The following discussion and analysis of the financial condition and results of operations should be read together with the condensed consolidated financial statements and the related notes of EnergySolutions included elsewhere in this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements made herein, including statements regarding anticipated renegotiations of certain of our contracts, expected impacts of reduced government spending, expected costs to complete certain of our contracts, expected recoupment of expenses for work we perform, our future need to access credit, our projected revenue, expenses, income and the implementation of strategic initiatives and the risks associated therewith, are forward-looking in nature. These forward-looking statements reflect the 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 revenue 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 ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2011. 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 a broad range of nuclear services to government and commercial customers who rely on our expertise to address their needs throughout the lifecycle of their nuclear operations. Our broad range of nuclear services includes engineering, in-plant support services, spent nuclear fuel management, decontamination and decommissioning ("D&D") services, operation of nuclear reactors, logistics, transportation, processing, and low-level radioactive waste disposal. We also own and operate strategic processing and disposal facilities that complement our services and uniquely position us to provide a single-source solution to our customers. We derive almost 100% of our revenue from the provision of nuclear services.

We provide our services through two customer groups: the Government Group and the Global Commercial Group. Our Government Group provides services to U.S. government customers for the management and operation, and/or clean-up of facilities with radioactive materials. The Global Commercial Group, reports its results under three operating business divisions: Commercial Services, Logistics, Processing and Disposal ("LP&D"), and International. Our Government Group customers are individual offices, departments and administrations within the U.S. Department of Energy ("DOE") and the U.S. Department of Defense. Our Commercial Services operations provide a broad range of on-site services, including D&D services and comprehensive long-term stewardship D&D work for shut-down nuclear power plants and similar operations, to commercial customers. Our commercial customers include power and utility companies, pharmaceutical companies, research laboratories, universities, industrial facilities, state agencies and other commercial entities that are involved with nuclear materials as well as state agencies in the U.S. Our LP&D operations provide a broad range of logistics, transportation, processing and disposal services to both government and commercial customers. Our LP&D division also operates our facilities for the processing and disposal of radioactive materials, including our facility in Clive, Utah, four facilities in Tennessee, and two facilities in Barnwell, South Carolina. Our International division derives revenue primarily through contracts with the Nuclear Decommissioning Authority ("NDA") in the United Kingdom ("U.K.") to operate, manage and decommission ten Magnox sites with twenty-two nuclear reactors. In addition, our International division also provides turn-key services and sub-contract services for the treatment, processing, storage and disposal of radioactive waste from nuclear sites and non-nuclear facilities such as hospitals, research facilities and other manufacturing and industrial facilities.

Consistent with our experience for the full year 2011, revenue from our Government Group declined for the three and six month periods ended June 30, 2012 compared to the same periods in 2011 due primarily to the completion of certain large contracts with the DOE in 2011, and to decreased American Recovery and Reinvestment Act ("ARRA") funding for 2012. In addition, in April 2012, the prime contractor on our Salt Waste project located at the Savannah River site informed the DOE of an estimated cost increase on the construction phase of the project that is unrelated to our work on the project. As a result of this change in total budgeted project costs, the current potential incentive fee pool was reduced, which resulted in a corresponding reduction in the amount of incentive fee we had previously recognized. Such fee had been based on previously estimated costs and the estimated progress to date on the construction phase. We anticipate the contract will be renegotiated in late 2012 or early 2013, and that incentive fee will be

added to the new contract. However, until negotiations occur and the related terms of the negotiated contract are known, we are unable to recognize any such potential incentive fee.

Notwithstanding the decline in our Government Group operations, our Global Commercial Group operations remain strong. We continue to extend our business development efforts into Europe, Asia and Canada, and have won new contracts in Japan, Korea, Canada, Germany, and elsewhere. Most notably we were selected by Toshiba Corporation as the technology provider for the clean-up of a large volume of radioactively contaminated water at the damaged Fukushima Dai-ichi Nuclear Power Plant.

We continue our work on the Magnox contracts. The Magnox contracts have been extended and are scheduled to expire on June 30, 2014. As expected, the NDA published a notice advising of its intention to launch the contract rebid process that is expected to commence in the second half of 2012 and be completed in late 2013.

Results of Operations



The following table shows certain items from our income statements for the three
and six month periods ended June 30, 2012 and 2011 (in thousands):



                                      Three Month Period              Six Month Period
                                        Ended June 30                  Ended June 30,
                                     2012            2011            2012           2011
Revenue:
Government Group                 $     38,383    $     54,409    $     80,772    $   133,759
Global Commercial Group
Commercial Services                    39,522          47,755          80,479         94,292
LP&D                                   48,972          62,432          93,361        116,698
International                         265,744         239,077         628,701        581,191
Total revenue                         392,621         403,673         883,313        925,940
Cost of revenue:
Government Group                      (30,752 )       (50,400 )       (74,427 )     (123,642 )
Global Commercial Group
Commercial Services                   (34,335 )       (44,085 )       (73,753 )      (85,507 )
LP&D                                  (37,947 )       (44,764 )       (77,392 )      (87,228 )
International                        (253,684 )      (231,757 )      (590,158 )     (547,595 )
Total cost of revenue                (356,718 )      (371,006 )      (815,730 )     (843,972 )
Gross profit:
Government Group                        7,631           4,009           6,345         10,117
Global Commercial Group
Commercial Services                     5,187           3,670           6,726          8,785
LP&D                                   11,025          17,668          15,969         29,470
International                          12,060           7,320          38,543         33,596
Total gross profit                     35,903          32,667          67,583         81,968
Group selling, general and
administrative expenses:
Government Group                       (2,822 )        (3,572 )        (6,635 )       (7,758 )
Global Commercial Group                (9,939 )       (11,806 )       (20,499 )      (25,634 )
Total group selling, general
and administrative expenses
(1)                                   (12,761 )       (15,378 )       (27,134 )      (33,392 )
Group operating income:
Government Group                        4,809             437            (290 )        2,359
Global Commercial Group                18,333          16,852          40,738         46,217
Total group operating income           23,142          17,289          40,448         48,576
Corporate selling, general
and administrative expenses
(1)                                   (21,459 )       (12,535 )       (40,747 )      (30,600 )
Equity in income of
unconsolidated joint ventures
(2)                                     2,406           2,881           3,136          4,281
Total income from operations            4,089           7,635           2,837         22,257
Interest expense                      (17,495 )       (18,599 )       (35,186 )      (36,649 )
Other income, net                      15,443          17,150          33,725         32,578
Income before income taxes
and noncontrolling interests            2,037           6,186           1,376         18,186
Income tax benefit (expense)            3,370          (5,550 )         3,366         (6,732 )
Net income                              5,407             636           4,742         11,454
Less: Net income (loss)
attributable to
noncontrolling interests                   37            (132 )            33         (1,041 )
Net income attributable to
EnergySolutions                  $      5,444    $        504    $      4,775    $    10,413

(2) For the three month period ended June 30, 2012, we recorded $2.4 million of income from our unconsolidated joint ventures of which $71,562 of income is attributable to LP&D and $2.3 million income is attributable to the Government Group. For the six month period ended June 30, 2012, we recorded $3.1 million of income from our unconsolidated joint ventures of which $54,282 of income is attributable to LP&D and $3.1 million income is attributable to the Government Group.

Three Month Period Ended June 30, 2012 Compared to the Three Month Period Ended June 30, 2011

Government Group

Revenue from our Government Group decreased $16.0 million to $38.4 million for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to the completion of certain large contracts and to decreased ARRA funding for 2012. Gross profit increased by $3.6 million and gross margin increased to 19.9% for the three month period ended June 30, 2012 from 7.4% for the three month period ended June 30, 2011. The increase in gross margin was due primarily to increased testing activities on a large scale mixing project awarded in August 2011 which was partially offset by an overall reduction of federal government spending. The overall reduction of federal government spending is expected to continue to negatively impact the financial results of our Government Group for the remainder of the year.

Revenue and cost of revenue generated by our contract with the DOE to clean up the Atlas mill tailings site near Moab, Utah decreased $16.3 million and $15.0 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due to the completion of the contract in April 2012. As a result, gross profit decreased $1.3 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue related to engineered systems and technology projects within the Government Group increased $4.0 million and $1.7 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011 due primarily to increased testing activities on a large scale mixing contract awarded in August 2011, offset by the completion of technical and testing support activities at the DOE Waste Treatment Plant in Richland, Washington. As a result, gross profit increased $2.3 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue from our Uranium Disposition Services, LLC joint venture decreased $0.7 million and $0.7 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due to decreased contract close out activities following completion of the hot functional testing phase of the project in March 2011. As a result, gross profit remained even for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue generated by our Salt Waste processing facility contract decreased $0.2 million and $0.4 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to lower fee earnings resulting from a higher projection of expected costs to complete the contract. As a result, gross profit increased $0.2 million during the three month period ended June 30, 2012 compared to the same period in 2011. We anticipate the contract will be renegotiated in late 2012 or early 2013, and that the previously forfeited incentive fee will be added to the new contract.

Revenue and cost of revenue from our subsidiary EnergySolutions Performance Strategies Inc., decreased $0.6 million and $1.9 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due to budget cuts on contracts at Los Alamos National Laboratory. As a result, gross profit increased $1.3 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue from our subsidiary Isotek Systems decreased $0.9 million and $1.4 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, primarily as a result of completion of heavy engineering design activity work during March 2011, and to a decrease of contract work scope during 2012. This is offset by the commencement of the fixed price waste shipment phase of the contract which commenced in January 2012,which has a higher margin. As a result, gross profit increased $0.5 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue related to Navy projects within the Government Group increased $1.5 million and $0.8 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011 due primarily to a new D&D contract at the Newport News shipyard. As a result, gross profit increased $0.7 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Global Commercial Group

Commercial Services Operations

Revenue from our Commercial Services operations decreased $8.2 million to $39.5 million for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to the completion of large scale projects during 2011, lower subcontractor costs, lower project support costs and lower licensing and permitting costs when compared to 2011. As a result, gross profit increased $1.5 million and gross margin increased to 13.1% for the three month period ended June 30, 2012 from 7.7% for the three month period ended June 30, 2011.

Revenue and cost of revenue related to the decommissioning of the Zion Station decreased $7.3 million and $5.8 million, respectively, for the three month period ended June 30, 2012, compared to the three month period ended June 30, 2011, due primarily to lower project activity, lower subcontractor costs, lower project support costs and to lower licensing and permitting costs when compared to 2011. As a result, gross profit decreased $1.5 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue from our utility services division increased $0.7 million and 0.3 million respectively for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011 due primarily to new support work during 2012. As a result, gross profit increased $0.4 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue from our project services group decreased $3.5 million and $4.8 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, primarily due to customer delays and work scope changes on the Humboldt Bay project and lower subcontractor and overhead costs. As a result, gross profit increased $1.3 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue from our technology products group increased $1.7 million and $1.3 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to increased demand for liners and storage containers as well as increased cask design and fabrication activities. As a result, gross profit increased $0.4 million for the three month period ended June 30, 2012 compared to the same period in 2011.

LP&D Operations

Revenue from our LP&D operations decreased $13.5 million to $49.0 million for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to lower waste disposal volumes processed at our Clive, Utah facility driven primarily by decreased government stimulus funding. As a result, gross profit decreased $6.6 million and gross margin decreased to 22.5% for the three month period ended June 30, 2012 from 28.3% for the three month period ended June 30, 2011.

Revenue and cost of revenue related to our disposal facilities decreased $14.2 million and $4.7 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to lower volumes of waste receipts on DOE projects due in part to a decrease in ARRA funding. The majority of costs at our disposal facilities are fixed, resulting in a disproportionate increase in cost of revenue as a percentage of revenue. As a result, gross profit decreased $9.5 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue from our processing facilities increased $0.8 million for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to increased revenue related to processing fuel inserts as well as increased processing activity for our Browns Ferry project. In contrast, cost of revenue decreased $2.3 million for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to lower container cost and less transportation costs. As a result, gross profit increased $3.1 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue from our logistics operations decreased $0.1 million for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to the completion of projects during 2011 offset in part by increased utility shipments. In contrast, cost of revenue increased $0.1 million for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to increases in transportation costs offset by decreases in subcontractor costs. As a result, gross profit decreased $0.2 million for the three month period ended June 30, 2012 compared to the same period in 2011.

International Operations

Revenue from our International operations increased $26.7 million to $265.7 million for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to the timing in the recognition of fees from our

operations in the U.K., completion of design activities to support clean-up operations in Japan and Korea, continued progress of fabrication activities in China and increased waste processing activities in Canada. Gross profit increased $4.7 million and gross margin increased to 4.5% for the three month period ended June 30, 2012 from 3.1% for the three month period ended June 30, 2011 due primarily to higher incentive and generation fees recognized during the second quarter of 2012.

Revenue and cost of revenue from our operations in the U.K. which services the Magnox sites increased $28.1 million and $23.5 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to better than expected progress resulting in higher incentive fees during the three months ended June 30, 2012. Revenue was negatively impacted by $6.9 million while cost of revenue was positively impacted by $6.7 million as a result of fluctuations in pound sterling exchange rates for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011. Gross profit increased $4.4 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue from our operations in Asia increased $3.1 million and $3.4 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to increased costs related to fabrication activities at the Yangjiang and Haiyang, China nuclear reactor sites, and to the completion of design activities to support clean-up operations in Japan and Korea. As a result, gross profit decreased $0.3 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Revenue and cost of revenue from our operations in Canada increased $1.1 million and $0.8 million, respectively, for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011, due primarily to to increased shipments of waste for processing and higher demand for waste storage services. As a result, gross profit increased $0.3 million for the three month period ended June 30, 2012 compared to the same period in 2011.

Group selling, general and administrative expenses

Group selling, general and administrative ("SG&A") expenses include expenses that are not directly associated with performing services for our customers. These expenses consist primarily of compensation and related benefits for management and administrative personnel, preparing contract bids, office expenses, advisory fees, professional fees, strategic growth initiatives such as research and development, and administrative overhead. Group SG&A expenses decreased $2.6 million, or 17.0%, to $12.8 million for the three month period ended June 30, 2012 compared to $15.4 million for the three month period ended June 30, 2011, due primarily to lower bid and proposal costs incurred during 2012, lower employee incentive expenses, and our ongoing effort to reduce SG&A expenses. Group SG&A expenses, as a percentage of revenue, decreased 0.7% for the three month period ended June 30, 2012 compared to the same period in 2011.

Corporate selling, general and administrative expenses

Corporate SG&A expenses reflect costs associated with supporting our entire company including executive management and administrative functions such as accounting, treasury, legal, human resources, and information technology, as well as other costs required to support our company. Corporate SG&A expenses increased $8.9 million to $21.5 million, for the three month period ended June 30, 2012, from $12.5 million for the three month period ended June 30, 2011 due primarily to an increase in restructuring and transitional costs associated with the management change in the second quarter as well as an increase in professional services, offset by decreased performance incentive expense accruals. Corporate SG&A expenses, as a percentage of revenue, increased 2.3% for the three month period ended June 30, 2012 compared to the same period in 2011.

Equity in income of unconsolidated joint ventures

Income from unconsolidated joint ventures decreased $0.5 million, or 16.5%, to $2.4 million for the three month period ended June 30, 2012, from $2.9 million for the three month period ended June 30, 2011, due primarily to a $0.7 million decrease from our proportional share of income from our Washington River Protection Solutions LLC joint venture at the Hanford site offset by a $0.1 million increase from our proportional share of income from our Semprasafe LLC joint venture.

Interest expense

Interest expense decreased $1.1 million to $17.5 million for the three month period ended June 30, 2012 from $18.6 million for the three month period ended June 30, 2011, due primarily to a decrease in outstanding borrowings during late 2011. During the three month period ended June 30, 2012, we made interest payments totaling $9.2 million of which $8.9 million relates to interest on the term loan and related senior secured revolving facility. For the three month periods ended June 30, 2012 and 2011, the variable interest rate on our term loan was 6.25%, while our senior notes bear interest at a fixed annual rate of 10.75%.

Other income, net

Other income, net, decreased $1.7 million to $15.4 million for the three month period ended June 30, 2012 from $17.1 million for the three month period ended June 30, 2011, due primarily to lower investment income earned on investments in the nuclear decommissioning trust ("NDT") fund during the second quarter of 2012.

Income taxes

We recognized an income tax benefit of $3.4 million and income tax expense of $5.6 million for the three month period ended June 30, 2012 and 2011, . . .