The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated condensed financial statements and related notes set forth in Part I, Item 1 of this report as well as the risks and uncertainties included in Part II, Item 1A of this report and in the annual report on Form 10-K for the year ended December 31, 2008. Overview
USEC, a global energy company, is a leading supplier of low enriched uranium ("LEU") for commercial nuclear power plants. LEU is a critical component in the production of nuclear fuel for reactors to produce electricity. We:
• supply LEU to both domestic and international utilities for use in about 150 nuclear reactors worldwide,

• are deploying what we anticipate will be the world's most advanced 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.

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 U235 and depleted uranium having a lower percentage of U235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as 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 about half of our supply of LEU at the Paducah GDP in Paducah, Kentucky. Under the Megatons to Megawatts program, we acquire the remainder of our LEU supply 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.
The Paducah GDP requires a large amount of electric power, and prices for electricity and related fuel have been very volatile during the past year. During non-summer months of 2009, we expect to purchase power from TVA at a level of approximately 2,000 megawatts. We have a fixed-price contract that sets the base price for most of the power we purchase, but our costs fluctuate above or below the base contract price based on fuel and purchased power costs incurred by TVA. This fuel cost adjustment increased our power cost over the base contract price by about 7% in the first nine months of 2009, compared to 15% in 2008 and 8% in 2007. Fuel cost adjustments in a given period are based in part on TVA's estimates as well as revisions of estimates for electric power delivered in prior periods. Volatility in power prices and TVA's cost of fuel continue, which results in uncertainty in our financial projections.

Our View of the Business Today
The existing international fleet of approximately 440 operating nuclear power reactors provides the nuclear fuel industry with steady demand for enriched uranium. In addition, the nuclear power industry has entered a period of new construction. Approximately 50 reactors are under construction today in 13 countries and approximately two dozen reactors have been proposed in the United States. This attractive and growing market for nuclear fuel provides the business case for our investment in the American Centrifuge technology. We have been developing this technology and preparing to build a commercial plant for several years. In August 2008, we applied for $2 billion in financing from the DOE Loan Guarantee program to finance this commercial plant. However, we experienced a setback in the third quarter with the decision by DOE not to proceed with our loan guarantee application and our subsequent agreement with them to delay a final review of our application until at least early 2010. We have begun demobilizing the project and this will increase the cost of the project and cost jobs, two outcomes we wanted to avoid. DOE has raised several issues with respect to our loan guarantee application, both financial and technical, and we are working to address these issues. Our efforts to address DOE's concerns are focused on:
• Completing our review of our quality assurance program and implementing corrective actions as needed;

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

• Maintaining and demonstrating centrifuge machine manufacturing capability, and;

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

Financing for the ACP is uncertain and continues to be dependent upon our ability to obtain a loan guarantee from DOE. More detail is provided below in "Overview-American Centrifuge Plant Update." We believe that preserving the value of our substantial investment in the American Centrifuge technology is important to enhancing long-term shareholder value, and so we are continuing to invest in certain activities as we work to address DOE's concerns and determine the most cost-effective deployment plan.
We are looking at our options with respect to extending the operations of the Paducah GDP. We previously extended our lease of the Paducah GDP through June 2016 and have renewal rights thereafter. We are exploring power purchases beyond the expiration of our current power contract in 2012, with power prices being the biggest driver in the economics of continued Paducah GDP operations.
We also continue to focus on our government services business. We are in discussions with DOE regarding $150 million to $200 million of accelerated clean up efforts at the Portsmouth GDP in government fiscal year 2010 which started October 1, 2009. More detail is provided below in "Overview - Revenue from U.S. Government Contracts."
We have retained a financial advisor to explore strategic alternatives for the Company. We are considering all options, including a possible sale of the Company or other business combination transaction. There can be no assurance regarding the timing of or whether the Board of Directors will elect to pursue any of the strategic alternatives it may consider, or that any such alternatives if pursued will be consummated.

American Centrifuge Plant Update
We have been developing and demonstrating a highly efficient uranium enrichment gas centrifuge technology that we call the American Centrifuge. We have a construction and operating license issued by the U.S. Nuclear Regulatory Commission ("NRC") and have been deploying this technology since May 2007 in the American Centrifuge Plant ("ACP") being built in Piketon, Ohio. As of September 30, 2009 we had spent approximately $1.6 billion on the ACP and had operated centrifuges as part of our Lead Cascade test program for approximately 275,000 machine hours, giving us the data and expertise to begin the transition to commercial operation. We had also secured customer commitments to purchase over half of the initial, planned output of the ACP. However, we need additional financing to complete the plant and the timing and availability of that financing is uncertain.
The DOE Loan Guarantee Program was created by the Energy Policy Act of 2005 and in December 2007, federal legislation authorized funding levels of up to $2 billion for advanced facilities for the front end of the nuclear fuel cycle, which includes uranium enrichment. DOE released its solicitation for the Loan Guarantee Program on June 30, 2008 and in July 2008, we applied to the DOE Loan Guarantee Program as the path for obtaining $2 billion in U.S. government guaranteed debt financing for the ACP. Areva, a company majority owned by the French government, also applied for U.S. government guaranteed financing under this program for a proposed plant in the United States and its application is also being considered by DOE. During the first quarter of 2009, we began steps to conserve cash and reduced the planned escalation of project construction and machine manufacturing activities until we gained greater clarity on potential funding for the project through the DOE Loan Guarantee Program.
On August 4, 2009, subsequent to a request by DOE that we withdraw our application, DOE and USEC announced an agreement to delay a final review of our loan guarantee application for the ACP until at least early 2010. As a result, we have begun to demobilize the American Centrifuge project in order to preserve liquidity as we evaluate the strategic options for the future of the project. In parallel, we are continuing American Centrifuge demonstration activities, evaluating how best to configure the project on a go-forward basis, and seeking to reduce technical and financial risk for the project. We continue to believe in the American Centrifuge technology and we are working to address the issues that concerned DOE so that we will be in a position to update our application in the first half of 2010.
Since August 2009, over 1,300 project jobs have been lost as a result of the demobilization, including approximately 120 jobs at USEC and the remainder from direct jobs at our suppliers. Several thousand indirect jobs have also been affected. Job losses have occurred in eight states, with Ohio and Tennessee having the largest job losses.
Construction work on the plant infrastructure and finalizing the balance-of-plant design ceased in August. However, we continue to incur costs associated with demobilization including procurement of materials under existing contractual obligations in accordance with reductions in the scope of work with our suppliers. The plant design work is approximately 80% complete and would be resumed following a decision to remobilize the project. Because we have delayed high-volume machine manufacturing, work at all of our strategic suppliers has been sharply reduced.
USEC's spending plan going forward for the project is still being developed. In the first nine months of 2009, our spend rate on the project was approximately $45 million per month. We expect to substantially reduce that spending level. We do not expect to see the full impact of recent spending reductions from project demobilization until the fourth quarter and beyond. We expect to set a spending level for the project for the next several months that will vary depending on available funds. DOE previously committed to provide $45 million to USEC over 18 months (with $30 million of that

in Federal government fiscal year 2010) to support ongoing American Centrifuge technology demonstration activities. However, Congress did not provide the $30 million in funding for this activity in the recently completed Federal government fiscal 2010 energy and water appropriations conference report, and DOE in an October 15, 2009 press release stated that it does not see a path to providing the $30 million in funding at this time. USEC plans to work with DOE and Congress on alternative approaches for obtaining this funding, but the availability and timing of this funding are uncertain and this financing impacts the funding we have available to spend on the project.
USEC is working with its strategic suppliers to maintain the manufacturing infrastructure developed over the last several years. We want the project to be in a position to be able to be ramped back up in the event of funding from the DOE Loan Guarantee Program. For example, should development funds become available in the near-term, we may build a limited number of additional AC100 production machines. This would further demonstrate the manufacturability of the AC100 design and validate the quality assurance improvements instituted in the assembly process. In order to accomplish the goal of having the core manufacturing base in place and ready to go, if funds were available, our suppliers would selectively continue to produce components for the AC100 production machine.
To better integrate the process of building components and assembling the machines, USEC continues to work with B&W Technical Services Group, Inc. toward establishing a joint venture. B&W employees have been producing the classified components at USEC's American Centrifuge Technology and Manufacturing Center in Oak Ridge, Tennessee. In May 2009, USEC and B&W entered into a non-binding memorandum of understanding to form a joint venture that will establish a single point of accountability to provide integrated manufacturing and assembly of the AC100 centrifuge machines. As envisioned in the memorandum of understanding, the joint venture would manage all aspects of manufacturing the AC100 machines, including supply chain management through the integration of all suppliers and subcontractors and the assembly of the machines at Piketon.
As we seek the most cost-effective deployment plan, we are evaluating the scope and scale of the plant, the deployment of machines over a longer time period, alternate financing structures, and the cost and feasibility of remobilizing at a later date. Based on the results of this evaluation of our strategic options for the future of the project, or in the event of a further delay or a decrease in the likelihood of obtaining DOE loan guarantee funding, or for other reasons, we may reduce spending and staffing on the project even further or might be forced to take other actions, including terminating the project.
All of these efforts to continue deployment of the ACP remain subject to the uncertainty of our ability to obtain a DOE loan guarantee as well as the other risks related to the deployment of the ACP and the negative impact of delays or a termination of the ACP on our business and prospects described in the risk factors in Part II, Item 1A of this report and in Item 1A of our 2008 Annual Report on Form 10-K.
Our near-term goals for the American Centrifuge project continue to include the following:
• Successful start up of the AC100 Lead Cascade testing program in early 2010 using the upgraded production machines to improve DOE's confidence in the machines' reliability through consistent operation.

• Manufacture a limited number of machines and maintain the manufacturing infrastructure so we can expand the number of machines in the Lead Cascade testing program and support potential remobilization.

• Continue development efforts to further improve reliability of the AC100, increase the machine's productivity as measured by SWU output and lower its capital cost per SWU through value engineering.

• Reduce perceived project risk and take other steps to improve our financial structure.

• Negotiate contracts with suppliers that can provide greater certainty of cost and schedule and develop a revised project plan.

• Continue working with customers to enter into additional long-term contracts to build on the $3.4 billion in committed sales for the output from the ACP.

USEC continues its Lead Cascade testing program in Piketon. The prototype centrifuges operating there for more than two years have accumulated approximately 275,000 machine hours. Data from this testing program has provided valuable assembly, operating and maintenance information, as well as operations experience for the American Centrifuge staff. The prototype machines continue to operate. During the quarter ended September 30, 2009, we determined that at least some of our AC100 production centrifuge machines that were being prepared for Lead Cascade testing were not assembled in full compliance with the specified drawings and procedures. We disassembled these machines and have begun reassembling the machines with improved components that were incorporated in the design finalized earlier this year. These enhanced machines are production-ready and would be deployed in the commercial plant. We subsequently enhanced procedures to ensure compliance with our quality assurance program for centrifuge component manufacturing and assembly. Ten of these machines are operating individually and we expect to restart Lead Cascade testing of approximately two dozen AC100 machines in early 2010.
In 2002, USEC and DOE signed an agreement (such agreement, as amended, the "2002 DOE-USEC Agreement") in which we and DOE made long-term commitments directed at resolving issues related to the stability and security of the domestic uranium enrichment industry. The 2002 DOE-USEC Agreement contains specific project milestones relating to the ACP. Four milestones remain relating to the financing and operation of the ACP. These milestones were amended in January 2009 to replace milestones that were not aligned with our deployment schedule for the ACP. The first of the four remaining milestones requires that we secure firm financing commitment(s) by November 2009 for the construction of the commercial American Centrifuge Plant with an annual capacity of approximately 3.5 million SWU per year.
USEC previously disclosed and communicated to DOE at the time the milestones were amended that our ability to meet the remaining milestones was dependent on our obtaining a commitment for a loan guarantee from DOE in the timeframe needed with funding being available shortly thereafter. USEC has begun demobilizing the American Centrifuge project and does not expect to be able to meet the November 2009 financing milestone or subsequent milestones related to commercial plant operations. The 2002 DOE-USEC Agreement provides that if a delaying event beyond the control and without the fault or negligence of USEC occurs which would affect our ability to meet a milestone, DOE and USEC will jointly meet to discuss in good faith possible adjustments to the milestones as appropriate to accommodate the delaying event.
Although USEC is still assessing the impact of the delay on the project schedule, by letter dated September 10, 2009, USEC requested a modification to the 2002 DOE-USEC Agreement to extend the remaining milestones under the agreement for one year. By letter dated October 2, 2009, DOE responded that it is necessary to follow the process under the 2002 DOE-USEC Agreement to create a clear record for decision. That process involves USEC providing additional information and explanation to DOE and a DOE determination with respect to compliance with the milestone date(s), the impact on USEC's ability to begin commercial operations on schedule, and whether the delay was beyond USEC's control and without its fault or negligence. In its October 2, 2009 letter, DOE

noted that it was open to conducting an expedited process with an eye toward extending the current milestones, creating new ones as may be appropriate, and discussing any other contractual issues. This process and discussions with DOE are underway.
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 30% of revenue from our LEU segment in 2008. Our agreements with electric utilities are primarily long-term, fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of SWU from us or long-term requirements contracts under which our customers are obligated to purchase a percentage of their SWU requirements from us. Under requirements contracts, a customer only makes purchases when its reactor has requirements. The timing of requirements is associated with reactor refueling outages. Our agreements for uranium sales are generally shorter-term, fixed-commitment contracts.
Our revenues and operating results can fluctuate significantly from quarter to quarter, and in some cases, year to year. 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 over $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 modify, 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 and uranium. The long-term SWU price indicator, as published by TradeTech, LLC in Nuclear Market Review, is an indication of base-year prices under new long-term enrichment contracts in our primary markets. Since our backlog includes contracts awarded to us in previous years, the average SWU price billed to customers typically lags behind the current price indicators by several years. Following are TradeTech's long-term SWU price indicator, the long-term price for uranium hexafluoride ("UF6"), as calculated by USEC using indicators published in Nuclear Market Review, and TradeTech's spot price indicator for UF6:

                                          September 30,     December 31,     September 30,
                                              2009              2008             2008
 Long-term SWU price indicator ($/SWU)    $     165.00      $    159.00      $     159.00
 UF6:
 Long-term price composite ($/KgU)              181.59           195.15            208.21
 Spot price indicator ($/KgU)                   117.00           140.00            145.00

A substantial portion of our earnings and cash flows in recent years has been derived from sales of uranium, including uranium generated by underfeeding the production process at the Paducah GDP. We may also purchase uranium from suppliers in connection with specific customer contracts, as we

have in the past. Underfeeding is a mode of operation that uses or feeds less uranium but requires more SWU in the enrichment process, which requires more electric power. In producing the same amount of LEU, we vary our production process to underfeed uranium based on the economics of the cost of electric power relative to the prices of uranium and enrichment. Spot market prices for uranium declined in the past year, reducing the value of underfeeding the enrichment process to obtain uranium for resale. We will continue to monitor and optimize the economics of our production based on the cost of power and market conditions for SWU and uranium.
We supply uranium to the Russian Federation for the LEU we receive under the Russian Contract. We replenish our uranium inventory with uranium supplied by customers under our contracts for the sale of SWU and through underfeeding our production process.
Under the terms of many uranium sale agreements, title to uranium is transferred to the customer and we receive payment under normal credit terms without physically delivering the uranium to the customer. The recognition of revenue and earnings for such uranium sales is deferred until LEU associated with such uranium is physically delivered to the customer rather than at the time title to uranium transfers to the customer. The timing of revenue recognition for uranium sales is uncertain.
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 a contract for maintenance of the Portsmouth GDP in cold shutdown. Continuation of U.S. government contracts is subject to DOE funding and Congressional appropriations. DOE and USEC have periodically extended the Portsmouth GDP cold shutdown contract, most recently through December 31, 2009. DOE has announced its intention to negotiate a sole-source extension of the cold shutdown contract with USEC through September 30, 2010. To-date this extension has not yet been set forth in a definitive agreement that includes a specific statement of work and other contractual terms and conditions.
Revenue from U.S. government contracts is based on allowable costs for work performed as 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"). Also refer to "DOE Contract Services Matter" in note 11 to the consolidated condensed financial statements. Revenue from the U.S. government contracts segment includes revenue from our subsidiary NAC International Inc. ("NAC").
We have finalized and submitted to DOE the incurred costs for Portsmouth and Paducah GDP contract work for the six months ended December 31, 2002 and the years ended December 31, 2003, 2004, 2005, 2006, 2007 and 2008. At September 30, 2009, we had approximately $50 million in outstanding unbilled incurred costs with DOE. We consider these amounts properly owed for services performed for the benefit of DOE and have recognized most of this amount through revenue. However, these amounts have not yet been approved for billing and remain outstanding, subject to the DOE contracting officer's approval and audit.
At DOE's request, DCAA evaluated our facilities utilization system and issued a report on September 24, 2009. The report recommended a re-evaluation of our facilities strategic plan and the elimination of certain facility space at the Portsmouth GDP that could be deemed as idle. The audit results pertained to the reasonableness of future costs and recommended actions which could be implemented as early as the first quarter of 2010. We do not believe these facilities should be deemed idle facilities under the contract. We believe these facilities are currently used as intended under the cold shutdown contract, primarily for the storage and protection of uranium, the performance of deposit removal, and other pre-decontamination and decommissioning ("D&D") work under the contract. We are, however, discussing with DOE the schedule for de-leasing and

returning facilities to DOE to facilitate future D&D work by DOE. We have historically provided surveillance and maintenance services for these facilities . . .