceled and forfeited for no consideration on the date of the Participant’s Termination of Service.
     3. Settlement of Restricted Stock Units.
     (a) As soon as practicable after the Participant’s Termination of Service for any reason, including Retirement, or if earlier as soon as practicable after a Change in Control, the Company shall pay to the Participant (or his or her beneficiary, if applicable) other than following a Change in Control, Shares (or if applicable, the per-Share equivalents of securities of the surviving entity of any merger, consolidation or other transaction or event having a similar effect, which are substituted for a Shares pursuant to Section 4(b) of the Plan) equal to the aggregate number of vested Restricted Stock Units then held by the Participant. Delivery of Shares shall in all events be made no later than ninety (90) days after Termination of Service or Change in Control, as applicable.
     (b) For purposes of this Agreement a “Termination of Service” means that the Participant is no longer a member of the Board and has undergone a good-faith and complete termination of all arrangements to perform services for the Company in any capacity, provided that such termination constitutes a “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h). The Company retains the right and discretion to specify, and may specify, whether a Termination of Service occurs for individuals providing services to the Company immediately prior to an asset purchase transaction in which the Company or an Affiliate is the seller, who provide services to a buyer after and in connection with such asset purchase transaction; provided, such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4).
     4. Nontransferability. Except under the laws of descent and distribution, the Participant shall not be permitted to sell, transfer, pledge or assign the Restricted Stock Units or any rights under this Agreement. Without limiting the generality of the foregoing, the Restricted Stock Units and the Participant’s rights under this Agreement may not be assigned, transferred, pledged, hypothecated or disposed of in any way, shall not be assignable by operation of law, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Restricted Stock Units of the Participant’s rights under this Agreement contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon them, shall be null and void and without effect.
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     5. Beneficiary. The Participant may designate a beneficiary or beneficiaries (which beneficiary may be an entity other than a natural person) to receive any payments hereunder which may be made following the Participant’s death. Such designation may be changed or canceled at any time without the consent of any such beneficiary. Any such designation, change or cancellation must be made in a form and manner established by the Committee and shall not be effective unless and until received by the Committee during the Participant’s lifetime. If no beneficiary has been named, or the designated beneficiary or beneficiaries shall have predeceased the Participant or (if other than a natural person) failed or ceased to exist, the beneficiary shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate. If the Participant designates more than one beneficiary, the rights of such beneficiaries shall be payable in equal shares with right of survivorship, unless the Participant has designated otherwise.
     6. No Rights as Stockholder. A Participant shall have no right to vote Shares represented by Restricted Stock Units and shall have no rights as a stockholder of the Company with respect to Restricted Stock Units unless and until Shares are delivered to the Participant in settlement of the Restricted Stock Units pursuant to Section 3.
     7. No Right to Continued Service. Neither the Plan nor this Agreement shall confer on the Participant any right to continued service with the Company.
     8. Legal Requirements. The Company shall not be obligated to make any payment hereunder if the Committee, in its sole discretion, determines that the issuance or transfer of such cash, Shares or other consideration might violate any applicable law or regulation (including applicable non-U.S. laws or regulations) or entitled the Company to recover the same under Section 16. Without limiting the generality of the foregoing, no Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal or non-federal securities laws and any other laws to which such offer, if made, would be subject. The Company shall be under no obligation to register any Shares or other property pursuant to the Securities Act of 1933, as amended, or any other federal or state securities laws on account of the transactions contemplated by this Agreement.
     9. No Trust Fund Created. Neither this Agreement nor any of the transactions contemplated hereby shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and the Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
     10. No Fractional Shares. Dividend Equivalent Restricted Stock Units shall be determined and granted in fractional Restricted Stock Units where required by Section 1(b) but no fractional Shares shall be issued or delivered pursuant to this Agreement; and on settlement of a Participant’s Restricted Stock Units the value of any fractional shares shall be paid to the Participant in cash.
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     11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of laws provisions thereof.
     12. Amendments. This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or by an instrument in writing signed unilaterally by the Company if the Company determines that such amendment is required by law, including any amendment necessary or desirable to avoid the gross income inclusion set forth within Section 409A(a)(1)(A) of the Code or the interest and additional tax set forth within Section 409A(a)(1)(B) of the Code (together, referred to herein as the “Section 409A Penalties”), or otherwise to comply with or obtain for the Participant or the Company any benefits, or avoid for the Participant or the Company any penalties or additional taxes, under the Code or other revenue law. This Agreement is intended not to result in the imposition of Section 409A Penalties and shall be administered, interpreted and construed in a manner consistent with such intent, including, where appropriate, the construction of defined terms to have meanings that would not cause the imposition of Section 409A Penalties.
     13. Notices. Any notice, request, instruction or other document given under this Agreement shall be in writing and shall be addressed and delivered, in the case of the Company, to the Secretary of the Company at the principal office of the Company and, in the case of the Participant, to the Participant’s address as shown in the records of the Company. Either the Participant or the Company may change such party’s address for notices by notice duly given pursuant to this Section.
     14. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement.
     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement. By execution and delivery of this Agreement, the Participant acknowledges receipt of a copy of the Plan.
 	 	 	 	 	
 	USEC Inc.

 	By  	W. Lance Wright  	 	
 	Its: 	Senior Vice President, Human Resources and 	 	
 	 	Administration 	 	

 	 	 	
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EXHIBIT 10.54
USEC Inc.
Non-Employee Director Restricted Stock Unit Award Agreement
(Incentive Restricted Stock Unit Awards)
      RESTRICTED STOCK UNIT AWARD AGREEMENT (the “Agreement”) dated as of ______, ______ between USEC Inc., a Delaware corporation (the “Company”) and _________(the “Participant”):
RECITALS:
     The Company has adopted and maintains the USEC Inc. 1999 Equity Incentive Plan as amended from time to time (the “Plan”), which Plan as amended from time to time is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan.
     The Committee has determined that it is in the best interests of the Company and its shareholders to grant the restricted stock unit awards provided for herein to the Participant pursuant to the Plan and the terms set forth herein to further align the interests of non-employee directors of the Company to the interests of shareholders.
     This Agreement shall apply to restricted stock unit awards made from time to time after the date hereof representing Participant’s incentive restricted stock unit awards, as set forth on Exhibit A hereto as such Exhibit A may be augmented from time to time.
     NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows:
     1. Grant of the Award.
     (a) The Company from time to time will grant to the Participant Awards (the “Awards”) of Restricted Stock Units (the “Restricted Stock Units”) in the amounts, on the dates of grant, and labeled as “incentive awards,” in each case as set forth in Exhibit A hereto, subject to the terms and conditions set forth in this Agreement and the Plan.
     (b) In addition, as of each date as of which the Company pays a dividend on Shares before the date (the “Payment Date”) payment is due in respect of the Restricted Stock Units in accordance with Section 2(a) hereof, the Company will grant to the Participant an additional number of Restricted Stock Units (the “Dividend Equivalent Restricted Stock Units”) equal to (i) the product of (A) the dividend per Share payable on the record date relating to such dividend payment date, and (B) the number of Restricted Stock Units held by the Participant on such dividend payment date, divided by (ii) the Fair Market Value of a Share on the dividend payment date. Dividend Equivalent Restricted Stock Units shall become vested (or be forfeited) at the same time and on the same conditions as the Restricted Stock Units to which they relate. Except as provided in this Section 1(b) Dividend Equivalent Restricted Stock Units will be subject to all of the terms and conditions of this Agreement and all references in this Agreement to Restricted

 
Stock Units shall include Dividend Equivalent Restricted Stock Units unless the context requires otherwise.
     (c) The number of Restricted Stock Units and any Dividend Equivalent Restricted Stock Units shall be subject to adjustment as provided in Section 4(b) of the Plan.
     2. Vesting.
     (a) Subject to subsection (b) below, the Participant’s rights in his or her Restricted Stock Units shall become vested and nonforfeitable upon the first to occur of (i) the third anniversary of the date of grant of such Restricted Stock Units, (ii) the date the Participant attains eligibility for Retirement, (iii) the date the Participant has a Termination of Service (defined below) by reason of death or Disability, or (iv) the date of a Change in Control of the Company. Restricted Stock Units that are granted to a Participant on or after attainment of eligibility for Retirement shall be vested and nonforfeitable immediately upon the date of grant.
     (b) Notwithstanding subsection (a) above, in the event that the Participant has a Termination of Service for Cause, all Restricted Stock Units held by the Participant as of the date of such termination of service shall be canceled and forfeited for no consideration on the date of the Participant’s Termination of Service.
     3. Settlement of Restricted Stock Units.
     (a) As soon as practicable after the Participant’s Termination of Service for any reason, including Retirement, or if earlier as soon as practicable after a Change in Control, the Company shall pay to the Participant (or his or her beneficiary, if applicable) other than following a Change in Control, Shares (or if applicable, the per-Share equivalents of securities of the surviving entity of any merger, consolidation or other transaction or event having a similar effect, which are substituted for a Shares pursuant to Section 4(b) of the Plan) equal to the aggregate number of vested Restricted Stock Units then held by the Participant. Delivery of Shares shall in all events be made no later than ninety (90) days after Termination of Service or Change in Control, as applicable.
     (b) For purposes of this Agreement a “Termination of Service” means that the Participant is no longer a member of the Board and has undergone a good-faith and complete termination of all arrangements to perform services for the Company in any capacity, provided that such termination constitutes a “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h). The Company retains the right and discretion to specify, and may specify, whether a Termination of Service occurs for individuals providing services to the Company immediately prior to an asset purchase transaction in which the Company or an Affiliate is the seller, who provide services to a buyer after and in connection with such asset purchase transaction; provided, such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4).
     4. Nontransferability. Except under the laws of descent and distribution, the Participant shall not be permitted to sell, transfer, pledge or assign the Restricted Stock Units or any rights under this Agreement. Without limiting the generality of the foregoing, the Restricted Stock Units and the Participant’s rights under this Agreement may not be assigned, transferred,
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pledged, hypothecated or disposed of in any way, shall not be assignable by operation of law, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Restricted Stock Units of the Participant’s rights under this Agreement contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon them, shall be null and void and without effect.
     5. Beneficiary. The Participant may designate a beneficiary or beneficiaries (which beneficiary may be an entity other than a natural person) to receive any payments hereunder which may be made following the Participant’s death. Such designation may be changed or canceled at any time without the consent of any such beneficiary. Any such designation, change or cancellation must be made in a form and manner established by the Committee and shall not be effective unless and until received by the Committee during the Participant’s lifetime. If no beneficiary has been named, or the designated beneficiary or beneficiaries shall have predeceased the Participant or (if other than a natural person) failed or ceased to exist, the beneficiary shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate. If the Participant designates more than one beneficiary, the rights of such beneficiaries shall be payable in equal shares with right of survivorship, unless the Participant has designated otherwise.
     6. No Rights as Stockholder. A Participant shall have no right to vote Shares represented by Restricted Stock Units and shall have no rights as a stockholder of the Company with respect to Restricted Stock Units unless and until Shares are delivered to the Participant in settlement of the Restricted Stock Units pursuant to Section 3.
     7. No Right to Continued Service. Neither the Plan nor this Agreement shall confer on the Participant any right to continued service with the Company.
     8. Legal Requirements. The Company shall not be obligated to make any payment hereunder if the Committee, in its sole discretion, determines that the issuance or transfer of such cash, Shares or other consideration might violate any applicable law or regulation (including applicable non-U.S. laws or regulations) or entitled the Company to recover the same under Section 16. Without limiting the generality of the foregoing, no Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal or non-federal securities laws and any other laws to which such offer, if made, would be subject. The Company shall be under no obligation to register any Shares or other property pursuant to the Securities Act of 1933, as amended, or any other federal or state securities laws on account of the transactions contemplated by this Agreement.
     9. No Trust Fund Created. Neither this Agreement nor any of the transactions contemplated hereby shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and the Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
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     10. No Fractional Shares. Dividend Equivalent Restricted Stock Units shall be determined and granted in fractional Restricted Stock Units where required by Section 1(b) but no fractional Shares shall be issued or delivered pursuant to this Agreement; and on settlement of a Participant’s Restricted Stock Units the value of any fractional shares shall be paid to the Participant in cash.
     11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of laws provisions thereof.
     12. Amendments. This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or by an instrument in writing signed unilaterally by the Company if the Company determines that such amendment is required by law, including any amendment necessary or desirable to avoid the gross income inclusion set forth within Section 409A(a)(1)(A) of the Code or the interest and additional tax set forth within Section 409A(a)(1)(B) of the Code (together, referred to herein as the “Section 409A Penalties”), or otherwise to comply with or obtain for the Participant or the Company any benefits, or avoid for the Participant or the Company any penalties or additional taxes, under the Code or other revenue law. This Agreement is intended not to result in the imposition of Section 409A Penalties and shall be administered, interpreted and construed in a manner consistent with such intent, including, where appropriate, the construction of defined terms to have meanings that would not cause the imposition of Section 409A Penalties.
     13. Notices. Any notice, request, instruction or other document given under this Agreement shall be in writing and shall be addressed and delivered, in the case of the Company, to the Secretary of the Company at the principal office of the Company and, in the case of the Participant, to the Participant’s address as shown in the records of the Company. Either the Participant or the Company may change such party’s address for notices by notice duly given pursuant to this Section.
     14. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement.
     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement. By execution and delivery of this Agreement, the Participant acknowledges receipt of a copy of the Plan.
 	 	 	 	 	
 	USEC Inc.

 	By 	W. Lance Wright 	 	
 	Its: 	Senior Vice President, Human Resources and
Administration  	 	

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EXHIBIT 10.55
THE USEC INC.
PENSION RESTORATION PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2008)
JANUARY 2008

 
TABLE OF CONTENTS
 	 	 	 	 	 	 	 	 	
Section	 	 	 	 	 	Page	 	
 	 	 	 	 	 	 	 	 	
ARTICLE I — ESTABLISHMENT AND PURPOSE	 	 	1	 	
 	 	1.1.	 	The Plan	 	 	1	 	
 	 	1.2.	 	Purpose	 	 	1	 	
 	 	1.3.	 	Application of Plan	 	 	1	 	
ARTICLE II — DEFINITIONS AND CONSTRUCTION	 	 	1	 	
 	 	2.1.	 	Definitions	 	 	1	 	
 	 	2.2.	 	Gender and Number	 	 	2	 	
 	 	2.3.	 	Severability	 	 	2	 	
 	 	2.4.	 	Applicable Law	 	 	2	 	
 	 	2.5.	 	Plan Not an Employment Contract	 	 	2	 	
 	 	2.6.	 	Definitions to Implement Section 409A.	 	 	2	 	
ARTICLE III — PARTICIPATION IN THE PLAN	 	 	4	 	
 	 	3.1.	 	Participants	 	 	4	 	
 	 	3.2.	 	Benefit Payments	 	 	4	 	
ARTICLE IV — BENEFITS	 	 	5	 	
 	 	4.1.	 	Amount of Benefits	 	 	5	 	
 	 	4.2.	 	Form of Payment	 	 	5	 	
 	 	4.3.	 	Commencement Date	 	 	5	 	
 	 	4.4.	 	Death Benefits	 	 	6	 	
 	 	4.5.	 	Disability Benefits	 	 	6	 	
 	 	4.6.	 	Funding	 	 	6	 	
 	 	4.7.	 	Tax Withholding	 	 	6	 	
 	 	4.8.	 	Nontransferabilty	 	 	6	 	
 	 	4.9.	 	Specified Employees	 	 	6	 	
 	 	4.10.	 	Application of 409A	 	 	7	 	
 	 	4.11.	 	Acceleration of Payments for Tax Obligations	 	 	7	 	
ARTICLE V — ADMINISTRATION	 	 	8	 	
 	 	5.1.	 	Administration	 	 	8	 	
 	 	5.2.	 	Costs	 	 	8	 	
 	 	5.3.	 	Finality of Determination	 	 	8	 	
 	 	5.4.	 	Indemnification and Exculpation	 	 	8	 	
ARTICLE VI — NAMED FIDUCIARY AND CLAIMS PROCEDURE	 	 	9	 	
 	 	6.1.	 	Named Fiduciary	 	 	9	 	
 	 	6.2.	 	Payment of Benefits	 	 	9	 	
 	 	6.3.	 	Denied Claim	 	 	9	 	
 	 	6.4.	 	Written Notice	 	 	9	 	
 	 	6.5.	 	Appeal	 	 	10	 	
 	 	6.6.	 	Review of Appeal	 	 	10	 	
 	 	6.7.	 	Hearing	 	 	11	 	
 	 	6.8.	 	Written Decision	 	 	11	 	
ARTICLE VII — MERGER, AMENDMENT, AND TERMINATION	 	 	12	 	
 	 	7.1.	 	Merger, Consolidation, or Acquisition	 	 	12	 	
 	 	7.2.	 	Amendment and Termination	 	 	12	 	

 
USEC INC.
PENSION RESTORATION PLAN
ARTICLE I — ESTABLISHMENT AND PURPOSE
     1.1. The Plan. USEC Inc. (the “Corporation”) hereby amends and restates the USEC Inc. Pension Restoration Plan, as set forth herein, effective January 1, 2008 (the “Plan”). The Plan was initially established effective September 1, 1999.
     1.2. Purpose. The general purposes of this Plan are to (a) provide the amount of the benefit which would otherwise be paid under the Employees’ Retirement Plan of USEC Inc., as amended from time to time (the “Qualified Plan”) but which cannot be paid under that plan on account of the limitations imposed by the Internal Revenue Code of 1986, as amended from time to time (“Code”); and (b) provide supplemental death benefits to the beneficiaries of certain Participants.
     1.3. Application of Plan. The provisions of this Plan, as herein amended and restated, shall apply to benefits payable to eligible employees of the Corporation commencing on or after January 1, 2008. It is intended that the provisions of this Plan with respect to Grandfathered Benefits have not been and shall not be materially modified from the provisions in effect on October 3, 2004, and the Plan shall be construed consistent with that intent. As amended, Non-Grandfathered Benefits for which payment commenced after December 31, 2004 and prior to January 1, 2008 have been paid in good-faith compliance with the requirements of Section 409A. This restatement shall not apply to benefits that were in pay status prior to January 1, 2008.
ARTICLE II — DEFINITIONS AND CONSTRUCTION
     2.1. Definitions. Unless otherwise indicated, the terms used in this Plan shall have the same meaning as they have under the Qualified Plan, as amended from time to time, except that:
          (a) The definition of “Compensation” shall also include (i) amounts deferred by a Participant under the terms of any nonqualified deferred compensation plan maintained by the Corporation; (ii) amounts in excess of the limitations set forth in Section 1.15 of the Qualified Plan that specify the maximum amount of employment compensation that can be taken into account under Section 401(a)(17) of the Code (the “Section 401 Limits”) for determining qualified retirement plan benefits; and (iii) amounts included in a Participant’s taxable income upon the lapse of restrictions on shares of restricted common stock of the Corporation awarded under the USEC Inc. Annual Incentive Program and governed by the USEC Inc. 1999 Equity Incentive Plan, or any successor thereto.
          (b) The definition of “Final Average Compensation” shall mean, for any Participant as of any date, the average annual Compensation paid to the Participant, determined as provided in Section 5.1(a)(i) and (ii) of the Qualified Plan.
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     2.2. Gender and Number. Except when otherwise indicated by the context, any masculine terminology when used in the Plan shall also include the feminine gender, and the definition of any term in the singular shall also include the plural.
     2.3. Severability. In the event any provision of the Plan shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the illegal or invalid provision had never been inserted, and the Corporation shall have the privilege and opportunity to correct and remedy such questions of illegality or invalidity by amendment as provided in the Plan.
     2.4. Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of Delaware.
     2.5. Plan Not an Employment Contract. This Plan is not an employment contract. It does not give to any person the right to be continued in employment, and all employees remain subject to change of salary, transfer, change of job, discipline, layoff, discharge, or any other change of employment status.
     2.6. Definitions to Implement Section 409A.
          (a) “Disability” shall mean with regard to Non-Grandfathered Benefits, either (i) a medically determinable physical or mental impairment of the Participant that can be expected to result in death or can be expected to last for a continuous period of at least twelve (12) months that would qualify as a disability under the Corporation’s then current long-term disability plan; provided the Participant has been receiving income replacement benefits under such an accident and health plan maintained by the Corporation for no less than three months; or (ii) any other definition of “disability” that satisfies the requirements of Code Section 409A(a)(2)(C) and Treasury Regulation Section 1.409A-3(i)(4), if such other definition results in an earlier determination of disability.
          (b) “Grandfathered Benefits” shall mean any benefits payable under this Plan for any Participant that were earned by such Participant and vested on or before December 31, 2004 and not materially modified after October 3, 2004, taking into account the benefit formula under the Plan, the Participant’s service and the Participant’s Final Average Compensation as of December 31, 2004.
          (c) “Non-Grandfathered Benefits” shall mean benefits payable under this Plan that are not Grandfathered Benefits, as described in Section 4.1.
          (d) “Retirement” with regard to Non-Grandfathered Benefits shall mean a Participant’s Separation from Service after the earliest of (i) the completion of ten years of Credited Service (as defined in the Qualified Plan) and attainment of age 62, (ii) attainment of age 65; and (iii) the accumulation by the Participant of 85 points, where each year of the Participant’s age and each year of Credited Service (as defined in the Qualified Plan) count for one point.
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          (e) “Section 409A” shall mean Code Section 409A together with any and all regulations, rulings and other applicable guidance issued under Code Section 409A.
          (f) “Section 409A Penalties” shall have the meaning set forth in Section 4.10 of this Plan.
          (g) “Separation from Service” shall be interpreted in a manner consistent with the definition of “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h). The Committee retains the right and discretion to specify, and may specify, whether a Separation from Service occurs for individuals providing services to the Corporation immediately prior to an asset purchase transaction in which the Corporation or an Affiliate is the seller who provide services to a buyer after and in connection with such asset purchase transaction; provided, such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4).
          (h) “Specified Employee” shall mean any person described in Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i) as determined from time to time by the Committee in its discretion.
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ARTICLE III — PARTICIPATION IN THE PLAN
     3.1. Participants. Eligibility for membership in the Plan shall be determined by the Compensation Committee of the Board of Directors of the Corporation, or its delegate (“Committee”) in its sole discretion, on an individual basis, but each Participant must be a member of a select group of management or highly-compensated employees of the Corporation and must be eligible to participate in the Qualified Plan.
     3.2. Benefit Payments. The payment of benefits to the Participant or his beneficiary under this Plan is conditioned upon the continuous employment of the Participant by the Corporation (including periods of disability and authorized leaves of absence) from the date of participation in the Plan until the Participant’s retirement from the Corporation, disability, or death, whichever first occurs. Benefits under the Plan shall become vested upon the earliest of Participant’s retirement from the Corporation, disability, or death. With respect to Non-Grandfathered Benefits, in this Section 3.2, the term “retirement” shall mean “Retirement” as defined in Section 2.6(d) and the term disability shall mean “Disability” as defined in Section 2.6(a).
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ARTICLE IV — BENEFITS
     4.1. Amount of Benefits. The benefit payable under this Plan to the Participant with respect to Non-Grandfathered Benefits shall be equal to the difference between the amount in (1) and the amount in (2) where:
(1) is the amount of the retirement benefit that would be payable under the Qualified Plan in the form of a single life annuity beginning at the Participant’s Retirement, before the application of the Section 401 Limits and the Section 415 Limits and by using the definition of compensation as provided in this Plan; and
(2) is the amount of the benefit actually payable under the Qualified Plan commencing at the Participant’s Retirement in the form of a single life annuity.
          The amount payable as Non-Grandfathered Benefits shall be the difference between the amount determined above and the amount of the Grandfathered Benefits.
     4.2. Form of Payment. Grandfathered Benefits payable under this Plan shall be paid in the same form as benefits payable under the Qualified Plan. Non-Grandfathered Benefits shall be paid in a form (either a lump sum or a life annuity) that is the actuarial equivalent of the benefit under the Plan (determined under Section 4.1), as elected by the Participant by the later of December 31, 2007 or the thirtieth (30 th ) day after the end of the first Plan Year during which the Participant first accrues a benefit under this Plan; provided, however, that any Participant who also participates in the USEC Inc. 2006 Supplemental Executive Retirement Plan (the “2006 SERP”) must elect the same form of payment under the 2006 SERP. A Participant who elects a life annuity form of payment may elect any form of life annuity available under the Qualified Plan that is the actuarial equivalent of the normal retirement benefit hereunder, and may subsequently select a different type of actuarially equivalent life annuity available under the Qualified Plan with the same scheduled date for the first annuity payment. If no election with respect to the form of payment is made by the Participant within the applicable election period, a Participant’s Non-Grandfathered Benefits shall be paid in the form of a lump sum payment.
     Notwithstanding the foregoing, if the lump sum actuarial equivalent of any benefits payable (or remaining payable) is $10,000 or less, when aggregated with any limited cashout from any other non-account balance deferred compensation plan of the Corporation or its affiliates covering the Participant, the Committee may, in its sole discretion, direct the payment of such benefits due a Participant, spouse, or beneficiary under this Plan in the form of such lump sum amount. The actuarial assumptions for computing the lump sum amount shall be the same actuarial assumptions used to compute a lump sum amount under the Qualified Plan. The payment of the lump sum shall be in full discharge of the Corporation’s obligations under this Plan to the Participant, his spouse, or beneficiaries.
     4.3. Commencement Date. Grandfathered Benefits payable under this Plan shall commence on or about the same date that benefits commence under the Qualified Plan. Vested Non-Grandfathered Benefits shall be paid (or commence) upon the earliest of Separation from Service, death or Disability, and shall commence no later than the ninetieth (90 th ) day following the Participant’s death, Disability or, subject to Section 4.9, Separation from Service.
5

 
     4.4. Death Benefits. No death benefit shall be paid under this Plan except as provided in this section. A death benefit shall be payable to a surviving spouse or other beneficiary designated by the Participant if a death benefit is payable under the terms of the Qualified Plan. With regard to Grandfathered Benefits, death benefits shall be paid at the same time and in the same form as provided under the Qualified Plan. With regard to Non-Grandfathered Benefits, death benefits shall be paid at the time and in the form provided in accordance with the provisions of Sections 4.2 and 4.3 hereof for Non-Grandfathered Benefits. Such death benefit shall be computed using the same factors and assumptions used to compute the applicable death benefit under the Qualified Plan, except that the amount of the death benefit shall be computed with respect to the amount of the benefit the Participant accrues under this Plan.
     4.5. Disability Benefits. With regard to Grandfathered Benefits, a disability benefit shall be paid to a Participant if and to the same extent a disability benefit is payable under the terms of the Qualified Plan and at the same time and in the same form as provided under the Qualified Plan. With regard to Non-Grandfathered Benefits, a disability benefit shall only be paid to a Participant if such Participant is determined to have a Disability as such term is defined in Section 2.6(a) of this Plan and shall be paid at the time and in the form provided in accordance with the provisions of Sections 4.2 and 4.3 hereof for Non-Grandfathered Benefits. Such disability benefit shall be computed using the same factors and assumptions used to compute the applicable disability benefit under the Qualified Plan, except that the amount of the disability benefit shall be computed with respect to the amount of the benefit the Participant accrued under this Plan.
     4.6. Funding. All amounts paid under this Plan shall be in cash from the general assets of the Corporation. Benefits shall be reflected on the accounting records of the Corporation but shall not be construed to create, or require the creation of, a trust, custodial or escrow account. No employee shall have any right, title or interest whatever in or to any investment reserves, accounts, or funds that the Corporation may purchase, establish, or accumulate to aid in providing the benefits described in this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust or fiduciary relationship of any kind between the Corporation and an employee or any other person. Neither an employee nor a beneficiary of any employee shall acquire any interest greater than that of an unsecured creditor.
     4.7. Tax Withholding. The Corporation may withhold from a payment any federal, state, or local taxes required by law to be withheld with respect to such payment and such sum as the Corporation may reasonably estimate as necessary to cover any taxes for which the Corporation may be liable and which may be assessed with regard to such payment.
     4.8. Nontransferabilty. An employee or his beneficiary shall have no rights by way of anticipation or otherwise to assign or otherwise dispose of any interest under this Plan, nor shall rights be assigned or transferred by operation of law.

     4.9. Specified Employees. Notwithstanding any other provision of this Plan, Non-Grandfathered Benefits to be paid pursuant to this Plan based upon a Participant’s Separation from Service at a time when the Committee has determined that such Participant is a Specified Employee shall not be paid (or commence) before the date which is six (6) months and one day
6

 
after the Participant’s Separation from Service. All payments delayed pursuant to this Section shall be aggregated into one lump sum payment and shall be paid without interest as of the first day of the seventh month after such Participant’s Separation from Service.
     4.10. Application of 409A. The Corporation intends for the Plan, as described herein and as may be subsequently amended from time to time, to be written, construed and operated in a manner such that no amounts deferred under the Plan become subject to (i) the gross income inclusion set forth within Code Section 409A(a)(1)(A) or (ii) the interest and additional tax set forth within Code Section 409A(a)(1)(B) (together, referred to herein as the “Section 409A Penalties”). Notwithstanding any other provision of this Plan, acceleration of payment of accrued benefits or any other action (including amendment or termination of the Plan) shall be permitted and effective only to the extent such would not result in amounts deferred under the Plan becoming subject to the Section 409A Penalties.
     4.11. Acceleration of Payments for Tax Obligations. The time or schedule of any payment under this Plan may be accelerated with respect to any Participant at any time to the extent necessary for the payment of any state, local, federal or foreign taxes imposed or required to be withheld in respect of any accrued benefit under the Plan as determined by the Committee in its sole discretion. Any payment made pursuant to this Section shall not exceed in amount the minimum statutory tax withholding or income inclusion obligation and with regard to Non-Grandfathered Benefits shall be made in accordance with Treasury Regulation Sections 1.409A-3(j)(4)(vi) and (vii).
7

 
ARTICLE V — ADMINISTRATION
     5.1. Administration. The Plan shall be administered by the Committee. The Committee shall have the authority to interpret the Plan, to adopt and review rules relating to the Plan and to make any other determinations for the administration of the Plan, including the authority to delegate to the Named Fiduciary such activities and responsibilities as are necessary for the day to day management and administration of the Plan.
     Subject to the terms of the Plan, the Committee shall have exclusive jurisdiction to (a) select the employees eligible to become Participants; (b) determine the eligibility for, and form and method of any benefit payments; (c) establish the timing of benefit distributions; and (d) settle claims according to the provisions in Article VI.
     5.2. Costs. The Committee may employ such counsel, accountants, actuaries, and other agents as it shall deem advisable. The Corporation shall pay the compensation of such counsel, accountants, actuaries, and other agents and any other expenses incurred by the Committee in the administration of the Plan.
     5.3. Finality of Determination. The determination of the Committee as to any disputed questions arising under this Plan, including questions of construction and interpretation, shall be final, binding, and conclusive upon all persons.
     5.4. Indemnification and Exculpation. The members of the Committee, its agents, and officers, directors, and employees of the Corporation and its affiliates shall be indemnified and held harmless by the Corporation against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit, or proceeding to which they may be party or in which they may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by them in settlement (with the Corporation’s written approval) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability, or expense is due to such person’s gross negligence or willful misconduct.
8

 
ARTICLE VI — NAMED FIDUCIARY AND CLAIMS PROCEDURE
     6.1. Named Fiduciary. The Named Fiduciary of the Plan and for purposes of the claims procedure under this Plan is the Chief Human Resources Officer of the Corporation. The business address and telephone number of the Chief Human Resources Officer is:
Senior Vice President, Human Resources and Administration
USEC Inc.
6903 Rockledge Drive
Bethesda, Maryland 20817
301-564-3306
          The Corporation shall have the right to change the Named Fiduciary of the Plan created under this Plan. The Corporation shall also have the right to change the address and telephone number of the Named Fiduciary. The Corporation shall give the Participants written notice of any change of the Named Fiduciary, or any change in the address and telephone number of the Named Fiduciary.
     6.2. Payment of Benefits. Benefits shall be paid in accordance with the provisions of this Plan. Upon the occurrence of an event which would make the payment of benefits possible to a Participant under Article IV of this Plan, the Named Fiduciary shall give written notice by registered mail to the Participant, or his beneficiary or contingent beneficiary, of the possible availability of benefits under this Plan. The Participant, or his beneficiary or contingent beneficiary (hereinafter collectively referred to as the “Claimant”) shall then make a written request for the benefits provided under this Plan. This written claim shall be mailed or delivered to the Named Fiduciary by registered mail.
     6.3. Denied Claim. If the claim is denied, either wholly or partially, notice of the decision shall be sent by registered mail to the claimant within a reasonable time period. This time period shall not exceed ninety (90) days after the receipt of the claim by the Named Fiduciary.
     6.4. Written Notice. The Named Fiduciary shall provide such written notice to every claimant who is denied a claim for benefit under this Plan. The notice shall set forth the following information:
          (a) the specific reasons for the denial;
          (b) the specific reference to pertinent Plan provisions on which the denial is based;
          (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
          (d) appropriate information and explanation of the claims procedure under this Plan to permit the claimant to submit his claim for review.
9

 
     6.5. Appeal. The claims procedure under this Plan shall allow the claimant a reasonable opportunity to appeal a denied claim and to get a full and fair review of that decision from the Committee.
          (a) The claimant shall exercise his right of appeal by submitting a written request for a review of the denied claim to the Named Fiduciary. This written request for review must be submitted to the Named Fiduciary within sixty (60) days after receipt by the claimant of the written notice of denial.
          (b) The claimant shall have the following rights under this appeal procedure:
 	(i)	 	to request a review by the Committee upon written application to the Named Fiduciary;	
 	 	 	 	
 	(ii)	 	to review pertinent documents with regard to the employee benefit plan created under this Plan;	
 	 	 	 	
 	(iii)	 	the right to submit issues and comments in writing;	
 	 	 	 	
 	(iv)	 	to request an extension of time to make a written submission of issues and comments; and	
 	 	 	 	
 	(v)	 	to request that a hearing be held to consider claimant’s appeal.	
     6.6. Review of Appeal. The decision on the review of the denied claim shall promptly be provided by the Committee:
          (a) within forty-five (45) days after the receipt of the request for review if no hearing is held; or
          (b) within ninety (90) days after the receipt of the request for review, if an extension of time is necessary in order to hold a hearing.
 	(i)	 	If an extension of time is necessary in order to hold a hearing, the Committee shall give the claimant written notice of the extension of time and of the hearing. This notice shall be given prior to any extension.	
 	 	 	 	
 	(ii)	 	The written notice of extension shall indicate that an extension of time will occur in order to hold a hearing on claimant’s appeal. The notice shall also specify the place, date, and time of that hearing and the claimant’s opportunity to participate in the hearing. It may also include any other information the Committee believes may be important or useful to the claimant in connection with the appeal.	
10

 
     6.7. Hearing. The decision to hold a hearing to consider the Claimant’s appeal of the denied claim shall be within the sole discretion of the Committee, whether or not the Claimant requests such a hearing.
     6.8. Written Decision. The Committee’s decision on review shall be made in writing and provided to the Claimant within the specified time periods. This written decision on review shall contain the following information:
          (a) the decision(s);
          (b) the reasons for the decision(s); and
          (c) specific references to the Plan provisions of the Plan on which the decision(s) is/are based.
All of this information shall be written in a manner calculated to be understood by the claimant.
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ARTICLE VII — MERGER, AMENDMENT, AND TERMINATION
     7.1. Merger, Consolidation, or Acquisition. The Plan shall be binding upon the Corporation, its assigns, and any successor Corporation which shall succeed to substantially all of its assets and business through merger, consolidation or acquisition.
     7.2. Amendment and Termination. The Board of Directors of the Corporation may amend, modify, or terminate the Plan at any time; provided, however, that no such amendment or termination shall result in any acceleration or delay in the payment of any amount due under this Plan except to the extent such acceleration or delay would not result in the imposition of Section 409A Penalties. In addition, no amendment or termination of the Plan shall be effective to the extent that it would cause the Grandfathered Benefits hereunder to be materially modified within the meaning of Treasury Regulation Section 1.409A-6(a)(4) or otherwise become subject to Section 409A. In the event of a termination of the Plan pursuant to this section, unpaid benefits of Participants who have had a Separation from Service, death or Disability, or benefits of those Participants who are eligible for retirement under the terms of the Qualified Plan shall continue to be an obligation of the Corporation and shall be paid as scheduled.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed by its duly authorized officer on this 1st day of November, 2007, effective as of the 1 st  day of January, 2008.
USEC INC.
By: _______________

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EXHIBIT 10.64
USEC INC.
2006 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Amended and Restated
Effective January 1, 2008

 
TABLE OF CONTENTS
 	 	 	 	 	 	 	
USEC INC. 2006 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN	 	 	1	 	
 	 	 	 	 	 	 	
ARTICLE I INTRODUCTION	 	 	1	 	
1.1	 	Establishment	 	 	1	 	
1.2	 	Purpose	 	 	1	 	
1.3	 	Avoidance of Section 409A Penalties	 	 	1	 	
 	 	 	 	 	 	 	
ARTICLE II DEFINITIONS	 	 	1	 	
2.1	 	“Accrued Benefit”	 	 	1	 	
2.2	 	“Actuarial Equivalent”	 	 	1	 	
2.3	 	“Administrative Committee” or “Committee”	 	 	1	 	
2.4	 	“Annuity”	 	 	2	 	
2.5	 	“Beneficiary”	 	 	2	 	
2.6	 	“Benefit Commencement Date”	 	 	2	 	
2.7	 	“Board”	 	 	2	 	
2.8	 	“Cause”	 	 	2	 	
2.9	 	“Claim”	 	 	3	 	
2.10	 	“Claimant”	 	 	3	 	
2.11	 	“Code”	 	 	3	 	
2.12	 	“Compensation Committee”	 	 	3	 	
2.13	 	“Confidential Information”	 	 	3	 	
2.14	 	“Death Benefit”	 	 	3	 	
2.15	 	“Disability”	 	 	3	 	
2.16	 	“Effective Date”	 	 	3	 	
2.17	 	“Employer”	 	 	3	 	
2.18	 	“ERISA”	 	 	3	 	
2.19	 	“Final Average Pay”	 	 	3	 	
2.20	 	“Final Benefit Objective”	 	 	4	 	
2.21	 	“Indemnified Persons”	 	 	4	 	
2.22	 	“Joint and Survivor Annuity”	 	 	4	 	
2.23	 	“Member”	 	 	4	 	
2.24	 	“Months of Service”	 	 	4	 	
2.25	 	“Normal Retirement Date”	 	 	4	 	
2.26	 	“Offset”	 	 	4	 	
2.27	 	“Other Plan” or “Other Plans”	 	 	4	 	
2.28	 	“Pay”	 	 	4	 	
2.29	 	“Plan”	 	 	5	 	
2.30	 	“Plan Year”	 	 	5	 	
2.31	 	“Primary Social Security Benefit”	 	 	5	 	
2.32	 	“Qualified Plan”	 	 	5	 	
2.33	 	“Related Company”	 	 	5	 	
2.34	 	“Restoration Plan”	 	 	5	 	
2.35	 	“Retirement Benefit”	 	 	5	 	
2.36	 	“Section 409A”	 	 	5	 	
2.37	 	“Section 409A Penalties”	 	 	5	 	
2.38	 	“Specified Employee”	 	 	5	 	

 
 	 	 	 	 	 	 	
2.39	 	“Single Life Annuity”	 	 	5	 	
2.40	 	“Sponsor”	 	 	5	 	
2.41	 	“Termination of Employment”	 	 	5	 	
2.42	 	“Year of Service”	 	 	6	 	
 	 	 	 	 	 	 	
ARTICLE III MEMBERSHIP	 	 	6	 	
3.1	 	Membership	 	 	6	 	
3.2	 	Commencement of Membership	 	 	6	 	
3.3	 	Resumption of Membership	 	 	6	 	
3.4	 	Cessation of Membership Following a Change in Status	 	 	6	 	
3.5	 	Conditions of Membership	 	 	6	 	
 	 	 	 	 	 	 	
ARTICLE IV VESTING	 	 	8	 	
4.1	 	Generally	 	 	8	 	
4.2	 	Vesting	 	 	8	 	
4.3	 	Unvested Accrued Benefit Forfeited	 	 	8	 	
4.4	 	Accelerated Vesting	 	 	8	 	
 	 	 	 	 	 	 	
ARTICLE V DETERMINATION, DISTRIBUTION AND FORFEITURE OF ACCRUED BENEFIT	 	 	8	 	
5.1	 	Generally	 	 	8	 	
5.2	 	Accrued Benefit	 	 	8	 	
5.3	 	Final Benefit Objective	 	 	8	 	
5.4	 	Offset	 	 	9	 	
5.5	 	Retirement Benefit	 	 	10	 	
5.6	 	Lump Sum Death Benefit	 	 	11	 	
5.7	 	Forfeiture of Accrued Benefit	 	 	11	 	
5.8	 	Facility of Payment	 	 	12	 	
5.9	 	Designation or Change of Beneficiary	 	 	12	 	
5.10	 	Limited Cashout	 	 	12	 	
 	 	 	 	 	 	 	
ARTICLE VI AMENDMENT AND TERMINATION OF THE PLAN	 	 	13	 	
6.1	 	Sponsor’s Right to Amend or Terminate the Plan	 	 	13	 	
6.2	 	Restriction on Amendments	 	 	13	 	
6.3	 	Distribution upon Termination	 	 	13	 	
 	 	 	 	 	 	 	
ARTICLE VII PLAN ADMINISTRATION	 	 	13	 	
7.1	 	Authority and Responsibility of the Sponsor	 	 	13	 	
7.2	 	Composition and Responsibility of the Administrative Committee	 	 	13	 	
7.3	 	Powers of the Administrative Committee	 	 	14	 	
7.4	 	Administrative Committee Expenses	 	 	14	 	
7.5	 	Information to be Supplied by Employer and Members; Notice	 	 	14	 	
7.6	 	Claims Procedures	 	 	15	 	
7.7	 	Determinations of the Administrative Committee	 	 	16	 	
7.8	 	Right to Settle Claims	 	 	16	 	
7.9	 	Indemnification	 	 	16	 	
 	 	 	 	 	 	 	
ARTICLE VIII MISCELLANEOUS	 	 	16	 	
2

 
 	 	 	 	 	 	 	
8.1	 	Action of the Compensation Committee	 	 	16	 	
8.2	 	Adoption by a Related Company	 	 	16	 	
8.3	 	Establishment of Trust	 	 	17	 	
8.4	 	Unfunded Obligation	 	 	17	 	
8.5	 	Taxes	 	 	17	 	
8.6	 	No Employment Guarantee	 	 	17	 	
8.7	 	No Rights Under Plan Except as Set Forth Herein	 	 	17	 	
8.8	 	Benefits Under Plan Not Taken into Account for Other Benefits	 	 	18	 	
8.9	 	Acceleration of Payments for Tax Obligations	 	 	18	 	
8.10	 	Nonalienability	 	 	18	 	
8.11	 	Entire Agreement	 	 	18	 	
8.12	 	Gender and Number	 	 	18	 	
8.13	 	Headings	 	 	18	 	
8.14	 	Governing Law	 	 	18	 	
8.15	 	Severability	 	 	19	 	
 	 	 	 	 	 	 	
Schedule A	 	 	A-1	 	
 	 	 	 	 	 	 	
Schedule B	 	 	B-1	 	
3

 
USEC INC.
2006 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
INTRODUCTION
     1.1 Establishment. USEC Inc., a Delaware corporation (the “Sponsor” and an “Employer” hereunder) originally adopted the USEC Inc. 2006 Supplemental Executive Retirement Plan (the “ Plan ”) effective as of April 24, 2006 (the “ Effective Date ”). This Plan has been amended and restated, effective January 1, 2008, to reflect the final Treasury Regulations under Section 409A.
     1.2 Purpose. The purpose of the Plan is to attract qualified individuals to serve as, retain the services of, and provide rewards and incentives to a certain select group of management or highly compensated employees of the Employer (as the Employer may designate from time to time) through the provision of supplemental retirement benefits. The Employer intends to maintain the Plan as an unfunded, nonqualified defined benefit pension plan for a select group of management or highly compensated employees within the meaning of the “top hat plan” provisions of ERISA set forth within ERISA Sections 201(2), 301(a)(3), and 401(a)(1).
     1.3 Avoidance of Section 409A Penalties. The Employer intends for the Plan, as described herein and as may be subsequently amended from time to time, to be written, construed and operated in a manner such that no amounts deferred under the Plan become subject to (i) the gross income inclusion set forth within Code Section 409A(a)(1)(A) or (ii) the interest and additional tax set forth within Code Section 409A(a)(1)(B) (together, referred to herein as the “ Section 409A Penalties ”). Notwithstanding any other provision of this Plan, acceleration of payment of Accrued Benefits or any other action (including amendment or termination of the Plan) shall be permitted and effective only to the extent such would not result in amounts deferred under the Plan becoming subject to the Section 409A Penalties. Payments made after the Effective Date and prior to January 1, 2008 have been paid in good-faith compliance with the requirements of Section 409A.
ARTICLE II
DEFINITIONS
     2.1 “Accrued Benefit” has the meaning set forth in Section 5.2.
     2.2 “Actuarial Equivalent” means the value of a benefit that is equivalent to the value of another specified benefit, as determined by an actuary selected by the Committee. Such equivalent value shall be determined using the unisex Retired Pensioners Mortality Table (RP-2000) without projection for mortality improvements and an interest rate equal to the sum of (i) the average of the Moody’s Aa daily bond rate in effect as of the end of each calendar month for the twelve month period ending with the rate that is in effect as of the end of the calendar month that precedes the month that contains the Benefit Commencement Date by two (2) months plus (ii) 75 basis points.
     2.3 “Administrative Committee” or “Committee” means the Compensation Committee or such other person, entity or committee appointed by the Compensation Committee to administer the Plan.

 
     2.4 “Annuity” has the meaning set forth in Section 5.5.
     2.5 “Beneficiary” means the person or persons designated by a Member or otherwise entitled to receive any undistributed vested Accrued Benefits upon the death of the Member as designated or provided in Section 5.9.
     2.6 “Benefit Commencement Date” means, with respect to a Member, except in the case of death or certain Disabilities, the first day of the month coincident with or next following the later of (i) the date on which the Member attains age fifty-five (55) or (ii) the date the Member incurs a Termination of Employment, except as otherwise may be set forth on Schedule B . The Benefit Commencement Date in the case of death shall be the first day of the month coincident to or next following the date of death. The Benefit Commencement Date in the case of a Disability that qualifies as a disability under Section 409A shall be the first day of the month coincident to or next following the determination of Disability. Subject to the following sentence, payments will be made or commence no later than ninety (90) days after the Member’s Benefit Commencement Date. Payment of benefits to Specified Employees will be subject to the Six Month Delay described in Section 5.5.
     2.7 “Board” means the Board of Directors of the Sponsor.
     2.8 “Cause” means a reasonable determination by the Employer that the Member has:
     (a) engaged in willful misconduct that is injurious or detrimental to the Employer or its affiliates,
     (b) embezzled or misappropriated funds or property of the Employer or its affiliates, or been convicted of a felony or has entered a plea of guilty or nolo contendere to a felony,
     (c) been prohibited by order of or as a result of a decision by any tribunal or administrative agency from continuing to serve the Employer in the same capacity as the Member served before such order,
     (d) willfully failed to cooperate with a government investigation,
     (e) materially violated the Employer’s code of conduct or conflict of interest policy,
     (f) lost his or her security clearance, or
     (g) willfully failed or refused to substantially perform the duties reasonably assigned by the Employer or appropriate with the position, in a manner reasonably consistent with prior practice, for a reason other than the Member’s death, Disability or, if applicable, termination by the Member for Good Reason (as such term is defined in any employment or change of control agreement entered into by the Member and the Employer);
provided, however, that the term “Cause” shall not include ordinary negligence or failure to act, whether due to an error in judgment or otherwise, if the Member has exercised substantial efforts in good faith to perform the duties reasonably assigned or appropriate to the position. A Member’s failure to cure (to the extent then curable) any act, error or omission within ten (10) days after receiving written notice from the Employer of such act, error or omission shall cause
2

 
such act, error or omission to be deemed to be willful. If the Member has entered into an employment or change in control agreement with the Employer, for purposes of the Plan “Cause” shall nonetheless be determined under the definition set forth above even where inconsistent with the definition set forth within such agreement.
     2.9 “Claim” has the meaning set forth in Section 7.6.
     2.10 “Claimant” has the meaning set forth in Section 7.6.
     2.11 “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any subsequent Internal Revenue Code. References to any section of the Code shall be deemed to include similar sections of the Code as renumbered or amended.
     2.12 “Compensation Committee” means the compensation committee of the Board or its delegate or, if at any time there shall cease to be a compensation committee of the Board, the Board or such other committee of the Board as may be designated by the Board at such time.
     2.13 “Confidential Information” has the meaning set forth in Section 3.5.
     2.14 “Death Benefit” has the meaning set forth in Section 5.6.
     2.15 “Disability” means a Member’s total physical or mental inability, resulting from bodily injury or disease, to perform any work for compensation or profit in any occupation for which such Member is reasonably qualified by reason of training, education or ability, and which is adjudged to be permanent and continuous during the remainder of the Member’s life as determined by the Committee on the basis of evidence satisfactory to it. “Disability” shall not include any bodily injury or disease incurred or suffered as the result of addiction to narcotic drugs, an intentionally self-inflicted injury, or engaging in a criminal (whether misdemeanor or felonious) act.
     2.16 “Effective Date” has the meaning set forth in Section 1.1.
     2.17 “Employer” means the Sponsor and any Related Company that, pursuant to Section 8.2 and with the consent of the Board, adopts the Plan. With respect to any individual, the term Employer means that individual’s direct employer. Where used herein, the singular term “Employer” shall be deemed to include the plural if applicable.
     2.18 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. References to any section of ERISA shall be deemed to include similar sections of ERISA as renumbered or amended.
     2.19 “Final Average Pay” means the average monthly amount determined by dividing the Member’s total Pay during the thirty-six (36) consecutive calendar months immediately preceding the month of the Member’s Termination of Employment, by thirty-six (36). Notwithstanding the foregoing, in the event that the Member’s Employer withdraws from the Plan (as set forth in Section 8.2) prior to the date of the Member’s Termination of Employment, “ Final Average Pay ” means the average monthly amount determined by dividing the Member’s total Pay during the thirty-six (36) consecutive calendar months immediately preceding the date that the Member’s Employer withdraws from the Plan, by thirty-six (36). Notwithstanding
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anything herein to the contrary, under no circumstances will the term Final Average Pay include more than three (3) short term annual bonuses. In the event that more than three (3) short term annual bonuses are paid to a Member during the thirty-six (36) consecutive calendar month period immediately preceding the month of the Member’s Termination of Employment, only the final three (3) short term annual bonuses paid will be counted for purposes of determining the Member’s Final Average Pay.
     2.20 “Final Benefit Objective” has the meaning set forth in Section 5.3.
     2.21 “Indemnified Persons” has the meaning set forth in Section 7.9.
     2.22 “Joint and Survivor Annuity” means a monthly annuity payable for the life of the Member with a survivor annuity for the life of the Member’s Beneficiary (if such Beneficiary survives beyond the date of the Member’s death) that is fifty percent (50%) of the monthly amount payable to the Member during the joint lifetimes of the Member and such Beneficiary. The Member may not change the Beneficiary under the Joint and Survivor Annuity at any time after the Member elects the Joint and Survivor Annuity pursuant to Section 5.5(b).
     2.23 “Member” has the meaning set forth in Section 3.1.
     2.24 “Months of Service” means, at any given time, a Member’s number of full months of employment with the Employer, measured from the Member’s date of hire and each one month anniversary of the Member’s date of hire.
     2.25 “Normal Retirement Date” means the date upon which the Member attains age sixty-two (62).
     2.26 “Offset” has the meaning set forth in Section 5.4.
     2.27 “Other Plan” or “Other Plans” has the meaning set forth in Section 5.4.
     2.28 “Pay” means, with respect to any period of time, the sum of the total annual base salary plus any short term annual bonuses paid during the applicable period of time, whether such short term annual bonuses are paid in the form of cash or in grants of restricted common stock of USEC Inc. under the USEC Inc. Annual Incentive Program (which, under the USEC Inc. Annual Incentive Program, generally vests one (1) year after the date of grant), without reduction for the amounts, if any, by which the Member’s annual base salary is reduced during the applicable period of time by reason of a salary reduction election under:
          (a) any other nonqualified deferred compensation plan,
          (b) any plan under Code Section 401(k), or
          (c) any cafeteria plan described in Code Section 125
that the Employer may elect to maintain. Except as otherwise provided in this Section, Pay shall not include any reimbursed expenses, cash or benefits (including benefits paid under any deferred compensation plan) or any additional cash compensation or compensation payable in a medium other than cash. Pay shall not include any amount of cash or equity paid or granted as
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part of any long term incentive plan or program that USEC Inc. in its sole discretion may elect to maintain from time to time.
     2.29 “Plan” means the USEC Inc. 2006 Supplemental Executive Retirement Plan, as set forth herein and as may be amended from time to time.
     2.30 “Plan Year” means the calendar year.
     2.31 “Primary Social Security Benefit” means the Actuarial Equivalent of Member’s primary benefit payable monthly under the Social Security Act, as amended, determined on the date the member attains age 62.
     2.32 “Qualified Plan” means the Employees’ Retirement Plan of USEC Inc., as amended from time to time and any successor thereto that is a defined benefit pension plan.
     2.33 “Related Company” means any corporation or entity that is a member of a controlled group of corporations that includes the Sponsor (as determined under Code Section 414(b)) or that would be considered a single employer with the Sponsor (as determined under Code Section 414(c)).
     2.34 “Restoration Plan” means the USEC Inc. Pension Restoration Plan, as amended from time to time.
     2.35 “Retirement Benefit” has the meaning set forth in Section 5.5.
     2.36 “Section 409A” means Code Section 409A together with any and all regulations, rulings and other applicable guidance issued under Code Section 409A.
     2.37 “Section 409A Penalties” has the meaning set forth in Section 1.3.
     2.38 “Specified Employee” means any person described in Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i) as determined from time to time by the Committee in its discretion.
     2.39 “Single Life Annuity” means an annuity providing equal monthly payments for the lifetime of the Member with no survivor benefits.
     2.40 “Sponsor” means USEC Inc., a Delaware corporation, or any successor entity by merger, consolidation, purchase or otherwise, unless such successor entity elects not to adopt the Plan.
     2.41 “Termination of Employment” means and shall be interpreted in a manner consistent with the definition of “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h). The term “Termination of Employment” shall also include a termination by reason of death. The Committee retains the right and discretion to specify, and may specify, whether a Termination of Employment occurs for individuals providing services to the Company immediately prior to an asset purchase transaction in which the Company or a Related Company is the seller who provide services to a buyer after and in connection with such asset purchase transaction;
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provided, such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4). The transfer of a Member’s employment from the Employer to a Related Company or from one Related Company to another Related Company shall not constitute a Termination of Employment.
     2.42 “Year of Service” means twelve (12) Months of Service.
ARTICLE III
MEMBERSHIP
     3.1 Membership. The Members shall be those key management employees, officers or highly compensated employees of the Employer selected on an individual basis from time to time in the sole discretion of the Compensation Committee, based on such criteria as the Compensation Committee deems appropriate, as Members eligible to participate in the Plan. Members shall be listed on  Schedule A .
     3.2 Commencement of Membership. Each individual designated a Member will become a Member hereunder on the date specified in the designation or, if none, the date as of which such individual is so designated.
     3.3 Resumption of Membership. If a Member ceases to be a Member for any reason, the individual shall resume active membership hereunder as a Member on the date as of which such individual is re-designated as a Member pursuant to Section 3.1.
     3.4 Cessation of Membership Following a Change in Status.
     (a) Notwithstanding anything herein to the contrary, if a former Member continues in the employ of the Employer or a Related Company but ceases to be a Member, such individual’s Final Average Pay shall not include any Pay after such individual ceases to be a Member.
     (b) Subject to the foregoing provisions of this Section, an individual shall continue to be a Member in the Plan until the Member’s entire Accrued Benefit has been distributed or forfeited in accordance with the provisions of Article V.
     3.5 Conditions of Membership. As a condition precedent to membership in this Plan and ongoing condition to accruing and receiving benefits under the Plan, each Member must execute (and not subsequently rescind) a written agreement with the Employer (i) agreeing to comply with the provisions, conditions and restrictions of this Section and (ii) acknowledging that any failure to comply with the provisions, conditions and restrictions of this Section, in the sole discretion of the Committee, will result in the forfeiture and repayment of all of the Member’s benefits under the Plan as set forth in Section 5.7 (b) whether or not such benefits are vested pursuant to the provisions of Article IV. The Employer may require the Member to execute an updated agreement from time to time. The provisions, conditions and restrictions of this Section are as follows:
     (a) Confidentiality. The Member expressly acknowledges and agrees that by virtue of his or her employment with the Employer, the Member will have access to and will use in the course of the Member’s duties certain materials, including, but not limited
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to, information, data and other materials relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of the Employer and its affiliates (“ Confidential Information ”) and that Confidential Information constitutes trade secrets and confidential and proprietary business information of the Employer, all of which is the exclusive property of the Employer. Accordingly, the Member will not at any time during or after the Member’s employment with the Employer disclose or use for the Member’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Employer and any of its affiliates, any Confidential Information, provided that the foregoing shall not apply to information that is not unique to the Employer or any of its affiliates or that is generally known to the industry or public other than as a result of the Member’s breach of this covenant. The Member agrees that upon termination of employment with the Employer for any reason, the Member will immediately return to the Employer all Confidential Information and all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, which in any way relate to the business of the Employer and its affiliates, except that the Member may retain personal notes, notebooks and diaries. The Member further agrees that the Member will not retain or use for the Member’s account or for any other person or entity at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Employer or any of its affiliates.
     (b) Non-Solicitation and Non-Competition. The Member expressly agrees that the Member shall not, at any time during the period of Membership under the Plan and for a period of two (2) years thereafter, (a) engage or become interested as an owner (other than as an owner of less than five percent (5%) of the stock of a publicly owned company), stockholder, partner, director, officer, employee (in an executive capacity), consultant or otherwise in any business that is competitive with any business conducted by the Employer or any of its affiliated companies during the period of Membership under the Plan or as of the date of the Member’s Termination of Employment, as applicable or (b) recruit, solicit for employment, hire or engage any employee or consultant of the Employer or any person who was an employee or consultant of the Employer within two (2) years prior to the Member’s date of Termination of Employment.
     (c) The Member acknowledges and agrees that these provisions are necessary for the Employer’s protection and are not unreasonable, because the Member would be able to obtain employment with companies whose businesses are not competitive with those of the Employer and its affiliated companies and would be able to recruit and hire personnel other than employees of the Employer. The duration and the scope of these restrictions on the Member’s activities are divisible, so that if any provision of this Section is held or deemed to be invalid, that provision shall be automatically modified to the extent necessary to make it valid.
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ARTICLE IV
VESTING
     4.1 Generally. Unless otherwise provided when designated a Member and explicitly set forth in Schedule B hereto, a Member’s vesting in the Member’s Accrued Benefit shall be determined under this Article.
     4.2 Vesting. Each Member’s Accrued Benefit shall be 100% vested upon the Member’s attaining five (5) Years of Service.
     4.3 Unvested Accrued Benefit Forfeited. No Months of Service or Years of Service shall be credited after the earlier of (a) a Member’s Termination of Employment, (b) the date an individual ceases to be a Member, (c) the date that the Member’s Employer withdraws from the Plan (as set forth in Section 8.2) or (d) the date of a Member’s violation of the conditions to Membership set forth in Section 3.5 and any portion of the Member’s Accrued Benefit that is then unvested shall be forfeited.
     4.4 Accelerated Vesting. Notwithstanding the provisions of Section 4.2, 4.3 or any other provision herein to the contrary, a Member’s Accrued Benefit shall be 100% vested upon the occurrence of one of the following:
     (a) On Change in Control. In the event that a Member has an employment agreement or change in control agreement with the Employer and the Member’s Termination of Employment is under circumstances entitling him or her to severance benefits that would not otherwise be payable absent a change in control as defined in such agreement, the Member’s Accrued Benefit shall be 100% vested.
     (b) On Death or Disability. In the event that a Member’s Termination of Employment is due to the Member’s death or Disability, the Member’s Accrued Benefit shall be 100% vested.
ARTICLE V
DETERMINATION, DISTRIBUTION AND FORFEITURE OF ACCRUED BENEFIT
     5.1 Generally. Unless explicitly set forth in Schedule B at the time an individual becomes a Member, a Member’s Accrued Benefit and Final Benefit Objective under the Plan and the time and form of payment of the Member’s Accrued Benefit shall be determined under this Article.
     5.2 Accrued Benefit. A Member’s “Accrued Benefit” as of the Member’s Benefit Commencement Date means the Member’s Final Benefit Objective (as defined in Section 5.3 below) as of that date reduced by the Actuarial Equivalent (determined as of the applicable Benefit Commencement Date using the factors specified in Section 2.2 except that the interest rate shall be six percent (6%)) of the Member’s Offset (such Offset determined in the first instance as of the Member’s Normal Retirement Date as described in Section 5.4 below) as of that date.
     5.3 Final Benefit Objective. A Member’s “Final Benefit Objective” is determined in accordance with this Section 5.3.
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     (a) On or After Normal Retirement Date. For purposes of determining the amount of a Member’s Retirement Benefit payable on a Benefit Commencement Date that is on or after the Member’s Normal Retirement Date, a Member’s Final Benefit Objective shall accrue at the rate of five twenty-fourths of one percent (5/24ths of 1%) of Final Average Pay per Month of Service, up to a maximum of 240 Months of Service.
     (b) Before Normal Retirement Date. For purposes of determining the amount of a Member’s Retirement Benefit payable on a Member’s Benefit Commencement Date where the Member’s Termination of Employment is prior to the Member’s Normal Retirement Date, a Member’s Final Benefit Objective is first determined under subparagraph (a) above, then subsequently reduced by one-half of one percent (0.5%) for each full month that the Member’s Benefit Commencement Date precedes the Member’s Normal Retirement Date.
     For example, assume that a Member is exactly fifty-eight (58) years old and has exactly ten (10) Years of Service at the time he or she incurs a Termination of Employment. The Member’s Final Benefit Objective is twenty-five percent (25%) under subsection (a) above (which would be the Member’s Final Benefit Objective if the Member’s Termination of Employment had been on or after his or her Normal Retirement Date). Because the Member’s Benefit Commencement Date precedes his or her Normal Retirement Date (age sixty-two (62)) by exactly four (4) years, the Member’s Final Benefit Objective is reduced by twenty-four percent (24%) (48 months x 0.5% reduction per month). Thus, the Final Benefit Objective for this Member is nineteen percent (19%) (25% x 24% = 6% reduction), which would then be used with Sections 5.2 and 5.4 to determine the Member’s Accrued Benefit that is payable as of his or her Benefit Commencement Date (which in this case would be the first of the month coincident with or after the Member’s Termination of Employment).
     (c) Freeze of Final Benefit Objective. A Member’s Final Benefit Objective determined under subparagraphs (a) and (b) above shall not increase after the earliest of (i) the date of a Member’s Termination of Employment or (ii) the date that the Member’s Employer withdraws from the Plan (as set forth in Section 8.2).
     (d) Change in Control. Notwithstanding the provisions of subparagraphs (a), (b) or (c) above, in the event that a Member has an employment agreement or change in control agreement with the Employer and the Member’s Termination of Employment occurs under circumstances entitling him or her to severance benefits that would not otherwise be payable absent a change in control as defined in such agreement, the Member’s Final Benefit Objective shall be no less than ten percent (10%) of Final Average Pay.
     (e) Death or Disability. Notwithstanding the provisions of subparagraphs (a), (b) or (c) above, in the event that a Member’s Termination of Employment is due to the Member’s death or Disability, the Member’s Final Benefit Objective shall be no less than ten percent (10%) of Final Average Pay.
     5.4 Offset. A Member’s Final Benefit Objective otherwise payable shall be reduced as of the Member’s Normal Retirement Date as described in this Section 5.4, with the aggregate
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amount of the reduction under this Section as of the Member’s Normal Retirement Date referred to herein as the Member’s “ Offset ”. First, the total amount payable under each of the:
          (a) Qualified Plan,
          (b) Restoration Plan, and
          (c) Primary Social Security Benefit,
(each, an “Other Plan” and collectively referred to herein as the “Other Plans”) shall be determined as of the Member’s full benefit at retirement age under the applicable Other Plan. Second, such total amount payable under each of the Other Plans shall be converted (separately for each Other Plan) into the Single Life Annuity commencing on the Member’s Normal Retirement Date that is the Actuarial Equivalent (using the factors specified in Section 2.2 except that the interest rate shall be six percent (6%)) of such total amount payable. The aggregate monthly amount payable to the Member under each such Single Life Annuity commencing at the Member’s Normal Retirement Date shall be the Member’s Offset as of his or her Normal Retirement Date.
     5.5 Retirement Benefit. A Member whose Accrued Benefit is 100% vested and who has a Termination of Employment other than on account of death shall be entitled to a benefit under the Plan (the “ Retirement Benefit ”), payable on the Member’s Benefit Commencement Date in the form provided in this Section 5.5.
     (a) Lump Sum. If the Member so elects no later than December 31, 2007 or within the first thirty (30) days after the date such individual initially becomes a Member in accordance with Section 3.2 (or at such other time that the Administrative Committee may determine such election could be made without resulting in amounts deferred under the Plan becoming subject to the Section 409A Penalties) or if no such election is made by the Member, the Retirement Benefit will be paid in the form of a single lump sum that, as of the Member’s Benefit Commencement Date, is the Actuarial Equivalent of a Single Life Annuity with a monthly payment equal to the Member’s vested Accrued Benefit as of the Benefit Commencement Date.
     (b) Annuity. If the Member so elects no later than December 31, 2007 or within the first thirty (30) days after the date such individual initially becomes a Member in accordance with Section 3.2 (or at such other time that the Administrative Committee may determine such election could be made without resulting in amounts deferred under the Plan becoming subject to the Section 409A Penalties), the Retirement Benefit will be paid in the form of a series of substantially equal periodic payments, payable monthly, for the life of the Member and, if applicable, the Member’s Beneficiary (an “ Annuity ”). Monthly payments under such Annuity may be, as elected by the Member, (i) the monthly amount payable under a Single Life Annuity with a monthly payment equal to the Member’s vested Accrued Benefit as of the Benefit Commencement Date or (ii) the monthly payment under the Joint and Survivor Annuity that is the Actuarial Equivalent (determined using the factors provided in Section 2.2) of the monthly payment under the Single Life Annuity. The election as to payment under the Single Life Annuity or Joint and Survivor Annuity shall be made by the Member at such time prior to the Benefit Commencement Date and manner as may be required by the Administrative Committee.
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Notwithstanding the foregoing, no election made in 2007 after the first thirty (30) days after an individual becomes a Member may result in acceleration of payments into 2007 that would otherwise have been made in a later year, or result in postponing payments that would otherwise have been made in 2007 into a later year.
Notwithstanding any other provision of this Plan, benefits to be paid pursuant to this Plan based upon a Member’s Termination of Employment (other than by reason of death) at a time when the Committee has determined that such Member is a Specified Employee shall not be paid (or commence) before the date which is six (6) months and one day after the Member’s Termination of Employment (the “Six Month Delay”). All payments delayed pursuant to this Section shall be aggregated into one lump sum payment and shall be paid without interest as of the first day of the seventh month after such Member’s Termination of Employment.
     5.6 Lump Sum Death Benefit. Where a Member whose Accrued Benefit is 100% vested and who has not otherwise commenced to receive any other benefits under the Plan has a Termination of Employment due to the Member’s death, the Member’s Beneficiary shall be entitled to a benefit under the Plan (the “ Death Benefit ”), payable on the Member’s Benefit Commencement Date. The amount of the Death Benefit is equal to a single lump sum that is the Actuarial Equivalent of the Member’s Retirement Benefit that would have been payable to the Member under Section 5.5(a) had the Member experienced a Termination of Employment other than for death on the date of the Member’s death.
     5.7 Forfeiture of Accrued Benefit. Notwithstanding any other provision of the Plan to the contrary, the Member’s entire Accrued Benefit (whether or not then vested) will be forfeited and not paid to the Member under the circumstances set forth in this Section 5.7.
     (a) Termination for Cause. Notwithstanding any other provision of the Plan to the contrary, the Member’s entire Accrued Benefit (whether or not then vested) will be forfeited and not paid to the Member if the Member incurs a Termination of Employment by the Employer for Cause.
     (b) Violation of Conditions of Membership. Notwithstanding any other provision of the Plan to the contrary, in the event that the Administrative Committee or its delegate, in its sole and absolute discretion, has determined that a Member or former Member has violated any of the restrictive covenants set forth in Section 3.5:
     (i) To the extent not then already distributed, the individual’s entire Accrued Benefit (whether or not then vested) will be forfeited and not distributed in accordance with any other provision of this Plan, and
     (ii) To the extent then already distributed, the gross amount of any and all amounts received by the individual under the Plan will be forfeited and the individual will repay to the Employer an amount equal to such gross amount previously received plus interest. The amount of interest payable to the Employer shall be calculated based upon the rate of interest set forth in the definition of Actuarial Equivalent from the date (or dates) such amounts were originally paid to the individual until the date such amounts were repaid to the Employer.
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     (c) Recovery of Costs and Fees. If a Member becomes subject to the provisions of Section 5.7(b) and if enforcement of such provisions requires the Employer to engage in legal action and if the Employer prevails in such action, then the Employer shall be entitled to recover applicable costs and attorney fees associated with such action from the Member or former Member.
     5.8 Facility of Payment. If at any time any distributee is, in the sole judgment and discretion of the Committee or its delegate, legally, physically, or mentally incapable of receiving the distribution payable to such distributee, the distribution may be paid to the guardian or legal representative of the distributee, or, if none exists, to any other person or institution that, in the Committee or its delegate’s sole judgment and discretion, will apply the distribution in the best interests of the intended distributee. Any payment made in accordance with the provisions of this Section shall be a complete discharge of any liability of the Employer for the making of such payment under the provisions of the Plan.
     5.9 Designation or Change of Beneficiary. Each Member shall designate one or more Beneficiaries and contingent Beneficiaries by filing a properly completed Beneficiary designation form with the Committee or its delegate. A Member may revoke or modify a Beneficiary designation in accordance with such rules and procedures established by the Committee or its delegate. The consent of the Member’s current Beneficiary shall not be required for a change of Beneficiary, and no Beneficiary shall have any rights under this Plan except as provided by such designation form. The rights of a Beneficiary who predeceases the Member shall immediately terminate upon the Beneficiary’s death. If a Member has not filed a valid Beneficiary designation (or if each of the Member’s Beneficiaries and contingent Beneficiaries predecease the Member), the Death Benefit with respect to the Member will be distributed to such Member’s surviving spouse if the Member is married on such Member’s date of death or to the Member’s estate if the Member is not married on the date of death. If a Beneficiary survives the Member but dies before distribution of the amounts to which such Beneficiary is entitled, the benefits will be paid to the contingent Beneficiaries designated in the Member’s Beneficiary designation form and if the Member has not designated any contingent Beneficiaries, such benefits will be distributed to the Beneficiary’s estate.
     5.10 Limited Cashout. Notwithstanding the foregoing, if the lump sum actuarial equivalent of any benefits payable (or remaining payable) is $10,000 or less, when the amount of the lump sum is aggregated with any limited cashout from any other applicable nonaccount balance deferred compensation plan of the Company or any Related Company covering the Member, the Committee may direct the immediate payment of such benefits due a Member, spouse, or Beneficiary under this Plan in the form of such lump sum amount. The actuarial assumptions for computing the lump sum amount shall be the same actuarial assumptions used to compute a lump sum amount under Section 5.5(a). The payment of the lump sum shall be in full discharge of the Corporation’s obligations under this Plan to the Member, his spouse, or Beneficiaries.
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ARTICLE VI
AMENDMENT AND TERMINATION OF THE PLAN
     6.1 Sponsor’s Right to Amend or Terminate the Plan. The Sponsor may, in its sole discretion, at any time and from time to time amend in whole or part, any of the provisions of the Plan or may terminate the Plan in whole, or with respect to any Member or any group of Members; provided, however, that no such amendment or termination shall result in any acceleration or delay in the payment of any amount due under this Plan except to the extent such acceleration or delay would not result in the imposition of Section 409A Penalties. Any such amendment shall be binding upon all Members and their Beneficiaries and all other parties in interest. Any amendment or termination of the Plan shall be evidenced in writing filed with the Plan documents maintained by the Sponsor.
     6.2 Restriction on Amendments. Except as otherwise required by law, no amendment may be made that reduces the amount of, or adversely effects the vesting or amount of payment with respect to, a Member’s Accrued Benefit, if any, determined as of the date of the amendment.
     6.3 Distribution upon Termination. Upon termination of the Plan, no further benefits shall accrue under the Plan. Payment of vested Accrued Benefits hereunder shall continue to be governed by the terms of the Plan as in effect on the date of termination, until distributed in accordance with the terms of the Plan. Notwithstanding the foregoing, the Sponsor in its sole discretion may provide for the distribution of all vested Accrued Benefits in the form of single lump sum payments as soon as practicable after the termination of the Plan;  provided ,  however  that any such distribution shall be permitted and effective only to the extent such would not result in amounts deferred under the Plan becoming subject to the Section 409A Penalties.
ARTICLE VII
PLAN ADMINISTRATION
     7.1 Authority and Responsibility of the Sponsor. The Sponsor shall have overall responsibility for the establishment, amendment and termination of the Plan.
     7.2 Composition and Responsibility of the Administrative Committee. Overall responsibility for the administration and operation of the Plan and for carrying out its provisions is delegated to the Administrative Committee. To the extent appointed by the Compensation Committee pursuant to Section 2.3, the members of the Administrative Committee shall remain in office at the will of the Compensation Committee and the Compensation Committee may from time to time remove any of said members with or without cause and shall appoint successors. Any member of the Administrative Committee may resign by delivering such member’s written resignation to the Compensation Committee and other members of the Administrative Committee, and such resignation shall become effective upon the date specified therein but not earlier that the date such written resignation is delivered. Any member of the Administrative Committee who is an officer, director or employee of the Employer shall automatically cease to be a member of the Administrative Committee on such member ceasing to be an officer, director or employee of the Employer. In the event of any vacancy in membership, the remaining members shall constitute the Administrative Committee with full power to act until said vacancy is filled.
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     7.3 Powers of the Administrative Committee. In carrying out its duties, the Administrative Committee or its delegate shall have all powers necessary and absolute discretion in the discharge of the duties conferred thereon by the Plan or applicable law, including, without limitation, the following powers:
     (a) sole discretion and authority to control and manage the operation and administration of the Plan;
     (b) authorize one or more of its members or an agent to execute or deliver any instrument and make any payment on its behalf;
     (c) establish and modify the method of accounting for the Plan;
     (d) interpret and construe the provisions of the Plan, make findings of fact, correct errors, supply omissions, and compute or have computed the amount of benefits that shall be payable to any person in accordance with the provisions of the Plan;
     (e) establish and publish such rules and regulations for the administration of the Plan as are not inconsistent with the terms thereof;
     (f) employ and suitably compensate clerical employees and such accountants, attorneys, actuaries and other persons to render advice as it may deem necessary to the performance of its duties;
     (g) hear, review and determine claims for benefits;
     (h) keep records of elections, claims, and disbursements for claims under the Plan;
     (i) correct errors and make equitable adjustments for mistakes made in the administration of the Plan, specifically, and without limitation, to recover erroneous overpayments made by the Plan to a Member or Beneficiary, in whatever manner the Administrative Committee or its delegate deems appropriate, including suspensions or recoupment of, or offsets against, future payments due that Member or Beneficiary; and
     (j) perform any other acts that are necessary for the proper and efficient administration of the Plan.
     7.4 Administrative Committee Expenses. All reasonable expenses of the Administrative Committee or its delegate relating to its services under the Plan and all expenses of the Plan will be paid by the Employer.
     7.5 Information to be Supplied by Employer and Members; Notice. The Employer shall provide the Administrative Committee or its delegate with such data and information as it shall from time to time need or reasonably request in the discharge of its duties. Members shall furnish to the Administrative Committee such evidence, data or information as the Administrative Committee may request. The Administrative Committee or its delegate may rely conclusively on the information provided to it by the Employer or Member.
     Any notices required or permitted to be given hereunder shall be deemed given if directed to such address and mailed by regular United States mail. Neither the Administrative Committee, its delegate nor the Employer shall have any obligation or duty to locate a Member or Beneficiary. In the event that a Member or Beneficiary becomes entitled to a payment under this Plan and such payment is delayed or cannot be made for any reason, including because the current address according to the Employer’s records is incorrect, the amount of such payment, if
14

 
and when made, shall be that determined under the provisions of this Plan without payment of any interest or earnings.
     7.6 Claims Procedures. A claim for benefits under the Plan shall be handled as follows:
     (a) Filing a Claim. Each individual who claims to be eligible for benefits under this Plan (a “Claimant”) may submit a written claim for benefits (a “ Claim ”) to the Administrative Committee or its delegate where the individual believes a benefit has not been provided under the Plan to such individual to which such individual is eligible. A Claim must be set forth in writing on a form provided or otherwise approved by the Administrative Committee or its delegate and must be submitted to the Administrative Committee or its delegate no later than six (6) months after the date on which the Claimant or other individual claims to have been first entitled to such claimed benefit.
     (b) Review of Claim. The Administrative Committee or its delegate shall evaluate each properly filed Claim and notify the Claimant of the approval or denial of the Claim within ninety (90) days after the Administrative Committee or its delegate receives the Claim, unless special circumstances require an extension of time for processing the Claim. If an extension of time for processing the Claim is required, the Administrative Committee or its delegate shall provide the Claimant with written notice of the extension before the expiration of the initial ninety (90) day period, specifying the circumstances requiring an extension and the date by which a final decision will be reached (which date shall not be later than 180 days after the date on which the Administrative Committee or its delegate received the claim).
     (c) Notice of Claim Denial. If a Claim is denied in whole or in part, the Administrative Committee or its delegate shall provide the Claimant with a written notice setting forth (i) the specific reasons for the denial, (ii) references to pertinent Plan provisions upon which the denial is based, (iii) a description of any additional material or information needed and an explanation of why such material or information is necessary, and (iv) the Claimant’s right to seek review of the denial pursuant to subsection (d) below.
     (d) Review of Claim Denial. If a Claim is denied, in whole or in part, the Claimant shall have the right to (i) request that the Administrative Committee or its delegate review the denial, (ii) review pertinent documents, and (iii) submit issues and comments in writing, provided that the claimant files a written request for review with the Administrative Committee or its delegate within sixty (60) days after the date on which the claimant received written notice from the Administrative Committee or its delegate of the denial. Within sixty (60) days after the Administrative Committee or its delegate receives a properly filed request for review, the Administrative Committee or its delegate shall conduct such review and advise the Claimant in writing of its decision on review, unless special circumstances require an extension of time for conducting the review. If an extension of time for conducting the review is required, the Administrative Committee or its delegate shall provide the Claimant with written notice of the extension before the expiration of the initial sixty (60) day period, specifying the circumstances requiring an extension and the date by which such review shall be completed (which date shall not be later than 120 days after the date on which the Administrative Committee or its delegate received the request for review). The Administrative Committee or its
15

 
delegate shall inform the Claimant of its decision on review in a written notice, setting forth the specific reason(s) for the decision and reference to Plan provisions upon which the decision is based. A decision on review shall be final and binding on all persons for all purposes.
     (e) No Claimant or other individual may file any claim for benefits or request a review of a denial of any claim unless such person follows the provisions and timeframes of this Section. A Claimant or other individual shall not be entitled to bring any action in any court unless such person has exhausted such person’s rights under this Section by timely submitting a Claim and requesting a review of a decision with respect to such Claim.
     7.7 Determinations of the Administrative Committee. The determinations, interpretations, rules and decisions of the Administrative Committee or its delegate shall be final, binding and conclusive on the Employer and upon each Member, Beneficiary and each other person or party interested or concerned.
     7.8 Right to Settle Claims. The Sponsor may, at its own expense and in its sole discretion, settle any claim asserted or proceeding brought against the Administrative Committee or its delegate.
     7.9 Indemnification. The Employer shall indemnify and hold harmless the Administrative Committee or its delegate hereunder, and to the extent not otherwise provided, the Sponsor and each officer and employee of the Sponsor to whom are delegated duties, responsibility and authority with respect to the Plan (“ Indemnified Persons ”) against all claims, demands, suits, proceedings, losses, damages, interest, penalties, expenses (specifically including, but not limited to, counsel fees, court costs, and other reasonable expenses of litigation), and liability of every kind, including amounts paid in settlement with the approval of the Sponsor, arising from any action or cause of action related to the Indemnified Person’s act(s) or omission(s) pertaining to the Plan, to the extent lawfully allowable and to the extent not paid for by liability insurance purchased or paid for by the Sponsor, excepting only expenses and liabilities arising out of the Indemnified Person’s own willful misconduct or gross negligence. The right of indemnification shall be in addition to any other legal rights to which the Indemnified Person may be entitled. The liabilities and expenses against which the Indemnified Person shall be indemnified hereunder by the Employer shall include, without limitation, the amount of any settlement or judgment costs, legal counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought against the Indemnified Person or settlement thereof.
ARTICLE VIII
MISCELLANEOUS
     8.1 Action of the Compensation Committee. All actions herein required to be taken by the Sponsor shall be taken by the Compensation Committee or by such person or persons to whom the Compensation Committee has delegated authority.
     8.2 Adoption by a Related Company . Any Related Company, with the consent of the Sponsor and under such terms and conditions as the Sponsor may prescribe, may, by written resolution of its own board of directors, adopt the Plan and thereafter become an Employer hereunder. By its adoption of the Plan and participation therein, each Employer agrees to be
16

 
bound by the terms of the Plan, as amended from time to time. Any such Employer may, by resolution of its board of directors, withdraw from the Plan as of any date upon ninety (90) days advance written notice to the Committee. If such an Employer shall cease to exist, it shall automatically be withdrawn from participation in the Plan unless a successor organization adopts the Plan in accordance with this Section.
     8.3 Establishment of Trust. All Accrued Benefits shall be maintained on the Employer’s books and records as a liability of the Employer;  provided ,  however , that the Employer shall be under no obligation to segregate any assets for the payment of such liabilities. The Employer may for its convenience create reserves, funds and/or establish a “rabbi trust” to hold assets and provide benefits under the Plan;  provided ,  however , that such trust shall not include any assets that are outside the reach of the Employer’s general unsecured creditors. Payment of benefits that are payable under the Plan may be made by the Employer, on behalf of the Employer by such a trust or through a service or benefit provider to the Employer or such trust. To the extent any Plan benefits are paid from such a trust or service or benefit provider, such benefits shall be treated as paid by the Employer.
     8.4 Unfunded Obligation. The Employer’s obligation under this Plan shall be an unfunded and unsecured promise to pay benefits when due and payable in accordance with the terms of this Plan. No Member, Beneficiary or any other person shall have any right, title or interest whatsoever in or to, or any preferred claim in or to, any specific assets of the Employer, including any assets that may be placed in trust or otherwise used by the Employer to aid in the payment of benefits described in the Plan. To the extent that any person acquires a right to receive benefits under this Plan, such rights shall be no greater than the right of any unsecured general creditor of the Employer. Nothing contained in this Plan shall be deemed to create a trust of any kind for the benefit of the Members or create any fiduciary relationship between the Employer and the Members or their Beneficiaries.
     8.5 Taxes. The Employer shall make provision for the reporting and withholding of any federal, state or local income and payroll taxes that may be reasonably estimated by the Employer as required to be withheld from the benefits payable pursuant to the terms of the Plan or from other compensation payable to the Member by the Employer and shall pay amounts withheld to the appropriate taxing authorities.
     8.6 No Employment Guarantee. Neither the establishment of the Plan, any modification thereof, the creation of any fund or account, nor the payment of any benefits under the Plan shall be construed as giving to any Member or other person any legal or equitable right against the Compensation Committee, Administrative Committee or any delegate thereof hereunder, or the Employer except as provided herein. Under no circumstances shall the maintenance of this Plan constitute a contract of employment or shall the terms of employment of any Member be modified in any way or affected hereby. Accordingly, membership in the Plan shall not give any Member a right to be retained in the employ of the Employer nor shall it derogate from the rights of the Employer to discharge any Member at any time without regard to the effect of such discharge upon such individual’s rights as a Member in the Plan.
     8.7 No Rights Under Plan Except as Set Forth Herein. Nothing in this Plan, express or implied, is intended, or shall be construed, to confer upon or give any person, firm, association, or corporation, other than the parties hereto and their successors in interest, any
17

 
right, remedy, or claim under or by reason of this Plan or any covenant, condition, or stipulation hereof, and all covenants, conditions and stipulations in this Plan, by or on behalf of any party, are for the sole and exclusive benefit of the parties hereto.
     8.8 Benefits Under Plan Not Taken into Account for Other Benefits . Benefits payable to any person under the Plan shall not be taken into account in computing the amount of salary or compensation of the person for purposes of determining any pension, retirement, death, or other benefit under (a) any pension, retirement, profit-sharing, bonus, insurance or other employee benefit plan of the Employer, except as such other plan shall otherwise expressly provide, or (b) any agreement between the Employer and the person, except as such agreement shall otherwise expressly provide.
     8.9 Acceleration of Payments for Tax Obligations. The time or schedule of any payment under this Plan may be accelerated with respect to any Participant at any time to the extent necessary for the payment of any state, local, federal or foreign taxes imposed or required to be withheld in respect of any accrued benefit under the Plan as determined by the Committee in its sole discretion. Any payment made pursuant to this Section shall not exceed in amount the minimum statutory tax withholding or income inclusion obligation and shall be made in accordance with Treasury Regulation Sections 1.409A-3(j)(4)(vi) and (vii).
     8.10 Nonalienability. Except as otherwise provided herein, the benefits provided under the Plan shall not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, either voluntary or involuntary, and any attempt to cause such benefits to be subjected shall be void, except to the extent as may be required by applicable law.
     8.11 Entire Agreement. This Plan forms the entire agreement among the Employer and its employees with respect to the subject matter contained in this Plan and, except as otherwise provided herein, shall supersede all prior agreements, promises, understandings and representations regarding the benefits described herein, whether in writing or otherwise.
     8.12 Gender and Number. Except when the context indicates to the contrary, when used herein, masculine terms shall be deemed to include the feminine and neuter, and the feminine or neuter the masculine, and terms in the singular shall be deemed to include the plural, and the plural the singular.
     8.13 Headings. The headings used in the Plan are for convenience only, shall not constitute a part of the Plan, and shall not be deemed to limit, characterize, or affect in any way any provisions of the Plan. All provisions of the Plan shall be construed as if no captions had been used in the Plan.
     8.14 Governing Law. The Plan shall be construed and enforced according to the laws of the State of Delaware, to the extent not preempted by federal law.
18

 
     8.15 Severability. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and the Plan shall be construed and enforced as if such provisions had not been included herein.
     IN WITNESS WHEREOF, the Sponsor has caused this document to be executed this 1st day of November, 2007.

 	 	 	
 	USEC INC.  	 	
 	 	 	
 	By:  	W. Lance Wright  	 	
 	 	 	 	
 	Its:  	SVP, Human Resources & Administration  	 	

19

 
Schedule A
As provided in Section 3.1, the Members shall be those key management employees, officers or highly compensated employees of the Employer selected on an individual basis from time to time in the sole discretion of the Compensation Committee, based on such criteria as the Compensation Committee deems appropriate, as Members eligible to participate in the Plan. Effective April 24, 2006, Members in the Plan are:
John K. Welch (See Schedule B)
Robert Van Namen
Timothy B. Hansen
W. Lance Wright
A-1

 
Schedule B
As permitted under Sections 2.6 and 5.1, the following provisions shall be substituted for the otherwise applicable provisions of the Plan.
For John K. Welch:
1. Section 2.6. “Benefit Commencement Date” with respect to Mr. Welch, except in the case of death or certain Disabilities, the first of the month coincident with or next following the later of (i) the date on which Mr. Welch attains age sixty (60) or (ii) the date that Mr. Welch incurs a Termination of Employment. The Benefit Commencement Date in the case of a Disability that qualifies as a disability under Section 409A shall be the first day of the month coincident to or next following the determination of Disability. Subject to the following sentence, payments will be made or commence no later than ninety (90) days after the Member’s Benefit Commencement Date. Payment of benefits to Specified Employees will be subject to the Six Month Delay described in Section 5.5.
2. Section 5.3(a). On or After Normal Retirement Date. For purposes of determining the amount of a Mr. Welch’s Retirement Benefit payable on a Benefit Commencement Date that is on or after his Normal Retirement Date, Mr. Welch’s Final Benefit Objective is determined under the following schedule, without interpolation:
 	 	 	
Years of Service	 	Final Benefit Objective	
Less than 5	 	0%	
At least 5 but less than 7	 	30% of Final Average Pay	
At least 7 but less than 10	 	40% of Final Average Pay	
10 or more	 	50% of Final Average Pay	
3. Section 5.3(b). Before Normal Retirement Date. For purposes of determining the amount of Mr. Welch’s Retirement Benefit payable on his Benefit Commencement Date where his Termination of Employment is prior to his Normal Retirement Date, Mr. Welch’s Final Benefit Objective is first determined under subparagraph (a) above, then subsequently reduced by one-quarter of one percent (0.25%) for each full month that his Benefit Commencement Date precedes his Normal Retirement Date.
4. Section 5.3(d). Change in Control. Notwithstanding the provisions of subparagraphs (a), (b) or (c) above, in the event that Mr. Welch’s Termination of Employment occurs under circumstances entitling him or her to severance benefits that would not otherwise be payable absent a change in control as defined in his change in control agreement, Mr. Welch’s Final Benefit Objective shall be no less than twenty percent (20%) of Final Average Pay.
5. Section 5.3(e). Death or Disability. Notwithstanding the provisions of subparagraphs (a), (b) or (c) above, in the event that Mr. Welch’s Termination of Employment is due to his death or Disability, Mr. Welch’s Final Benefit Objective shall be no less than twenty percent (20%) of Final Average Pay.
B-1

 
EXHIBIT 10.67
USEC INC.
EXECUTIVE DEFERRED COMPENSATION PLAN

 
USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
     USEC Inc., a Delaware corporation (the “Company”), on behalf of itself and its participating affiliates, hereby establishes this Executive Deferred Compensation Plan (the “ Plan ”), effective January 1, 2008 (the “ Effective Date ”), for the purpose of attracting high quality executives and promoting in them increased efficiency and an interest in the successful operation of the Company. The Plan is intended to, and shall be interpreted to, comply in all respects with Code Section 409A and those provisions of ERISA (as defined below) applicable to an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of “management or highly compensated employees.”
     The Plan is intended to amend, restate and supersede in its entirety the USEC Inc. 401(k) Restoration Plan, originally effective January 1, 2000 (the “ Prior Plan ”) which has been operated in good faith compliance with Code Section 409A since January 1, 2005, as required by applicable transition rules. All existing account balances under the Prior Plan (whether or not potentially grandfathered under Code Section 409A) shall be rolled into this Plan and shall be subject to all of the terms of this Plan and Code Section 409A. Participants in the Prior Plan shall automatically become Participants in this Plan as of the Effective Date and shall make new distribution elections pursuant to the terms of this Plan in compliance with Code Section 409A transition rules.
ARTICLE I
DEFINITIONS
     1.1 “Account” or “Accounts” shall mean the bookkeeping account or accounts established under this Plan pursuant to Article 4.
     1.2 “Base Salary” shall mean a Participant’s annual base salary, excluding incentive and discretionary bonuses, commissions, reimbursements and other non-regular remuneration, received from the Employer prior to reduction for any salary deferrals under benefit plans sponsored by the Employer, including but not limited to, plans established pursuant to Code Section 125 or qualified pursuant to Code Section 401(k).
     1.3 “Beneficiary” or “Beneficiaries” shall mean the person, persons or entity designated as such pursuant to Article 7.
     1.4 “Board” shall mean the Board of Directors of Company.
     1.5 “Bonus(es)” shall mean cash amounts paid to the Participant by the Employer annually in the form of discretionary annual bonuses, or any other amounts designated by the Committee as available for deferral under this Plan, before reductions for contributions to or deferrals under any pension, deferred compensation or benefit plans sponsored by the Employer.
     1.6 “Change in Control” shall mean the following, and shall be deemed to have occurred if any of the following events shall have occurred:

 
USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
          (a) any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act or Persons acting as a group (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Shares), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company by reason of having acquired such securities during the 12-month period ending on the date of the most recent acquisition (not including any securities acquired directly from the Company or its affiliates) representing thirty percent (30%) or more of the total voting power of the Company’s then outstanding voting securities;
          (b) the majority of members of the Company’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of the appointment;
          (c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, resulting in a change described in (a), (b), (d) or (e) of this definition, other than (i) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) more than sixty percent (60%) of the total voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person, directly or indirectly, acquired forty percent (40%) or more of the total voting power of the Company’s then outstanding securities (not including any securities acquired directly from the Company or its affiliates);
          (d) a complete liquidation of the Company involving the sale to any Person or group of at least forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before the liquidation; or
          (e) the sale or disposition by the Company to any Person or group of all or substantially all of the Company’s assets, but in no event less than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before such sale or disposition (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the total voting power of the voting securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no event shall constitute a Change of Control for purposes of this Plan if it is not “a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” within the meaning of Code Section 409A.
2

 
USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
     1.7 “Code” shall mean the Internal Revenue Code of 1986, as amended, as interpreted by Treasury regulations and applicable authorities promulgated thereunder.
     1.8 “Committee” shall mean the person or persons appointed by the Board to administer the Plan in accordance with Article 8.
     1.9 “Company Contributions” shall mean the contributions made by the Employer pursuant to Section 3.2.
     1.10 “Company Contribution Account” shall mean the Account maintained for the benefit of the Participant which is credited with Company Contributions pursuant to Section 4.2.
     1.11 “Compensation” shall mean all amounts eligible for deferral for a particular Plan Year under Section 3.1(a).
     1.12 “Crediting Rate” shall mean the notional gains and losses credited on the Participant’s Account balance which are based on the Participant’s choice among the investment alternatives made available by the Committee pursuant to Section 3.3 of the Plan.
     1.13 “Deferral Account” shall mean the Accounts maintained for each Participant which are credited with Participant deferrals pursuant to Section 4.1.
     1.14 “Disability” shall mean either (i) a medically determinable physical or mental impairment of the Participant that can be expected to result in death or can be expected to last for a continuous period of at least twelve (12) months that would qualify as a disability under the Employer’s then current long-term disability plan; provided the Participant has been receiving income replacement benefits under such an accident and health plan maintained by the Employer for no less than three (3) months, or (ii) any other definition of “disability” that satisfies the requirements of Code Section 409A(a)(2)(C) and Treasury Regulation Section 1.409A-3(i)(4), if such other definition results in an earlier determination of disability. The Committee may require that the Participant submit evidence of such qualification for disability benefits in order to determine that the Participant is disabled under this Plan.
     1.15 “Distributable Amount” shall mean the vested balance in the applicable Account as determined under Article 4.
     1.16 “Eligible Employee” shall mean a highly compensated or management level employee of the Company, or a Participating Affiliate, selected by the Committee to be eligible to participate in the Plan.
     1.17 “Employer” shall mean the Company or Participating Affiliate which is the legal employer of the Participant.
     1.18 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, including Department of Labor and Treasury regulations and applicable authorities promulgated thereunder.
3

 
USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
     1.19 “Financial Hardship” shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, a dependent (as defined in Code Section 152(a)), or a Beneficiary of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, (but shall in all events correspond to the meaning of the term “unforseeable emergency” under Code Section 409A).
     1.20 “Fund” or “Funds” shall mean one or more of the investment funds selected by the Committee pursuant to Section 3.3 of the Plan.
     1.21 “Hardship Distribution” shall mean an accelerated distribution of benefits or a reduction or cessation of current deferrals pursuant to Section 6.5 to a Participant who has suffered a Financial Hardship.
     1.22 “Participant” shall mean any Eligible Employee who becomes a Participant in this Plan in accordance with Article 2.
     1.23 “Participant Election(s)” shall mean the forms or procedures by which a Participant makes elections with respect to (1) voluntary deferrals of his/her Compensation, (2) the investment Funds which shall act as the basis for crediting of interest on Account balances, and (3) the form and timing of distributions from Accounts. Participant Elections may take the form of an electronic communication followed by appropriate confirmation according to specifications established by the Committee.
     1.24 “Participating Affiliate(s)” shall mean NAC International, United States Enrichment Corporation and such other majority owned subsidiaries of the Company as the Committee may authorize to participate in the Plan. In order to become a Participating Affiliate, such entity shall deliver to the Committee a corporate resolution evidencing adoption of the Plan by the Board of Directors of the Participating Affiliate. Each Participating Affiliate, by adopting the Plan agrees to comply with any requirements of the Committee with respect to administration of the plan, and authorizes the Committee and/or the Company to act as its agent in all transactions in which the Committee believes such agency will facilitate administration of the Plan, including amendment or termination of the Plan. A Participating Affiliate may independently terminate its participation in the Plan under the terms and conditions provided in Section 9.1.
     1.25 “Payment Date” shall mean the date on which a lump sum payment shall be made or the date on which installment payments shall commence. Unless otherwise specified, the Payment Date shall be on the date determined by the Committee during the first ninety (90) days commencing after the event triggering payout. In the case of death, the Committee shall be provided with documentation reasonably necessary to establish the fact of the Participant’s death. Where installment payments have been elected, subsequent installments shall be paid on the Payment Date determined by the Committee during the first ninety (90) days of each subsequent Plan Year. The Payment Date of a Scheduled Distribution shall be on the date determined by the Committee during the first ninety (90) days of the Plan Year in which the distribution is scheduled to commence .  Notwithstanding the foregoing or any other provision of the Plan, the Payment Date for distributions to be paid pursuant to this Plan based upon a
4

 
USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Participant’s Termination of Employment (other than by reason of death or Disability) at a time when the Board or the Compensation Committee of the Company has determined that such Participant is a Specified Employee shall not be earlier than the date which is six (6) months and one day after the Participant’s Termination of Employment. Any payment delayed by reason of the preceding sentence shall be caught up and paid in the form of a single lump sum on the earliest date such payment is permitted without the imposition of excise taxes under Code Section 409A, as reasonably determined by the Committee.
     1.26 “Plan Year” shall mean the calendar year.
     1.27 “Qualified Plan” shall mean the USEC Savings Program or such other Section 401(k) retirement plan qualified under Section 401(a) of the Code which is sponsored by the Employer (or to which the Employer contributes) in the relevant Plan Year and is designated by the Committee to be taken into account for purposes of the calculation of Company Contributions made to this Plan.
     1.28 “Retirement” shall mean Termination of Employment after the Participant has attained age fifty-five (55) and completed at least ten (10) Years of Service.
     1.29 “Scheduled Distribution” shall mean a scheduled distribution elected by the Participant for distribution of amounts from a specified Deferral Account, including notional earnings thereon, as provided under Section 6.4.
     1.30 “Specified Employee” shall mean any person described in Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i) as determined from time to time by the Board or the Compensation Committee of the Company.
     1.31 “Statutory Limitations” shall mean any statutory or regulatory limitations on salary reduction (other than the applicable dollar limit under Code Section 402(g)(1)) or matching contributions to the Qualified Plan, or on compensation taken into account in calculating employer or employee contributions to the Qualified Plan.
     1.32 “Termination of Employment” shall mean the date of the cessation of the Participant’s provision of services to the Employer as such concept is defined under Code Section 409A for any reason whatsoever, whether voluntary or involuntary, including as a result of the Participant’s Retirement, death or Disability. For purpose of the preceding sentence, cessation of employment shall be interpreted consistent with the requirements of Code Section 409A to mean that the level of services provided by the Participant to the Employer in any capacity has permanently decreased to a level equal to no more than twenty percent (20%) of the average level of services performed by such Participant for the Employer during the immediately preceding thirty-six (36) month period (or the Participant’s full period of service if a lesser period). Notwithstanding the foregoing, in the event that the Participant transfers from the Employer to provide substantial services (as defined above) to another Employer having common ownership with the original Employer of at least fifty percent (50%), the Participant shall not be considered to have terminated employment for purposes of this Plan. The Committee retains the right and discretion to specify, and may specify, whether a Termination of Employment occurs for individuals providing services to the Company immediately prior to an
5

 
USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
asset purchase transaction in which the Company or an affiliate is the seller who provides services to a buyer after and in connection with such asset purchase transaction; provided such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4).
     1.33 “Years of Service” shall mean the cumulative consecutive years of continuous full-time employment with the Employer (including approved leaves of absence of six (6) months or less or legally protected leaves of absence), beginning on the date the Participant first began service with the Employer, and counting each anniversary thereof.
ARTICLE II
PARTICIPATION
     An Eligible Employee shall become a Participant in the Plan by completing and submitting to the Committee the appropriate Participant Elections, including such other documentation and information as the Committee may reasonably request, during the enrollment period established by the Committee prior to the beginning of the first Plan Year in which the Eligible Employee shall be eligible to participate in the Plan.
ARTICLE III
CONTRIBUTIONS & DEFERRAL ELECTIONS
     3.1 Elections to Defer Compensation.
          (a) Form of Elections. A Participant may only elect to defer Compensation attributable to services provided after the date the election is made. Elections shall take the form of a whole percentage (less applicable payroll withholding requirements for Social Security and income taxes and employee benefit plans as determined in the sole and absolute discretion of the Committee) of between five percent (5%) and ninety percent (90%) of Base Salary, or a whole percentage or a percentage above a specified dollar amount of between five percent (5%) and one hundred percent (100%) of Bonuses specified by the Committee in the Participant Election for the applicable Plan Year.
          (b) Duration of Compensation Deferral Election. An Eligible Employee’s initial election to defer Compensation shall be made during the enrollment period established by the Committee prior to the effective date of the Participant’s commencement of participation in the Plan and shall apply only to Compensation for services performed after such deferral election is processed. A Participant may increase, decrease, terminate or recommence a deferral election with respect to Compensation for any subsequent Plan Year by filing a Participant Election during the enrollment period established by the Committee prior to the beginning of such Plan Year, which election shall be effective on the first day of the next following Plan Year. In the absence of an affirmative election by the Participant to the contrary, the deferral election for the prior Plan Year shall continue in effect for future Plan Years. After the beginning of the Plan Year, deferral elections with respect to Compensation for services performed during such Plan Year shall be irrevocable, except in the event of Financial Hardship as provided in Section 6.5.
     3.2 Company Match Makeup Contributions. The Employer shall make a Company Contribution on behalf of the Participant for each Plan Year to the extent that the Participant
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
makes a deferral under this Plan which shall equal (a) the maximum Employer matching contributions that would have been provided to the Participant under the Qualified Plan taking into account actual deferrals under the Qualified Plan and under this Plan for the applicable Plan Year, without regard to any Statutory Limitations had the Participant’s total compensation from the Company, including deferrals under this Plan, been included in the Participant’s includable compensation under the Qualified Plan,  reduced by  (b) the amount of Employer matching contributions actually credited to the Participant under the Qualified Plan for such Plan Year. The impact of Statutory Limitations on the Participant’s matching contributions under the Qualified Plan for purposes of determining Company Contributions to this Plan shall be determined by the Committee based upon reasonable estimates and shall be final and binding as of the date the Company Contribution is credited to the Participant’s Account. No subsequent adjustments shall be made to increase Company Contributions under this Plan as a result of any adjustments ultimately required under the Qualified Plan due to actual employee contributions or other factors.
     3.3 Investment Elections.
          (a) Participant Direction. At the time of entering the Plan and/or of making the deferral election under the Plan, the Participant shall designate, on a Participant Election provided by the Committee, the hypothetical investment Funds in which the Participant’s Account or Accounts shall be deemed to be invested for purposes of determining the amount of earnings and losses to be credited to each Account. The Participant may specify that all or any percentage of his or her Account or Accounts shall be deemed to be invested, in whole percentage increments, in one or more of the types of investment Funds selected as alternative investments under the Plan from time to time by the Committee pursuant to subsection (b) of this Section. A Participant may change the designation made under this Section at least monthly by filing a revised election, on a Participant Election provided by the Committee. During payout, the Participant’s Account shall continue to be credited at the Crediting Rate selected by the Participant from among the investment alternatives or rates made available by the Committee for such purpose until all amounts have been distributed from the Account. If a Participant fails to make an investment election under this Section for a particular Account, such Account shall be invested in the default investment Fund selected by the Committee for such purpose.
          (b) Investment Alternatives. The Committee shall select, in its sole and absolute discretion, commercially available investment Funds for the applicable Plan Year and shall communicate each of the alternative types of investment Funds to the Participant pursuant to subsection (a) of this Section. The earning or losses on each such commercially available Fund shall be used to determine the amount of earnings or losses to be credited to Participant’s Account under Article IV. The Participant’s choice among investments shall be solely for purposes of calculation of the Crediting Rate on Accounts. Neither the Company nor the Employer shall have any obligation to set aside or invest amounts as directed by the Participant and, if the Company or the Employer elects to invest amounts as directed by the Participant, the Participant shall have no more right to such investments than any other unsecured general creditor.
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
     3.4 Distribution Elections.
          (a) Initial Election. At the time of entering the Plan, Participants in the Prior Plan shall designate the time and form of distributions of amounts rolled over from the Prior Plan into this Plan, from among the distribution alternatives specified in Article 6. At the time of making a deferral election under the Plan, the Participant shall designate the time and form of distribution of deferrals made pursuant to such election (together with any related Company Contributions and any earnings credited on such deferrals and Company Contributions) from among the alternatives specified in Article 6.
          (b) Modification of Election. A new distribution election may be made at the time of subsequent deferral elections with respect to deferrals in Plan Years beginning after the election is made. However, a distribution election with respect to previously deferred amounts may only be changed under the terms and conditions specified by the Committee in compliance with Code Section 409A. After December 31, 2008, except as expressly provided in Article 6, no acceleration of a distribution is permitted and a subsequent election that delays payment or changes the form of payment shall be permitted if and only if all of the following requirements are met:
               (1) the new election does not take effect until at least twelve (12) months after the date on which the new election is made;
               (2) in the case of payments made on account of Termination of Employment (other than by reason of death or Disability) or a Scheduled Distribution, the new election delays payment for at least five (5) years from the date that payment would otherwise have been made, absent the new election; and
               (3) in the case of payments made according to a Scheduled Distribution, the new election is made not less than twelve (12) months before the date on which payment would have been made (or, in the case of installment payments, the first installment payment would have been made) absent the new election.
For purposes of application of the above change limitations, installment payments shall be treated as a single payment. Election changes made pursuant to this Section shall be made in accordance with rules established by the Committee, and shall comply with all requirement of Code Section 409A and applicable authorities.
ARTICLE IV
DEFERRAL ACCOUNTS
     4.1 Deferral Accounts. The Committee shall establish and maintain up to three (3) Deferral Accounts for each Participant under the Plan, one Deferral Account scheduled to be paid on Retirement and up to two Scheduled Distribution Deferral Accounts. Each Participant’s Deferral Accounts shall be further divided into separate subaccounts (“investment fund subaccounts”), each of which corresponds to a Fund elected by the Participant pursuant to Section 3.3. A Participant’s Deferral Account shall be credited as follows:
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
          (a) on or before the fifth (5th) business day after amounts are withheld and deferred from a Participant’s Compensation, the Committee shall credit the investment fund subaccounts of the Participant’s Deferral Account with an amount equal to Compensation deferred by the Participant in accordance with the Participant’s election under Section 3.3; that is, the portion of the Participant’s deferred Compensation that the Participant has elected to be deemed to be invested in a certain type of Fund shall be credited to the investment fund subaccount to be invested in that Fund; and
          (b) each business day, each investment fund subaccount of a Participant’s Deferral Account shall be credited with earnings or losses in an amount equal to that determined by multiplying the balance credited to such investment fund subaccount as of the prior day, less any distributions valued as of the end of the prior day, by the Crediting Rate for the corresponding Fund as determined by the Committee pursuant to Section 3.3.
     4.2 Company Contribution Account. The Committee shall establish and maintain a Company Contribution Account for each Participant who is eligible for Company Contributions under the Plan. Each Participant’s Company Contribution Account shall be further divided into separate investment fund subaccounts corresponding to the Funds elected by the Participant pursuant to Section 3.3. A Participant’s Company Contribution Account shall be credited as follows:
          (a) on or before the fifth (5th) business day after a Company Contribution is made, the Employer shall credit the investment fund subaccounts of the Participant’s Company Contribution Account with an amount equal to the Company Contributions, if any, made on behalf of that Participant, that is, the proportion of the Company Contributions, if any, which the Participant has elected to be deemed to be invested in a certain investment Fund shall be credited to the investment fund subaccount to be invested in that Fund; and
          (b) each business day, each investment fund subaccount of a Participant’s Company Contribution Account shall be credited with earnings or losses in an amount equal to that determined by multiplying the balance credited to such investment fund subaccount as of the prior day, less any distributions valued as of the end of the prior day, by the Crediting Rate for the corresponding Fund as determined by the Committee pursuant to Section 3.3.
     4.3 Trust. The Employer shall be responsible for the payment of all benefits under the Plan. At its discretion, the Company may establish one or more grantor trusts for the purpose of providing for payment of benefits under the Plan. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Employer’s creditors. Benefits paid to the Participant from any such trust or trusts shall be considered paid by the Employer for purposes of meeting the obligations of the Employer under the Plan.
     4.4 Statement of Accounts. The Committee shall provide each Participant with electronic statements at least quarterly setting forth the Participant’s Account balance as of the end of each calendar quarter.
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE V
VESTING
     5.1 Vesting of Deferral Accounts. The Participant shall be vested at all times in amounts credited to the Participant’s Deferral Accounts.
     5.2 Vesting of Company Contribution Account. Amounts credited to the Participant’s Company Contribution Account shall be vested at the same time and under the same terms and conditions applicable to the Employer matching contributions for the applicable Plan Year to the Qualified Plan, as it may be amended from time to time. As of the Effective Date of this Plan, the Qualified Plan provides for the following vesting schedule based on the Participant’s completed Years of Service:
 	 	 	 	 	
Completed Years of Service	 	Percentage of Account Vested	
 	
Less than 2	 	 	0	%	
2 but less than 3	 	 	50	%	
3 or more	 	 	100	%	
Notwithstanding the foregoing, in the event of a Change in Control or Termination of Employment as a result of Retirement, Disability or death, regardless of the Participant’s Years of Service or the vesting provisions of the Qualified Plan, the Participant’s Company Contribution Account shall be fully vested.
ARTICLE VI
DISTRIBUTIONS
     6.1 Retirement and Disability Distributions.
          (a) Timing and Form of Distributions. Except as otherwise provided herein, in the event of a Participant’s Retirement or Disability, the Distributable Amount credited to each of the Participant’s Deferral Accounts and Company Contribution Account shall be paid to the Participant in substantially equal installments over ten (10) years commencing on the Payment Date following the Participant’s Termination of Employment, unless the Participant has made an alternative benefit election on a timely basis pursuant to Section 3.4 to receive the benefits in the form of a single lump sum or in substantially equal annual installments over up to twenty (20) years or a combination of both.
          (b) Small Benefit Exception. Notwithstanding the foregoing, if on commencement of benefits payable from an Account, the Distributable Amount from such Account is less than or equal to twenty-five thousand dollars ($25,000), the total Distributable Amount from such Account shall be paid in the form of a single lump sum distribution on the scheduled Payment Date, if and only if such acceleration is permitted under Code Section 409A without the imposition of an excise tax.
     6.2 Termination Distributions. Except as provided in Section 6.4, in the event of a Participant’s Termination of Employment other than by reason of Retirement, death or Disability, the Distributable Amount credited to the Participant’s Deferral Accounts and
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Company Contribution Account shall be paid in a single lump sum on the Payment Date following Termination of Employment.
     6.3 Distributions on Death.
          (a) Base Death Benefit. In the event of the Participant’s death prior to the complete distribution of all benefits payable from an Account, the Employer shall pay to the Participant’s Beneficiary, a benefit equal to the outstanding Distributable Amount of such Account in a single lump sum on the Payment Date following the Participant’s death.
          (b) Additional Contingent Pre-Retirement Death Benefit. In the event of the Participant’s death prior to Termination of Employment (other than by reason of such death), the Participant shall be entitled to a supplemental pre-retirement death benefit of twenty-five thousand dollars ($25,000) on the Payment Date following such Participant’s death, if and only if (i) the Participant has consented to the ownership by the Company and/or Employer of key man life insurance on his or her life, (ii) the Participant has cooperated with the Company by furnishing any and all information requested by the Committee as provided in Section 9.5, in order to facilitate the acquisition of such insurance, and (iii) the Company has been able to obtain such insurance on the life of the Participant at a reasonable market rate.
     6.4 Scheduled Distributions.
          (a) Scheduled Distribution Election. Participants shall be entitled to elect to receive a Scheduled Distribution from a Deferral Account prior to Termination of Employment. In the case of a Participant who has elected to receive a Scheduled Distribution, such Participant shall receive the Distributable Amount with respect to the specified Deferral Account established by such Scheduled Distribution election in accordance with Section 3.4 of the Plan. A Participant’s Scheduled Distribution Payment Date with respect to deferrals of Compensation for a given Plan Year shall be no earlier than two (2) years after the last day of the Plan Year in which the deferrals are credited to the Participant’s Account. The Participant may elect to receive the Scheduled Distribution in a single lump sum or substantially equal annual installments over a period of up to five (5) years. A Participant may delay and change the form of a Scheduled Distribution, provided such extension complies with the requirements of Section 3.4.
          (b) Small Benefit Exception. Notwithstanding the foregoing, if on commencement of benefits payable from a Scheduled Distribution Deferral Account the Distributable Amount from such Account is less than or equal to twenty-five thousand dollars ($25,000), the total Distributable Amount from such Account shall be paid in the form of a single lump sum distribution on the scheduled Payment Date, if and only if such acceleration is permitted under Code Section 409A without the imposition of an excise tax.
          (c) Termination of Employment. In the event of a Participant’s Termination of Employment prior to commencement of a Scheduled Distribution, the Scheduled Distributions shall be distributed in the form applicable to such Termination of Employment under Sections 6.1, 6.2 or 6.3 above. In the event of a Participant’s Termination of Employment for any reason after a Scheduled Distribution has commenced installment payments, such Scheduled
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Distribution benefits shall continue to be paid at the same time and in the same form as they would have been paid to the Participant had the Participant not had a Termination of Employment.
     6.5 Financial Hardship. Upon a finding that the Participant has suffered a Financial Hardship, subject to compliance with Code Section 409A the Committee may, at the request of the Participant, accelerate distribution of benefits or approve cancellation of current deferrals under the Plan in the amount reasonably necessary to alleviate such Financial Hardship subject to the following conditions:
          (a) the request to take a Hardship Distribution shall be made by filing a form provided by and filed with the Committee prior to the end of any calendar month;
          (b) the amount distributed pursuant to this Section with respect to a Financial Hardship shall not exceed the amount necessary to satisfy such financial emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe Financial Hardship); and
          (c) The amount determined by the Committee as a Hardship Distribution shall be paid in the form of a single lump sum distribution as soon as practicable after the end of the calendar month in which the Hardship Distribution election is made and approved by the Committee.
     6.6 Change in Control Distribution. Notwithstanding the foregoing, if a Change in Control occurs before a Participant’s Accounts have been fully distributed, the Participant shall receive an amount equal to the balance of the Participant’s Accounts, credited with notional earnings as provided in Article 4, payable in the form of a single lump sum distribution on the last day of the fifteenth (15 th ) month commencing after the month in which such Change in Control occurs, unless the Participant makes a timely election under Section 3.4(b) to delay commencement of a particular Account by a minimum of five (5) years and to receive the benefits at a later date in the form of a single lump sum or over a period of up to twenty (20) years.
ARTICLE VII
PAYEE DESIGNATIONS AND LIMITATIONS
     7.1 Beneficiaries.
          (a) Beneficiary Designation. The Participant shall have the right, at any time, to designate any person or persons as Beneficiary (both primary and contingent) to whom payment under the Plan shall be made in the event of the Participant’s death. The Beneficiary designation shall be effective when it is submitted to and acknowledged by the Committee during the Participant’s lifetime in the format prescribed by the Committee.
          (b) Absence of Valid Designation. If a Participant fails to designate a Beneficiary as provided above, or if every person designated as Beneficiary predeceases the
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Participant or dies prior to complete distribution of the Participant’s benefits, then the Committee shall direct the distribution of such benefits to the Participant’s estate.
     7.2 Payments to Minors. In the event any amount is payable under the Plan to a minor, payment shall not be made to the minor, but instead be paid (a) to that person’s living parent(s) to act as custodian, (b) if that person’s parents are then divorced, and one parent is the sole custodial parent, to such custodial parent, to act as custodian, or (c) if no parent of that person is then living, to a custodian selected by the Committee to hold the funds for the minor under the Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which the minor resides. If no parent is living and the Committee decides not to select another custodian to hold the funds for the minor, then payment shall be made to the duly appointed and currently acting guardian of the estate for the minor or, if no guardian of the estate for the minor is duly appointed and currently acting within sixty (60) days after the date the amount becomes payable, payment shall be deposited with the court having jurisdiction over the estate of the minor.
     7.3 Payments on Behalf of Persons Under Incapacity. In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Committee may direct that such payment be made to any person found by the Committee, in its sole judgment, to have assumed the care of such person. Any payment made pursuant to such determination shall constitute a full release and discharge of any and all liability of the Committee, the Company and the Employer under the Plan.
     7.4 Inability to Locate Payee. In the event that the Committee is unable to locate a Participant or Beneficiary within two (2) years following the scheduled Payment Date, the amount allocated to the Participant’s Deferral Account shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without interest or earnings.
ARTICLE VIII
ADMINISTRATION
     8.1 Committee. The Plan shall be administered by a Committee appointed by the Board, which shall have the exclusive right and full discretion (i) to appoint agents to act on its behalf, (ii) to select and establish Funds, (iii) to interpret the Plan, (iv) to decide any and all matters arising hereunder (including the right to remedy possible ambiguities, inconsistencies, or admissions), (v) to make, amend and rescind such rules as it deems necessary for the proper administration of the Plan and (vi) to make all other determinations and resolve all questions of fact necessary or advisable for the administration of the Plan, including determinations regarding eligibility for benefits payable under the Plan. All interpretations of the Committee with respect to any matter hereunder shall be final, conclusive and binding on all persons affected thereby. No member of the Committee or agent thereof shall be liable for any determination, decision, or action made in good faith with respect to the Plan. The Company will indemnify and hold harmless the members of the Committee and its agents from and against any and all liabilities, costs, and expenses incurred by such persons as a result of any act, or omission, in connection with the performance of such persons’ duties, responsibilities, and obligations under the Plan,
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
other than such liabilities, costs, and expenses as may result from the bad faith, willful misconduct, or criminal acts of such persons.
     8.2 Claims Procedure. Any Participant, former Participant or Beneficiary may file a written claim with the Committee setting forth the nature of the benefit claimed, the amount thereof, and the basis for claiming entitlement to such benefit. The Committee shall determine the validity of the claim and communicate a decision to the claimant promptly and, in any event, not later than ninety (90) days after the date of the claim. The claim may be deemed by the claimant to have been denied for purposes of further review described below in the event a decision is not furnished to the claimant within such ninety (90) day period. If additional information is necessary to make a determination on a claim, the claimant shall be advised of the need for such additional information within forty-five (45) days after the date of the claim. The claimant shall have up to one hundred eighty (180) days to supplement the claim information, and the claimant shall be advised of the decision on the claim within forty-five (45) days after the earlier of the date the supplemental information is supplied or the end of the one hundred eighty (180) day period. Every claim for benefits which is denied shall be denied by written notice setting forth in a manner calculated to be understood by the claimant (i) the specific reason or reasons for the denial, (ii) specific reference to any provisions of the Plan (including any internal rules, guidelines, protocols, criteria, etc.) on which the denial is based, (iii) description of any additional material or information that is necessary to process the claim, and (iv) an explanation of the procedure for further reviewing the denial of the claim and shall include an explanation of the claimant’s right to pursue legal action in the event of an adverse determination on review.
     8.3 Review Procedures. Within sixty (60) days after the receipt of a denial on a claim, a claimant or his/her authorized representative may file a written request for review of such denial. Such review shall be undertaken by the Committee and shall be a full and fair review. The claimant shall have the right to review all pertinent documents. The Committee shall issue a decision not later than sixty (60) days after receipt of a request for review from a claimant unless special circumstances, such as the need to hold a hearing, require a longer period of time, in which case a decision shall be rendered as soon as possible but not later than one hundred twenty (120) days after receipt of the claimant’s request for review. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant with specific reference to any provisions of the Plan on which the decision is based and shall include an explanation of the claimant’s right to pursue legal action in the event of an adverse determination on review.
ARTICLE IX
MISCELLANEOUS
     9.1 Amendment or Termination of Plan. The Company may, at any time, direct the Committee to amend or terminate the Plan, except that no such amendment or termination may reduce a Participant’s Account balances. An Employer may at any time direct the Committee to terminate its participation in the Plan, except that no such termination may reduce a Participant’s Account balances. If the Company terminates the Plan or an Employer terminates its participation in the Plan, no further amounts shall be deferred hereunder, and amounts previously deferred or contributed to the Plan shall be fully vested and shall be paid in accordance with the
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USEC INC. EXECUTIVE DEFERRED COMPENSATION PLAN
provisions of the Plan as scheduled prior to the Plan termination. Notwithstanding the foregoing, to the extent permitted under Code Section 409A and applicable authorities, the Company may, in its complete and sole discretion, accelerate distributions under the Plan in the event of a “change in ownership” or “effective control” of the Company or Employer, or a “change in ownership of a substantial portion of assets” or under such other terms and conditions as may be specifically authorized under Code Section 409A and applicable authorities.
     9.2 Unsecured General Creditor. The benefits paid under the Plan shall be paid from the general funds of the Employer, and the Participant and any Beneficiary or their heirs or successors shall be no more than unsecured general creditors of the Employer with no special or prior right to any assets of the Employer or the Company for payment of any obligations hereunder. It is the intention of the Company that this Plan be unfunded for purposes of ERISA and the Code.
     9.3 Restriction Against Assignment. The Employer shall pay all amounts payable hereunder only to the person or persons designated by the Plan and not to any other person or entity. No part of a Participant’s Accounts shall be liable for the debts, contracts, or engagements of any Participant, Beneficiary, or their successors in interest, nor shall a Participant’s Accounts be subject to execution by levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, sell, transfer, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. No part of a Participant’s Accounts shall be subject to any right of offset against or reduction for any amount payable by the Participant or Beneficiary, whether to the Employer, the Company or any other party, under any arrangement other than under the terms of this Plan.
     9.4 Withholding. The Participant shall make appropriate arrangements with the Employer for satisfaction of any federal, state or local income tax withholding requirements, Social Security and other employee tax or other requirements applicable to the granting, crediting, vesting or payment of benefits under the Plan. There shall be deducted from each payment made under the Plan or any other Compensation payable to the Participant (or Beneficiary) all taxes which are required to be withheld by the Employer in respect to such payment or this Plan. The Employer shall have the right to reduce any payment (or other Compensation) by the amount of cash sufficient to provide the amount of said taxes.
     9.5 Protective Provisions. The Participant shall cooperate with the Company and the Employer by furnishing any and all information requested by the Committee, in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Committee may deem necessary and taking such other actions as may be requested by the Committee. If the Participant refuses to so cooperate, the Company and the Employer shall have no further obligation to the Participant under the Plan. In the event of the Participant’s suicide during the first two (2) years in the Plan, or if the Participant makes any material misstatement of information or non-disclosure of medical history, then no benefits shall be payable to the Participant under the Plan, except that benefits may be payable in a reduced amount in the sole discretion of the Committee.
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     9.6 Receipt or Release. Any payment made in good faith to a Participant or the Participant’s Beneficiary shall, to the extent thereof, be in full satisfaction of all claims against the Committee, its members, the Company and the Employer. The Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect.
     9.7 Errors in Account Statements, Deferrals or Distributions. In the event an error is made in an Account statement, such error shall be corrected on the next statement following the date such error is discovered. In the event of an error in deferral amount, consistent with and as permitted by any correction procedures established under Code Section 409A, the error shall be corrected immediately upon discovery by, in the case of an excess deferral, distribution of the excess amount to the Participant, or, in the case of an under deferral, reduction of other compensation payable to the Participant. In the event of an error in a distribution, the over or under payment shall be corrected by payment to or collection from the Participant consistent with any correction procedures established under Code Section 409A, immediately upon the discovery of such error. In the event of an overpayment, the Employer may, at its discretion, offset other amounts payable to the Participant from the Employer (including but not limited to salary, bonuses, expense reimbursements, severance benefits or other employee compensation benefit arrangements, as allowed by law and subject to compliance with Code Section 409A) to recoup the amount of such overpayment(s).
     9.8 Employment Not Guaranteed. Nothing contained in the Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any Participant any right to continue the provision of services in any capacity whatsoever to the Employer or the Company.
     9.9 Successors of the Company. The rights and obligations of the Employer under the Plan shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Employer.
     9.10 Notice. Any notice or filing required or permitted to be given to the Company or the Participant under this Agreement shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, in the case of the Company, to the principal office of the Company, directed to the attention of the Committee, and in the case of the Participant, to the last known address of the Participant indicated on the employment records of the Company or the Employer. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Notices to the Company may be permitted by electronic communication according to specifications established by the Committee.
     9.11 Headings. Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof.
     9.12 Gender, Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular.
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     9.13 Governing Law. The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of “management or highly compensated employees” within the meaning of Sections 201, 301 and 401 of ERISA and therefore to be exempt from Parts 2, 3 and 4 of Title I of ERISA. In the event any provision of, or legal issue relating to, this Plan is not fully preempted by federal law, such issue or provision shall be governed by the laws of the State of Delaware .
     IN WITNESS WHEREOF, the Board of Directors of the Company has approved the adoption of this Plan as of the Effective Date and has caused the Plan to be executed by its duly authorized representative this 1 st  day of November, 2007.
 	 	 	 	 	
 	USEC INC.
 	 	
 	By:  	W. Lance Wright  	 	
 	 	Title: Senior Vice President, Human Resources & Administration 	 	

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EXHIBIT 10.68
USEC INC.
DIRECTOR DEFERRED COMPENSATION
PLAN

 
USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
     USEC Inc., a Delaware corporation (the “Company”), hereby establishes this Director Deferred Compensation Plan (the “Plan”), effective January 1, 2008 (the “Effective Date”), for the purpose of attracting high quality directors and promoting in them increased efficiency and an interest in the successful operation of the Company. The Plan is intended to, and shall be interpreted to, comply in all respects with Code Section 409A .
ARTICLE I
DEFINITIONS
     1.1 “Account” shall mean the bookkeeping account established under this Plan pursuant to Article 4.
     1.2 “Beneficiary” or “Beneficiaries” shall mean the person, persons or entity designated as such pursuant to Article 7.
     1.3 “Board” shall mean the Board of Directors of Company.
     1.4 “Change in Control” shall mean the following, and shall be deemed to have occurred if any of the following events shall have occurred:
          (a) any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act or Persons acting as a group (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Shares), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company by reason of having acquired such securities during the 12-month period ending on the date of the most recent acquisition (not including any securities acquired directly from the Company or its affiliates) representing thirty percent (30%) or more of the total voting power of the Company’s then outstanding voting securities;
          (b) the majority of members of the Company’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of the appointment;
          (c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, resulting in a change described in (a), (b), (d) or (e) of this definition, other than (i) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) more than sixty

 
USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
percent (60%) of the total voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person, directly or indirectly, acquired forty percent (40%) or more of the total voting power of the Company’s then outstanding securities (not including any securities acquired directly from the Company or its affiliates);
          (d) a complete liquidation of the Company involving the sale to any Person or group of at least forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before the liquidation; or
          (e) the sale or disposition by the Company to any Person or group of all or substantially all of the Company’s assets, but in no event less than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before such sale or disposition (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the total voting power of the voting securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no event shall constitute a Change of Control for purposes of this Plan if it is not “a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” within the meaning of Code Section 409A.
     1.5 “Code” shall mean the Internal Revenue Code of 1986, as amended, as interpreted by Treasury regulations and applicable authorities promulgated thereunder.
     1.6 “Committee” shall mean the person or persons appointed by the Board to administer the Plan in accordance with Article 8.
     1.7 “Compensation” shall mean all amounts eligible for deferral for a particular Plan Year under Section 3.1.
     1.8 “Crediting Rate” shall mean the notional gains and losses credited on the Participant’s Account balance which are based on the Participant’s choice among the investment alternatives made available by the Committee pursuant to Section 3.2 of the Plan.
     1.9 “Disability” shall mean either (i) a medically determinable physical or mental impairment of the Participant that can be expected to result in death or can be expected to last for a continuous period of at least twelve (12) months that would qualify as a disability under the Participant’s employer’s then current long-term disability plan; provided the Participant has been receiving income replacement benefits under such an accident and health plan maintained by the Participant’s employer for no less than three (3) months, or (ii) any other definition of “disability” that satisfies the requirements of Code Section 409A(a)(2)(C) and Treasury Regulation Section 1.409A-3(i)(4), if such other definition results in an earlier determination of disability. The Committee may
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
require that the Participant submit evidence of such qualification for disability benefits in order to determine that the Participant is disabled under this Plan.
     1.10 “Distributable Amount” shall mean the vested balance in the applicable Account as determined under Article 4.
     1.11 “Eligible Director” shall mean a member of the Board of Directors of the Company who is not an employee of the Company, selected by the Committee to be eligible to participate in the Plan.
     1.12 “Financial Hardship” shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, a dependent (as defined in Code Section 152(a)), or Beneficiary of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, (but shall in all events correspond to the meaning of the term “unforseeable emergency” under Code Section 409A(a)(2)(v)).
     1.13 “Fund” or “Funds” shall mean one or more of the investment funds selected by the Committee pursuant to Section 3.2 of the Plan.
     1.14 “Hardship Distribution” shall mean an accelerated distribution of benefits or a reduction or cessation of current deferrals pursuant to Section 6.3 to a Participant who has suffered a Financial Hardship.
     1.15 “Participant” shall mean any Eligible Director who becomes a Participant in this Plan in accordance with Article 2.
     1.16 “Participant Election(s)” shall mean the forms or procedures by which a Participant makes elections with respect to (1) voluntary deferrals of his/her Compensation, (2) the investment Funds which shall act as the basis for crediting of interest on Account balances, and (3) the form and timing of distributions from Accounts. Participant Elections may take the form of an electronic communication followed by appropriate confirmation according to specifications established by the Committee.
     1.17 “Payment Date” shall mean the date on which a lump sum payment shall be made or the date on which installment payments shall commence. Unless otherwise specified, the Payment Date shall be on the date determined by the Committee during the first ninety (90) days commencing after the event triggering payout. In the case of death, the Committee shall be provided with documentation reasonably necessary to establish the fact of the Participant’s death. Where installment payments have been elected, subsequent installments shall be paid during the first ninety (90) days of each subsequent Plan Year. The Payment Date of a Scheduled Distribution shall be on the date determined by the Committee during the first ninety (90) days of the Plan Year in which the distribution is scheduled to commence .
     1.18 “Plan Year” shall mean the calendar year.
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
     1.19 “Scheduled Distribution” shall mean a scheduled distribution elected by the Participant for distribution of amounts from the Participant’s Account, as provided under Section 6.1(b).
     1.20 “Termination of Service” shall mean the date of the cessation of the Participant’s provision of services to the Employer as such concept is defined under Code Section 409A for any reason whatsoever, whether voluntary or involuntary, including as a result of the Participant’s death or Disability. The Committee retains the right and discretion to specify, and may specify, whether a Termination of Service occurs for individuals providing services to the Company immediately prior to an asset purchase transaction in which the Company or an affiliate is the seller who provides services to a buyer after and in connection with such asset purchase transaction; provided such specification is made in accordance with the requirements of Treasury Regulation Section 1.409A-1(h)(4).
ARTICLE II
PARTICIPATION
     An Eligible Director shall become a Participant in the Plan by completing and submitting to the Committee the appropriate Participant Elections, including such other documentation and information as the Committee may reasonably request, during the enrollment period established by the Committee prior to the beginning of the first Plan Year in which the Eligible Director shall be eligible to participate in the Plan.
ARTICLE III
CONTRIBUTIONS & DEFERRAL ELECTIONS
     3.1 Elections to Defer Compensation.
          (a) Form of Elections. A Participant may only elect to defer Compensation attributable to services provided after the date the election is made. Elections shall take the form of a whole percentage of between five percent (5%) and one hundred percent (100%) of Directors’ fees, retainers and other cash compensation for Board membership services designated by the Committee in the Participant Election as eligible for deferral under the Plan for the applicable Plan Year (“Compensation”).
          (b) Duration of Compensation Deferral Election. An Eligible Director’s initial election to defer Compensation shall be made during the enrollment period established by the Committee prior to the effective date of the Participant’s commencement of participation in the Plan and shall apply only to Compensation for services performed after such deferral election is processed. A Participant may increase, decrease, terminate or recommence a deferral election with respect to Compensation for any subsequent Plan Year by filing a Participant Election during the enrollment period established by the Committee prior to the beginning of such Plan Year, which election shall be effective on the first day of the next following Plan Year. In the absence of an affirmative election by the Participant to the contrary, the deferral election for the prior Plan Year shall continue in effect for future Plan Years. After the beginning of the Plan
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
Year, deferral elections with respect to Compensation for services performed during such Plan Year shall be irrevocable, except in the event of Financial Hardship as provided in Section 6.3.
     3.2 Investment Elections.
          (a) Participant Direction. At the time of entering the Plan and/or of making the deferral election under the Plan, the Participant shall designate, on a Participant Election provided by the Committee, the hypothetical investment Funds in which the Participant’s Account shall be deemed to be invested for purposes of determining the amount of earnings and losses to be credited to such Account. The Participant may specify that all or any percentage of his or her Account shall be deemed to be invested, in whole percentage increments, in one or more of the types of investment Funds selected as alternative investments under the Plan from time to time by the Committee pursuant to subsection (b) of this Section. A Participant may change the designation made under this Section at least monthly by filing a revised election, on a Participant Election provided by the Committee. During payout, the Participant’s Account shall continue to be credited at the Crediting Rate selected by the Participant from among the investment alternatives or rates made available by the Committee for such purpose until all amounts have been distributed from the Account. If a Participant fails to make an investment election under this Section for a particular Account, such Account shall be invested in the default investment Fund selected by the Committee for such purpose.
          (b) Investment Alternatives. The Committee shall select, in its sole and absolute discretion, commercially available investment Funds for the applicable Plan Year and shall communicate each of the alternative types of investment Funds to the Participant pursuant to subsection (a) of this Section. The earning or losses on each such commercially available investment Fund shall be used to determine the amount of earnings or losses to be credited to Participant’s Account under Article IV. The Participant’s choice among investments shall be solely for purposes of calculation of the Crediting Rate on Accounts. The Company shall have no obligation to set aside or invest amounts as directed by the Participant and, if the Company elects to invest amounts as directed by the Participant, the Participant shall have no more right to such investments than any other unsecured general creditor.
     3.3 Distribution Elections.
          (a) Initial Election. At the time of making a deferral election under the Plan, the Participant shall designate the time and form of distribution of deferrals made pursuant to such election (together with any earnings credited thereon) from among the alternatives specified in Article 6.
          (b) Modification of Election. A new distribution election may be made at the time of subsequent deferral elections with respect to deferrals in Plan Years beginning after the election is made. However, a distribution election with respect to previously deferred amounts may only be changed under the terms and conditions
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
specified by the Committee in compliance with Code Section 409A. After December 31, 2008, except as expressly provided in Article 6, no acceleration of a distribution is permitted and a subsequent election that delays payment or changes the form of payment shall be permitted if and only if all of the following requirements are met:
               (1) the new election does not take effect until at least twelve (12) months after the date on which the new election is made;
               (2) in the case of payments made on account of Termination of Service (other than by reason of death or Disability) or a Scheduled Distribution, the new election delays payment for at least five (5) years from the date that payment would otherwise have been made, absent the new election; and
               (3) in the case of payments made according to a Scheduled Distribution, the new election is made not less than twelve (12) months before the date on which payment would have been made (or, in the case of installment payments, the first installment payment would have been made) absent the new election.
For purposes of application of the above change limitations, installment payments shall be treated as a single payment. Election changes made pursuant to this Section shall be made in accordance with rules established by the Committee, and shall comply with all requirement of Code Section 409A and applicable authorities.
ARTICLE IV
DEFERRAL ACCOUNTS
     4.1 Deferral Accounts. The Committee shall establish a deferral Account for each Participant under the Plan. Each Participant’s deferral Account shall be further divided into separate subaccounts (“investment fund subaccounts”), each of which corresponds to a Fund elected by the Participant pursuant to Section 3.2. A Participant’s Account shall be credited as follows:
          (a) on or before the fifth (5th) business day after amounts are withheld and deferred from a Participant’s Compensation, the Committee shall credit the investment fund subaccounts of the Participant’s Account with an amount equal to Compensation deferred by the Participant in accordance with the Participant’s election under Section 3.2; that is, the portion of the Participant’s deferred Compensation that the Participant has elected to be deemed to be invested in a certain type of Fund shall be credited to the investment fund subaccount to be invested in that Fund; and
          (b) each business day, each investment fund subaccount of a Participant’s Account shall be credited with earnings or losses in an amount equal to that determined by multiplying the balance credited to such investment fund subaccount as of the prior day, less any distributions valued as of the end of the prior day, by the Crediting Rate for the corresponding Fund as determined by the Committee pursuant to Section 3.2.
     4.2 Trust. The Company shall be responsible for the payment of all benefits under the Plan. At its discretion, the Company may establish one or more grantor trusts
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
for the purpose of providing for payment of benefits under the Plan. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company’s creditors. Benefits paid to the Participant from any such trust or trusts shall be considered paid by the Company for purposes of meeting the obligations of the Company under the Plan.
     4.3 Statement of Accounts. The Committee shall provide each Participant with electronic statements at least quarterly setting forth the Participant’s Account balance as of the end of each calendar quarter.
ARTICLE V
VESTING
     5.1 Vesting of Deferral Accounts. The Participant shall be vested at all times in amounts credited to the Participant’s Account.
ARTICLE VI
DISTRIBUTIONS
     6.1 Distribution Alternatives. The Participant may elect from the following alternatives regarding the time and form of distribution of his or her Account:
          (a) Termination of Service Distribution. The Participant may elect as provided in Section 3.3 to commence receipt of benefits upon Termination of Service or Disability. If the Participant so elects, or if the Participant fails to make a valid election, then, except as otherwise provided herein, the Distributable Amount credited to the Participant’s Account shall be paid to the Participant in substantially equal installments over ten (10) years commencing on the Payment Date following the Participant’s Termination of Service unless the Participant has made an alternative election under Section 3.3 to receive benefits in the form of a single lump sum or in substantially equal annual installments over up to twenty (20) years or a combination of both.
          (b) Scheduled Distribution. In the alternative, the Participant may elect as provided in Section 3.3 to commence receipt of benefits in a particular Plan Year which may be either before or after the Participant’s Termination of Service (a “Scheduled Distribution). If the Participant so elects, then, except as otherwise provided herein, the Distributable Amount credited to the Participant’s Account shall be paid to the Participant in substantially equal installments over ten (10) years commencing on the Scheduled Distribution Payment Date unless the Participant has made an alternative election under Section 3.3 to receive benefits in the form of a single lump sum or in substantially equal annual installments over up to twenty (20) years or a combination of both.
          (c) Small Benefit Exception. Notwithstanding the foregoing, if on commencement of benefits payable from an Account the Distributable Amount from such Account is less than or equal to twenty-five thousand dollars ($25,000), the total Distributable Amount shall be paid in the form of a single lump sum distribution on the
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
scheduled Payment Date, if and only if such acceleration is permitted under Code Section 409A without the imposition of an excise tax.
     6.2 Distributions on Death. In the event of the Participant’s death prior to the complete distribution of all benefits payable from the Participant’s Account, the Employer shall pay to the Participant’s Beneficiary, a benefit equal to the outstanding Distributable Amount of such Account in a single lump sum on the Payment Date following the Participant’s death.
     6.3 Financial Hardship. Upon a finding that the Participant has suffered a Financial Hardship, subject to compliance with Code Section 409A the Committee may, at the request of the Participant, accelerate distribution of benefits or approve cancellation of current deferrals under the Plan in the amount reasonably necessary to alleviate such Financial Hardship subject to the following conditions:
          (a) the request to take a Hardship Distribution shall be made by filing a form provided by and filed with the Committee prior to the end of any calendar month;
          (b) the amount distributed pursuant to this Section with respect to a Financial Hardship shall not exceed the amount necessary to satisfy such financial emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe Financial Hardship); and
          (c) the amount determined by the Committee as a Hardship Distribution shall be paid in the form of a single lump sum distribution as soon as practicable after the end of the calendar month in which the Hardship Distribution election is made and approved by the Committee.
     6.4 Change in Control Distribution. Notwithstanding the foregoing, if a Change in Control occurs before a Participant’s Account has been fully distributed, the Participant shall receive an amount equal to the balance of the Participant’s Account, credited with notional earnings as provided in Article 4, payable in the form of a single lump sum distribution on the last day of the fifteenth (15 th ) month commencing after the month in which such Change in Control occurs, unless the Participant makes a timely election under Section 3.3(b) to delay commencement of benefits by a minimum of five (5) years and to receive the benefits at a later date in the form of a single lump sum or over a period of up to twenty (20) years.
ARTICLE VII
PAYEE DESIGNATIONS AND LIMITATIONS
     7.1 Beneficiaries.
          (a) Beneficiary Designation. The Participant shall have the right, at any time, to designate any person or persons as Beneficiary (both primary and
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
contingent) to whom payment under the Plan shall be made in the event of the Participant’s death. The Beneficiary designation shall be effective when it is submitted to and acknowledged by the Committee during the Participant’s lifetime in the format prescribed by the Committee.
          (b) Absence of Valid Designation. If a Participant fails to designate a Beneficiary as provided above, or if every person designated as Beneficiary predeceases the Participant or dies prior to complete distribution of the Participant’s benefits, then the Committee shall direct the distribution of such benefits to the Participant’s estate.
     7.2 Payments to Minors. In the event any amount is payable under the Plan to a minor, payment shall not be made to the minor, but instead be paid (a) to that person’s living parent(s) to act as custodian, (b) if that person’s parents are then divorced, and one parent is the sole custodial parent, to such custodial parent, to act as custodian, or (c) if no parent of that person is then living, to a custodian selected by the Committee to hold the funds for the minor under the Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which the minor resides. If no parent is living and the Committee decides not to select another custodian to hold the funds for the minor, then payment shall be made to the duly appointed and currently acting guardian of the estate for the minor or, if no guardian of the estate for the minor is duly appointed and currently acting within sixty (60) days after the date the amount becomes payable, payment shall be deposited with the court having jurisdiction over the estate of the minor.
     7.3 Payments on Behalf of Persons Under Incapacity. In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Committee may direct that such payment be made to any person found by the Committee, in its sole judgment, to have assumed the care of such person. Any payment made pursuant to such determination shall constitute a full release and discharge of any and all liability of the Committee and the Company under the Plan.
     7.4 Inability to Locate Payee. In the event that the Committee is unable to locate a Participant or Beneficiary within two (2) years following the scheduled Payment Date, the amount allocated to the Participant’s Deferral Account shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without interest or earnings.
ARTICLE VIII
ADMINISTRATION
     8.1 Committee. The Plan shall be administered by a Committee appointed by the Board, which shall have the exclusive right and full discretion (i) to appoint agents to act on its behalf, (ii) to select and establish Funds, (iii) to interpret the Plan, (iv) to decide any and all matters arising hereunder (including the right to remedy possible ambiguities, inconsistencies, or admissions), (v) to make, amend and rescind such rules as it deems necessary for the proper administration of the Plan and (vi) to make all other determinations and resolve all questions of fact necessary or advisable for the
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
administration of the Plan, including determinations regarding eligibility for benefits payable under the Plan. All interpretations of the Committee with respect to any matter hereunder shall be final, conclusive and binding on all persons affected thereby. No member of the Committee or agent thereof shall be liable for any determination, decision, or action made in good faith with respect to the Plan. The Company will indemnify and hold harmless the members of the Committee and its agents from and against any and all liabilities, costs, and expenses incurred by such persons as a result of any act, or omission, in connection with the performance of such persons’ duties, responsibilities, and obligations under the Plan, other than such liabilities, costs, and expenses as may result from the bad faith, willful misconduct, or criminal acts of such persons.
ARTICLE IX
MISCELLANEOUS
     9.1 Amendment or Termination of Plan. The Company may, at any time, direct the Committee to amend or terminate the Plan, except that no such amendment or termination may reduce a Participant’s Account balance. If the Company terminates the Plan, no further amounts shall be deferred hereunder, and amounts previously deferred or contributed to the Plan shall be paid in accordance with the provisions of the Plan as scheduled prior to the Plan termination. Notwithstanding the foregoing, to the extent permitted under Code Section 409A and applicable authorities, the Company may, in its complete and sole discretion, accelerate distributions under the Plan in the event of a “change in ownership” or “effective control” of the Company or a “change in ownership of a substantial portion of assets” or under such other terms and conditions as may be specifically authorized under Code Section 409A and applicable authorities.
     9.2 Unsecured General Creditor. The benefits paid under the Plan shall be paid from the general funds of the Company, and the Participant and any Beneficiary or their heirs or successors shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder. It is the intention of the Company that this Plan be unfunded for purposes of the Code.
     9.3 Restriction Against Assignment. The Company shall pay all amounts payable hereunder only to the person or persons designated by the Plan and not to any other person or entity. No part of a Participant’s Account shall be liable for the debts, contracts, or engagements of any Participant, Beneficiary, or their successors in interest, nor shall a Participant’s Account be subject to execution by levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, sell, transfer, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. No part of a Participant’s Account shall be subject to any right of offset against or reduction for any amount payable by the Participant or Beneficiary, whether to the Company or any other party, under any arrangement other than under the terms of this Plan.
     9.4 Protective Provisions. The Participant shall cooperate with the Company by furnishing any and all information requested by the Committee, in order to facilitate
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
the payment of benefits hereunder, taking such physical examinations as the Committee may deem necessary and taking such other actions as may be requested by the Committee. If the Participant refuses to so cooperate, the Company shall have no further obligation to the Participant under the Plan. In the event of the Participant’s suicide during the first two (2) years in the Plan, or if the Participant makes any material misstatement of information or non-disclosure of medical history, then no benefits shall be payable to the Participant under the Plan, except that benefits may be payable in a reduced amount in the sole discretion of the Committee.
     9.5 Receipt or Release. Any payment made in good faith to a Participant or the Participant’s Beneficiary shall, to the extent thereof, be in full satisfaction of all claims against the Committee, its members, and the Company. The Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect.
     9.6 Errors in Account Statements, Deferrals or Distributions. In the event an error is made in an Account statement, such error shall be corrected on the next statement following the date such error is discovered. In the event of an error in deferral amount, consistent with and as permitted by any correction procedures established under Code Section 409A, the error shall be corrected immediately upon discovery by, in the case of an excess deferral, distribution of the excess amount to the Participant, or, in the case of an under deferral, reduction of other compensation payable to the Participant. In the event of an error in a distribution, the over or under payment shall be corrected by payment to or collection from the Participant consistent with any correction procedures established under Code Section 409A, immediately upon the discovery of such error. In the event of an overpayment, the Company may, at its discretion, offset other amounts payable to the Participant from the Company (including but not limited to cash or non-cash Director compensation or expense reimbursements subject to compliance with Code Section 409A) to recoup the amount of such overpayment(s).
     9.7 Service Not Guaranteed. Nothing contained in the Plan nor any action taken hereunder shall be construed as a contract for service or as giving any Participant any right to continue the provision of services in any capacity whatsoever to the Company.
     9.8 Successors of the Company. The rights and obligations of the Company under the Plan shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Company.
     9.9 Notice. Any notice or filing required or permitted to be given to the Company or the Participant under this Agreement shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, in the case of the Company, to the principal office of the Company, directed to the attention of the Committee, and in the case of the Participant, to the last known address of the Participant indicated on the records of the Company. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for
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USEC INC. DIRECTOR DEFERRED COMPENSATION PLAN
registration or certification. Notices to the Company may be permitted by electronic communication according to specifications established by the Committee.
     9.10 Headings. Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof.
     9.11 Gender, Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular.
     9.12 Governing Law. The Plan shall be governed by the laws of the State of Delaware.
     IN WITNESS WHEREOF, the Board of Directors of the Company has approved the adoption of this Plan as of the Effective Date and has caused the Plan to be executed by its duly authorized representative this 1 st  day of November, 2007.
 	 	 	 	 	
 	USEC INC.
 	 	
 	By:  	W. Lance Wright  	 	
 	 	Title: Senior Vice President,  	 	
 	 	Human Resources & Administration 	 	
 	
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EXHIBIT 21
SUBSIDIARIES OF USEC INC.
 	 	 	
Name of Subsidiary	 	State of Incorporation	
United States Enrichment Corporation	 	Delaware	
NAC International Inc.	 	Delaware	

 
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Numbers 333-71635, 333-129410, and 333-117867) and on Form S-3 (File Numbers 333-146063 and 333-85641) of USEC Inc. of our report dated February 22, 2008 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
McLean, Virginia
February 26, 2008

 
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, John K. Welch, certify that:
1.	 	I have reviewed this annual report on Form 10-K of USEC Inc.;	
 	 	 	
2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 	 	 	
3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 	 	 	
4.	 	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	(a)	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	 	 	
 	(b)	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	 	 	
 	(c)	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	 	 	
 	(d)	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	(a)	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	 	 	
 	(b)	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

February 26, 2008 	/s/ John K. Welch  	 	
 	John K. Welch 	 	
 	President and Chief Executive Officer 	 	

 
 	 	 	 	 	
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, John C. Barpoulis, certify that:
1.	 	I have reviewed this annual report on Form 10-K of USEC Inc.;	

2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	 	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	(a)	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	 	 	
 	(b)	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	 	 	
 	(c)	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	 	 	
 	(d)	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	(a)	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	 	 	
 	(b)	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

February 26, 2008 	/s/ John C. Barpoulis  	 	
 	John C. Barpoulis 	 	
 	Senior Vice President and Chief Financial Officer 	 	

 
EXHIBIT 32
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
     In connection with the annual report on Form 10-K of USEC Inc. for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, John K. Welch, President and Chief Executive Officer, and John C. Barpoulis, Senior Vice President and Chief Financial Officer, each hereby certifies, that, to the best of his knowledge:
          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of USEC Inc.

February 26, 2008 	/s/ John K. Welch  	 	
 	John K. Welch 	 	
 	President and Chief Executive Officer 	 	

February 26, 2008 	/s/ John C. Barpoulis  	 	
 	John C. Barpoulis 	 	
 	Senior Vice President and Chief Financial Officer 	 	

 
EXHIBIT 99.2
Domestic Company
Section 303A
Annual CEO Certification
As the Chief Executive Officer of USEC Inc. (USU), and as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, I hereby certify that as of the date hereof I am not aware of any violation by the Company of NYSE’s corporate governance listing standards, other than has been notified to the Exchange pursuant to Section 303A.12(b) and disclosed on Exhibit H to the Company’s Domestic Company Section 303A Annual Written Affirmation.
This certification is:
 	 	 	
þ	 	Without qualification	
 	 	or	
o	 	With qualification	

By	 	/s/ John K. Welch
 	 	 	
Print Name: John K. Welch
Title: President and Chief Executive Officer
Date: May 11, 2007
[No Exhibit H accompanied the Annual Written Affirmation.]