Production costs declined $57.1 million or 7 percent in 2011 compared to 2010. This was primarily a result of a 10 percent reduction in overall production volume partially offset by a 4 percent increase in unit production costs. USEC purchased 11 percent fewer megawatt hours with the average cost per megawatt hour increasing 3 percent, reflecting higher fuel cost adjustments by the Tennessee Valley Authority (TVA) as well as the fixed, annual increase in the TVA contract price. The higher costs under the TVA contract were partially offset by supplemental power purchases in the summer months at lower market-based prices than the prior year. Purchase costs for the SWU component of LEU under the Russian Contract increased $20.5 million in 2011 compared to 2010 due to a 3 percent increase in the purchase cost per SWU. Purchase prices paid under the Russian Contract are set by a pricing formula that includes market-based price points.

In the contract services segment, cost of sales was $196.5 million in 2011, a decrease of $57.3 million or 23 percent. The net decrease was due primarily to the substantial completion of contract work at the former Portsmouth plant at September 30, 2011.

The gross profit for 2011 was $84.2 million, a decrease of $74.2 million or 47 percent over the previous year. The gross profit margin for the year was 5.0 percent compared to 7.8 percent in 2010. The lower gross profit margin primarily reflects lower margins in the LEU segment. In addition, the profitability of the contract services segment declined $11.5 million, primarily due to additional cold shutdown services performed at the Portsmouth site and contract fee recognition on certain contracts in 2010 as well as $5.1 million in pension plan and postretirement benefit plan curtailment charges in 2011. Gross profit from NAC was $8.8 million in 2011, an increase of $3.3 million year over year.

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