Edgar Filing: EnergySolutions, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33830

EnergySolutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware		51-0653027
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

423 West 300 South, Suite 200
Salt Lake City, Utah		84101
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (801) 649-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 4, 2011, 88,888,724 shares of the registrant’s common stock were outstanding.

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ENERGYSOLUTIONS, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Three and Nine Month Periods Ended September 30, 2011

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	2
	Condensed Consolidated Statement of Changes in Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flow	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	40
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 5.	Other information	42
Item 6.	Exhibits	43
Signatures		44

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EnergySolutions, Inc.

Condensed Consolidated Balance Sheets

September 30, 2011 and December 31, 2010

(in thousands of dollars, except per share information)

	September 30, 2011			December 31, 2010
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	41,378		$	60,192
Accounts receivable, net of allowance for doubtful accounts	324,416			294,972
Costs and estimated earnings in excess of billings on uncompleted contracts	95,261			102,287
Prepaid expenses	6,346			8,059
Deferred income taxes	4,705			4,770
Nuclear decommissioning trust fund investments, current portion	123,370			110,328
Deferred costs, current portion	106,727			100,149
Other current assets	5,465			4,851
Total current assets	707,668			685,608
Property, plant and equipment, net	123,242			122,649
Goodwill	480,925			480,398
Other intangible assets, net	265,403			283,500
Nuclear decommissioning trust fund investments, less current portion	622,263			694,754
Restricted cash and decontamination and decommissioning deposits	333,341			338,408
Deferred costs, less current portion	546,684			650,270
Other noncurrent assets	192,480			169,912
Total assets	$	3,272,006		$	3,425,499
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	—		$	5,600
Accounts payable	118,745			101,229
Accrued expenses and other current liabilities	200,850			197,034
Facility and equipment decontamination and decommissioning liabilities, current portion	123,370			110,328
Unearned revenue, current portion	123,037			117,802
Total current liabilities	566,002			531,993
Long-term debt, less current portion	826,834			834,560
Pension liability	146,669			132,988
Facility and equipment decontamination and decommissioning liabilities	604,511			711,419
Deferred income taxes	78,065			77,956
Unearned revenue, less current portion	550,717			654,643
Other noncurrent liabilities	6,222			3,402
Total liabilities	2,779,020			2,946,961
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 88,888,724 and 88,667,843 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively	889			887
Additional paid-in capital	506,273			498,092
Accumulated other comprehensive loss	(26,057		)	(25,511		)
Retained earnings	8,753			2,168
Total EnergySolutions stockholders’ equity	489,858			475,636
Noncontrolling interests	3,128			2,902
Total stockholders’ equity	492,986			478,538
Total liabilities and stockholders’ equity	$	3,272,006		$	3,425,499

See accompanying notes to condensed consolidated financial statements.

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EnergySolutions, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three and Nine Month Periods Ended September 30, 2011 and 2010

(in thousands of dollars, except per share information)

(unaudited)

	Three Month Period Ended September 30,						Nine Month Period Ended September 30,
	2011			2010			2011			2010
Revenue	$	421,027		$	417,656		$	1,346,967		$	1,301,885
Cost of revenue	(383,942		)	(368,453		)	(1,227,914		)	(1,164,826		)
Gross profit	37,085			49,203			119,053			137,059
Selling, general and administrative expenses	(32,165		)	(38,120		)	(96,157		)	(97,861		)
Impairment of goodwill	—			—			—			(35,000		)
Equity in income of unconsolidated joint ventures	5,714			3,952			9,995			10,165
Income from operations	10,634			15,035			32,891			14,363
Interest expense	(18,201		)	(33,831		)	(54,850		)	(52,374		)
Other income, net	2,500			29,923			35,078			30,943
Income (loss) before income taxes and noncontrolling interests	(5,067		)	11,127			13,119			(7,068		)
Income tax benefit (expense)	2,218			(16,053		)	(4,514		)	(20,078		)
Net income (loss)	(2,849		)	(4,926		)	8,605			(27,146		)
Less: Net income attributable to noncontrolling interests	(979		)	(735		)	(2,020		)	(1,188		)
Net income (loss) attributable to EnergySolutions	$	(3,828	)	$	(5,661	)	$	6,585		$	(28,334	)
Net income (loss) per common share of EnergySolutions:
Basic	$	(0.04	)	$	(0.06	)	$	0.07		$	(0.32	)
Diluted	$	(0.04	)	$	(0.06	)	$	0.07		$	(0.32	)
Weighted average common shares outstanding:
Basic	88,845,102			88,582,398			88,775,360			88,504,525
Diluted	88,845,102			88,582,398			88,777,647			88,504,525
Cash dividends declared per common share	—			$	0.025		—			$	0.075

Comprehensive income (loss):
Net income (loss)	$	(2,849	)	$	(4,926	)	$	8,605		$	(27,146	)
Foreign currency translation adjustment	(6,337		)	7,248			(546		)	880
Change in unrecognized actuarial gain (loss)	(122		)	42			—			(132		)
Comprehensive income (loss)	(9,308		)	2,364			8,059			(26,398		)
Comprehensive income attributable to noncontrolling interests	(979		)	(735		)	(2,020		)	(1,188		)
Comprehensive income (loss) attributable to EnergySolutions	$	(10,287	)	$	1,629		$	6,039		$	(27,586	)

See accompanying notes to condensed consolidated financial statements.

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EnergySolutions, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

Nine Month Period Ended September 30, 2011

(in thousands of dollars, except per share information)

(unaudited)

	Common Stock				Additional Paid-in			Accumulated Other Comprehensive			Retained		Noncontrolling			Total Stockholders’
	Shares		Amount		Capital			(Loss)			Earnings		Interests			Equity
Balance at December 31, 2010	88,667,843		$	887	$	498,092		$	(25,511	)	$	2,168	$	2,902		$	478,538
Net income	—		—		—			—			6,585		2,020			8,605
Equity-based compensation	—		—		8,242			—			—		—			8,242
Stock issued due to option exercise	10,350		—		57			—			—		—			57
Vesting of restricted stock	228,011		2		(2		)	—			—		—			—
Minimum tax withholdings on restricted stock awards	(17,480	)	—		(116		)	—			—		—			(116		)
Distributions to noncontrolling interests partners	—		—		—			—			—		(1,794		)	(1,794		)
Foreign currency translation	—		—		—			(546		)	—		—			(546		)
Balance at September 30, 2011	88,888,724		$	889	$	506,273		$	(26,057	)	$	8,753	$	3,128		$	492,986

See accompanying notes to condensed consolidated financial statements.

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EnergySolutions, Inc.

Condensed Consolidated Statements of Cash Flows

Nine Month Periods Ended September 30, 2011 and 2010

(in thousands of dollars)

(unaudited)

	Nine Month Periods Ended September 30,
	2011			2010
Cash flows from operating activities
Net income (loss)	$	8,605		$	(27,146	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and accretion expense	59,560			36,245
Equity-based compensation expense	8,242			8,032
Foreign currency transaction gain	—			(45		)
Deferred income taxes	174			12,620
Write-off of debt financing fees	—			19,070
Amortization of debt financing fees	3,639			4,819
Impairment of goodwill	—			35,000
Loss (gain) on disposal of property, plant and equipment	20			(213		)
Unrealized gain on derivative contracts	—			(1,091		)
Realized and unrealized gain on nuclear decommissioning trust fund investments	(34,581		)	(28,953		)
Changes in operating assets and liabilities:
Accounts receivable	(27,475		)	(10,143		)
Costs and estimated earnings in excess of billings on uncompleted contracts	7,158			2,790
Income tax receivable	—			3,128
Prepaid expenses and other current assets	2,404			14,478
Accounts payable	15,995			(3,309		)
Accrued expenses and other current liabilities	2,713			43,025
Unearned revenue	(98,691		)	14,963
Facility and equipment decontamination and decommissioning liabilities	(117,589		)	(5,702		)
Restricted cash and decontamination and decommissioning deposits	5,067			940
Nuclear decommissioning trust fund	90,761			—
Deferred costs	95,710			—
Other noncurrent assets	(45,031		)	(42,702		)
Other noncurrent liabilities	37,650			39,594
Net cash provided by operating activities	14,331			115,400
Cash flows from investing activities
Purchases of property, plant and equipment	(17,147		)	(11,665		)
Purchase of investments in nuclear decommissioning trust fund	(821,733		)	(353,272		)
Proceeds from sales of nuclear decommissioning trust fund investments	825,002			353,327
Purchases of intangible assets	(610		)	(845		)
Proceeds from disposition of property, plant and equipment	235			143
Net cash used in investing activities	(14,253		)	(12,312		)
Cash flows from financing activities
Net proceeds from issuance of senior notes	—			296,070
Net proceeds from issuance of long-term debt	—			546,000
Retirement of long-term debt	—			(519,111		)
Restricted cash held as collateral of letter of credit obligations	—			(315,479		)
Repayments of long-term debt	(15,200		)	(1,400		)
Net repayments under revolving credit facilities				(5,000		)
Dividends to stockholders	—			(6,638		)
Distributions to noncontrolling interests partners	(1,794		)	(296		)
Minimum tax withholding on restricted stock awards	(116		)	(375		)
Proceeds from exercise of stock options	57			—
Settlement of interest rate contracts	—			(1,555		)
Debt financing fees	—			(23,196		)
Repayments of capital lease obligations	(368		)	(513		)
Net cash used in financing activities	(17,421		)	(31,493		)
Effect of exchange rate on cash	(1,471		)	2,113
Net increase (decrease) in cash and cash equivalents	(18,814		)	73,708
Cash and cash equivalents, beginning of period	60,192			15,913
Cash and cash equivalents, end of period	$	41,378		$	89,621

See accompanying notes to condensed consolidated financial statements.

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EnergySolutions, Inc.

Notes to Condensed Consolidated Financial Statements

(1) Description of Business

EnergySolutions, Inc. (“we,” “our,” “EnergySolutions” or the “Company”) is a leading provider of specialized, technology-based nuclear services to government 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”) services, logistics, transportation, processing and disposal services. We derive almost 100% of our revenue from the provision of nuclear services.

We report our results through two major operating groups: the Government Group and the Global Commercial Group. The Government Group derives its revenue from United States (“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”). The Global Commercial Group provides a broad range of on-site services both nationally and internationally, including (i) D&D services to commercial customers such as power and utility companies, pharmaceutical companies, research laboratories, universities, industrial facilities, state agencies and other commercial entities that are involved with nuclear materials; (ii) logistics, transportation, processing and disposal services to both government and commercial customers; and (iii) processing and disposal of radioactive materials at our facility in Clive, Utah, our four facilities in Tennessee, or our two facilities in Barnwell, South Carolina. Our International operations derive 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 operations also provide 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. The Global Commercial Group reports its results under three separate operating business divisions: Commercial services (“CS”), Logistics, processing and disposal activities (“LP&D”) and International operations.

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2010.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The results of operations for the nine month period ended September 30, 2011 are not necessarily indicative of results that can be expected for the full year.

We have majority voting rights for two of our minority-owned joint ventures. Accordingly, we have consolidated their operations in our consolidated financial statements and therefore, we recorded the noncontrolling interests, which reflect the portion of the earnings of operations which are applicable to other noncontrolling partners.

Reclassifications

Certain minor reclassifications have been made to our prior period consolidated financial information in order to conform to the current year presentation.

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Accounting for the Exelon Transaction

In December 2007, we entered into certain agreements with Exelon Corporation (“Exelon”) to dismantle the Zion Station nuclear power plant located in Zion, Illinois (the “Zion Station”). On the date of the closing of the asset sale agreement with Exelon, the trust fund investments previously held by Exelon for the purpose of decommissioning the Zion Station were transferred to us and the use of those funds, and any investment returns arising therefrom, remain restricted solely for that purpose. The investments are classified as trading securities and as such, the realized and unrealized investment gains and losses are recorded in the statement of operations as other income (expense), net. As part of this transaction, we have assumed Exelon’s cost basis in the investments for tax purposes. To the extent that the trust fund assets exceed the total costs to perform the D&D work, we have a contractual obligation to return any excess funds to Exelon. Throughout the period over which we will perform the D&D work, we will assess whether such a contingent liability exists using the measurement thresholds under ASC 450-20.

As the trust fund assets transferred to us represented a prepayment of fees to perform the D&D work, we also recorded deferred revenue initially totaling $772.2 million. Revenue recognition throughout the life of the project is based on the proportional performance method using a cost-to-cost approach.

In conjunction with the acquisition of the shut down nuclear power plant, we also became responsible for and assumed the asset retirement obligation (“ARO”) for the plant, and we have established an ARO measured in accordance with ASC 410-20. Subsequent measurement of the ARO follows ASC 410-20 accounting guidance, including the recognition of accretion expense, reassessment of the remaining liability using our estimated costs to complete the D&D work, plus a profit margin, and recognition of the ARO gain as the obligation is settled. ARO gain results from the requirement to record costs plus an estimate of third-party profits in determining the ARO. When we perform the D&D work using internal resources to reduce the ARO for work performed, we recognize a gain if actual costs are less than estimated costs plus the third-party profits. Accretion expense and ARO gain are recorded within cost of revenue because we are providing D&D services to a customer. Any change to the ARO as a result of cost estimate changes is recorded in cost of revenue in the statements of operations. We also recorded deferred costs to reflect the costs incurred to acquire the future revenue stream. The deferred cost balance was initially recorded at $767.1 million, which is the same value as the initial ARO, and will be amortized to cost of revenue in the same manner as deferred revenue is amortized, using the proportional performance method.

(3) Recent Accounting Pronouncements

Accounting Pronouncements Issued

In September 2011, the Financial Accounting Standards Board (“FASB”) issued additional guidance regarding testing goodwill for impairment. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. This guidance is effective for fiscal year 2012. Early adoption is permitted. The adoption of this guidance is not expected to have an impact on the Company’s results of operations, financial position or cash flows.

In June 2011, the FASB issued new guidance on the presentation of comprehensive income in financial statements. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, entities are required to present total comprehensive income either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. Under the single-statement approach, entities must include the components of net income, a total for net income, the components of other comprehensive income and a total for comprehensive income. Under the two-statement approach, entities must report an income statement and, immediately following, a statement of other comprehensive income. Under either method, entities must display adjustments for items reclassified from other comprehensive income to net income in both net income and other comprehensive income. The provisions for this pronouncement are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements as it only requires a change in the format of the current presentation.

In May 2011, the FASB issued amendments to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). The amendment improves

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

comparability of fair value measurements presented and disclosed in financial statements and it also clarifies the application of existing fair value measurement requirements. The amendment includes (1) the application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and (3) disclosing quantitative information about the unobservable inputs used within the Level 3 hierarchy. This amendment is effective for interim and annual periods beginning after December 15, 2011 on a prospective basis. Early application by public entities is not permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s results of operations, financial position or cash flows.

In October 2009, the FASB issued an update to the authoritative guidance for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. This update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. This guidance was effective for us on January 1, 2011. The new accounting standard has been applied prospectively to arrangements entered into or materially modified after the date of adoption. The impact of the adoption of this guidance has not had a material impact on the Company’s results of operations, financial position or cash flows.

Our contracts routinely include delivery of multiple products and services to our customers including management and operations or clean up of facilities with radioactive materials, decommissioning and decontamination services, transportation, processing and disposal services. Typically, each of these elements is considered a unit of accounting and revenue is recognized for each element when all of the following have occurred: (1) we have entered into an arrangement with a customer; (2) delivery has occurred; (3) customer payment is fixed or determinable and free of contingencies and significant uncertainties; and (4) collection is reasonably assured.

For all contractual arrangements containing multiple deliverables entered into after December 31, 2010, we recognize revenue using estimated selling prices of the delivered products and services based on a hierarchy of methods contained in ASU 2009-13. We use vendor specific objective evidence (“VSOE”) for determination of estimated selling price of elements in each arrangement if available, and since third party evidence is not available for those elements where VSOE of selling price cannot be determined, we evaluate factors to determine our estimated selling price for all other elements.

Application of this new guidance may affect the timing of revenue recognition for some of our contracts as the relative value of each of the elements within the arrangement may change when compared to our prior practices. However, we do not believe there will be a material impact to our results of operations or financial position.

(4) Trust Fund Investments

The nuclear decommissioning trust (“NDT”) fund was established solely to satisfy obligations related to the D&D of the Zion Station. The NDT fund holds investments in marketable debt and equity securities directly and indirectly through commingled funds. Investments in the NDT fund are carried at fair value and are classified as trading securities. As of September 30, 2011, investments held by the NDT fund, net, totaled $745.6 million, and are included in current and other long-term assets in the accompanying balance sheets, depending on the expected timing of usage of funds.

A portion of our NDT fund is invested in a securities lending program with the trustee of the NDT fund. The program authorizes the trustee of the NDT fund to loan securities that are assets of the NDT fund to approved borrowers. Borrowers have the right to sell or re-pledge the loaned securities. The trustee requires borrowers, pursuant to a security lending agreement, to deliver collateral to secure each loan. The securities are required to be collateralized by cash, U.S. government securities or irrevocable bank letters of credit. Initial collateral levels are no less than 102% and 105% of the market value of the borrowed securities for collateral denominated in U.S. and foreign currency, respectively.

We consolidate the NDT fund as a variable interest entity (“VIE”). We have a contractual interest in the NDT fund and this interest is a variable interest due to its exposure to the fluctuations caused by market risk. We are able to control the NDT fund by appointing the trustee and, subject to certain restrictions, we are able to direct the investment policies of the fund. We are the primary beneficiary of the NDT fund as we benefit from positive market returns and bear the risk of market losses.

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

NDT fund investments consisted of the following (in thousands):

	As of September 30, 2011
	Amortized cost			Gross unrealized gains		Gross unrealized losses			Estimated fair value
Assets
Receivables for securities sold	$	7,597		$	—	$	—		$	7,597
Investments
Corporate debt securities	303,498			4,052		(9,119		)	298,431
Equity securities	33,131			4,462		(1,363		)	36,230
Direct lending funds	34,761			2,526		—			37,287
Debt securities issued by states of the United States	61,029			2,692		(834		)	62,887
Commingled funds	51,676			—		(1,027		)	50,649
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	244,903			9,682		(62		)	254,523
Total investments	728,998			23,414		(12,405		)	740,007
Total assets	736,595			23,414		(12,405		)	747,604
Liabilities
Payables for securities purchased	(1,971		)	—		—			(1,971		)
Total liabilities	(1,971		)	—		—			(1,971		)
Net assets held by the NDT fund	$	734,624		$	23,414	$	(12,405	)	745,633
Less: current portion									(123,370		)
Long-term investments									$	622,263

	As of December 31, 2010
	Amortized cost			Gross unrealized gains		Gross unrealized losses			Estimated fair value
Assets
Receivables for securities sold	$	6,321		$	—	$	—		$	6,321
Investments
Corporate debt securities	296,984			1,521		(6,024		)	292,481
Equity securities	73,712			16,253		(79		)	89,886
Debt securities issued by states of the United States	58,481			109		(2,981		)	55,609
Commingled funds	99,377			12,362		—			111,739
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	254,622			243		(3,812		)	251,053
Total investments	783,176			30,488		(12,896		)	800,768
Total assets	789,497			30,488		(12,896		)	807,089
Liabilities
Payables for securities purchased	(2,007		)	—		—			(2,007		)
Total liabilities	(2,007		)	—		—			(2,007		)
Net assets held by the NDT fund	$	787,490		$	30,488	$	(12,896	)	805,082
Less: current portion									(110,328		)
Long-term investments									$	694,754

We have withdrawn from the NDT fund approximately $94.0 million and $30.2 million for the nine month period ended September 30, 2011 and the year ended December 31, 2010, respectively, to pay for operating D&D project expenses, estimated trust income taxes and trust management fees. During 2011, we recorded unrealized losses resulting from adjustments to the fair value of the NDT fund investments of $18.2 million and $6.6 million for the three and nine month periods ended September 30, 2011, respectively, and unrealized gains of $28.9 million for both the three and nine month periods ended September 30, 2010. Realized gains and losses related to sales of investments, dividends and interest payments received from investments held by the NDT fund were $18.4 million and $41.2 million for the three and nine month periods ended September 30, 2011, respectively, and $10.7 million for both the three and nine month periods ended September 30, 2010. Unrealized and realized gains and losses on the NDT fund investments are included in other income (expense), net, in the condensed consolidated statements of operations and comprehensive income (loss).

(5) Fair Value Measurements

The Company has implemented the accounting requirements for financial assets, financial liabilities, non-financial assets and non-financial liabilities reported or disclosed at fair value. The requirements define fair value, establish a three level hierarchy for measuring fair value in generally accepted accounting principles, and expand disclosures about fair value measurements. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that a company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The carrying value of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, prepaid assets, accounts payable, and accrued expenses approximate their fair value principally because of the short-term nature of these assets and liabilities.

The fair market value of our debt is based on quoted market prices from the over-the-counter restricted market. The fair market value of our senior secured credit facility was approximately $536.6 million as of September 30, 2011, and $562.8 million as of December 31, 2010. The carrying value of our senior secured credit facility was $542.0 million as of September 30, 2011, and $557.2 million as of December 31, 2010. We also had outstanding senior notes obligations with a carrying amount of $300.0 million as of September 30, 2011 and December 31, 2010, and fair market value of approximately $293.3 million as of September 30, 2011 and $327.4 million as of December 31, 2010.

The fair value of our derivative instruments is determined using models that maximize the use of the observable market inputs including interest rate curves and both forward and spot prices for currencies. The carrying amount of our interest rate collar derivative approximates fair value. The fair market value of our interest rate collar was a liability of $0.1 million as of December 31, 2010. This contract ended on January 4, 2011.

The following table presents the NDT fund investments measured at fair value (in thousands):

	As of September 30, 2011										As of December 31, 2010
	Total Investments at Fair Value			Quoted Prices in Active Markets for Identical Assets Level 1			Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Investments at Fair Value			Quoted Prices in Active Markets for Identical Assets Level 1			Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Assets
Receivables for securities sold	$	7,597		$	7,597		$	—	$	—	$	6,321		$	6,321		$	—	$	—
Investments
Commingled funds (1)	22,162			—			22,162		—		23,325			—			23,325		—
Fixed income securities (2)	615,839			95,964			519,875		—		599,143			128,738			470,405		—
Equity securities (3)	36,230			36,230			—		—		89,886			89,886			—		—
Direct lending funds (4)	37,287			—			—		37,287		—			—			—		—
Units of participation (1)	28,489			—			28,489		—		88,414			—			88,414		—
Total investments	740,007			132,194			570,526		37,287		800,768			218,624			582,144		—
Total assets	747,604			139,791			570,526		37,287		807,089			224,945			582,144		—
Liabilities
Payables for securities purchased	(1,971		)	(1,971		)	—		—		(2,007		)	(2,007		)	—		—
Total liabilities	(1,971		)	(1,971		)	—		—		(2,007		)	(2,007		)	—		—
Net assets held by the NDT fund	$	745,633		$	137,820		$	570,526	$	37,287	$	805,082		$	222,938		$	582,144	—

(1) Commingled funds and units of participation, which are similar to mutual funds, are maintained by investment companies and hold certain investments in accordance with stated fund objectives. The fair values of short-term commingled funds held within the trust funds, which generally hold short-term fixed income securities and are not subject to restrictions regarding the purchase or sale of shares, are derived from observable prices. Commingled funds are categorized in Level 2 because the fair value of the funds are based on net asset values per fund share (the unit of account), primarily derived from the quoted prices in active markets on the underlying equity securities. Units of participation are categorized as Level 2 because the fair value of these securities is based partially on observable prices of the underlying securities.

(2) For fixed income securities, multiple prices from pricing services are obtained from pricing vendors whenever possible, which enables cross-provider validations in addition to checks for unusual daily movements. A primary price source is identified based on asset type, class or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the portfolio managers challenge an assigned price and the trustee determines that another price source is considered to be preferable. U.S. Treasury securities are categorized as Level 1 because they trade in a highly liquid and transparent market. Investments with maturities of three months or less when purchased, including certain short-term fixed income securities, are considered cash equivalents and are also categorized as Level 1. The fair values of fixed income

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Notes to Condensed Consolidated Financial Statements (Continued)

securities, excluding U.S. Treasury securities, are based on evaluated prices that reflect observable market information, such as actual trade information or similar securities, adjusted for observable differences and are categorized in Level 2.

(3) With respect to individually held equity securities, the trustee obtains prices from pricing services, whose prices are obtained from direct feeds from market exchanges. The fair values of equity securities held directly by the trust fund are based on quoted prices in active markets and are categorized in Level 1. Equity securities held individually are primarily traded on the New York Stock Exchange and NASDAQ Global Select Market, which contain only actively traded securities due to the volume trading requirements imposed by these national securities exchanges.

(4) Direct lending funds are investments in managed funds which invest in private companies for long-term capital appreciation. The fair value of these securities is determined using either an enterprise value model or a bond valuation model. The enterprise valuation model develops valuation estimates based on valuations of comparable public companies, recent sales of private and public companies, discounting the forecasted cash flows of the portfolio company, estimating the liquidation or collateral value of the portfolio company or its assets, considering offers from third parties to buy the portfolio company, its historical and projected financial results, as well as other factors that may impact value. Significant judgment is required in the applications of discounts or premiums applied to the prices of comparable companies for factors such as size, marketability and relative performance. Under the bond valuation model, expected future cash flows are discounted using a discount rate. The discount rate is composed of a market based rate for similar credits in the public market and an internal credit rate based on the underlying risk of the credit. Investments in direct lending funds are categorized as Level 3 because the fair value of these securities is based largely on inputs that are unobservable as well as utilizing complex valuation models.

The following table presents the rollforward for Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):

For the Three Month Period Ended September 30, 2011	Direct Lending Fund
Balance as of June 30, 2011	$	40,441
Purchases and issuances	13,288
Sales, dispositions and settlements	(16,442		)
Realized gains and losses	—
Change in unrealized gains and losses	—
	$	37,287

For the Nine Month Period Ended September 30, 2011	Direct Lending Fund
Balance as of December 31, 2010	$	—
Purchases and issuances	63,404
Sales, dispositions and settlements	(28,643		)
Realized gains and losses	—
Change in unrealized gains and losses	2,526
	$	37,287

(6) Joint Ventures

We use the equity method of accounting for our unconsolidated joint ventures. Under the equity method, we recognize our proportionate share of the net earnings of these joint ventures as a single line item under “Equity in income of unconsolidated joint ventures” in our condensed consolidated statements of operations. In accordance with authoritative guidance, we analyzed all of our joint ventures and classified them into two groups: (a) joint ventures that must be consolidated because we hold the majority voting interest, or because they are VIEs of which we are the primary beneficiary; and (b) joint ventures that do not need to be consolidated because we hold only a minority voting or other ownership interest, or because they are VIEs of which we are not the primary beneficiary.

The table below presents financial information, derived from the most recent financial statements provided to us, in aggregate, for our unconsolidated joint ventures (in thousands):

	As of September 30, 2011		As of December 31, 2010
Current assets	$	60,531	$	63,251
Current liabilities	18,100		43,023

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

	For the Three Month Period Ended September 30,				For the Nine Month Period Ended September 30,
	2011		2010		2011		2010
Revenue	$	38,597	$	75,292	$	132,069	$	207,920
Gross profit	14,631		12,485		29,495		25,342
Net income	14,415		12,318		29,038		24,934
Net income attributable to EnergySolutions	$	5,714	$	3,952	$	9,995	$	10,165

Our percentage of ownership of unconsolidated joint ventures as of September 30, 2011 and December 31, 2010 was:

	Percentage of Ownership
Global Threat Reduction Solutions, LLC	49.0	%
LATA/Parallax Portsmouth, LLC	49.0	%
SempraSafe, LLC	49.0	%
TPMC EnergySolutions Environmental Services, LLC	49.0	%
Washington River Protection Solutions, LLC	40.0	%
Weskem, LLC	27.6	%
Idaho Treatment Group, LLC	15.0	%
West Valley Environmental Services LLC	10.0	%

We received $2.6 million and $6.2 million of dividend distributions from our unconsolidated joint ventures during the nine month periods ended September 30, 2011 and 2010, respectively.

Noncontrolling interest

We have majority voting rights for two of our minority owned joint ventures. Accordingly, we have reported their operations in our consolidated financial statements. Assets from our consolidated joint ventures can only be used to settle their own obligations. Additionally, the Company’s assets cannot be used to settle the joint ventures’ obligations because these minority owned joint ventures do not have recourse to the general credit of the Company.

We record noncontrolling interest income which reflects the portion of the earnings of operations which are applicable to other minority interest partners. Cash payments, representing the distributions of the investors’ share of cash generated by operations, are recorded as a reduction in noncontrolling interests. Noncontrolling interest income for the three and nine month periods ended September 30, 2011 was $1.0 million and $2.0 million, respectively. Noncontrolling interest income for the three and nine month periods ended September 30, 2010 was $0.7 million and $1.2 million, respectively. Distributions to noncontrolling interest shareholders for the nine month periods ended September 30, 2011 and 2010 were $1.8 million and $0.3 million, respectively.

(7) Goodwill

As of September 30, 2011 and December 31, 2010, we had recorded $480.9 million and $480.4 million, respectively, of goodwill related to domestic and foreign acquisitions. Goodwill related to the acquisitions of foreign entities is translated into U.S. dollars at the exchange rate in effect at the balance sheet date. The related translation gains and losses are included as a separate component of stockholders’ equity in accumulated other comprehensive income (loss) in the consolidated balance sheets. For the nine month periods ended September 30, 2011 and 2010, we recorded gains of $0.5 million and losses of $0.4 million, respectively, on translation related to goodwill denominated in foreign currencies.

In accordance with authoritative guidance for accounting of goodwill and other intangible assets, we perform an impairment test on the Company’s goodwill annually or more often when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying value. Our annual testing date is April 1. Goodwill is assigned to each of our reporting units based on which of the reporting units derive the benefits of an acquired company. If multiple reporting units benefit from an acquisition, goodwill is allocated to each reporting unit based on an allocation of revenue between the reporting units at the acquisition date.

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Notes to Condensed Consolidated Financial Statements (Continued)

We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using a combination of a market approach and an income approach. Forecasts of future cash flow are based on our best estimate of future net revenue and operating expenses, based primarily on pricing, market segment share and general economic conditions. Changes in these forecasts could significantly change the calculated fair value of a reporting unit.

We performed our annual impairment test as of April 1, 2011 and based on step one of the analysis each of our reporting units’ fair value exceeded their carrying value. Although the fair value of the reporting units currently exceeds their carrying value, a deterioration of market conditions, adverse change in regulatory requirements, reductions in government funding, if we are unsuccessful in winning new business or failing to win re-bids of current contracts could result in a future impairment loss.

Based on the goodwill impairment analysis performed as of April 1, 2010, we determined that an indicator of impairment existed for the Government Group reporting unit. Upon completion of step two of the analysis which included an assessment of fair value of all assets and liabilities of the reporting unit, we concluded that the goodwill within our Government Group reporting unit was impaired and recorded a $35.0 million non-cash goodwill impairment charge in the second quarter of 2010.

(8) Other Intangible Assets

Other intangible assets subject to amortization consist principally of amounts assigned to permits, customer relationships, non-compete agreements and technology. All of our other intangible assets are subject to amortization.

Other intangible assets consisted of the following (in thousands):

	As of September 30, 2011						As of December 31, 2010
	Gross Carrying Amount		Accumulated Amortization			Weighted Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization			Weighted Average Remaining Useful Life
Permits	$	240,853	$	(64,081	)	18.1 years	$	240,243	$	(56,694	)	18.8 years
Customer relationships	158,457		(76,884		)	6.6 years	157,594		(66,012		)	7.2 years
Technology and other	15,490		(8,432		)	4.3 years	15,490		(7,121		)	5.1 years
Non competition	1,030		(1,030		)	0 years	1,030		(1,029		)	0.2 years
Total amortizable intangibles	$	415,830	$	(150,427	)	14.2 years	$	414,357	$	(130,857	)	14.7 years

Amortization expense was $6.5 million and $19.6 million for the three and nine month periods ended September 30, 2011, respectively, as compared to $6.4 million and $19.2 million for the three and nine month periods ended September 30, 2010, respectively. For the nine month periods ended September 30, 2011 and 2010, we recorded translation gains of $0.9 million and translation losses of $0.6 million, respectively, related to intangible assets denominated in foreign currencies.

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(9) Senior Credit Facilities and Senior Notes

Our outstanding long-term debt consisted of the following (in thousands):

	As of September 30, 2011			As of December 31, 2010
Term loan facilities due 2016 (1)	$	542,000		$	557,200
Term loan unamortized discount	(11,608		)	(13,231		)
Senior notes, 10.75% due 2018	300,000			300,000
Senior notes unamortized discount	(3,558		)	(3,809		)
Revolving credit facility	—			—
Total debt	826,834			840,160
Less: current portion	—			(5,600		)
Total long-term debt	$	826,834		$	834,560

(1) As of September 30, 2011 and December 31, 2010, the variable interest rate on borrowings under our senior secured credit facility was 6.25%.

On August 13, 2010, the Company entered into a senior secured credit facility with JPMorgan Chase Bank, N.A., as the administrative agent and collateral agent, consisting of a senior secured term loan (the “Term Loan”) in an aggregate principal amount of $560 million at a discount rate of 2.5% and a senior secured revolving credit facility (the “Revolving Credit Facility”) with availability of $105 million, of which $28.9 million was used to fund letters of credit issued as of September 30, 2011. Borrowings under the senior secured credit facility bear interest at a rate equal to: (a) Adjusted LIBOR plus 4.50%, or ABR plus 3.50% in the case of the Term Loan; (b) Adjusted LIBOR plus 4.50%, or ABR plus 3.50% in the case of the Revolving Credit Facility, and (c) a per annum fee equal to the spread over Adjusted LIBOR under the Revolving Credit Facility, along with a fronting fee and issuance and administration fees in the case of revolving letters of credit. The proceeds of the senior secured credit facility were used to repay outstanding indebtedness under former credit agreements, collateralize reimbursement obligations to the deposit issuing banks with respect to deposit letters of credit, replace synthetic letters of credit issued under former credit agreements and provide credit support for obligations acquired under the Exelon agreements. As of September 30, 2011, borrowings of $310.2 million under the Term Loan were held in a restricted cash account as collateral for the Company’s reimbursement obligations with respect to letters of credit.

The Term Loan amortizes in equal quarterly installments of $1.4 million payable on the last day of each calendar quarter, with the balance being payable on August 13, 2016. In addition to the scheduled repayments, we are required to prepay borrowings under the senior secured credit facility with (1) 100% of the net cash proceeds received from non-ordinary course asset sales or other dispositions, or as a result of a casualty or condemnation, subject to reinvestment provisions and other customary adjustments, (2) 100% of the net proceeds received from the issuance of debt obligations other than certain permitted debt obligations, (3) 50% of excess cash flow (as defined in the senior secured credit facility), if the leverage ratio is equal to or greater than 3.0 to 1.0, or 25% of excess cash flow if the leverage ratio is less than 3.0 to 1.0 but greater than 1.0 to 1.0, reduced by the aggregate amount of optional prepayments of the Term Loan made during the applicable fiscal year. If the leverage ratio is equal to or less than 1.0 to 1.0, we are not required to prepay the Term Loan. The excess cash flow calculations (as defined in the senior secured credit facility), are prepared annually as of the last day of each fiscal year. Prepayments of debt resulting from the excess cash flow calculations are due annually five days after the date that the Annual Report on Form 10-K for such fiscal year is filed with the SEC.

During the nine month period ended September 30, 2011, we made principal repayments on the outstanding Term Loan totaling $15.2 million, of which $11.0 million was an optional prepayment. No mandatory principal repayments based on our excess cash flow and scheduled repayments are due within the next twelve months. We made principal repayments totaling $1.4 million during the nine month period ended September 30, 2010. We made $24.3 million principal repayments on our former credit facility during the nine month period ended September 30, 2010. We made cash interest payments of $65.4 million and $20.6 million for the nine month periods ended September 30, 2011 and 2010, respectively. In addition, we paid approximately $23.2 million in fees to the lenders during the nine month period ended September 30, 2010 to obtain a new credit agreement, which are being amortized over the remaining term of the senior secured credit facility. No fees have been paid during the current year. We also recorded a $19.1 million write-off of deferred financing fees during the nine month period ended September 30, 2010, as a result of the retirement of our previous debt.

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

The senior secured credit facility requires the Company to maintain a leverage ratio (based upon the ratio of indebtedness for money borrowed to consolidated adjusted EBITDA, as defined in the senior secured credit facility) and an interest coverage ratio (based upon the ratio of consolidated adjusted EBITDA to consolidated cash interest expense), both of which are calculated quarterly. Failure to comply with these financial ratio covenants would result in an event of default under the senior secured credit facility, and absent a waiver or an amendment from the lenders, preclude us from making further borrowings under the senior secured credit facility and permit the lenders to accelerate all outstanding borrowings under the senior secured credit facility. Based on the formulas set forth in the senior secured credit facility, we are required to maintain a maximum total leverage ratio of 4.5 for the quarter ended September 30, 2011, which is reduced by 0.25 on an annual basis through the maturity date. We are required to maintain a minimum cash interest coverage ratio of 2.0 from the quarter ended September 30, 2011 through the quarter ended September 30, 2014 and 2.25 through the maturity date. As of September 30, 2011, our total leverage and cash interest coverage ratios were 2.89 and 2.82, respectively.

The senior secured credit facility also contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, indebtedness, liens, affiliate transactions, and dividends and restricted payments. Under the senior secured credit facility, we are permitted maximum annual capital expenditures of $40.0 million for 2011 and each year thereafter, plus for each year the lesser of (1) a one year carry-forward of the unused amount from the previous fiscal year and (2) 50% of the amount permitted for capital expenditures in the previous fiscal year. The senior secured credit facility contains events of default for non-payment of principal and interest when due, a cross-default provision with respect to other indebtedness having an aggregate principal amount of at least $5.0 million, and an event of default that would be triggered by a change of control, as defined in the senior secured credit facility. Capital expenditures for the nine month period ended September 30, 2011 totaled $17.1 million. As of September 30, 2011, we were in compliance with all of the covenants under our senior secured credit facility.

The obligations under the senior secured credit facility are secured by a lien on substantially all of the assets of the Company and each of the Company’s domestic subsidiary guarantors, including a pledge by the Company of the equity interests of its domestic subsidiary guarantors, with the exception of the equity interests in our ZionSolutions subsidiary and other special purpose subsidiaries, whose organizational documentation prohibits or limits such a pledge.

On August 13, 2010, we also completed a private offering of $300 million 10.75% Senior Notes (the “Senior Notes”) at a discount rate of 1.3%. The Senior Notes are governed by an Indenture among EnergySolutions and Wells Fargo Bank, National Association, as trustee. Interest on the Senior Notes is payable semiannually in arrears on February 15 and August 15 of each year beginning on February 15, 2011. The Senior Notes rank in equal right of payment to all existing and future senior debt and senior in right of payment to all future subordinated debt.

At any time prior to August 15, 2014, we are entitled to redeem all or a portion of the Senior Notes at a redemption price equal to 100% of the principal amount of the Senior Notes plus an applicable make-whole premium, as of and accrued and unpaid interest to, the redemption date. In addition, prior to August 15, 2013, we may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds from certain public equity offerings at a redemption price of 110.75% of the principal amount, plus accrued and unpaid interest to the date of redemption. In addition, on or after August 15, 2014, we may redeem all or a portion of the Senior Notes at the following redemption prices during the twelve-month period commencing on August 15 of the years set forth below, plus accrued and unpaid interest to the redemption date.

Period	Redemption Price
2014	105.375	%
2015	102.688	%
2016 and thereafter	100.000	%

The Senior Notes are guaranteed on a senior unsecured basis by all of our domestic restricted subsidiaries that guarantee the senior secured credit facility. The Senior Notes and related guarantees are effectively subordinated to our secured obligations, including the senior secured credit facility and related guarantees, to the extent of the value of assets securing such debt. The Senior Notes are structurally subordinated to all liabilities of each of our subsidiaries that do not guarantee the Senior Notes. If a change of control of the Company occurs, each holder will have the right to require that we purchase all or a portion of such holder’s Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest to the date of the purchase. The Indenture contains, among other things, certain covenants limiting our ability, and the ability of one restricted subsidiary, to incur or guarantee additional indebtedness; pay dividends or make other

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

restricted payments; make certain investments; create or incur liens; sell assets and subsidiary stock; transfer all or substantially all of our assets, or enter into a merger or consolidation transactions; and enter into transactions with affiliates.

In May 2011, we filed a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a registration rights agreement entered into in connection with the Senior Notes offering. Under the registration rights agreement, we were required to register for exchange under the Securities Act identical 10.75% Senior Notes due 2018 to replace the outstanding Senior Notes, which were issued in August 2010 without registration under the Securities Act pursuant to exemptions from registration available thereunder. The Securities and Exchange Commission declared the registration statement relating to the exchange offer effective on May 27, 2011, and the exchange of the registered Senior Notes for the unregistered Senior Notes was consummated on May 31, 2011. We did not receive any proceeds from the exchange offer transaction.

Each subsidiary co-issuer and guarantor of our Senior Notes is exempt from reporting under the Securities Exchange Act of 1934, as amended, pursuant to Rule 12h-5 promulgated thereunder, as the subsidiary co-issuer and each of the subsidiary guarantors is wholly owned by us, and the obligations of the co-issuer and the guarantees of our subsidiary guarantors are full and unconditional and joint and several. There are no significant restrictions on our ability or any subsidiary guarantor to obtain funds from its subsidiaries.

(10) Facility and Equipment Decontamination and Decommissioning

We recognize AROs when we have a legal obligation to perform D&D and removal activities upon retirement of an asset. The fair value of an ARO liability is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made, and is added to the carrying amount of the associated asset, which is then depreciated over the remaining useful life of the asset in the case of all of our AROs except the Zion Station ARO as described below.

Each of our AROs is based on a cost estimate for a third party to perform the D&D work. This estimate is inflated using an appropriate inflation rate to the expected time at which the D&D activity will occur, and then it is discounted back using our credit adjusted risk-free rate to a present value. Subsequent to the initial measurement, the ARO is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligations.

Our facility and equipment D&D liabilities consist of the following (in thousands):

	As of September 30, 2011			As of December 31, 2010
Facilities and equipment ARO—Zion Station	$	661,334		$	755,827
Facilities and equipment ARO—Clive, UT	28,196			28,320
Facilities and equipment ARO—other	29,419			27,967
Total facilities and equipment ARO	718,949			812,114
Barnwell Closure	8,932			9,633
	727,881			821,747
Less: current portion	(123,370		)	(110,328		)
	$	604,511		$	711,419

The following is a reconciliation of our facility and equipment ARO (in thousands):

	September 30, 2011			December 31, 2010
Beginning balance	$	812,114		$	51,536
Liabilities incurred	403			768,072
Liabilities settled	(116,838		)	(23,374		)
Accretion expense	23,944			8,226
ARO estimate adjustments	(674		)	7,654
Ending liability	$	718,949		$	812,114

For certain of our D&D obligations, we are required to provide financial assurance in the form of a restricted cash account, a deposit in escrow, a trust fund or an insurance policy. Restricted cash and decontamination and decommissioning deposits consists principally of: (i) funds held in trust for completion of various site clean-up projects and (ii) funds deposited

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

in connection with landfill closure, post-closure and remediation obligations. As of September 30, 2011 and December 30, 2010, we had non-current restricted cash of $0.3 million related to our Clive, Utah facility, which is included in restricted cash and D&D deposits in the accompanying condensed consolidated balance sheets. We are also required to maintain a trust fund to cover the closure obligation for our Barnwell, South Carolina facility. The trust fund balance as of September 30, 2011 and December 31, 2010 was $8.9 million and $10.3 million, respectively, which is included in restricted cash and D&D deposits in the accompanying condensed consolidated balance sheets.

We also have the NDT fund to fund the decommissioning obligation for the Zion Station project. The NDT fund balance as of September 30, 2011 and December 31, 2010 was $745.6 million and $805.1 million, respectively, and is included in NDT fund investments in the accompanying condensed consolidated balance sheets. In connection with the execution of the Exelon agreements and in fulfillment of NRC regulations, we also secured a $200.0 million letter of credit facility to further support the D&D activities at the Zion Station project. This letter of credit is cash-collateralized, and as such is included in non-current restricted cash in the accompanying condensed consolidated balance sheets.

Although we are required to provide assurance to satisfy some of our D&D obligations in the form of insurance policies, restricted cash accounts, escrows or trust funds, these assurance mechanisms do not extinguish our D&D liabilities.

The ARO established in connection with the Zion Station transaction differs somewhat from our traditional AROs. The assets acquired in the Zion Station transaction have no fair value, no future useful life, and are in a shut-down, non-operating state. As a result, the ARO established in connection with the Zion Station transaction is not accompanied by a related depreciable asset. Changes to the ARO liability due to accretion expense and changes in cost estimates are recorded in cost of revenue in our condensed consolidated statements of operations and comprehensive income (loss).

In addition, as we perform most of the work related to the Zion Station ARO with our own resources, gain is recognized for the difference between our actual costs incurred and the recorded ARO which includes an element of profit. Due to the nature of this contract and the purpose of the license stewardship initiative, we have presented this gain in cost of revenue rather than as a credit to operating expense, as we would with our other AROs.

Over the term of the Zion Station project, the Company will perform periodic comprehensive reviews and assessments of the project milestones, schedule, costs, and related projected decommissioning trust fund values, which is standard for all such long-term projects. The Company is in the early stages of performing the first such periodic schedule, cost, and budget update for the Zion Station project, which is anticipated to be completed in the first quarter of 2012 and reflected in the Company’s Annual Report on Form 10-K for the year ending December 31, 2011. Although we have preliminarily identified certain cost items that we believe could be higher than current estimates, we have not yet completed our assessment and believe that updated cost items and overall budget amounts could be higher or lower than original project estimates. This review could result in material changes to the current cost estimates, schedule, projected trust fund balances and overall budget.

(11) Derivative Financial Instruments

We have entered into derivative contracts to help offset our exposure to movements in interest rates in relation to our variable rate debt. These contracts are not designated as accounting hedges. On December 18, 2008, we entered into an interest rate collar agreement with a notional amount of $200.0 million. This contract was terminated on January 4, 2011. The fair value liability of the interest rate collar contract as of December 31, 2010, was $0.1 million. Unrealized gains and losses resulting from adjustments to the fair value of the contract is included in other income (expense), net, and resulted in net gains of $0.2 million and $1.1 million for the three and nine month periods ended September 30, 2010.

We have foreign currency exposure related to our operations in the U.K. as well as other foreign locations. Foreign currency transaction gains and losses are included in other income (expenses), net, in the accompanying condensed consolidated statements of operations and comprehensive income (loss). For the three and nine month periods ended September 30, 2011, we recognized foreign currency transaction gains of $0.3 million and losses of $0.1 million, respectively. For the three and nine month periods ended September 30, 2010, we recognized gains of $0.5 million and $0.1 million, respectively. In January 2011, we implemented a foreign currency risk management program to mitigate the risk of currency fluctuations related to our exposure to the pound sterling.

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(12) Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) attributable to EnergySolutions by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) attributable to EnergySolutions by the weighted-average number of common shares outstanding during the period and potentially dilutive common stock equivalents. Potential common stock equivalents that have been issued by us relate to outstanding stock options and non-vested restricted stock awards and are determined using the treasury stock method.

The following table sets forth the computation of the common shares outstanding in determining basic and diluted net income (loss) per share:

	For the Three Month Period Ended September 30,		For the Nine Month Period Ended September 30,
	2011	2010	2011	2010
Weighted average common shares—basic	88,845,102	88,582,398	88,775,360	88,504,525
Dilutive effect of restricted stock and stock options	—	—	2,287	—
Weighted average common shares—diluted	88,845,102	88,582,398	88,777,647	88,504,525
Anti-dilutive securities not included above	7,694,523	7,760,777	7,653,508	7,419,496

(13) Equity-Based Compensation

Stock Options and Restricted Stock

In November 2007, we adopted the EnergySolutions, Inc. 2007 Equity Incentive Plan (the “Plan”). The Plan authorizes our Board of Directors and certain executives to grant equity awards to directors, officers, employees and consultants. The aggregate number of shares of common stock that may be issued pursuant to awards granted under the Plan is 10,440,000. We recorded non-cash compensation expense related to our stock option and restricted stock grants of $3.1 million and $8.2 million for the three and nine month periods ended September 30, 2011, respectively, as compared to $3.0 million and $8.0 million for the three and nine month periods ended September 30, 2010, respectively. As of September 30, 2011, we had $4.2 million of unrecognized compensation expense related to outstanding stock options, which will be recognized over a weighted-average period of 1.1 years. As of September 30, 2011, there was $4.8 million of unrecognized compensation expense related to non-vested restricted stock which is expected to be recognized over a weighted-average period of 1.9 years.

(14) Income Taxes

We recognized an income tax benefit of $2.2 million and income tax expense of $4.5 million for the three and nine month periods ended September 30, 2011, respectively, for a year to date effective rate of 40.7%, based on an estimated annual effective tax rate method. Our estimated annual effective tax rate would have been higher as a result of our U.K. losses that are not available to offset our U.K. income; however, we were able to release significant reserves related to our gross unrecognized tax benefits as discussed below coupled with a favorable tax rate change in the U.K. that helped normalize our annual effective tax rate. The estimated annual effective rate is also a product of lower tax rates in foreign jurisdictions, the NDT fund earnings that are taxed at both the fund and corporate levels, and the claiming of the benefits related to R&D tax credits in the U.S. and foreign jurisdictions.

We recognized income tax expense of $16.1 million and $20.1 million for the three and nine month periods ended September 30, 2010, respectively, based on an estimated annual effective tax rate on our consolidated operations of negative 243.2%, differs from the U.S. statutory rate of 35% primarily due to operating losses for the three and nine month periods ended September 30, 2010, and a valuation allowance being recorded on certain foreign entity losses for which the Company could not record a tax benefit. The estimated annual effective tax rate was increased due to goodwill impairment that was not deductible for U.S. tax purposes, and state income taxes. The estimated annual effective rate is also a product of lower tax rates in foreign jurisdictions, the NDT fund earnings that are taxed at both the fund and corporate levels, and the claiming of the benefits related to R&D tax credits in the U.S. and foreign jurisdictions.

During the nine month periods ended September 30, 2011 and 2010, the Company made income tax payments of $4.0 million and $8.9 million, respectively.

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

As of September 30, 2011 and December 31, 2010, we had $3.1 million and $6.1 million, respectively, of gross unrecognized tax benefits. The Company recognized $3.0 million of unrecognized tax benefits related to the finalization of U.S. federal examinations and the filing of our 2010 tax returns. During the nine month period ended September 30, 2011, the Company finalized multiple year examinations with the U.S. federal taxing authorities in which the Company recorded an income tax benefit of $1.0 million.

(15) Segment Reporting and Business Concentrations

During 2010, a major strategic plan was initiated by senior management to improve the Company’s performance and approach to the market. As a result, some organizational changes were implemented which included the realignment of internal resources, the restructuring of processes and operational activities, and the execution of new initiatives for profitable growth. The strategic plan also reorganized the Company’s operating business divisions which resulted in the creation of two major operating groups to better serve our customers: the Government Group and the Global Commercial Group. The Government Group will continue to serve its government customers as the former Federal Services division did in the past, and will actively pursue new opportunities within the government market. The Global Commercial Group will focus on increasing its customer base both nationally and internationally, and will consolidate the operations of our Commercial Services, LP&D, and International divisions. However, we will continue to report separately each of our four operating business divisions to more fully present the results of our operations.

Certain reclassifications have been made to the segment information reported for the prior year periods ended September 30, 2010, to conform to current year presentation.

We report our results through two major operating groups: the Government Group and the Global Commercial Group. The following table presents segment information as of and for the three and nine month periods ended September 30, 2011 and 2010 (in thousands):

	For the Three Month Period Ended September 30, 2011
	Government		Global Commercial Group (6)								Corporate Unallocated
	Group		CS			LP&D		International			Items			Consolidated
Revenue from external customers (1)	$	51,726	$	47,110		$	64,736	$	257,455		$	—		$	421,027
Income (loss) from operations (3)	9,086		206			19,821		(1,734		)	(16,745		)	10,634
Depreciation, amortization and accretion expense	442		8,045			5,369		2,008			3,447			19,311
Purchases of property, plant and equipment	106		998			4,438		491			892			6,925

	For the Three Month Period Ended September 30, 2010
	Government		Global Commercial Group (6)								Corporate Unallocated
	Group		CS			LP&D		International			Items			Consolidated
Revenue from external customers (1)	$	81,158	$	42,149		$	70,973	$	223,376		$	—		$	417,656
Income (loss) from operations (3)	6,660		2,080			28,543		1,328			(23,576		)	15,035
Depreciation, amortization and accretion expense	685		2,302			4,399		1,863			3,602			12,851
Purchases of property, plant and equipment	163		403			4,498		46			547			5,657

	As of and for the Nine Month Period Ended September 30, 2011
	Government		Global Commercial Group (6)								Corporate Unallocated
	Group		CS			LP&D		International			Items			Consolidated
Revenue from external customers (1)	$	185,485	$	141,402		$	181,434	$	838,646		$	—		$	1,346,967
Income (loss) from operations (3)	15,725		(592		)	49,232		15,871			(47,345		)	32,891
Depreciation, amortization and accretion expense	1,766		24,127			17,253		5,940			10,474			59,560
Goodwill	106,594		90,129			230,548		53,654			—			480,925
Other long-lived assets (4)	26,106		21,456			270,711		54,178			16,194			388,645
Purchases of property, plant and equipment	128		1,386			11,716		637			3,280			17,147
Total assets (5)	207,202		1,728,386			699,302		538,823			98,293			3,272,006

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

	As of and for the Nine Month Period Ended September 30, 2010
	Government			Global Commercial Group (6)						Corporate Unallocated
	Group			CS		LP&D		International		Items			Consolidated
Revenue from external customers (1)	$	262,828		$	84,278	$	190,480	$	764,299	$	—		$	1,301,885
Income (loss) from operations (2) (3)	(13,258		)	8,176		59,286		18,873		(58,714		)	14,363
Depreciation, amortization and accretion expense	2,029			3,099		15,460		5,543		10,114			36,245
Goodwill	108,514			90,129		231,325		51,546		—			481,514
Other long-lived assets (4)	31,121			19,411		272,062		61,937		27,960			412,491
Purchases of property, plant and equipment	200			1,128		6,872		46		3,419			11,665
Total assets (5)	247,269			1,928,961		603,598		456,108		233,444			3,469,380

(1) Intersegment revenue is eliminated in consolidation. Intersegment revenue was $4.6 million and $13.1 million for the three and nine month periods ended September 30, 2011, and was $3.1 million and $4.9 million for the three and nine month periods ended September 30, 2010, respectively. Revenue by segment represents revenue earned based on third-party billing to customers.

(2) Included in income from operations from our Government Group is a $35.0 million impairment of goodwill recorded during the nine month period ended September 30, 2010.

(3) We include income from our unconsolidated joint ventures in income from operations from our Government Group. Equity income from unconsolidated joint ventures for the three and nine month periods ended September 30, 2011 was $5.7 million and $10.0 million, respectively. Equity in income from unconsolidated joint ventures for the three and nine month periods ended September 30, 2010 was $4.0 million and $10.2 million, respectively.

(4) Other long-lived assets include property, plant and equipment and other intangible assets.

(5) Corporate unallocated assets relate primarily to income tax receivables, deferred tax assets, deferred financing costs, prepaid expenses, property, plant and equipment that benefit the entire company and cash.

(6) Results of our operations for services provided by our Global Commercial Group to our customers in Canada, Asia and Europe are included in our international operations.

(16) Pension Plans

Net periodic benefit costs consisted of the following (in thousands):

	For the Three Month Period Ended September 30,						For the Nine Month Period Ended September 30,
	2011			2010			2011			2010
Service cost	$	14,226		$	12,592		$	42,751		$	37,400
Interest cost	43,524			40,992			130,796			121,753
Expected return on plan assets	(45,902		)	(39,791		)	(137,941		)	(118,185		)
Net actuarial loss	—			39			—			115
	$	11,848		$	13,832		$	35,606		$	41,083

The preceding information relates only to the Magnox North Limited and Magnox South Limited pension plans and does not include amounts related to benefit plans applicable to employees associated with certain contracts with the DOE because we are not responsible for the current or future funded status of these plans.

(17) Employee Termination Benefits

In 2009, we began an organizational review of our Magnox sites which identified an opportunity to reduce the existing workforce at three sites that are in the process of defueling and at an additional site at which decommissioning work is relatively close to completion. As a result of the overstaffing at the Magnox sites, we presented an initial restructuring program to the NDA, which included the termination of approximately 200 employees on a voluntary basis at these sites. This plan was approved by the NDA during the first quarter of 2010. A second phase of the organizational review was performed during the first quarter of 2010, and an additional reduction in force of approximately 100 positions was identified. The termination plan related to the second phase was also presented to and approved by the NDA.

Additionally, as a result of the organizational review of the Magnox business and at the request of the NDA, it was also recommended to combine the Magnox North Limited and Magnox South Limited entities into a single entity. We successfully recombined these two entities into a single entity, Magnox Limited, during the first quarter of 2011. This event

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

delivered the first major milestone in the Magnox organizational restructuring program previously agreed to by our customer the NDA. We have now reorganized the business into three operating divisions within the single legal entity, which has enabled the commencement of the next phase: a review of corporate support structures and associated manpower.

The termination plan and employee termination benefits to be paid for the termination of these employees have been calculated in accordance with the existing employee and the trade union agreements and were pre-approved by the NDA. All employee termination benefits are treated as part of the normal Magnox cost base and will be reimbursed by the NDA.

The full organizational review for all ten Magnox sites is continuing in conjunction with the Magnox Optimized Decommissioning Plan (“MODP”), and it is expected to result in an additional reduction in force in excess of 1,000 employees over the next four to five years. The MODP has been approved by the NDA and forms part of the NDA funding settlement which in turn is part of the U.K. government’s recently announced Comprehensive Spending Review (“CSR”).

During the CSR period through 2015, the MODP includes approximately twelve changes of organization across the ten Magnox sites. As a result of these changes and the drive to reduce support and overhead costs, there will be significant manpower reductions, expected to be approximately 1,000 employees, during the period through 2015 followed by a further reduction of approximately 600 employees in the period from 2016 to 2020. The initial recombination of the Magnox entities together with reduced support and overhead will result in reductions of approximately 300 employees in the next twelve months followed by further reductions as sites go from generation to defueling, or from defueling to decommissioning.

The total termination benefit costs included within the MODP over the CSR period to 2015 is approximately £200 million and is expected to be paid over four years. These amounts are estimates and have not yet been recorded because accounting criteria have not yet been met. During the nine month period ended September 30, 2011, we recognized $9.8 million of employee termination benefits. These benefits are included in cost of revenue in the condensed consolidated statements of operations for our International division. We have recognized a corresponding liability, which is included in accrued expenses and other current liabilities. In addition, we have recognized revenue and a receivable from the NDA for the reimbursement of the employee termination benefits. The remaining unpaid termination benefits are expected to be paid over a period of approximately 24 months.

The following is a reconciliation of the beginning and ending liability balances (in thousands):

	September 30, 2011			December 31, 2010
Beginning liability	$	36,753		$	24,260
Additions	9,855			34,855
Payments	(11,418		)	(21,431		)
Effect of exchange rate	511			(931		)
Ending liability	$	35,701		$	36,753

(18) Commitments and Contingencies

We may become subject to various claims and legal proceedings covering matters that may arise in the ordinary course of our business activities. As of September 30, 2011, we were not involved in any legal proceedings that we believe will have a material adverse effect on our consolidated financial position, operating results or cash flows.

(19) Guarantor and Non-Guarantor Supplemental Financial Information

The Senior Notes due 2018 were issued by EnergySolutions, Inc. (the “Parent”), and EnergySolutions, LLC (together, the “Issuers”). The Senior Notes are jointly and severally guaranteed on a full and unconditional basis by each of the Parent’s current and future domestic fully-owned subsidiaries that are guarantors under the senior credit facility, other than ZionSolutions LLC, which was established for the purpose of the Company’s license stewardship initiative, as well as up to five other special purpose subsidiaries that may be established for similar license stewardship projects, and certain other non-operating or immaterial subsidiaries.

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EnergySolutions Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Presented below is the condensed consolidated financial information of the Issuers, our subsidiaries that are guarantors (the “Guarantor Subsidiaries”), and our subsidiaries that are not guarantors (the “Non-Guarantor Subsidiaries”). The condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries using the equity method of accounting.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For The Three Month Period ended September 30, 2011

(in thousands)

(unaudited)

	Parent			Energy Solutions LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	22,193		$	113,482		$	295,973		$	(10,621	)	$	421,027
Cost of revenue	—			(8,344		)	(90,409		)	(295,810		)	10,621			(383,942		)
Gross profit	—			13,849			23,073			163			—			37,085
Selling, general and administrative expenses	—			(15,118		)	(16,259		)	(788		)	—			(32,165		)
Equity in income of unconsolidated joint ventures	—			—			5,714			—			—			5,714
Operating income	—			(1,269		)	12,528			(625		)	—			10,634
Interest expense	—			(14,797		)	—			(3,404		)	—			(18,201		)
Income from subsidiaries	(5,063		)	7,520			—			—			(2,457		)	—
Other income (expense), net	—			3,483			113			(1,096		)	—			2,500
Income before income tax	(5,063		)	(5,063		)	12,641			(5,125		)	(2,457		)	(5,067		)
Provision for income taxes	1,235			—			—			983			—			2,218
Net income	(3,828		)	(5,063		)	12,641			(4,142		)	(2,457		)	(2,849		)
Net income attributable to noncontrolling interests	—			—			—			(979		)	—			(979		)
Net income attributable to EnergySolutions	$	(3,828	)	$	(5,063	)	$	12,641		$	(5,121	)	$	(2,457	)	$	(3,828	)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For The Nine Month Period ended September 30, 2011

(in thousands)

(unaudited)

	Parent			Energy Solutions LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	85,756		$	309,299		$	984,255		$	(32,343	)	$	1,346,967
Cost of revenue	—			(46,283		)	(267,633		)	(946,341		)	32,343			(1,227,914		)
Gross profit	—			39,473			41,666			37,914			—			119,053
Selling, general and administrative expenses	—			(51,383		)	(29,217		)	(15,557		)	—			(96,157		)
Equity in income of unconsolidated joint ventures	—			—			9,995			—			—			9,995
Operating income	—			(11,910		)	22,444			22,357			—			32,891
Interest expense	—			(44,583		)	—			(10,267		)	—			(54,850		)
Income from subsidiaries	8,566			61,553			—			—			(70,119		)	—
Other income, net	—			3,506			166			31,406			—			35,078
Income before income tax	8,566			8,566			22,610			43,496			(70,119		)	13,119
Provision for income taxes	(1,981		)	—			—			(2,533		)	—			(4,514		)
Net income	6,585			8,566			22,610			40,963			(70,119		)	8,605
Net income attributable to noncontrolling interests	—			—			—			(2,020		)	—			(2,020		)
Net income attributable to EnergySolutions	$