The following discussion and analysis of the financial condition and results of our operations should be read together with the condensed consolidated financial statements and the related notes of EnergySolutions included elsewhere in this Form 10-Q.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements made herein, including statements regarding our projected revenues, expenses and income and the implementation of strategic initiatives are forward-looking in nature. These forward-looking statements reflect current analysis of existing information and are subject to various risks and uncertainties. As a result, caution must be exercised in relying on forward-looking statements. Due to known and unknown risks, our actual results may differ materially from our expectations or projections.

While most risks affect only future revenues or expenses, some risks may relate to accruals that have already been reflected in earnings. Our failure to receive payments of accrued amounts or incurrence of liabilities in excess of amounts previously recognized could result in a charge against future earnings.

Additional information concerning these and other factors can be found in our periodic filings with the Securities and Exchange Commission (the "SEC"), including our Form 10-K filed March 28, 2008 and this report under "Item 1A-Risk Factors." Our SEC filings are available publicly on the SEC's website at www.sec.gov, on EnergySolutions' website at www.energysolutions.com or upon request from EnergySolutions' Investor Relations Department at ir@energysolutions.com. We disclaim any obligation to update the forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a leading provider of specialized, technology-based nuclear services to governmental and commercial customers. Our customers rely on our expertise to address their needs throughout the lifecycle of their nuclear operations. Our broad range of nuclear services includes engineering, operation of nuclear reactors, in-plant support services, spent nuclear fuel management, decontamination and decommissioning ("D&D"), logistics, transportation, processing and disposal. We derive almost 100% of our revenues from the provision of nuclear services.

We provide our services through four segments: Federal Services; Commercial Services; Logistics, Processing and Disposal ("LP&D"), and International. Our Federal Services segment derives revenues from U.S. government customers for the management and operation or clean-up of facilities with radioactive materials. Our U.S. government customers are primarily individual offices, departments and administrations within the U.S. Department of Energy ("DOE") and U.S. Department of Defense ("DOD"). Our Commercial Services segment provides a broad range of on-site services, including D&D, to commercial customers. Our commercial customers include power and utility companies, pharmaceutical companies, research laboratories, universities, industrial facilities and other commercial entities with nuclear materials, as well as state agencies in the United States. Our LP&D segment provides a broad range of logistics, transportation, processing and disposal services to governmental and commercial customers. This segment also operates our facilities for the safe processing and disposal of radioactive materials, including a facility in Clive, Utah, four facilities in Tennessee and two facilities in Barnwell, South Carolina. Our International segment derives revenues primarily through contracts with the Nuclear Decommissioning Authority ("NDA") in the UK. RSMC, through its subsidiary Magnox Electric Ltd., holds the contracts and licenses to operate and decommission 10 nuclear sites with 22 reactors in the UK on behalf of the NDA, the governmental body responsible for the clean up and decommissioning of the UK nuclear sites.

Recent Developments

On December 11, 2007, we, through our subsidiary ZionSolutions, LLC ("ZionSolutions"), entered into an agreement with Exelon Generation Company, LLC ("Generation") to dismantle Generation's Zion nuclear facility located in Zion, Illinois ("Zion Station"), which ceased operation in 1998. Upon completion of the transaction, Generation agreed to transfer to ZionSolutions substantially all of the assets (other than land) associated with Zion Station, including assets held in nuclear decommissioning trusts. In consideration for Generation's transfer of those assets, ZionSolutions agreed to assume decommissioning and other liabilities associated with the Zion Station. ZionSolutions agreed to take possession and control of the land associated with the Zion Station pursuant to a lease agreement with Generation, to be executed at the closing. Under the lease agreement, ZionSolutions agreed to commit to complete the required decommissioning work according to an established schedule and to construct a dry cask storage facility on the land for spent nuclear fuel currently held in spent fuel pools at the Zion Station. Closing of this transaction is subject to the satisfaction of a number of closing conditions, including approval by the Nuclear Regulatory Commission (the "NRC") of the license transfer from Generation to ZionSolutions. A decision by the NRC is expected by mid-December.

Due to the financial crisis that has impacted the United States and world markets over the past several months, the Zion Station decommissioning trust fund balance, a significant portion of which is invested in the stock market, has declined. On October 14, 2008, we announced that we intend to defer the transfer of the Zion Station assets until after the financial markets stabilize and we reaffirm that there is sufficient value in the Zion decommissioning trust funds to ensure adequate funds for the accelerated decommissioning of the plant. Pursuant to the agreement, we have until December 31, 2009, to close the transaction.

Prior to our announcement to defer the transfer of the Zion Station assets, we had anticipated that the closing of this transaction would occur in late third quarter or during the fourth quarter of 2008. Accordingly, we hired employees, entered into subcontracts and performed services for Generation under a planning contract. Invoicing for some of these services provided is subject to the closing of the transaction. As of September 30, 2008, we have incurred costs of $9.4 million that have been deferred until the closing of the transaction. Since we believe that the closing of this transaction before December 31, 2009 is still probable, we will continue to defer these costs until we close the transaction, at which time we will recognize the costs and related revenues. If we determine that it is not probable that we will close this transaction, we will expense these costs in the period of such determination.

Since our announcement on October 14, 2008 to defer the closing of this transaction, we have taken steps to reduce the monthly project costs including terminating of certain employees, transferring employees to other projects and terminating certain subcontracts and lease agreements. Any costs relating to the termination of employees, subcontractors and lease or other agreements are expensed in the period terminated. We expect these termination expenses will be between $0.5 million and $1.0 million in the quarter ending December 31, 2008.

Also, on October 14, 2008, we announced that the NRC, which maintains oversight over the use of decommissioning trust funds, denied our petition for a rulemaking change that would allow the use of decommissioning trust funds for the processing and disposal of major radioactive components ("large

components") that have been removed from operating nuclear reactors. The NRC indicated, however, that it would continue to consider, on a case-by-case basis, exemptions from its guidance against using decommissioning trust funds for disposing of large components.

We will continue to work with the NRC and its nuclear utility customers to seek appropriate exemptions and pursue NRC rulemaking changes. The NRC has indicated that it believes that the early removal and disposal of large components is important and it will continue to work on alternative methods to accomplish this objective. We also continue to explore other funding options with a number of utilities to secure the decommissioning of these large components in the near future. This decision by the NRC does not affect our current financial position or results of operations; however, unless we can determine alternative methods to fund the early removal of these large components, the growth prospects of our Commercial Services and LP&D segments could be adversely impacted.

Results of Operations

    The following table shows certain items from our income statements for the
three and nine months ended September 30, 2008 and 2007.

                                                   Three Months Ended        Nine Months Ended
                                                     September 30,             September 30,
                                                    2008        2007         2008         2007
                                                            (in thousands of dollars)
Revenues:
   Federal Services Segment                       $  84,346   $  39,162   $   202,057   $ 111,254
   Commercial Services Segment                       19,175      33,569        75,995      97,516
   LP&D Segment                                      66,159      64,036       183,318     187,182
   International Segment                            249,773     252,128       920,181     268,801

          Total revenues                            419,453     388,895     1,381,551     664,753
Cost of revenues:
   Federal Services Segment                          71,077      24,898       171,566      77,640
   Commercial Services Segment                       12,663      24,644        49,918      77,826
   LP&D Segment                                      38,484      39,449       111,381     117,198
   International Segment                            241,238     243,767       858,601     259,463

          Total cost of revenues                    363,462     332,758     1,191,466     532,127
Gross profit:
   Federal Services Segment                          13,269      14,264        30,491      33,614
   Commercial Services Segment                        6,512       8,925        26,077      19,690
   LP&D Segment                                      27,675      24,587        71,937      69,984
   International Segment                              8,535       8,361        61,580       9,338

          Total gross profit                         55,991      56,137       190,085     132,626
Segment selling, general and administrative
expenses:
   Federal Services Segment                           2,418       3,348         7,022       8,913
   Commercial Services Segment                        1,824       3,171         5,515       8,312
   LP&D Segment                                       2,642       1,926         7,915       6,263
   International Segment                              5,205       3,278        14,322       6,214

          Total segment selling, general and
          administrative expenses                    12,089      11,723        34,774      29,702
Segment operating income:
   Federal Services Segment                          10,851      10,916        23,469      24,701
   Commercial Services Segment                        4,688       5,754        20,562      11,378
   LP&D Segment                                      25,033      22,661        64,022      63,721
   International Segment                              3,330       5,083        47,258       3,124

          Total segment operating income             43,902      44,414       155,311     102,924
Corporate selling, general and administrative
expenses                                             18,690      17,369        54,516      50,730

          Total income from operations               25,212      27,045       100,795      52,194
Interest expense                                     (9,204 )   (21,074 )     (32,043 )   (51,785 )
Other income (expenses), net                            (72 )    (1,961 )      (1,891 )    (1,403 )

          Income (loss) before income taxes          15,936       4,010        66,861        (994 )
Minority interest                                       207           -           907           -
Income tax expense                                    4,827       3,786        23,164       3,134

                 Net income (loss)                $  10,902   $     224   $    42,790   $  (4,128 )

Revenues

Revenues increased $30.6 million, or 7.9%, to $419.5 million for the three months ended September 30, 2008 from $388.9 million for the three months ended September 30, 2007. This increase is primarily attributable to increased revenues from the clean up of the Atlas mill tailings near Moab, Utah of $9.6 million and the consolidation of our Isotek, LLC and UDS, LLC joint venture interests, which collectively increased revenues by $36.1 million. These increases were partly offset by decreased revenues in our Commercial Services segment operations of $14.4 million.

Revenues in our Federal Services segment increased $45.1 million, or 115.1%, to $84.3 million for the three months ended September 30, 2008 from $39.2 million for the three months ended September 30, 2007. This increase is primarily attributable to revenues earned from the clean up of the Atlas mill tailings near Moab, Utah during the three months ended September 30, 2008 and the consolidation of two of our joint venture interests, Isotek, LLC and UDS, LLC. The joint venture interests are now consolidated because we obtained majority voting rights for Isotek, LLC in November 2007 and for UDS, LLC in March 2008. During the three months ended September 30, 2007, income from these joint venture interests was reported using the equity method in other income, net, in our consolidated statements of operations. This increase was partially offset by decreased revenues from work we performed at the Savannah River site.

Revenues in our Commercial Services segment decreased $14.4 million, or 42.9%, to $19.2 million for the three months ended September 30, 2008 from $33.6 million for the three months ended September 30, 2007. The decrease is primarily attributable to decreased revenues from utility services and engineering and technology projects due to the completion of several projects.

Revenues in our LP&D segment increased $2.2 million, or 3.4%, to $66.2 million for the three months ended September 30, 2008 from $64.0 million for the three months ended September 30, 2007. This increase is mostly due to revenues of Monserco, which was acquired in December 2007, and increased revenues of our Manufacturing Sciences Corporation ("MSC") subsidiary as a result of increased volumes of waste storage containers shipped. These increases are offset, in part, by decreased revenues at our Bear Creek, Tennessee; Clive, Utah; and Barnwell, South Carolina facilities as a result of decreased volumes of materials processed and disposed at these facilities.

Revenues in our International segment decreased $2.3 million to $249.8 million for the three months ended September 30, 2008 from $252.1 million for the three months ended September 30, 2007. The majority of revenues in our International segment are denominated in pound sterling. Our revenues, prior to considering the effects of fluctuations in currency rates of the pound sterling, increased $16.3 million. This increase is mostly due to the acceleration of decommissioning projects in our RSMC operations. However, this increase was offset by an $18.6 million decrease due to a decline in pound sterling rates during the three months ended September 30, 2008 compared to the same period in 2007.

Cost of revenues

Cost of revenues increased $30.7 million, or 9.2%, to $363.5 million for the three months ended September 30, 2008 from $332.8 million for the three months ended September 30, 2007. This increase was primarily the result of increased costs incurred for the clean up of the Atlas mill tailings near Moab, Utah of $7.8 million and the consolidation of our Isotek, LLC and UDS, LLC joint venture interests, which collectively increased cost of revenues by $35.6 million. These increases are offset by decreased cost of revenues in our Commercial Services and International segment operations of $11.9 million and $2.6 million, respectively.

Cost of revenues in our Commercial Services segment decreased $11.9 million, or 48.4%, to $12.7 million for the three months ended September 30, 2008 from $24.6 million for the three months ended September 30, 2007. This decrease is primarily the result of decreased costs of utility services and engineering and technology projects due to completion of several projects.

Cost of revenues in our LP&D segment decreased $0.9 million, or 2.3%, to $38.5 million for the three months ended September 30, 2008 from $39.4 million for the three months ended September 30, 2007. This decrease is primarily attributable to decreased equipment maintenance, demurrage costs and labor expenses due to decreased volumes of materials disposed at our Clive, Utah facility offset by increased costs at our MSC facility as a result of increased product shipments and at Monserco, which was acquired in December 2007.

Cost of revenues in our International segment decreased $2.6 million, or 1.1%, to $241.2 million for the three months ended September 30, 2008 from $243.8 million for the three months ended September 30, 2007. The majority of our International segment cost of revenues are denominated in pound sterling. Our cost of revenues, prior to considering the effects of fluctuations in currency rates of the pound sterling, increased $15.0 million. This increase is mostly due to increased costs incurred as a result of the acceleration of decommissioning projects in our RSMC operations. However, this increase was offset by a $17.6 million decrease due to a decline in pound sterling rates during the three months ended September 30, 2008 compared to the same period in 2007.

Gross profit

Gross profit decreased $0.1 million to $56.0 million for the three months ended September 30, 2008 from $56.1 million for the three months ended September 30, 2007. Our gross margin decreased to 13.3% in the 2008 period from 14.4% in the corresponding 2007 period. The decrease in gross profit is a result in decreased gross profit from our Federal Services and Commercial Services segment operations offset by increased gross profit in our LP&D segment operations.

Gross profit in our Federal Services segment decreased $1.0 million, or 7.0%, to $13.3 million for the three months ended September 30, 2008 from $14.3 million for the three months ended September 30, 2007. This decrease is primarily attributable to decreased gross profit from work we performed at the Savannah River site offset by increased gross profit from work we performed as a subcontractor on two contracts at the Hanford site and the clean up of the Atlas mill tailings near Moab, Utah.

Gross profit in our Commercial Services segment decreased $2.4 million, or 27.0%, to $6.5 million for the three months ended September 30, 2008 from $8.9 million for the three months ended September 30, 2007. The decrease is primarily attributable to decreased revenues from utility services and engineering and technology projects due to the completion of several projects.

Gross profit in our LP&D segment increased $3.1 million, or 12.6%, to $27.7 million for the three months ended September 30, 2008 from $24.6 million for the three months ended September 30, 2007. This increase is primarily the result of decreased costs at our Clive, Utah facility and increased revenues at our MSC facility.

Segment selling, general and administrative expenses

Segment selling, general and administrative expenses in our Federal Services segment decreased $0.9 million to $2.4 million for the three months ended September 30, 2008 from $3.3 million for the three months ended September 30, 2007. The decrease is primarily attributable to decreased consulting and business development costs.

Segment selling, general and administrative expenses in our Commercial Services segment decreased $1.4 million to $1.8 million for the three months ended September 30, 2008 from $3.2 million for the three months ended September 30, 2007. The decrease is primarily attributable to lower business development costs.

Segment selling, general and administrative expenses in our LP&D segment increased $0.7 million to $2.6 million for the three months ended September 30, 2008 from $1.9 million for the three months ended September 30, 2007 mostly due to increased labor costs related to business development activities.

Segment selling, general and administrative expenses in our International segment increased $1.9 million to $5.2 million for the three months ended September 30, 2008 from $3.3 million for the three months ended September 30, 2007 primarily due to bid and proposal expenses relating to potential contracts in the United Kingdom and other administrative expenses.

Total segment selling, general and administrative expenses as a percentage of revenues decreased to 2.9% for the three months ended September 30, 2008 from 3.0% for the same period for 2007 primarily due to increased revenues primarily related to our Federal Services segment without a corresponding percentage increase in selling, general and administrative expenses.

Corporate selling, general and administrative expenses

Corporate selling, general and administrative expenses increased $1.3 million, or 7.5%, to $18.7 million for the three months ended September 30, 2008 from $17.4 million for the three months ended September 30, 2007. This increase is attributable to professional fees related to Sarbanes-Oxley compliance, stock-based compensation expense as a result of the options issued in connection with our initial public offering, fees related to our secondary public offering, insurance costs and investor relations costs offset by decreases related to the termination of management advisory fees previously paid to our equity sponsors in connection with our initial public offering and decreased business development and marketing costs. As a percentage of revenues, corporate selling, general and administrative expenses were 4.5% for the three months ended September 30, 2008 and 2007.

Interest expense

Interest expense decreased $11.9 million, or 56.4%, to $9.2 million for the three months ended September 30, 2008 from $21.1 million for the three months ended September 30, 2007. The decrease is primarily attributable to a decline in both our average borrowings outstanding and interest rates related to our credit facilities.

Other expense, net, decreased $1.9 million, or 95.0%, to $0.1 million for the three months ended September 30, 2008 from $2.0 million for the three months ended September 30, 2007. This amount primarily reflects losses attributable to foreign currency transactions and loss on the disposal of assets. These losses are offset by increases in the fair value of our derivative contracts and our proportional share of income from five joint ventures in which we have a non-controlling interest.

Income taxes

We recognized income tax expense of $4.8 million for the three months ended September 30, 2008 based on an estimated annual effective tax rate on our consolidated operations of 35.1%. Prior to our reorganization on November 20, 2007, EnergySolutions, LLC operated as a limited liability company and was treated as a disregarded entity owned by a partnership for federal income tax purposes. As such, during the three months ended September 30, 2007, we recognized an income tax expense of $3.8 million attributable to net taxable income from our taxable subsidiaries acquired in 2006, primarily BNGA and Duratek.

Nine months Ended September 30, 2008 Compared to Nine months Ended September 30, 2007

Revenues

Revenues increased $716.8 million, or 107.8%, to $1.4 billion for the nine months ended September 30, 2008 from $664.8 million for the nine months ended September 30, 2007. This increase is primarily the result of our acquisition of RSMC in June 2007, which increased revenues by $653.9 million, and the consolidation of our Isotek, LLC and UDS, LLC joint venture interests, which collectively increased revenues by $84.9 million. These increases are partially offset by decreased revenues in our Commercial Services and LP&D segment operations of $21.5 million and $3.9 million, respectively.

Revenues in our Federal Services segment increased $90.8 million, or 81.6%, to $202.1 million for the nine months ended September 30, 2008 from $111.3 million for the nine months ended September 30, 2007. This increase is primarily attributable to revenues earned from the clean up of the Atlas mill tailings near Moab, Utah during the nine months ended September 30, 2008 and the consolidation of two of our joint venture interests, Isotek, LLC and UDS, LLC. This increase was partially offset by decreased revenues from work we performed as a subcontractor on two contracts at the Hanford site.

Revenues in our Commercial Services segment decreased $21.5 million, or 22.1%, to $76.0 million for the nine months ended September 30, 2008 from $97.5 million for the nine months ended September 30, 2007. This is primarily . . .