TRANSITION CHARGES

Non-Production Expenses Related to Ceasing Enrichment at the Paducah Plant

On May 24, 2013, USEC announced that it was not able to conclude a deal for the short-term extension of uranium enrichment at the Paducah GDP. USEC ceased uranium enrichment at the end of May 2013. USEC is in discussions with DOE regarding the timing of USEC’s de-lease of the Paducah GDP from DOE and is seeking to minimize its transition costs related to the site turnover, which could be substantial.

Under the terms of the lease, USEC can terminate the lease prior to June 2016 upon two years' notice. Also, as USEC's requirements change, USEC can de-lease portions of the property under lease upon 60 days' notice with DOE's consent, which cannot be unreasonably withheld. However, the right of partial de-lease does not include the right of USEC to terminate the lease in its entirety or with respect to the Paducah GDP, which termination is permitted only in accordance with the two-year termination provision of the lease. On August 1, 2013, USEC provided notice to DOE that USEC exercised its rights to terminate the lease with respect to the Paducah GDP and USEC has been in discussions with DOE regarding the timing of USEC’s de-lease. USEC anticipates being ready to complete the return of leased premises and to terminate the Paducah GDP lease as early as July 2014. However, based on USEC's current discussions with DOE, the return of the leased premises appears unlikely before October 2014 and USEC and DOE have not reached agreement on a lease termination date prior to August 1, 2015. DOE has indicated that its ability to agree to such an earlier date will depend on the its ability to award a contract for deactivation services and be prepared to assume responsibility for the leased areas, among other things. In the event that USEC is unable to agree with DOE on a schedule for termination prior to two years, USEC plans to retain a small portion of the leased premises until August 1, 2015, at which time the Paducah GDP lease will terminate and any remaining portion of the leased premises will be returned to DOE. In such an event, during this period USEC plans to return portions of the leased premises no longer required to meet its business needs. In addition, while DOE has stated that it continues to be willing to work with USEC to develop a transition plan and schedule for the safe and secure return of the Paducah GDP, DOE has taken the position that USEC is foreclosed from invoking its rights to a partial return of facilities under the lease. While USEC strongly disagrees with this DOE position, USEC believes it will be able to reach agreement with DOE on a mutually agreeable date to return the leased areas. Disputes could also arise regarding the requirements of the lease and responsibility for associated turnover costs.

The Paducah GDP operated for more than 60 years. Environmental liabilities associated with plant operations by agencies of the U.S. government prior to USEC's privatization on July 28, 1998 are the responsibility of the U.S. government. The USEC Privatization Act and the lease for the plant provide that DOE remains responsible for D&D of the Paducah site.

As USEC accelerated the expected productive life of plant assets and ceased uranium enrichment at the Paducah GDP, USEC has incurred a number of expenses unrelated to production that have been charged directly to cost of sales. Non-production expenses totaled $194.2 million in 2013 and $18.8 million in 2012 as follows:

Site expenses, including lease turnover activities and Paducah and Portsmouth retiree benefit costs, of $103.0 million in 2013. Following the cessation of enrichment at the Paducah GDP, costs for plant activities that formerly were capitalized as production costs are now charged directly to cost of sales including inventory management and disposition, ongoing regulatory compliance, utility requirements for operations, security, and other site management activities related to transition of facilities and infrastructure.

Prior to the start of 2012, a significant portion of retiree benefit costs were attributed to Portsmouth contract services, based on the employee base performing contract services work. Starting in 2012, ongoing retiree benefit costs related to USEC's former Portsmouth employees are charged to cost of sales of the LEU segment rather than the contract services segment based on continuing operations that support USEC's active and retired employees. Non-production expenses of $13.2 million in 2012 relate to Portsmouth retiree benefit costs;

Accelerated asset charges of $19.4 million in 2013 and $5.6 million in 2012. Beginning in the fourth quarter of 2012, the expected productive life of property, plant and equipment at the Paducah GDP was reduced from the lease term ending June 2016 to an accelerated basis ending December 2014. In addition, beginning in the third quarter of 2012, costs that would have been previously treated as construction work in progress are treated similar to maintenance and repair costs because of the shorter expected productive life of the Paducah GDP. The expected productive life of the Paducah GDP was further reduced following the ceasing of enrichment at the end of May 2013. In general, these assets, depending on their continuing economic life, are now expected to be useful only through the first half of 2014;

Inventory charges of $25.0 million in 2013. Inventories that are intended to be transferred to DOE upon final de-lease were charged to expense totaling $22.7 million. These inventories include residual uranium in cylinders and inventories deployed for cascade drawdown, assay blending and repackaging. USEC determined that it was currently uneconomic to recover resulting residual quantities for resale. In addition, certain materials and supplies used in the enrichment process with a book value of $2.3 million were expensed following the termination of enrichment at the end of the second quarter 2013;


-	Inventory valuation adjustments of $15.2 million in 2013, reflecting declines in uranium market price indicators. Inventories of SWU and uranium are valued at lower of cost or market;


-	Asset retirement charges of $19.8 million in 2013 for property, plant and equipment formerly used in the enrichment process at the Paducah GDP; and

Power contract losses of $11.8 million in 2013. In anticipation of a potential short-term extension of uranium enrichment at the Paducah GDP, USEC purchased approximately 700 megawatts of power for the period from June 1 through September 30, 2013 from several power providers. Due to falling prices in power markets following the purchase of this power, as part of agreements to unwind these purchases, USEC incurred expenses of approximately $11.8 million.

USEC may incur additional non-production expense and special charges in future periods based on the results of the planning and execution of the Paducah transition, assessments of evolving business needs, and changes in market prices.

Special Charges for Workforce Reductions

The cessation of enrichment at the Paducah GDP has resulted in charges of $24.0 million in 2013 for termination benefits consisting primarily of severance payments.

USEC has notified its Paducah employees of potential layoffs beginning in August 2013. The notifications are provided under the Worker Adjustment and Retraining Notification Act ("WARN Act"), a federal statute that requires an employer to provide advance notice to its employees of potential layoffs in certain circumstances. Following the cessation of enrichment at the Paducah GDP in the second quarter of 2013, USEC initiated an initial workforce reduction of 140 employees that was substantially completed in August 2013. On September 30, 2013, USEC's senior management authorized an additional workforce reduction of approximately 90 Paducah employees. This workforce reduction occurred between October 2013 and January 2014. Between June and December 2013, the Paducah GDP workforce has been reduced by 202 employees through layoffs. Severance payments of $3.2 million were charged to expense in 2013 for these workforce reductions, which is net of $1.2 million of severance paid by USEC and invoiced to DOE. Accounts receivable as of December 31, 2013 include DOE's share of severance paid by USEC. Substantially all cash payments for these workforce reductions were made by the end of 2013.

Additional layoffs are expected to occur in stages through 2014 of the remaining Paducah workforce depending on business needs to manage inventory, fulfill customer orders, meet regulatory requirements and transition the site back to DOE in a safe and orderly manner. USEC anticipates being ready to complete the return of leased premises and to terminate the Paducah GDP lease as early as July 2014. However, based on USEC's current discussions with DOE, the return of the leased premises appears unlikely before October 2014 and USEC and DOE have not reached agreement on a lease termination date prior to August 1, 2015. DOE has indicated that its ability to agree to such an earlier date will depend on the its ability to award a contract for deactivation services and be prepared to assume responsibility for the leased areas, among other things. In the event that USEC is unable to agree with DOE on a schedule for termination prior to two years, USEC plans to retain a small portion of the leased premises until August 1, 2015, at which time the Paducah GDP lease will terminate and any remaining portion of the leased premises will be returned to DOE. In such an event, during this period USEC plans to return portions of the leased premises no longer required to meet its business needs. USEC believes that it is now probable of incurring severance costs for the remaining Paducah GDP workforce and estimates that cost to be $20.8 million in the event of a full termination of activities at the site without a transfer of employees to another employer, with DOE owing a portion of this amount estimated to be up to $5 million. DOE’s liability for its share of severance paid is pursuant to the USEC Privatization Act. Information on these additional layoffs would be communicated to affected employees in future notices and may also result in additional charges.

Workforce reductions taken in 2012 resulted in special charges and related cash expenditures totaling $3.9 million for termination benefits consisting of severance payments, short-term health care coverage and immediate vesting of restricted stock and stock options for certain employees. These actions were a result of USEC’s 2012 organizational structure review efforts resulting in workforce reductions at the American Centrifuge design and engineering operations in Oak Ridge, Tennessee, at the headquarters operations located in Bethesda, Maryland and at the central services operations located in Piketon, Ohio. The reductions involved approximately 50 employees including two senior corporate officers.

As discussed in Note 14, "Pension and Postretirement Health and Life Benefits", USEC froze benefit accruals under its defined benefit pension plans, effective August 5, 2013, for active employees other than those who are covered by a collective bargaining agreement at the Paducah GDP. Pension benefits will no longer increase for these employees to reflect changes in compensation or company service. However, these employees will not lose any benefits earned through August 4, 2013 under the pension plans and continue to accrue service credits toward vesting and qualifying for early or unreduced retirement benefits under the plans. Unamortized prior service costs related to those pension plan participants were accelerated. In addition, as discussed above, layoffs of the remaining Paducah workforce are expected to occur in stages through 2014, but no later than the lease termination date of August 1, 2015. The layoffs are expected to accelerate retirement obligations in the GDP pension plan and GDP postretirement health and life benefit plans. Unamortized prior service costs related to affected plan participants were accelerated due to these terminations. Moreover, and in accordance with plan documents, certain affected plan participants were credited additional plan service credits based on their involuntary termination of employment. The net impact recorded in special charges for the year ended December 31, 2013 for these plans is $22.2 million.

Special Charges for Advisory Costs

In early 2012, USEC initiated an internal review of its organizational structure and engaged a management consulting firm to support this review. Since late 2012, USEC also has been engaged with advisors on the restructuring of its balance sheet. During the fourth quarter of 2013, USEC engaged additional advisory support to assist with the restructuring of USEC's balance sheet in 2014. Special charges recorded for these advisors totaled $11.0 million in 2013 compared to $8.4 million in 2012.

Special Charges Summary

A summary of special charges recorded in 2013 and 2012 and changes in the related balance sheet accounts at December 31 follow (in millions):



	2012 Special Charges		2012 Paid			Liability Balance to be Paid, Dec. 31, 2012		2013 Special Charges			2013 Paid			Liability Balance to Be Paid, Dec. 31, 2013
Workforce reductions, primarily severance payments	$	3.4	$	(3.4	)	$	—	$	25.2		$	(4.0	)	$	21.2
Workforce reductions, non-cash, immediate vesting of restricted stock and stock options	0.5		na			na		—			—			—
Less: Amounts billed to DOE	—		—			—		(1.2		)	na			na
Pension and postretirement benefit charges, non-cash	—		—			—		22.2			na			na
Advisory costs	8.4		(8.3		)	0.1		11.0			(9.9		)	1.2
	$	12.3	$	(11.7	)	$	0.1	$	57.2		$	(13.9	)	$	22.4

na - not applicable