| USEC INC Item 1A Risk Factors You should carefully consider the following risk factors, in addition to the other information in this Annual Report on Form 10-K, before deciding to purchase our securities |
| A significant increase in the cost of the electric power supplied to our Paducah plant could significantly increase our production costs to a level above the prices we charge our customers |
| The gaseous diffusion process requires significant amounts of electric power to enrich uranium, making the cost of electric power about 60prca of the production costs at the Paducah plant in 2005 |
| In 2005, we purchased 87prca of the electric power for the Paducah plant at fixed, below market, prices from the Tennessee Valley Authority under a multiyear power contract signed in 2000 |
| We purchased almost the entire remaining portion of the electric power for the Paducah plant at higher- cost fixed-price contracts |
| Capacity and prices under the Tennessee Valley Authority contract are only fixed through May 2006 and we have not yet contracted for power for periods beyond that time |
| While we expect to reach an agreement with TVA for power beyond May 2006 in the near future we may be unable to reach an acceptable agreement |
| We currently anticipate an increase in power cost of approximately 50 percent compared to the 2000 TVA power contract, subject to the amount of power purchased during summer months and future adjustments relative to TVA’s fuel and purchased power costs |
| However, our actual power costs could be greater than we anticipate |
| In addition, we expect that the duration of a new power supply arrangement will be shorter than the original 2000 TVA contract, which will leave us at risk for additional power price increases in the future |
| Our SWU sales contracts do not include provisions that permit us to pass through increases in power prices to customers |
| Accordingly, as power prices rise, and mitigating steps are unavailable or insufficient, production at the Paducah plant will become increasingly uneconomic at existing contract prices, which will adversely affect the long-term viability of our business and operations |
| Deliveries of LEU under the Russian Contract account for approximately 50prca of our supply mix and a significant delay or stoppage of deliveries could affect our ability to meet customer orders and could pose a significant risk to our continued operations and profitability |
| A significant delay in, or stoppage or termination, of, deliveries of LEU from Russia under the Russian Contract or a failure of the LEU to meet the Russian Contract’s quality specifications could adversely affect our ability to make deliveries to our customers |
| A delay, stoppage or termination could occur due to a number of factors, including, but not limited to, logistical or technical problems with shipments, commercial or political disputes between the parties or their governments, or our failure or inability to meet the terms of the Russian Contract |
| Further, because our annual LEU production capacity is less than our total delivery commitments to customers, an interruption of deliveries under the Russian Contract could, depending on the length of such an interruption, threaten our ability to fulfill these delivery commitments |
| Depending upon the reasons for the interruption and subject to limitations of liability under our sales contracts, we could be required to compensate customers for a failure or delay in delivery |
| A significant increase in the cost to us of the Russian LEU due to the impact under the Russian Contract’s market-based pricing formula of the upward trend in market prices could significantly increase our costs of sales and inventories, which, if not offset by increases in our sales prices, would adversely affect our cash flows and results of operations |
| The appointment of a substitute or additional executive agent pursuant to the US government’s compliance with the terms of the Executive Agent MOA would require that all or part of the fixed quantity of LEU available each year under the Russian Contract be provided to the substitute or additional executive agent |
| This would not only reduce our access to LEU under the Russian Contract, but would also create a significant new competitor, which could impair our ability to meet our existing delivery commitments while reducing our ability to bid for new sales |
| Reduced access to LEU under the Russian Contract would also increase our costs and reduce our profitability |
| 20 _________________________________________________________________ Changes in, or termination of, the Russian Suspension Agreement (“Russian SA”) could lead to significantly increased competition from Russian LEU or, if replaced with tariffs, could increase our costs under the Russian Contract |
| The Russian SA is a 1992 agreement between the United States and Russia that precludes Russian LEU from being sold for consumption in the United States except under the Russian Contract |
| The agreement could be terminated (1) unilaterally by the Russian government upon 60 days notice or (2) as a result of periodic administrative procedures under US international trade regulations (such a proceeding is currently pending) |
| The agreement can also be modified by negotiation between the US and Russian governments |
| Unless accompanied by equivalent limitations on imports, termination or modification of the Russian SA could result in a significant increase in sales of Russian-produced LEU that would depress prices and undermine our ability to sell the large quantity of LEU that we are committed to purchase under the Russian Contract, which could adversely affect our revenues and increase our costs |
| Alternatively, if the Russian SA were replaced with duties on imports, these duties would significantly increase our costs of importing the Russian LEU We depend on a single production facility in Paducah, Kentucky for the remainder of our supply and significant or extended unscheduled interruptions in production could affect our ability to meet customer orders and pose a significant risk to, or could significantly limit, our continued operations and profitability |
| Our annual imports of Russian LEU account for only approximately one-half of the total amount of LEU that we need to meet our delivery obligations to customers |
| In addition, some customers do not permit us to deliver Russian LEU to them under their contracts with us |
| Accordingly, our production at the Paducah plant is needed to meet our annual delivery commitments |
| An interruption of production at the Paducah plant would result in a drawdown of our inventories of LEU, and, depending on the length and severity of the production interruption, we could be unable to meet our annual delivery commitments, with adverse effects on our costs, results of operations, cash flows and long-term viability |
| Depending upon the reasons for the interruption and subject to limitations on our liability under our sales contracts, we also could be required to compensate customers for our failure to deliver on time |
| Production interruptions at the Paducah plant could be caused by a variety of factors, such as: • equipment breakdowns, • interruptions of electric power, or an inability to purchase electric power at an acceptable price, • regulatory enforcement actions, • labor disruptions, • unavailability or inadequate supply of uranium feedstock or coolant, • natural or other disasters, including seismic activity in the vicinity of the Paducah plant, which is located near the New Madrid fault line, or • accidents or other incidents |
| 21 _________________________________________________________________ The Paducah plant is owned by the US government |
| Our rights to the plant are defined under a lease agreement with DOE and the law that the lease agreement implements |
| Under the DOE-USEC Agreement, we could lose our right to extend the lease of the Paducah plant and could be required to waive our exclusive right to lease the facility if we fail on more than one occasion within specified periods to meet certain production thresholds and fail to cure the deficiency |
| In addition, DOE could assume responsibility for operation of the Paducah plant if we cease production at the Paducah plant and fail to recommence production within time periods specified in the DOE-USEC Agreement |
| Without a lease to the Paducah plant and absent access to other sources of LEU, we would be unable to meet our annual delivery commitments to customers once our available inventories were exhausted |
| We face a number of risks associated with the demonstration and deployment of the American Centrifuge technology |
| Centrifuge technology is a more advanced and lower operating cost technology than the gaseous diffusion process we currently use |
| Several of our competitors use centrifuge technology to produce LEU At current SWU prices and given expected future electric power prices, we must develop or otherwise acquire a lower operating cost technology in order to remain competitive |
| Delays or uncertainty relating to the demonstration and deployment of our American Centrifuge technology could have a material adverse effect on our business |
| The successful construction and operation of the American Centrifuge Plant is dependent upon a number of factors including, satisfactory performance of the American Centrifuge technology at various stages of demonstration, NRC licensing, financing, the cost and timely delivery of raw materials and components, availability of personnel with required security clearances, overall cost estimates, installation and operation of centrifuge machines and equipment, and the achievement of milestones under the DOE-USEC Agreement |
| We have experienced delays in the past year in demonstrating the American Centrifuge technology relating to quality of material, performance issues of certain centrifuge components, and compliance with new regulatory requirements and we could experience additional delays in the future |
| Our next milestone under the DOE-USEC Agreement is to obtain satisfactory reliability and performance data from the lead cascade by October 2006 and a failure or delay in meeting this milestone and in confirming an acceptable deployment schedule could adversely affect our ability to deploy the American Centrifuge and have a material adverse effect on our business |
| Under the DOE-USEC Agreement, if, for reasons within our control, we fail to meet a milestone and the resulting delay will materially impact our ability to begin commercial operations on schedule, DOE could take a number of actions that could adversely affect our business, financial condition and results of operations |
| These include terminating the DOE-USEC Agreement, reducing or terminating our access to Russian LEU or the Paducah plant, revoking our access to DOE’s US centrifuge technology that we require for the success of the American Centrifuge project, or supporting competing projects for production of LEU Our cost estimates for the American Centrifuge Plant are based on many assumptions that are subject to change as new information becomes available |
| Accordingly, there can be no assurance that costs associated with the American Centrifuge Plant will not be higher than anticipated |
| An increase in the expected cost of the American Centrifuge Plant could adversely affect our ability to finance and deploy the American Centrifuge |
| In addition, certain actions by DOE are required for the deployment of American Centrifuge technology to proceed, including USEC and DOE entering into a long-term lease agreement for the facilities, removal of machines, wastes and other materials from the buildings by DOE, and USEC and DOE agreeing on terms for our license of the centrifuge intellectual property |
| If DOE fails to take appropriate and timely action, it could delay or disrupt our ability to meet certain milestones in the DOE-USEC Agreement, which could delay or prevent successful demonstration or deployment of the American Centrifuge technology or affect our ability to obtain necessary financing |
| 22 _________________________________________________________________ Delays in the demonstration or deployment of the American Centrifuge technology could harm our position in the market and substantially reduce our revenues, which would adversely affect our results of operations |
| We could experience difficulties in attracting and retaining customers and could incur additional costs |
| We have contractual commitments to continue to operate the Paducah plant until it is replaced with the American Centrifuge Plant |
| Accordingly, delays in construction of the American Centrifuge Plant will require us to continue to produce LEU using the higher cost gaseous diffusion process, which could adversely affect our cash flows and results of operations |
| There can be no assurance that we will be able to obtain financing for deployment of the American Centrifuge Plant and other operations on acceptable terms |
| We will require significant financing in order to achieve commercial deployment of the American Centrifuge Plant |
| In addition, unless we complete a debt or equity offering of at least dlra150 million prior to July 19, 2006, the availability under our dlra400 million revolving credit facility will, until we complete such an offering, be reduced by up to dlra150 million |
| There can be no assurance that financing beyond amounts available under the existing credit facility will be available when required, and we cannot predict the cost of or the terms on which such financing will be available |
| Factors that could affect our ability to obtain financing and the cost of the financing could include: • our ability to secure long-term SWU purchase commitments from customers at adequate prices, • downgrades in our credit rating, • market price and volatility of our common stock, • general economic and capital market conditions, • conditions in energy markets, • regulatory developments, • investor confidence in the industry and in us, • our perceived competitive position, • the expected success of our deployment of the American Centrifuge and its expected costs and timing, • the continued success of our current operations, and • restrictive covenants that limit our operating and financial flexibility |
| The rights of our creditors under the documents governing our indebtedness may limit our operating and financial flexibility |
| We have entered into a five-year, revolving credit facility providing for an aggregate commitment of dlra400 million, including up to dlra300 million in letters of credit, secured by our assets and the assets of our subsidiaries |
| The revolving credit facility includes various operating and financial covenants that restrict our ability, and the ability of our subsidiaries to, among other things, incur or prepay other indebtedness, grant liens, sell assets, make investments and declare or pay dividends or other distributions |
| Complying with these covenants may make it more difficult for us to successfully execute our business strategy |
| For example, these covenants could limit the amount of cash we can use to finance the American Centrifuge Plant |
| The revolving credit agreement also requires that we maintain a minimum amount of inventory |
| The revolving credit facility also contains various reserve provisions that may reduce the facility’s availability periodically |
| 23 _________________________________________________________________ Our failure to comply with obligations under the revolving credit facility could result in an event of default under the credit facility |
| A default, if not cured or waived, could permit acceleration of our indebtedness |
| If our indebtedness is accelerated, we cannot be certain that we will have funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all |
| A decrease in prices for SWU and uranium could adversely affect our profitability in current and future periods |
| Changes in the prices of SWU and uranium are influenced by numerous factors, such as: • SWU and uranium production levels and costs in the industry, • supply and demand shifts, • actions taken by governments to regulate, protect or promote trade in nuclear material, including but not limited to the continuation of existing restrictions on unfairly priced imports, • actions of competitors, • exchange rates, • availability of alternate fuels, and • inflation |
| The long-term nature of our contracts with customers may prolong the adverse impact of low market prices on our profitability |
| For example, even as prices increase and we secure new higher-priced contracts, we are contractually obligated to deliver SWU at lower prices under contracts signed prior to the increase |
| Our inability to increase prices under long-term contracts could adversely affect our results of operations in current and future years |
| We sell nearly all of our SWU under long-term contracts |
| Further, while the multi-year index used to determine the price of Russian SWU under the Russian Contract increases as market prices increase, the prices under our long-term sales contracts with customers do not |
| This, over time, could adversely affect our ability to cover our costs of sales with revenues earned under customer contracts, thereby adversely affecting our results of operations |
| We face significant competition from three major producers who may be less cost sensitive or may be favored due to national loyalties |
| We compete with three major producers, all of which are wholly or substantially owned by governments: Eurodif (France), TENEX (Russia), and Urenco (Germany, Netherlands, UK) |
| We also compete with Louisiana Energy Services, a group controlled by Urenco, which plans to construct a uranium enrichment plant in New Mexico |
| Our competitors may have greater financial resources, including access to below-market financing terms and support from their government owners, which may enable them to be less cost- or profit-sensitive |
| In addition, decisions by our competitors may be influenced by political and economic policy considerations rather than commercial considerations |
| For example, despite the relatively flat demand for LEU in the markets in which we sell, our competitors may elect to increase their production or exports of LEU thereby depressing prices and reducing demand for our LEU, which could adversely affect our revenues, cash flows and results of operations |
| Similarly, the elimination or weakening of existing restrictions on imports from our competitors could adversely affect our revenue, cash flows and results of operations |
| 24 _________________________________________________________________ The release of excess government stockpiles of enriched uranium into the market could depress market prices and reduce demand for LEU from USEC The US and foreign governments have stockpiles of LEU that they could sell in the market |
| In addition, LEU may be produced by downblending stockpiles of highly enriched uranium owned by the US and foreign governments |
| Given the relatively flat demand for LEU in the markets in which we sell, the release of these stockpiles into the market can depress prices and reduce demand for LEU from USEC, which could adversely affect our revenues, cash flows and results of operations |
| Our dependence on our largest customers could adversely affect us |
| Our 10 largest customers (other than the US government) represented 52prca of our revenue in 2005, and our three largest customers represented 21prca of our revenue in 2005 |
| A reduction in purchases from these customers, whether due to their decision to increase purchases from our competitors or for other reasons, including a disruption in their operations that reduces their need for LEU from USEC, could adversely affect our business and results of operations |
| Further, because these customers purchase under long-term contracts, as these contracts come up for renewal, a decision by one or more of these customers to purchase less SWU from USEC and more SWU from one or more of our competitors could negatively affect our business and results of operations for several years |
| Because price is the most significant factor in a customer’s choice of an enricher, customers may reduce their purchases from us if we attempt to increase our prices in order to offset increases in our costs |
| Moreover, once lost, customers are difficult to regain because customers typically purchase under long-term contracts |
| Therefore, given the need to maintain existing customer relationships, particularly with our largest customers, our ability to raise prices in order to respond to increases in costs or other developments is limited |
| Our ability to compete in certain foreign markets may be limited for political, legal and economic reasons |
| Agreements for cooperation between the US government and various foreign governments control the export of nuclear materials from the United States |
| If any of the agreements with countries in which our customers are located were to lapse, terminate or be amended, it is possible we would not be able to make sales or deliver LEU to customers in those countries |
| This could adversely affect our results of operations |
| Purchases of SWU by customers in the European Union (EU) is subject to a policy of the Euratom Supply Agency that seeks to limit foreign enriched uranium to no more than 20prca of EU consumption per year |
| Further, we are precluded from selling in the Russian Federation by the absence of an agreement for cooperation that permits exports to Russia |
| Recent court decisions may reduce our ability to protect ourselves from unfairly priced imports, which could adversely affect our results of operations |
| Recent decisions of the US Court of International Trade and the US Court of Appeals for the Federal Circuit could preclude the US Commerce Department from imposing antidumping and countervailing duties to offset unfairly priced LEU imported from foreign countries |
| Under these rulings, we would be unable to use certain US trade laws to protect us from unfairly priced LEU in the future, thereby increasing the possibility that our competitors will seek to increase market share by reducing prices to unfair levels |
| An increase in our competitors’ market share and the accompanying reduction in market prices could adversely affect our results of operations |
| 25 _________________________________________________________________ Our future prospects are tied directly to the nuclear energy industry worldwide |
| Potential events that could affect either nuclear reactors under contract with us or the nuclear industry as a whole, include: • accidents, terrorism or other incidents, at nuclear facilities or involving shipments of nuclear materials, • regulatory actions or changes in regulations by nuclear regulatory bodies, • disruptions in other areas of the nuclear fuel cycle, such as uranium supplies or conversion, • civic opposition to, or changes in government policies regarding, nuclear operations, • business decisions concerning reactors or reactor operations, • the need for generating capacity, or • consolidation within the electric power industry |
| These events could adversely affect us to the extent they result in a reduction or elimination of contractual requirements, the suspension or reduction of nuclear reactor operations, the reduction of supplies of raw materials, lower demand, burdensome regulation, disruptions of shipments or production, increased operational costs or difficulties or increased liability for actual or threatened property damage or personal injury |
| Changes to, or termination of, any of our agreements with the US government, or deterioration in our relationship with the US government, could adversely affect our results of operations |
| USEC, or our subsidiaries, are a party to a number of agreements and arrangements with the US government that are important to our business, including: • leases for the gaseous diffusion plants and American Centrifuge Demonstration facilities, • the Executive Agent MOA under which we are designated the US Executive Agent and purchase the SWU component of LEU under the Russian Contract, • the DOE-USEC Agreement and other agreements that address issues relating to the domestic uranium enrichment industry and centrifuge technology, • electric power purchase agreements with the Tennessee Valley Authority and DOE, • agreements under which DOE takes certain quantities of depleted uranium we generate, • contract work for DOE and DOE contractors at the Portsmouth and Paducah plants, including contracts for maintenance of the Portsmouth plant in “cold standby” or “cold shutdown” states, • an agreement with DOE for the transfer and downblending of highly enriched uranium, and • an agreement with DOE transferring uranium to us as a payment-in-kind for contract work to process and clean up out-of-specification uranium for DOE Termination or expiration of one or more these agreements, without replacement with an equivalent agreement or arrangement that accomplishes the same objectives as the terminated or expired agreement(s) could reduce our profitability and results of operations |
| In addition, deterioration in our relationship with the US agencies that are parties to these agreements could impair or impede our ability to successfully implement these agreements, which could adversely affect our results of operations |
| 26 _________________________________________________________________ Our existing US government contracts are subject to continued appropriations by Congress and may be terminated if future funding is not made available |
| Approximately 13prca of our revenues are from US government contracts |
| All contract work for DOE, including cold standby, cleanup of out-of-specification uranium and certain NAC consulting and transportation activities, is subject to the availability of DOE funding and congressional appropriations |
| If funds were not available, we could be required to terminate these operations and incur related termination costs |
| Revenue from US government contract work is based on cost accounting standards and allowable costs that are subject to audit by the Defense Contract Audit Agency |
| Allowable costs include direct costs as well as allocations of indirect plant and corporate overhead costs |
| Audit adjustments could reduce the amounts we are allowed to bill for DOE contract work or require us to refund to DOE a portion of amounts already billed |
| Our operations are highly regulated by the NRC and DOE Our operations, including the Paducah and Portsmouth plants, the American Centrifuge Demonstration Facility, and NAC, are regulated by the NRC In addition, the construction and operation of the American Centrifuge Plant must be licensed by the NRC, which would regulate our activities at the plant |
| The gaseous diffusion plants are required to be recertified every five years and the term of the current certification expires on December 31, 2008 |
| The NRC could fail to renew either or both of the certificates if it determines that we are foreign owned or controlled or the issuance of a certificate would be adverse to United States defense or security objectives |
| If the certificate for the Paducah plant were not renewed, we could no longer produce LEU at the Paducah plant, which would threaten our ability to make deliveries to customers |
| The NRC has the authority to issue notices of violation for violations of the Atomic Energy Act of 1954, NRC regulations and conditions of licenses, certificates of compliance, or orders |
| The NRC has the authority to impose civil penalties for some violations of its regulations |
| Penalties under NRC regulations could include substantial fines, imposition of additional requirements or withdrawal or suspension of licenses or certificates |
| If significant penalties were imposed on us, they could adversely affect our results of operations |
| The American Centrifuge Demonstration Facility is licensed to operate until the earlier of February 24, 2009 or the date the temporary lease, or long-term agreement that is expected to supersede the temporary lease, with DOE expires |
| Early termination of the license could affect our ability to finance, construct and operate the American Centrifuge Plant |
| Similarly, failure to obtain a license for the construction and operation of the American Centrifuge Plant in a timely manner could have a significant adverse impact on our ability to finance and deploy the American Centrifuge technology or to meet the requirements of the DOE-USEC Agreement |
| Our American Centrifuge facilities in Oak Ridge are subject to regulation by DOE DOE has the authority to impose civil penalties and additional requirements which could adversely affect our results of operations |
| 27 _________________________________________________________________ Our operations are subject to numerous federal, state and local environmental protection laws and regulations |
| We incur substantial costs for compliance with environmental laws and regulations, including the handling, treatment and disposal of hazardous, low-level radioactive and mixed wastes generated as a result of our operations |
| Unanticipated events or regulatory developments, however, could cause the amount and timing of future environmental expenditures to vary substantially from those expected |
| Under a cleanup agreement with the EPA, we removed certain material from the Starmet site in South Carolina that was attributable to quantities of depleted uranium we had sent there under a 1998 contract |
| We could incur additional costs associated with our share of costs for cleanup of the Starmet site, resulting from a variety of factors, including a decision by federal or state agencies to recover costs for prior cleanup work or require additional remediation at the site |
| Pursuant to numerous federal, state and local environmental laws and regulations, we are required to hold multiple permits |
| Some permits require periodic renewal or review of their conditions, and we cannot predict whether we will be able to renew such permits or whether material changes in permit conditions will be imposed |
| Changes in permits could increase costs of producing LEU and reduce our profitability while an inability to secure or renew permits could prevent us from producing LEU needed to meet our delivery obligations to customers |
| Our operations involve the use, transportation and disposal of toxic, hazardous and/or radioactive chemicals and could result in liability without regard to our fault or negligence |
| Our plant operations involve the use of toxic, hazardous, and radioactive chemicals |
| A chemical release would primarily pose a health risk to humans or animals in proximity to the release |
| If an accident were to occur, its severity could be significantly affected by the volume of the release and the speed of corrective action taken by plant emergency response personnel, as well as other factors beyond our control, such as weather and wind conditions |
| Actions taken in response to an actual or suspected release of chemicals could result in significant costs |
| NAC’s business involves providing products and services for the storage and transportation of toxic, hazardous and radioactive materials, which, if released or mishandled, could cause personal injury and property damage (including environmental contamination) |
| The Price-Anderson Act requires DOE to indemnify USEC against claims for public liability arising out of or in connection with activities under the lease resulting from a nuclear incident or precautionary evacuation |
| If an incident or evacuation is not covered under Price-Anderson, we could be held liable for damages regardless of fault, which could have an adverse effect on our results of operations and financial condition |
| In connection with international transportation of LEU, it is possible for a claim to be asserted which may not fall within the indemnification under Price-Anderson |
| In our contracts, USEC and NAC seek to protect ourselves from liability, but there is no assurance that such contractual limitations on liability will be effective in all cases or that our insurance will cover all the liabilities we have assumed under those contracts |
| The costs of defending against a claim arising out of a nuclear incident or precautionary evacuation, and any damages awarded as a result of such a claim, could adversely affect our results of operations and financial condition |
| 28 _________________________________________________________________ The dollar amount of our sales backlog, as stated at any given time, is not necessarily indicative of our future earnings |
| As of December 31, 2005 our sales backlog based on existing contracts was approximately dlra5dtta9 billion through 2015 (dlra5dtta1 billion through 2010 including dlra1dtta5 billion expected to be delivered in 2006) |
| Our backlog of sales is estimated from customer predictions of future purchases |
| There can be no assurance that the customers will complete these purchases in the currently anticipated time frame or at all |
| Reductions in backlog due to operational difficulties or changes in requirements of a customer or for other reasons could adversely affect the revenues we actually receive from contracts included in the backlog |
| Increases in our costs of production or other factors could cause some of the sales included in our backlog to be at prices that are below our cost of sales, which could adversely affect our results of operations in future years |
| We use estimates in accounting for the future disposition of depleted uranium and changes in these estimates or in actual costs could affect our future financial results and liquidity |
| We store depleted uranium at the Paducah and Portsmouth plants and accrue estimated costs for the future disposition of the depleted uranium |
| The long-term liability for depleted uranium is dependent upon the volume of depleted uranium generated and estimated processing, transportation and disposal costs, which involves many assumptions |
| Our estimated cost and accrued liability are subject to changes as new information becomes available, and an increase in the estimate would increase our production costs and have an adverse effect on our results of operations |
| We anticipate that we will send most or all of our depleted uranium to DOE for disposition unless a more economic disposal option is available |
| DOE is constructing facilities at the Paducah and Portsmouth plants to process large quantities of depleted uranium owned by DOE and, under federal law, DOE would also process our depleted uranium if we provided it to DOE We would be required to reimburse DOE for costs of disposal, including a pro rata share of capital costs |
| Our current estimated cost for depleted uranium disposal is based primarily on projected cost data obtained from DOE without consideration given to unidentified contingencies or reserves |
| This estimate is less than a DOE estimate used in our NRC license application for the American Centrifuge Plant that included unidentified contingencies or reserves |
| Our estimate was increased in 2005 and could be increased again as additional information becomes available |
| We are also required to issue letters of credit or other financial assurances to secure a portion of our accrued liability for depleted uranium disposal |
| Therefore, an increase in our estimate will require us to provide additional financial assurance and could adversely affect our liquidity |
| The amount of future depleted uranium disposal costs could also vary substantially from amounts accrued and an increase in our actual cost of disposal could have a material adverse impact on our results of operations in future years |
| For additional information, see Critical Accounting Estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and note 10 to our consolidated financial statements |
| Deferral of revenue recognition could result in volatility in our quarterly and annual results |
| Consequently, in sales transactions where we have received payment and title has transferred to the customer but delivery has not occurred because the terms of the agreement require us to hold the uranium to which the customer has title or because a customer encounters brief delays in taking delivery of LEU at our facilities, recognition of revenue is deferred until the uranium or 29 _________________________________________________________________ LEU is physically delivered |
| This deferral can potentially be over an indefinite period and is outside our control and can result in volatility in our quarterly and annual results |
| If a significant amount of revenue is deferred or a significant amount of previously deferred revenue is recognized, in a given period, earnings in that period will be affected, which could result in volatility in our quarterly and annual results |
| As of December 31, 2005 deferred revenue was dlra106dtta8 million |
| For additional information on our accounting policy on revenue recognition, see note 8 to our consolidated financial statements |
| Our operating results may fluctuate significantly from quarter to quarter, and even year to year, which could have an adverse effect on our cash flows |
| Customer payments for the SWU component of LEU typically average dlra12dtta0 million per order |
| As a result, a relatively small change in the timing of customer orders may cause operating results to be substantially above or below expectations, which could have an adverse effect on our cash flows |
| The levels of returns on pension and post-retirement plan assets, changes in interest rates and other factors affecting the amounts we have to contribute to fund future pension liabilities could adversely affect our earnings in future periods |
| Our earnings may be positively or negatively impacted by the amount of expense we record for our employee benefit plans |
| These valuations are based on assumptions that we make relating to financial market and other economic conditions |
| Changes in key economic indicators can result in changes in the assumptions we use |
| The key year-end assumptions used to estimate pension expense for the following year are the discount rate, the expected rate of return on plan assets, healthcare cost trend rates and the rate of increase in future compensation levels |
| For additional information and a discussion regarding how our financial statements can be affected by pension plan accounting policies, see Critical Accounting Estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and note 12 to our consolidated financial statements |
| Anti-takeover provisions in Delaware law and in our charter, bylaws and shareholder rights plan could delay or prevent an acquisition of USEC We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of our company, even if a change of control would be beneficial to our existing shareholders |
| Our certificate of incorporation, or charter, establishes restrictions on foreign ownership of our securities |
| Other provisions of our charter and bylaws may make it more difficult for a third party to acquire control of us without the consent of our board of directors |
| We also have adopted a shareholder rights plan, which could increase the cost of, or prevent, a takeover attempt |
| These various restrictions could deprive shareholders of the opportunity to realize takeover premiums for their shares |