USEC Reports Second Quarter 2008 Results

-- Net income of $10.8 million for 2nd quarter; $15.2 million for
six-month period

-- Quarterly revenue totals $249 million; $592 million for
six-month period

-- Net income and cash flow guidance for 2008 updated and
reiterated
BETHESDA, Md.--(Business Wire)--
USEC Inc. (NYSE:USU) today reported net income of $10.8 million or
10 cents per share (8 cents per fully diluted share) for its second
quarter ended June 30, 2008, compared to a net loss of $13.4 million
or loss of 15 cents per share in the same quarter of 2007.

For the first six months of 2008, USEC earned $15.2 million or 14
cents per share (12 cents per fully diluted share) compared to net
income of $25.9 million or 30 cents per share in the same period of
2007. The results in 2007 benefited approximately $20.7 million from
the non-cash reversal of previously recorded accruals for taxes and
interest associated with the accounting standard known as FIN 48.

USEC also updated and reiterated its annual guidance for 2008 of
net income in a range of $25 to $45 million and cash flow used in
operations of $60 to $80 million.

The financial results in the second quarter are in line with
Company expectations and reflect the anticipated decline in separative
work unit (SWU) volume compared to 2007 resulting from the timing of
customer refueling cycles. The average SWU price billed to customers
was 7 percent higher than the corresponding quarter in 2007, but 2
percent lower over the six-month period due to the timing and mix of
customer orders. Offsetting declines in SWU sales were increases in
both volume and prices billed to customers for uranium sales. Expenses
related to the American Centrifuge project also declined compared to
the same quarter last year as plant construction costs are being
capitalized.

"While we are keenly focused on our American Centrifuge project,
we continue to deliver improved performance in our core business
operations, as these results attest," said John K. Welch, USEC
president and chief executive officer.

"Higher realized uranium prices and increased uranium sales volume
helped to offset the expected decline in SWU deliveries. The gross
profit margin of 25 percent in the second quarter reflects the revenue
recognition of previously deferred uranium sales. We also saw a solid
contribution from our government contracts segment," Welch said.

A majority of reactors served by USEC are refueled on an
18-to-24-month cycle, and our guidance for 2008 anticipates a 20
percent decline in SWU sales volume that reflects the high number of
reactors refueled in 2007. We expect SWU sales volume in 2009 to
return to levels seen in 2007 as these reactors are refueled again.
Therefore, short-term comparisons of USEC's financial results are not
necessarily indicative of longer-term results.

Revenue

Revenue for the quarter was $249 million, an increase of 18
percent compared to the same quarter of 2007. Revenue from the sale of
SWU in the second quarter was $125.7 million compared to $145.9
million in the same period last year. The decline was due to a 20
percent drop in SWU sales volume. Average SWU prices billed to
customers were 7 percent higher quarter-over-quarter. Revenue from the
sale of uranium was $58.1 million, an increase of $41.9 million over
the revenue reported in the same quarter last year. This reflects a 25
percent increase in uranium volume sold at average prices that were
188 percent higher than in the 2007 period. Revenue from our U.S.
government contracts segment improved to $65.2 million from $49
million in the second quarter last year, primarily due to incremental
revenue for fiscal 2002 Department of Energy (DOE) contract work based
on the resolution of concerns regarding billable incurred costs, and
the timing of sales by subsidiary NAC International.

In the six-month period, revenue was $592.3 million, a decline of
12 percent over the same period of 2007. The timing impact of reactor
refueling on SWU sales was even more pronounced in the six-month
period as SWU volume was down 32 percent compared to the corresponding
period of 2007. Average SWU prices billed to customers declined 2
percent compared to the same period last year. Compared to the first
six months of 2007, the volume of uranium sold increased by 39 percent
and the average price billed to customers increased 136 percent.
Revenue from U.S. government contracts and other was $116.2 million, a
25 percent improvement related to the factors listed above.

A factor in our financial results in the second quarter was the
recognition of previously deferred revenue, particularly for uranium
sales. At June 30, 2008, deferred revenue totaled $152.3 million, a
reduction of $57.5 million from March 31, 2008. The gross profit
associated with deferred revenue as of June 30 was $73.1 million. In a
number of sales transactions, USEC transfers title and collects cash
from customers but does not recognize the revenue until low enriched
uranium (LEU) is physically delivered.

Cost of Sales, Gross Profit Margin and Expenses

Cost of sales for the six-month period for SWU and uranium was
$396.2 million, a decrease of $99.8 million or 20 percent, due to the
decline in SWU sales volume. Cost of sales for SWU and uranium
reflects monthly moving average inventory costs based on production
and purchase costs. In the six-month period, the unit cost of sales
per SWU was 1 percent lower than the year before, reflecting changes
in the monthly moving average SWU inventory costs. Production costs
increased 19 percent in the six-month period primarily as a result of
a 25 percent increase in the amount of electric power purchased. Under
the June 2007 power purchase contract with the Tennessee Valley
Authority, we bought approximately 1.6 million more megawatt hours of
electric power during the current six-month period than in the same
period last year. The additional power is used to increase SWU
production and to underfeed the enrichment process. The quantity of
uranium that is added to uranium inventory from underfeeding is
accounted for as a byproduct of the enrichment process. Production
costs are allocated to the uranium added to inventory based on the net
realizable value of the uranium, and the remainder of the production
costs are allocated to SWU inventory costs. Production volume
increased by 22 percent, and overall unit production costs in the
six-month period declined by 2 percent. Purchase costs paid to Russia
increased by $51 million in the six-month period, reflecting increased
volume based on the timing of deliveries and an 11 percent increase in
the unit purchase cost. These purchase prices are set by a
market-based pricing formula and have increased as market prices have
increased in recent years. Cost of sales for U.S. government contracts
was $93.8 million in the six-month period, an increase of $14.6
million.

The gross profit for the second quarter was $63.5 million, an
improvement of $35.8 million or 129 percent over the same quarter last
year. The gross profit margin for the quarter was 25.5 percent
compared to 13.1 percent in the same period of 2007. The higher gross
profit margin reflects increased uranium sales volume and prices, and
higher average SWU prices billed to customers. For the six-month
period, the gross profit increased $1.4 million or 1 percent compared
to the same period in 2007. The gross profit margin for the six months
was 17.3 percent compared to 14.9 percent in the same period last
year.

Selling, general and administrative expenses were $16.3 million in
the second quarter, an increase of $4.8 million over the same quarter
last year. The SG&A expense in the six-month period was $28.3 million,
an increase of $4.3 million over the same period in 2007. The expense
in the 2007 quarter and six-month periods included a $3.4 million
credit resulting from the reversal of a previously accrued tax
penalty.

Advanced technology expenses, primarily related to the
demonstration of the American Centrifuge technology, were $28.2
million in the second quarter of 2008, a decrease of $7.4 million
compared to the same quarter in 2007. The lower spending reflects
reduced activities associated with assembling and testing of
centrifuge machines at our test facilities compared to the same period
in 2007 as more of our spending related to building the American
Centrifuge Plant was capitalized. Advanced technology expenses in the
six-month period were $52.1 million, a decrease of $17.2 million from
the same period last year. The Company issued an update on the
American Centrifuge project concurrent with this news release.

Cash Flow

At June 30, 2008, USEC had a cash balance of $503.8 million,
compared to $886.1 million at December 31, 2007. Cash flow used in
operations in the six-month period was $170 million, compared to cash
flow used in operations of $82.8 million in the same period last year.
During the first six months of 2008, the net inventory balance grew
$349.9 million, reflecting increased production in advance of
anticipated higher SWU sales in the second half of 2008. Capital
expenditures, primarily related to construction of the American
Centrifuge Plant, totaled $199.4 million during the six-month period
compared to $37.4 million in the same period of 2007.

2008 Outlook Update

USEC is updating and reiterating its guidance for 2008. We
continue to expect SWU sales to be reduced by approximately 20 percent
from 2007 levels. Because we had record high deliveries in 2007 and a
majority of our customers refuel their nuclear reactors on an 18-to-24
month cycle, we are delivering less SWU this year. Total revenue is
expected to be approximately $1.7 billion, with SWU accounting for
$1.3 billion. Our expectation for SWU volume declined slightly from
our initial guidance, but this reduction is expected to be offset by 2
percent higher prices billed to customers for the full year. We expect
uranium revenue to be approximately $190 million, but this is subject
to revenue recognition timing. Uranium volume is expected to be down
by about 10 percent, but the average uranium price billed to customers
is expected to rise by approximately 30 percent. U.S. government
contracts and other is expected to improve to $230 million, slightly
above our initial 2008 guidance.

Under our five-year contract to purchase electric power for the
Paducah plant, our costs can fluctuate above or below the base
contract price based on fuel and purchased power costs experienced by
our principal supplier, Tennessee Valley Authority. The impact of the
fuel cost adjustment continues to be negative for USEC, imposing an
increase over base contract prices of 9 percent in the first six
months of 2008. We expect the fuel cost adjustment to continue to
cause our purchase cost to remain above base contract prices, and the
future impact is expected to be greater based on recent trends in
energy costs. We expect higher power purchase costs to negatively
affect our production costs and cash flow for the remainder of 2008.
In addition, the price we pay Russia for LEU purchased under the
Megatons to Megawatts program is 11 percent higher compared to 2007.
These higher production and purchase costs will work into our
inventory cost over time and will continue to pressure gross margins
going forward. Although our year-to-date gross profit margin is 17
percent, we still anticipate a gross profit margin for the full year
to be between 13 and 14 percent.

Below the gross profit line, we continue to expect selling,
general and administrative expense for 2008 to be approximately $55
million and net interest to be slightly positive. Expenses related to
the American Centrifuge project for 2008 are expected to be
approximately $125 million, and total spending on the project is
expected to be between $600 and $650 million. We anticipate our income
tax rate will be close to the combined federal and state statutory
rate.

Based on these factors, our net income guidance for 2008 remains
in a range of $25 to $45 million. We also reiterate our cash flow
guidance with an expectation for cash flow used in operations to be in
a range of $60 to $80 million. There is a risk to the cash flow
guidance that electric power costs will exceed our expectation and
that anticipated improvements in the timing of customer
collections may not be sufficient to offset them. We continue to
expect improving customer collections in the fourth quarter related to
higher SWU sales volumes at the end of the year. We also expect cash
flow from operations to improve in 2009 as sales volumes return to
levels seen in 2007 and prices billed to customers improve. This
guidance is subject to a number of assumptions and uncertainties that
could affect results 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;

-- Any additional uranium sales made possible by underfeeding the
production process at the Paducah Gaseous Diffusion Plant; and

-- The amount of spending on the American Centrifuge Plant that
is classified as expense.

USEC Inc., a global energy company, is a leading supplier of
enriched uranium fuel for commercial nuclear power plants.

Forward Looking Statements

This news release 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 timely secure a loan guarantee or other financing; 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 existing long-term contracts to pass on
to customers increases in SWU prices under the Russian contract
resulting from significant increase 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 and government investigations
or audits; the competitive environment for our products and services;
changes in the nuclear energy industry; and other risks and
uncertainties discussed in our filings with the Securities and
Exchange Commission, including our Annual Report on Form 10-K/A and
subsequent quarterly Form 10-Qs. Revenue and operating results can
fluctuate significantly from quarter to quarter, and in some cases,
year to year. We do not undertake to update our forward-looking
statements except as required by law.

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USEC Inc.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS) (Unaudited)
(millions, except per share data)

Three Months Six Months
Ended Ended
June 30, June 30,
--------------- ---------------
2008 2007 2008 2007
------- ------- ------- -------
Revenue:
Separative work units $125.7 $145.9 $370.8 $550.9
Uranium 58.1 16.2 105.3 32.0
U.S. government contracts and other 65.2 49.0 116.2 93.2
------- ------- ------- -------
Total revenue 249.0 211.1 592.3 676.1
Cost of sales:
Separative work units and uranium 135.5 142.8 396.2 496.0
U.S. government contracts and other 50.0 40.6 93.8 79.2
------- ------- ------- -------
Total cost of sales 185.5 183.4 490.0 575.2
------- ------- ------- -------
Gross profit 63.5 27.7 102.3 100.9
Advanced technology costs 28.2 35.6 52.1 69.3
Selling, general and administrative 16.3 11.5 28.3 24.0
------- ------- ------- -------
Operating income (loss) 19.0 (19.4) 21.9 7.6
Interest expense 5.2 2.4 11.5 5.9
Interest (income) (6.0) (7.9) (16.8) (17.8)
------- ------- ------- -------
Income (loss) before income taxes 19.8 (13.9) 27.2 19.5
Provision (benefit) for income taxes 9.0 (0.5) 12.0 (6.4)
------- ------- ------- -------
Net income (loss) $ 10.8 $(13.4) $ 15.2 $ 25.9
======= ======= ======= =======
Net income (loss) per share - basic $ .10 $ (.15) $ .14 $ .30
Net income (loss) per share - diluted $ .08 $ (.15) $ .12 $ .30
Weighted-average number of shares
outstanding:
Basic 110.6 87.1 110.3 87.0
Diluted 158.7 87.1 158.5 87.4

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USEC Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(millions)

June 30, December 31,
2008 2007
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 503.8 $ 886.1
Accounts receivable - trade 112.5 252.9
Inventories 1,220.5 1,153.4
Deferred income taxes 69.1 49.5
Other current assets 135.4 88.7
------------ ------------
Total Current Assets 2,041.3 2,430.6
Property, Plant and Equipment, net 482.3 292.2
Other Long-Term Assets
Deferred income taxes 192.7 180.1
Deposits for surety bonds 98.1 97.0
Pension asset 71.6 67.1
Bond financing costs, net 12.9 13.8
Goodwill 6.8 6.8
Intangibles 0.1 0.2
------------ ------------
Total Other Long-Term Assets 382.2 365.0
------------ ------------
Total Assets $ 2,905.8 $ 3,087.8
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 137.4 $ -
Accounts payable and accrued liabilities 159.6 162.2
Payables under Russian Contract 158.6 112.2
Inventories owed to customers and suppliers 39.5 322.3
Deferred revenue and advances from
customers 152.5 119.1
------------ ------------
Total Current Liabilities 647.6 715.8
Long-Term Debt 575.0 725.0
Other Long-Term Liabilities
Depleted uranium disposition 109.5 98.3
Postretirement health and life benefit
obligations 134.4 130.6
Pension benefit liabilities 22.9 23.0
Other liabilities 91.0 85.6
------------ ------------
Total Other Long-Term Liabilities 357.8 337.5
Stockholders' Equity 1,325.4 1,309.5
------------ ------------
Total Liabilities and Stockholders' Equity $ 2,905.8 $ 3,087.8
============ ============

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USEC Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(millions)

Six Months Ended
June 30,
-----------------
2008 2007
-------- --------
Cash Flows from Operating Activities
Net income $ 15.2 $ 25.9
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 21.6 18.8
Deferred income taxes (29.7) (8.5)
Changes in operating assets and liabilities:
Accounts receivable - decrease 140.4 79.0
Inventories - (increase) (349.9) (190.9)
Payables under Russian Contract - increase 46.4 12.1
Deferred revenue, net of deferred costs - increase 12.5 11.9
Accrued depleted uranium disposition 11.2 11.1
Accounts payable and other liabilities - (decrease) (16.6) (37.1)
Other, net (21.1) (5.1)
-------- --------
Net Cash Provided by (Used in) Operating Activities (170.0) (82.8)
-------- --------

Cash Flows Used in Investing Activities
Capital expenditures (199.4) (37.4)
Deposits for surety bonds - (4.0)
-------- --------
Net Cash (Used in) Investing Activities (199.4) (41.4)
-------- --------

Cash Flows Provided by (Used in) Financing Activities
Borrowings under credit facility 47.0 5.9
Repayments under credit facility (47.0) (5.9)
Repurchase of senior notes (12.6) -
Tax benefit related to stock-based compensation - 0.9
Common stock issued (purchased), net (0.3) 0.2
-------- --------
Net Cash Provided by (Used in) Financing Activities (12.9) 1.1
-------- --------
Net Increase (Decrease) (382.3) (123.1)
Cash and Cash Equivalents at Beginning of Period 886.1 171.4
-------- --------
Cash and Cash Equivalents at End of Period $ 503.8 $ 48.3
======== ========
Supplemental Cash Flow Information:
Interest paid, net of capitalized interest $ 10.2 $ 3.4
Income taxes paid 47.9 35.4
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USEC Inc.
Investors: Steven Wingfield, 301-564-3354
Media: Elizabeth Stuckle, 301-564-3399

Copyright Business Wire 2008