BASIS OF PRESENTATION

Nature of Operations

USEC Inc. ("USEC" or "the Company"), a global energy company, supplies low enriched uranium ("LEU") for commercial nuclear power plants. LEU consists of two components: separative work units ("SWU") and uranium. SWU is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components: LEU having a higher percentage of the uranium-235 isotope ("U²³⁵") and depleted uraniumhaving a lower percentage of U²³⁵. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium used in the production of LEU under this formula is referred to as its uranium component. Utility customers typically provide uranium to USEC as part of their enrichment contracts, and USEC delivers LEU to these customers and charges for the SWU component.

USEC has historically produced or acquired LEU from two principal sources. USEC has produced about half of its supply of LEU at the Paducah Gaseous Diffusion Plant ("Paducah GDP") in Paducah, Kentucky, and USEC has acquired the other portion under a contract with Russia (the "Russian Contract") under the 20-year Megatons to Megawatts program. USEC ceased uranium enrichment at the Paducah GDP at the end of May 2013 and is actively taking steps to transfer the site back to the U.S. Department of Energy ("DOE"). USEC's purchases under the Russian Contract also ended in 2013. Commencing in June 2013, USEC continues to acquire Russian LEU under the terms of a 10-year commercial agreement with Russia (the “Russian Supply Agreement”). Purchase quantities under the Russian Supply Agreement will be about half the amount of SWU under the Megatons to Megawatts program unless the parties exercise a mutual option to increase such purchases.

The cessation of domestic enrichment and the successful conclusion of the Megatons to Megawatts program have placed our business in a state of significant transition. USEC's business will contract in 2014 from one that sold approximately 10 to 12 million SWU annually to one where it is expected to sell about one-third of that amount from its existing inventory, the smaller quantities purchased from Russia under the Russian Supply Agreement and potential other suppliers. USEC expects to be a significantly smaller company with lower revenues for at least several years. USEC continues to pursue various paths with DOE for deploying the American Centrifuge technology, which USEC believes is the best path to remaining a competitive producer of LEU in the long-term.

USEC has provided various options to DOE related to preserving the American Centrifuge technology for national security needs which may enable USEC to maintain the option to deploy the technology for commercial purposes at some point in the future. Over the past two years, USEC confirmed the technical readiness of the American Centrifuge technology through a cooperative cost-sharing research, development and demonstration program (such program, including any extension or successor program, the "RD&D Program") with DOE. The continuation of the RD&D Program in 2014 includes work primarily related to additional cascade testing. The program continuation also supports DOE analysis of the technology while sustaining program capabilities as DOE considers its options for meeting national security needs. Funding for the RD&D Program has only been provided through April 15, 2014, and DOE has stated that it does not plan to extend the RD&D cooperative agreement beyond such date. We continue to discuss with DOE its options for maintaining a domestic enrichment capability and DOE’s plans for the American Centrifuge project post-April 15, as well as USEC’s potential role in such options and during any transition. However, the scope of and USEC's role in a program after April 15 are uncertain, and USEC has no assurance that the U.S. government will continue to support the project beyond April 15, 2014. In light of its limited cash generation, USEC’s ability to provide funding in 2014 will be limited. USEC continues to evaluate its options concerning the American Centrifuge project, including its role in any government-supported continuation of the project beyond completion of the RD&D Program, further demobilization of or delays in the commercial deployment of the project, and termination of the project. Any such actions may have a material adverse impact on USEC's ability to deploy the American Centrifuge technology, on its liquidity, on the long-term viability of its LEU business, and could delay or impact its ability to obtain confirmation of its financial restructuring plan and its emergence from the Chapter 11 bankruptcy proceeding discussed below.

In parallel, USEC is taking steps to strengthen its financial structure by addressing balance sheet issues through a Chapter 11 filing with the U.S. Bankruptcy Court so that it can emerge as a stronger sponsor of the American Centrifuge project. See "Chapter 11 Filing" below.

USEC provides limited contract services to DOE and DOE contractors at the Paducah GDP and the site of the former Portsmouth GDP in Piketon, Ohio related to facilities it continues to lease for the American Centrifuge Plant ("ACP"). Revenue from USEC's contract services segment formerly included revenue generated by its subsidiary NAC International Inc. ("NAC"). On March 15, 2013, USEC sold NAC to a subsidiary of Hitachi Zosen Corporation. Refer to Note 3 for details.

Basis of Presentation

The consolidated financial statements include the accounts of USEC Inc., its principal subsidiary United States Enrichment Corporation, and its other subsidiaries. Financial results for NAC through the date of divestiture of March 15, 2013 are reported as discontinued operations. All material intercompany transactions are eliminated. Certain amounts in the consolidated financial statements have been reclassified to conform to the current presentation.

Reverse Stock Split

On July 1, 2013, USEC effectuated a reverse stock split of 1-for-25 shares as described below, resulting in a reclassification from Common Stock to Excess of Capital over Par Value of $12.5 million.

Chapter 11 Filing

On March 5, 2014 (the “Petition Date”), USEC Inc. filed a voluntary petition for relief (the “Bankruptcy Filing”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) case number 14-10475. The Bankruptcy Filing was a “pre-arranged” filing which, as described further below, included the filing of a proposed Plan of Reorganization (the “Plan”) which is supported by certain holders of the claims and interests impaired under the Plan. USEC Inc.’s subsidiaries (collectively, the “Non-Filing Entities”), including United States Enrichment Corporation ("Enrichment"), which is our primary operating subsidiary, were not part of the Bankruptcy Filing. USEC Inc. will continue to operate its business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Non-Filing Entities will continue to operate in the ordinary course of business.

The Bankruptcy Filing is intended to strengthen the Company’s balance sheet, enhance its ability to sponsor the American Centrifuge project and improve its long-term business opportunities. USEC Inc. has reached an agreement on the terms of a financial restructuring plan with the holders (the “Consenting Noteholders”) of approximately 65% of the principal amount of its convertible senior notes (the “Convertible Notes”). Under the terms of the agreement described in more detail below, USEC Inc. will replace the approximately $530 million of Convertible Notes that are scheduled to mature in October 2014 with new debt and equity. USEC Inc. has also reached an agreement with Babcock & Wilcox Investment Company (“B&W”) and Toshiba America Nuclear Energy Corporation (“Toshiba” and together with B&W, the “Preferred Investors”) to restructure their preferred convertible equity investment. As strategic investors, Toshiba and B&W remain supportive of deployment of the ACP.

Throughout the restructuring process, both USEC Inc. and the Non-Filing Entities expect to continue operations and meet obligations to stakeholders, including suppliers, partners, customers and employees, subject to limitations on the ability of USEC Inc. to pay certain pre-petition obligations pending confirmation and implementation of the Plan. USEC also anticipates the continuation of research, development and demonstration activities for the American Centrifuge technology subject to the availability of continued government funding. As a non-debtor, Enrichment’s operations, which include the transition of the Paducah GDP back to DOE and the sale of SWU from its inventory and purchases of Russian LEU, are expected to continue unaffected by the bankruptcy.

Reorganization Plan

The material terms of the Plan include, among other things, that, upon the effective date of the Plan (the “Effective Date”):


•	The holders of the Convertible Notes will receive, on a pro rata basis, in exchange for claims on account of their $530 million in outstanding principal amount of Convertible Notes:


◦	79.04% of the common stock of reorganized USEC Inc. (“New Common Stock”), subject to dilution on account of a new management incentive plan;


◦	cash for interest payable on the Convertible Notes accrued from October 1, 2013, the date of the last semi-annual interest payment, to the Effective Date; and


◦	$200 million in principal amount of new notes issued by reorganized USEC Inc. on terms described in the Plan’s implementing documents (the “New Notes”), with the New Notes being guaranteed and secured on a subordinated and limited basis by Enrichment.

•

B&W and Toshiba will each receive in exchange and on account of their shares of USEC’s Series B-1 12.75% convertible preferred stock (the “Preferred Stock”) (as of December 31, 2013, there were 85,903 shares of Preferred Stock outstanding with an aggregate liquidation preference of $113.9 million including accrued paid-in-kind dividends) and warrants dated September 2, 2010 to purchase up to 250,000 shares of USEC’s common stock (the “Warrants”):


◦	7.98% of the New Common Stock (15.96% in the aggregate), subject to dilution on account of a new management incentive plan; and


◦	$20.19 million in principal amount of New Notes ($40.38 million in the aggregate).

◦

The Preferred Investors have agreed to enter into good faith negotiations to each invest $20.19 million (for an aggregate investment of $40.38 million) of equity in the American Centrifuge project in the future, upon mutually agreed upon terms and conditions, but in any event contingent upon the funding for the ACP of not less than $1.5 billion of debt supported by the DOE loan guarantee program or other government support or funding in such amount (the “ACP Funding Condition”).

◦

In connection with USEC Inc.’s compliance with regulatory requirements, the New Common Stock issued to the Preferred Investors would be structured in a similar manner to the Class B Common Stock contemplated to be issuable to the Preferred Investors upon conversion of the Preferred Stock. As contemplated, Class B Common Stock and will have the same rights, powers, preferences and restrictions and rank equally in all matters with the common stock of the reorganized USEC Inc., except voting. Holders of Class B Common Stock shall be entitled to elect two members of the Board of Directors of USEC Inc., consistent with their current arrangements.


•	If the Noteholders and Preferred Investors vote by requisite majorities to accept the Plan, the holders of USEC Inc.’s common stock will receive, on a pro rata basis, 5% of the New Common Stock, subject to dilution on account of a new management incentive plan.


•	All secured claims will be reinstated and otherwise not impaired and all liens shall be continued until the claims are paid in full.


•	All other general unsecured claims of the Company will be unimpaired and will be either reinstated or paid in full in the ordinary course of business upon the later of the Effective Date or when such obligation becomes due according to its terms.

USEC believes that the Plan meets the standards for confirmation under the Bankruptcy Code, but that determination will rest with the Bankruptcy Court. Confirmation of the Plan could materially alter the classifications and amounts reported in USEC’s consolidated financial statements, which do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that might be necessary as a consequence of a confirmation of the Plan or other arrangement or the effect of any operational changes that may be implemented.

Operation and Implication of the Bankruptcy Filing

Under Section 362 of the Bankruptcy Code, the filing of a voluntary bankruptcy petition by USEC Inc. automatically stayed most actions against USEC Inc., including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over USEC Inc.’s property. Accordingly, although the Bankruptcy Filing triggered defaults for certain of USEC Inc.’s obligations, creditors are stayed from taking any actions as a result of such defaults. Absent an order of the Bankruptcy Court, substantially all of USEC Inc.’s pre-petition liabilities are subject to settlement under the Plan.

Subsequent to the Petition Date, USEC Inc. received interim approval from the Bankruptcy Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize its operations. These obligations were primarily related to certain employee wages, salaries and benefits, certain governmental taxes and fees, and certain insurance commitments. Pre-petition obligations not authorized to be paid currently by the Bankruptcy Court will be treated under the Plan. Post-petition obligations will be paid when due in the ordinary course of business, without prior payment authorization from the Bankruptcy Court. USEC Inc. has retained, pursuant to Bankruptcy Court approval, legal and financial professionals to advise it in connection with the Bankruptcy Filing and certain other professionals to provide services and advice in the ordinary course of business. From time to time, USEC Inc. may seek Bankruptcy Court approval to retain additional professionals.

USEC Inc. also received interim approval from the Bankruptcy Court to enter into a Debtor-In-Possession Credit Facility (the “DIP Facility”). This $50 million revolving credit facility is provided by Enrichment, USEC Inc.’s subsidiary. It accrues interest at an annual rate of 10.5% and is secured by substantially all of USEC Inc.’s assets. The DIP Facility requires mandatory prepayments from USEC Inc. when cost sharing reimbursements under the RD&D Program have been received from DOE. It matures at the earlier of the Effective Date of the Plan or 120 days, and is expected to be repaid with a draw on the Exit Facility described below. Borrowings must be consistent with a budget satisfactory to Enrichment. USEC Inc. is also required to manage its cash flows pursuant to this budget on a weekly basis with a limitation on variance from the budget. Enrichment’s obligations to make funds available include certain conditions precedent such as confirmation of a Plan within 100 days of the Petition Date, American Centrifuge activities shall not have demobilized, and DOE shall not have suspended or terminated the RD&D program or associated funding. Events of default include termination of any of the Plan Support Agreements prior to confirmation of a Plan, USEC Inc. filing a plan that has not been consented to by Enrichment, as well as other events of default common to such facilities. The Bankruptcy Court will consider final approval of the DIP Facility at a hearing scheduled for April 21, 2014. Pending such final approval, USEC Inc. is authorized to obtain up to $20 million out of the aggregate of $50 million in financing under the DIP Facility.

Reorganization Plan Approval Process

In order for USEC Inc. to emerge successfully from Chapter 11, USEC Inc. must obtain the Bankruptcy Court’s approval of the Plan, which will enable the Company to transition from Chapter 11 into ordinary course operations outside of bankruptcy. In connection with the Plan, USEC Inc. expects to enter into a new credit facility (the “Exit Facility”) with Enrichment. USEC Inc.’s ability to obtain such approval and financing will depend on, among other things, the timing and outcome of various ongoing matters related to the Bankruptcy Filing including issues relating to continued U.S. government funding for the American Centrifuge technology after April 15, 2014. As summarized above, the Plan determines the rights and satisfaction of claims of various creditors and security holders, and is subject to the ultimate outcome of events, negotiations and Bankruptcy Court decisions ongoing through the date on which the Plan is confirmed.

Only creditors impaired under the Plan are entitled to vote on the Plan. As described above, USEC Inc. has already entered into agreements with the Consenting Noteholders and Preferred Investors pursuant to which the Consenting Noteholders and Preferred Investors have agreed to vote in favor of the Plan. The Plan Support Agreements may be terminated by USEC Inc., a majority of the Consenting Noteholders, or the Preferred Investors following written notice and the occurrence of certain events including:


•	Upon a good faith determination of the Board of Directors of USEC Inc. that proceeding with the Plan would be inconsistent with the exercise of its fiduciary duties;


•	DOE terminates or suspends (or announces its intent to terminate or suspend) its 80% cost share funding of the RD&D program;


•	There is a termination or suspension or material delay in completion of the RD&D program (other than, in the case of USEC’s right to terminate, as a result of action or inaction by USEC); and


•	If the Russian transitional supply agreement between Enrichment and Joint Stock Company Techsnabexport is terminated.

A majority of Consenting Noteholders or the Preferred Investors can also terminate their respective Plan Support Agreements following written notice and the occurrence of certain events including:


•	USEC Inc. fails to commence the solicitation within 50 days of the commencement of the Chapter 11 case; and


•	USEC Inc. experiences any circumstance, change or other event that has had or is reasonably likely to have a short-term or long-term material adverse effect on the financial condition or operations of USEC Inc. and its subsidiaries.

Further, the Plan is subject to revision in response to creditor claims and objections, the requirements of the Bankruptcy Code or the Bankruptcy Court and material changes in U.S. government funding for the American Centrifuge technology. While USEC expects to emerge successfully from bankruptcy with Plan approval from the Bankruptcy Court within 90-120 days of the filing, there can be no assurance that USEC will be able to secure approval for the Plan within that period or at all.

Liquidity Risks and Uncertainties

During the pendency of USEC Inc.’s Chapter 11 Case, Enrichment will continue to be the Company’s sole source of revenues and will provide the DIP Facility to USEC Inc. Enrichment is also expected to provide USEC Inc. with a credit facility to exit bankruptcy. USEC Inc.’s liquidity is therefore wholly dependent upon the operations of Enrichment and timely reimbursement from DOE for its portion of funding for the RD&D Program.

USEC incurred a net loss for the years ended December 31, 2013, 2012 and, 2011 and had a shareholders’ deficit as of December 31, 2013. USEC’s business is in a state of significant transition and is subject to numerous risks and uncertainties. The increasingly competitive industry conditions under which USEC operates have negatively impacted the Company’s results of operations and cash flows and may continue to do so in the future. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company's consolidated financial statements have been prepared assuming that USEC will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date of these financial statements.

USEC Inc.’s ability to continue as a going concern is contingent upon the Bankruptcy Court’s approval of the Plan and the Company’s ability to successfully implement the Plan, among other factors. As a result of the Bankruptcy Filing, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as a debtor-in-possession under Chapter 11, USEC Inc. may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Facility), for amounts other than those reflected in the consolidated financial statements. Further, USEC's reorganization could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements. The consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Bankruptcy Filing, including confirmation of a plan of reorganization or emergence from bankruptcy.

Although the Company ended 2013 with a consolidated cash balance of $314.2 million, the Company’s prospects for adequate liquidity in 2014 are uncertain. The Company’s liquidity is dependent on a number of factors, including (i) the Company’s operating needs, including the cost of the restructuring; (ii) the level of expenditures for the American Centrifuge project, including the availability of any additional government funding of the American Centrifuge project beyond the current RD&D Program, which is funded through April 15, 2014, and the potential demobilization or termination costs if funding for the project beyond April 15 is not available or if USEC Inc. determines there is no longer a viable path to commercialization of the American Centrifuge project; (iii) the amount and timing of transition expenses for the Paducah GDP and the Company’s ability to reach an acceptable agreement with DOE for the transition; and (iv) USEC Inc.’s ability to obtain confirmation and effectiveness of the Plan to restructure its $530.0 million of convertible senior notes that mature on October 1, 2014, all of which impact the Company’s liquidity.

Consistent with prior years, the Company’s payments to Russia for SWU in the first quarter of 2014 are expected to exceed USEC's cash receipts from customers in that quarter, putting pressure on its liquidity in mid-2014 until deliveries to customers under its backlog occur later in the year. The Company’s $110.0 million credit facility matured on September 30, 2013 and was not renewed or replaced. USEC’s working capital requirements are substantially reduced as a result of the conclusion of the Russian Contract under the 20-year Megatons-to-Megawatts program that ended in 2013 and the cessation of enrichment at the Paducah GDP as of May 31, 2013. Purchase quantities under the new 10-year Russian Supply Agreement will be about half the level under the Russian Contract unless the parties exercise a mutual option to increase such purchases. The Company is working with customers to modify delivery schedules to provide sufficient liquidity and working capital for the Company’s operating needs. However, the timing of customer deliveries could create risks to the Company’s liquidity. The Company’s ability to manage unanticipated expenses or delays in customer orders or payments is reduced without a credit facility, which could adversely affect the Company’s liquidity.

The economics of the American Centrifuge project are severely challenged by the current supply/demand imbalance in the market for LEU and related downward pressure on market prices for SWU, which are now at their lowest levels in more than a decade. At current market prices, the Company does not believe that its plans for American Centrifuge commercialization are economically viable without additional government support. In addition, the Company does not currently have any financing in place for the project following the current funding of the RD&D Program. Funding for the RD&D Program has only been provided through April 15, 2014, and DOE has stated that it does not plan to extend the RD&D cooperative agreement beyond such date. We continue to discuss with DOE its options for maintaining a domestic enrichment capability and DOE’s plans for the American Centrifuge project post-April 15, as well as USEC’s potential role in such options and during any transition. However, the scope of and USEC's role in a program after April 15 are uncertain, and USEC has no assurance that the U.S. government will continue to support the project beyond April 15, 2014. The Company’s ability to provide funding in 2014 will be limited. Therefore, the Company continues to evaluate its options concerning the American Centrifuge project, including further demobilization of or delays in the commercial deployment of the project, and termination of the project, and could make a decision to demobilize or terminate the project in the near term. Any such actions may have a material adverse impact on USEC's ability to deploy the American Centrifuge technology, on its liquidity, on the long-term viability of its LEU business, and could delay or impact USEC's ability to obtain confirmation of its financial restructuring plan discussed above and its emergence from bankruptcy. See Note 20, "American Centrifuge" for additional information.

In addition, on May 8, 2012, USEC received a notice from the New York Stock Exchange ("NYSE") that the average closing price of its common stock was below the NYSE's continued listing criteria relating to minimum share price. On July 1, 2013, USEC effectuated a reverse stock split of 1-for-25 shares in order to regain compliance with the NYSE continued listing criteria related to minimum share price. This action resulted in USEC's closing share price exceeding $1.00 per share and remaining above that level, and the condition has now been cured. However, on April 30, 2013, USEC received notice from the NYSE that the decline in USEC's total market capitalization had caused it to be out of compliance with another of the NYSE's continued listing standards. In accordance with the NYSE's rules, USEC submitted a plan advising the NYSE of definitive action it has taken, or is taking, that would bring it into conformity with the market capitalization listing standards within 18 months of receipt of the letter. On August 1, 2013, the NYSE accepted USEC's plan of compliance and USEC's common stock will continue to be listed on the NYSE during the 18-month cure period, subject to the compliance with other NYSE continued listing standards and continued periodic review by the NYSE of USEC's progress with respect to its plan. USEC's plan outlines initiatives USEC must execute by quarter. These initiatives include the successful completion of development milestones for the American Centrifuge Plant, the commercialization activities related to the American Centrifuge project, as well as the successful execution of the Company's Russian Supply Agreement and the Company's potential balance sheet restructuring. The NYSE has notified USEC that if USEC does not achieve these financial and operational goals, the Company will be subject to NYSE trading suspension at the point the initiative or goal is not met.

In addition, the NYSE can at any time suspend trading in a security and delist the stock if it deems it necessary for the protection of investors. The NYSE can take accelerated listing action if USEC's common stock trades at levels viewed to be “abnormally low” over a sustained period of time. USEC would also be subject to immediate suspension and de-listing from the NYSE if its average market capitalization is less than $15 million over a consecutive 30 trading-day period. During July 2013, USEC's market capitalization fell below $15 million for several days. Even if USEC meets the numerical listing standards above, the NYSE reserves the right to assess the suitability of the continued listing of a company on a case-by-case basis whenever it deems it appropriate and will consider factors such as unsatisfactory financial conditions and/or operating results or inability to meet debt obligations or adequately finance operations.

Under the terms of the Convertible Notes, a "fundamental change" is triggered if USEC's shares of common stock are not listed for trading on any of the NYSE, the American Stock Exchange (now NYSE-MKT), the NASDAQ Global Market or the NASDAQ Global Select Market, and the holders of the notes can require USEC to repurchase the notes at par for cash. However, as a result of the Chapter 11 filing, any actions to enforce such repurchase right or to otherwise exercise rights under the notes are stayed. See Note 20, "NYSE Listing Standards Notices" for additional information.

USEC is in discussions with the Pension Benefit Guaranty Corporation ("PBGC") regarding the impact of its de-lease of the Portsmouth GDP and related transition of employees on its defined benefit plan funding obligations as well as the impact of ceasing enrichment at the Paducah GDP and related transition of employees including reductions in force. For additional information, refer to Note 20, "Potential ERISA Section 4062(e) Liability."

The above noted actions, as well as actions that may be taken by vendors, customers, creditors and other third parties in response to these actions or based on their view of USEC Inc.'s or Enrichment's financial strength and future business prospects, could give rise to events that individually, or in the aggregate, impose significant demands on liquidity and have a material adverse impact on our operations.