In a number of sales transactions, USEC transfers title and collects cash from customers but does not recognize the revenue until the low enriched uranium (LEU) is physically delivered. At June 30, 2012, deferred revenue totaled $139.4 million compared to $146.8 million at March 31, 2012. The gross profit associated with deferred revenue as of June 30, 2012, was $8.6 million.

A majority of reactors served by USEC are refueled on an 18-to-24-month cycle, which can lead to significant quarterly and annual swings in SWU sales volume that reflects the mix of refueling cycles. Therefore, short-term comparisons of USEC’s financial results are not necessarily indicative of longer-term results.

Cost of Sales and Gross Profit Margin

Cost of sales for the quarter ended June 30, 2012, for SWU and uranium was $340.4 million, a decrease of $28.2 million compared to the same quarter in 2011, primarily due to lower uranium sales volumes, partially offset by higher unit SWU costs. Cost of sales for the segment increased $165.8 million in the six months ended June 30, 2012, compared to the corresponding period in 2011, primarily due to higher SWU sales volumes, partially offset by lower uranium sales volumes. Cost of sales per SWU was 4 percent higher in the second quarter and was flat for the six months ended June 30, 2012, compared to the corresponding periods in 2011. Cost of sales was reduced during the current periods for revisions to prior accrued amounts related to estimated disposal costs for depleted uranium and property taxes and power prepayments related to enrichment operations. These accrued estimated amounts had been previously included in our production costs and included in SWU inventory. In addition, prior to the start of 2012, a significant portion of the costs related to pension and postretirement health and life benefit plans were attributed to Portsmouth contract services, based on the employee base performing contract services work. Starting in 2012, ongoing pension costs related to our former Portsmouth employees are charged to the LEU segment rather than the contract services segment based on our continuing enrichment operations that support our active and retired employees. Excluding the effects of these items, cost of sales per SWU was approximately 2 percent higher in the six months ended June 30, 2012, compared to the corresponding period in 2011.

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