**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**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  March 31, 2008**                                                                                             |
| ** **                                                                                                                                          |
| **Or**                                                                                                                                              |
|                                                                                                                                                | ** ** |
| **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 asspecified in its charter)

 

| **Delaware**                                                    | ** ** | **51-0653027**                           |
|-----------------------------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization) | ** ** | (I.R.S. Employer  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) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes x No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

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

 

As of April 30, 2008,88,303,500 shares of registrant’s common stock were outstanding.

 

 

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**ENERGY*SOLUTIONS*, INC.**

**QUARTERLY REPORT ON FORM 10-Q**

**For the Three Months Ended March 31, 2008**

 
| ** **                                                                                              | **Page** |
|---------------------------------------------------------------------------------------------------------|----------|
|                                                                                                    |     |
| **PART I.**                                                                                        |     |
|                                                                                                    |     |
| Item 1.  Financial Statements                                                                      | 1        |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operation | 9        |
| Item 3. Qualitative and Quantitative Disclosures  about Market Risk                                | 18       |
| Item 4. Controls and Procedures                                                                    | 18       |
|                                                                                                    |     |
| **PART II.**                                                                                       |     |
| ** **                                                                                              |     |
| Item 1.  Legal Proceedings                                                                         | 19       |
| Item 1A.  Risk Factors                                                                             | 19       |
| Item 6.  Exhibits                                                                                  | 19       |
| Signatures                                                                                              | 19       |

 

i

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**PART I**

 

**Item 1. Financial Statements**

 

**Energy*Solutions*, Inc.**

 

**Condensed Consolidated Balance Sheets**

**March 31,2008 and December 31, 2007**

(in thousands of dollars)

 
| ** **                                                                                                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                                                                                | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| **Assets**                                                                                                | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets:                                                                                           |       |               |       |                  |       |
| Cash and cash equivalents                                                                                 |       | $                  | 38,086     |                  | $          | 36,366 |   |
| Restricted cash                                                                                           |       | —             |       | 3,995                 |       |
| Accounts receivable, net of allowance for doubtful accounts                                               |       | 369,447            |       | 366,083               |       |
| Costs and estimated earnings in excess of billings on uncompleted  contracts                              |       | 74,861             |       | 41,243                |       |
| Income tax receivable                                                                                     |       | 20,032             |       | 26,163                |       |
| Inventories                                                                                               |       | 11,776             |       | 10,851                |       |
| Prepaid expenses and other current assets                                                                 |       | 28,783             |       | 20,981                |       |
| Total current assets                                                                                      |       | 542,985            |       | 505,682               |       |
|                                                                                                      |       |               |       |                  |       |
| Property, plant and equipment, net                                                                        |       | 107,230            |       | 110,688               |       |
| Goodwill                                                                                                  |       | 526,077            |       | 526,040               |       |
| Other intangible assets, net                                                                              |       | 377,474            |       | 383,812               |       |
| Restricted cash and decontamination and decommissioning deposits                                          |       | 32,385             |       | 30,559                |       |
| Other noncurrent assets                                                                                   |       | 78,953             |       | 68,169                |       |
| Total assets                                                                                              |       | $                  | 1,665,104  |                  | $          | 1,624,950 |   |
|                                                                                                      |       |               |       |                  |       |
| **Liabilities and Stockholders’ Equity**                                                             |       |               |       |                  |       |
| Current liabilities:                                                                                      |       |               |       |                  |       |
| Current portion of long-term debt                                                                         |       | $                  | 1,509      |                  | $          | 1,557 |   |
| Accounts payable                                                                                          |       | 138,009            |       | 155,663               |       |
| Accrued expenses and other current liabilities                                                            |       | 271,657            |       | 233,588               |       |
| Deferred income taxes                                                                                     |       | 1,402              |       | 1,402                 |       |
| Unearned revenues                                                                                         |       | 50,782             |       | 43,733                |       |
| Total current liabilities                                                                                 |       | 463,359            |       | 435,943               |       |
|                                                                                                      |       |               |       |                  |       |
| Long-term debt, less current portion                                                                      |       | 585,458            |       | 605,410               |       |
| Pension liability                                                                                         |       | 55,963             |       | 44,540                |       |
| Facility and equipment decontamination and decommissioning  liabilities                                   |       | 70,078             |       | 69,543                |       |
| Deferred income taxes                                                                                     |       | 54,372             |       | 53,504                |       |
| Other noncurrent liabilities                                                                              |       | 12,265             |       | 10,619                |       |
| Total liabilities                                                                                         |       | 1,241,495          |       | 1,219,559             |       |
|                                                                                                      |       |               |       |                  |       |
| Minority interests                                                                                        |       | 604                |       | 68                    |       |
| 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; 88,303,500  shares issued and outstanding |       | 883                |       | 883                   |       |
| Additional paid-in capital                                                                                |       | 471,372            |       | 471,075               |       |
| Accumulated other comprehensive loss                                                                      |       | (3,337             | )          | (1,429                | )          |
| Capital deficiency                                                                                        |       | (45,913            | )          | (65,206               | )          |
| Total stockholders’ equity                                                                           |       | 423,005            |       | 405,323               |       |
|                                                                                                      |       |               |       |                  |       |
| Total liabilities and stockholders’ equity                                                           |       | $                  | 1,665,104  |                  | $          | 1,624,950 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

1

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**Energy*Solutions*, Inc.**

 

**Condensed Consolidated Statements of Operationsand Comprehensive Income (Loss)**

**ThreeMonths Ended March 31, 2008 and 2007**

(in thousands ofdollars, except per share information)

(Unaudited)

 
| ** **                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                               | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Revenues                                                 |       | $                                                    | 501,753    |   | $ | 114,151 |   |
| Cost of revenues                                         |       | 428,770                                              |       | 83,357 |   |
| Gross profit                                             |       | 72,983                                               |       | 30,794 |   |
|                                                     |       |                                                 |       |   |   |
| Selling, general and administrative expenses             |       | 28,590                                               |       | 28,328 |   |
| Income from operations                                   |       | 44,393                                               |       | 2,466 |   |
|                                                     |       |                                                 |       |   |   |
| Interest expense                                         |       | 11,660                                               |       | 15,370 |   |
| Other income (expenses), net                             |       | (2,061                                               | )          | 148 |   |
| Income (loss) before income taxes and minority interests |       | 30,672                                               |       | (12,756 | ) |
|                                                     |       |                                                 |       |   |   |
| Minority interests                                       |       | 195                                                  |       | — |   |
| Income tax expense (benefit)                             |       | 11,184                                               |       | (2,412 | ) |
| Net income (loss)                                        |       | $                                                    | 19,293     |   | $ | (10,344 | ) |
|                                                     |       |                                                 |       |   |   |
| Net income per share - see note 6:                       |       |                                                 |       |   |   |
| Basic                                                    |       | $                                                    | 0.22       |   |   |   |
| Diluted                                                  |       | $                                                    | 0.22       |   |   |   |
|                                                     |       |                                                 |       |   |   |
| Shares used to calculate net income per share:           |       |                                                 |       |   |   |
| Basic                                                    |       | 88,303,500                                           |       |   |   |
| Diluted                                                  |       | 88,310,022                                           |       |   |   |
|                                                     |       |                                                 |       |   |   |
| Pro forma net loss per share - see note 6:               |       |                                                 |       |   |   |
| Basic                                                    |       |                                                 |       | $ | (0.11 | ) |
| Diluted                                                  |       |                                                 |       | $ | (0.11 | ) |
|                                                     |       |                                                 |       |   |   |
| Shares used to calculate pro forma net loss per share:   |       |                                                 |       |   |   |
| Basic                                                    |       |                                                 |       | 75,150,000 |   |
| Diluted                                                  |       |                                                 |       | 75,150,000 |   |
|                                                     |       |                                                 |       |   |   |
| Cash dividends declared per common share                 |       | $                                                    | 0.025      |   | $ | — |   |
|                                                     |       |                                                 |       |   |   |
| Comprehensive income (loss):                             |       |                                                 |       |   |   |
| Net income (loss)                                        |       | $                                                    | 19,293     |   | $ | (10,344 | ) |
| Foreign currency translation adjustment                  |       | 204                                                  |       | 66 |   |
| Change in unrecognized actuarial loss                    |       | (2,113                                               | )          | — |   |
| Comprehensive income (loss)                              |       | $                                                    | 17,384     |   | $ | (10,278 | ) |

 

See accompanyingnotes to condensed consolidated financial statements.

 

2

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**Energy*Solutions*, Inc.**

 

**CondensedConsolidated Statements of Cash Flows**

**ThreeMonths Ended March 31, 2008 and 2007**

(in thousands ofdollars)

(Unaudited)

 
| ** **                                                                                | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| **Cash flows from operating activities**                                                  | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income (loss)                                                                         |       | $                                                    | 19,293     |   | $ | (10,344 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by  operating activities: |       |                                                 |       |   |   |
| Minority interest income                                                                  |       | 195                                                  |       | — |   |
| Depreciation and amortization                                                             |       | 11,818                                               |       | 9,374 |   |
| Equity-based compensation expense                                                         |       | 2,551                                                |       | 876 |   |
| Deferred income taxes                                                                     |       | 1,229                                                |       | — |   |
| Amortization of debt financing fees and debt discount                                     |       | 717                                                  |       | 476 |   |
| Loss on disposal of property, plant and equipment                                         |       | 124                                                  |       | — |   |
| Unrealized loss on derivative contracts                                                   |       | 2,842                                                |       | 270 |   |
| Recoveries of doubtful accounts                                                           |       | (113                                                 | )          | (127 | ) |
| Changes in operating assets and liabilities:                                              |       |                                                 |       |   |   |
| Accounts receivable                                                                       |       | (3,131                                               | )          | 8,757 |   |
| Costs and estimated earnings in excess of billings on uncompleted  contracts              |       | (33,497                                              | )          | 7,124 |   |
| Income tax receivable                                                                     |       | 6,131                                                |       | (2,142 | ) |
| Inventories                                                                               |       | (903                                                 | )          | (1,207 | ) |
| Prepaid expenses and other current assets                                                 |       | (7,722                                               | )          | (504 | ) |
| Accounts payable                                                                          |       | (17,882                                              | )          | (11,549 | ) |
| Accrued expenses and other current liabilities                                            |       | 32,885                                               |       | 3,095 |   |
| Unearned revenues                                                                         |       | 7,051                                                |       | (8,952 | ) |
| Facility and equipment decontamination and decommissioning  liabilities                   |       | 393                                                  |       | 389 |   |
| Restricted cash and decontamination and decommissioning deposits                          |       | 2,248                                                |       | 37,359 |   |
| Other noncurrent assets                                                                   |       | (11,982                                              | )          | (789 | ) |
| Other noncurrent liabilities                                                              |       | 13,417                                               |       | 356 |   |
| Net cash provided by operating activities                                                 |       | 25,664                                               |       | 32,462 |   |
|                                                                                      |       |                                                 |       |   |   |
| **Cash flows from investing activities**                                                  |       |                                                 |       |   |   |
| Purchases of businesses, net of cash acquired                                             |       | —                                               |       | (15,110 | ) |
| Purchases of property, plant and equipment                                                |       | (1,280                                               | )          | (1,743 | ) |
| Net cash used in investing activities                                                     |       | (1,280                                               | )          | (16,853 | ) |
|                                                                                      |       |                                                 |       |   |   |
| **Cash flows from financing activities**                                                  |       |                                                 |       |   |   |
| Repayments of long-term debt                                                              |       | (20,000                                              | )          | (12,000 | ) |
| Net borrowings (repayments) under revolving credit facility                               |       | —                                               |       | (1,500 | ) |
| Dividends/distributions to stockholders                                                   |       | (2,208                                               | )          | (2,633 | ) |
| Distributions to minority interests partners                                              |       | (131                                                 | )          | — |   |
| Repayments of capital lease obligations                                                   |       | (396                                                 | )          | (241 | ) |
| Debt financing fees                                                                       |       | —                                               |       | (1,095 | ) |
| Net cash used in financing activities                                                     |       | (22,735                                              | )          | (17,469 | ) |
|                                                                                      |       |                                                 |       |   |   |
| Effect of exchange rate on cash                                                           |       | 71                                                   |       | 66 |   |
|                                                                                      |       |                                                 |       |   |   |
| Net increase (decrease) in cash and cash equivalents                                      |       | 1,720                                                |       | (1,794 | ) |
|                                                                                      |       |                                                 |       |   |   |
| Cash and cash equivalents, beginning of period                                            |       | 36,366                                               |       | 4,641 |   |
|                                                                                      |       |                                                 |       |   |   |
| Cash and cash equivalents, end of period                                                  |       | $                                                    | 38,086     |   | $ | 2,847 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

3

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** **

**Energy*Solutions*, Inc.**

**Notes to Condensed Consolidated FinancialStatements**

(Unaudited)

 

**(1) Descriptionof Business**

 

Envirocare of Utah, Inc.,our predecessor, was formed in 1988 to operate a disposal facility for mixedwaste, uranium mill tailings and Class A low-level radioactive waste inClive, Utah. In January 2005, our predecessor converted to a limitedliability company, Envirocare of Utah, LLC (“Envirocare”). Immediatelythereafter, the sole member of Envirocare sold all of its member interest to ENVHoldings LLC, our former parent and current majority stockholder. In 2006, wechanged our name from Envirocare of Utah, LLC to Energy*Solutions*, LLC (“we,” “our,” “Energy*Solutions*” or the “Company”). Since 2005,we have expanded and diversified our operations through a series of strategicacquisitions, including the Decontamination and Decommissioning (“D&D”)division of Scientech, LLC (“Scientech”) in October 2005, BNG America, LLC(“BNGA”) in February 2006, Duratek, Inc. (“Duratek”) in June 2006,Safeguard International Solutions, Ltd. (“Safeguard”) in December 2006,Parallax, Inc. (“Parallax”) in January 2007, Reactor Sites ManagementCompany Limited (“RSMC”) in June 2007, NUKEM Corporation (“NUKEM”) in July 2007,and Monserco Limited (“Monserco”) in December 2007. The operations of suchacquisitions are included in our results of operations from the dates ofacquisitions.

 

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

 

On November 20,2007, the date of the completion of our initial public offering, we completedour conversion to a corporate structure whereby Energy*Solutions*,LLC converted to Energy*Solutions*, Inc.  As a result, the sole member of Energy*Solutions*, LLC contributed its membership equity interest for75.2 million shares of $0.01 par value common stock of Energy*Solutions*, Inc.** **Energy*Solutions*, Inc.is now organized and existing under the General Corporation Law of the State ofDelaware.

 

**(2) Basisof Presentation**

** **

The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with U.S. generally accepted accounting principles (“GAAP”) forinterim financial information and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by GAAP for complete financialstatements.  In the opinion ofmanagement, all adjustments, consisting only of normal recurring accruals,considered necessary for a fair presentation have been included.  These unaudited condensed consolidatedfinancial statements should be read in conjunction with the auditedconsolidated financial statements and notes thereto contained in our AnnualReport on Form 10-K for the year ended December 31, 2007 filed withthe Securities and Exchange Commission on March 28, 2008.

 

The preparation of financial statements inconformity with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Actual resultscould differ from these estimates.  Theresults of operations for the three months ended March 31, 2008 are notnecessarily indicative of results that can be expected for the full year.

 

Effective March 14,2008, we obtained majority voting rights for one of our minority-owned jointventures.  Accordingly, we have reportedits operations in our consolidated financial statements from March 14,2008.  We record minority interest incomewhich reflects the portion of the earnings of operations which are applicableto other minority interest partners.

 

4

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**Energy*Solutions*, Inc.**

**Notes toCondensed Consolidated Financial Statements**

(Unaudited)

 

**(3) Inventories**

** **

Inventories consist ofthe following as of March 31, 2008 and December 31, 2007:

 
| ** **         | ** ** | **March 31,**                           | ** ** | **December 31,** | ** ** |
|--------------------|------------|----------------------------------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2008**                                     | ** ** | **2007**              | ** ** |
| ** **         | ** ** | **(in thousands of dollars)** | ** ** |
| Parts and supplies |       | $                                            | 871        |                  | $          | 892 |   |
| Work in process    |       | —                                       |       | 2,904                 |       |
| Finished goods     |       | 10,905                                       |       | 7,055                 |       |
|               |       | $                                            | 11,776     |                  | $          | 10,851 |   |

 

**(4) SeniorCredit Facilities**

** **

On June 7, 2006, weentered into a five-year, $75.0 million revolving credit facility, seven-year,$770.0 million term loan facilities and a seven-year, $25.0 million synthetic letterof credit facility. The revolving credit facility includes a sublimit of $60.0million for letters of credit, of which $18.2 million were issued as of March 31,2008. The credit agreements governing these facilities were amended on February 9,2007 to increase the size of the synthetic letter of credit facility from $25.0million to $100.0 million, of which $99.9 million were issued as of March 31,2008.  The credit facilities are securedby substantially all of our assets.

 

Borrowings under thecredit facilities bear interest at a base rate (the greater of the Prime Rateor 0.5% higher than the Federal Funds Rate) plus an applicable margin or, atour option, the London Interbank Offered Rates (“LIBOR”), adjusted for theEurodollar reserve percentage, plus an applicable margin. The applicable marginfor base rate and LIBOR loans is 2.25%. As of March 31, 2008, the interestrate of borrowings under the term loan facility is 7.1%.

 

During the three monthsended March 31, 2008 and 2007, we made principal repayments totaling $20.0million and $12.0 million on the outstanding term loans.  During the three months ended March 31,2008 and 2007, we made cash interest payments of $11.8 million and $15.0million, respectively.  As of March 31,2008, we had no mandatory principal repayments due based on our excess cashflow; however, we had $1.5 million of scheduled repayments due within the next12 months.

 

We have entered intoderivative contracts to help offset our exposure to movements in interest ratesin relation to our variable rate debt. As of March 31, 2008, the interest rate derivative had a notionalamount of $480.0 million and a fair value liability of $3.4 million.  As of December 31, 2007, the interestrate derivative had a notional amount of $491.0 million and a fair valueliability of $600,000.  The interest ratederivative fair value liability is included in accrued expenses and othercurrent liabilities in our condensed consolidated balance sheets.

 

**(5) Income Taxes**

** **

We recognized income taxexpense of $11.2 million for the three months ended March 31, 2008 basedon an estimated annual effective tax rate on our consolidated operations of36.6%.  Prior to our reorganization on November 20,2007, Energy*Solutions*, LLCoperated as a limited liability company and was treated as a disregarded entityowned by a partnership for federal income tax purposes. Under applicableregulations, members of a limited liability company treated as a partnershipare responsible for their individual income tax liabilities related to thelimited liability company’s results of operations. Accordingly, we have notpreviously provided for federal income taxes related to our results ofoperations, except to the extent of operations in our subsidiaries that arecorporations. As a result, we recognized an income tax benefit of $2.4 millionfor the three months ended March 31, 2007. During the three months ended March 31, 2008 and 2007 we madeincome tax payments of $3.4 million and $351,000, respectively.

 

For the three months endedMarch 31, 2008, we had no changes to our unrecognized tax benefits underFASB Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes-an interpretation of FASB Statement No. 109*.  As of March 31, 2008, we had $876,000 ofunrecognized tax benefits, which are not expected to affect our annualeffective tax rate in future years because they relate to acquired entities.

 

5

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**Energy*Solutions*, Inc.**

**Notes toCondensed Consolidated Financial Statements**

(Unaudited)

 

**(6) ****Income(Loss) Per Share**

** **

Basicnet income per share is computed by dividing net income by the weighted-averagenumber of common shares outstanding during the period.  Diluted net income per share is computed bydividing net income by the weighted-average number of common shares outstandingduring the period and potentially dilutive common stock equivalents.  Potential common stock equivalents that havebeen issued by us relate to outstanding stock option and restricted stockawards and are determined using the treasury stock method.

 

Following our corporatereorganization, which occurred in connection with the completion of our initialpublic offering on November 20, 2007, we began conducting our businessthrough Energy*Solutions*, Inc.,a newly formed corporation and holding company. Historical net loss per sharewas not presented for the three months ended March 31, 2007 since we werestructured as a limited liability company, had only one member and there wereno ownership interests that were convertible into common stock or a commonstock equivalent.

 

The pro forma netloss per share reflects the effects related to our reorganization from alimited liability company to a “C” corporation, the issuance of our commonstock in connection with our initial public offering and an assumed effectivetax rate of 38%.

 

The following table setsforth the calculations of basic and diluted net income (loss) per share:

 
| ** **                                       | ** ** | **For the Three Months Ended March 31,**                     | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                                                                   | ** ** | **2007** | ** ** |
| ** **                                       | ** ** | **Historical**                                                                             | ** ** | **Pro forma (1)** | ** ** |
| ** **                                       | ** ** | **(in thousands of dollars,  except per share information)** | ** ** |
| Basic:                                           |       |                                                                                       |       |   |   |
| Net income (loss)                                |       | $                                                                                          | 19,293     |   | $ | (7,909 | ) |
| Weighted average common shares                   |       | 88,303,500                                                                                 |       | 75,150,000 |   |
| Basic net income (loss) per share                |       | $                                                                                          | 0.22       |   | $ | (0.11 | ) |
| Diluted:                                         |       |                                                                                       |       |   |   |
| Net income (loss)                                |       | $                                                                                          | 19,293     |   | $ | (7,909 | ) |
| Weighted average common shares                   |       | 88,303,500                                                                                 |       | 75,150,000 |   |
| Shares issuable upon vesting of restricted stock |       | 6,522                                                                                      |       | — |   |
| Weighted average common shares - diluted         |       | 88,310,022                                                                                 |       | 75,150,000 |   |
| Diluted net income (loss) per share - diluted    |       | $                                                                                          | 0.22       |   | $ | (0.11 | ) |

 

----

(1)                  Pro forma net loss per share for the three monthsended March 31, 2007 is adjusted to reflect (i) income tax benefit of$4.8 million on our operations assuming our conversion to a “C” corporation hadoccurred on January 1, 2007 and assumes an effective annual tax rate of38% and (ii) common stock outstanding assuming our reorganization from alimited liability company to a “C” corporation occurred on January 1,2007.

 

**(7) Equity-BasedCompensation**

** **

***ProfitInterests***

*** ***

In prior years, certainmembers of our management were granted profit interest units in our majorityowner in consideration for services rendered during the vesting period. Theseunits do not represent ownership in our majority owner but rather these units entitlethe holders to distributions from the majority owner if a distribution is paid.There were several classes of units granted and each successive class carries alower priority on distributions.  Certainunits vest immediately upon grant and others vest over periods up to threeyears. We recognized $281,000 and $876,000 of compensation expense related tothese profit interests for the three months ended March 31, 2008 and 2007,respectively.  At March 31, 2008there was unrecognized compensation expense related to these profit interestsof $676,000 with $368,000 expected to be recognized in 2008 and $308,000expected to be recognized in 2009.

 

6

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**Energy*Solutions*, Inc.**

**Notes toCondensed Consolidated Financial Statements**

(Unaudited)

*** ***

***StockOptions and Restricted Stock***

*** ***

In connection with ourinitial public offering, we adopted the Energy*Solutions*, Inc.2007 Equity Incentive Plan (the “Plan”). The Plan authorizes our Board of Directors to grant equity awards todirectors, officers, employees and consultants. The aggregate number of shares of common stock that may be issuedpursuant to awards granted under the Plan is 10,440,000.  We recorded non-cash compensation expenserelated to our stock option plan of $2.3 million during the three months ended March 31,2008. As of March 31, 2008, we had $33.0 million of unrecognizedcompensation expense related to outstanding stock options, which will berecognized over a weighted-average period of 3.6 years.  As of March 31, 2008, there was $131,000of unrecognized compensation cost related to non-vested restricted stock whichis expected to be recognized over a weighted-average period of 2.6 years.

 

**(8) SegmentReporting and Business Concentrations**

** **

We provide our servicesthrough four segments: Federal Services (“FS”), Commercial Services (“CS”),LP&D, and International. Prior to our acquisition of RSMC in 2007, wederived less than 3% of our revenues from our international operations.  Accordingly, through the first quarter of2007, we reported results from our international operations in our CommercialServices segment.  Beginning with thesecond quarter of 2007, we began reporting results from our operations outsideNorth America in a new International segment; goodwill and long-lived assetsthat were previously reported in other segments were reclassified to this newsegment as appropriate.

 

The following tablepresents segment information as of and for the three months ended March 31,2008 and 2007:

 
| ** **                                | ** ** | **As of and for the Three Months Ended March 31, 2008** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|
| ** **                                | ** ** | ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Corporate** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Unallocated** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **FS**                                                                                                    | ** ** | **CS** | ** ** | **LP&D** | ** ** | **International** | ** ** | **Items** | ** ** | **Consolidated** | ** ** |
| ** **                                | ** ** | **(in thousands of dollars)**                                                              | ** ** |
| Revenues from external customers (1)      |       | $                                                                                                         | 44,587     |   | $ | 30,595 |   | $ | 54,115 |   | $ | 372,456 |   | $ | — |   | $ | 501,753 |   |
| Income (loss) from operations             |       | 6,348                                                                                                     |       | 9,644 |   | 16,324 |   | 30,105 |   | (18,028 | ) | 44,393 |   |
|                                      |       |                                                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization expense     |       | 107                                                                                                       |       | 499 |   | 5,387 |   | 2,344 |   | 3,481 |   | 11,818 |   |
|                                      |       |                                                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Goodwill                                  |       | 143,144                                                                                                   |       | 91,042 |   | 232,713 |   | 59,178 |   | — |   | 526,077 |   |
| Other long-lived assets (2)               |       | 31,809                                                                                                    |       | 27,290 |   | 248,915 |   | 103,728 |   | 72,962 |   | 484,704 |   |
| Purchase of property, plant and equipment |       | 25                                                                                                        |       | 171 |   | 367 |   | 128 |   | 589 |   | 1,280 |   |
| Total assets (3)                          |       | 247,532                                                                                                   |       | 164,438 |   | 586,103 |   | 521,199 |   | 145,832 |   | 1,665,104 |   |
|                                           |            |                                                                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                | ** ** | **As of and for the Three Months Ended March 31, 2007** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|
| ** **                                | ** ** | ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Corporate** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Unallocated** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **FS**                                                                                                    | ** ** | **CS** | ** ** | **LP&D** | ** ** | **International** | ** ** | **Items** | ** ** | **Consolidated** | ** ** |
| ** **                                | ** ** | **(in thousands of dollars)**                                                              | ** ** |
| Revenues from external customers (1)      |       | $                                                                                                         | 34,927     |   | $ | 25,341 |   | $ | 53,883 |   | $ | — |   | $ | — |   | $ | 114,151 |   |
| Income (loss) from operations             |       | 6,220                                                                                                     |       | 61 |   | 15,104 |   | — |   | (18,919 | ) | 2,466 |   |
|                                      |       |                                                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization expense     |       | 96                                                                                                        |       | 185 |   | 5,890 |   | — |   | 3,203 |   | 9,374 |   |
|                                      |       |                                                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Goodwill                                  |       | 142,618                                                                                                   |       | 97,913 |   | 231,340 |   | — |   | — |   | 471,871 |   |
| Other long-lived assets (2)               |       | 36,439                                                                                                    |       | 33,734 |   | 270,211 |   | — |   | 78,565 |   | 418,949 |   |
| Purchase of property, plant and equipment |       | —                                                                                                    |       | 69 |   | 774 |   | — |   | 900 |   | 1,743 |   |
| Total assets (3)                          |       | 219,010                                                                                                   |       | 168,307 |   | 601,282 |   | — |   | 128,216 |   | 1,116,815 |   |
|                                           |            |                                                                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

| (1) | Intersegment revenues have  been eliminated and are not material for the three months ended  March 31, 2008 and 2007. Revenues by segment represent revenues earned  based on third-party billing to customers. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Other long-lived assets  include property, plant and equipment and other intangible assets.                                                                                                                          |
| (3) | 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. |

 

7

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** **

**Energy*Solutions*, Inc.**

**Notes toCondensed Consolidated Financial Statements**

(Unaudited)

** **

**(9) Commitments and Contingencies**

** **

We may become subject tovarious claims and legal proceedings covering matters that may arise in theordinary course of our business activities. As of March 31, 2008, we arenot involved in any legal proceedings that would have a materially adverse effect on our consolidated financial position,operating results and cash flows.

** **

**(10) PensionPlans**

** **

Net periodic benefit costs for the three months ended March 31,2008 consisted of the following (in thousands of dollars):

 
| Service cost                   |   | $       | 12,661 |   |
|--------------------------------|--------|---------|--------|--------|
| Interest cost                  |   | 46,686  |   |
| Expected return on plan assets |   | (52,027 | )      |
|                           |   | $       | 7,320  |   |

 

**(11)Related Party Transactions**

** **

*LLCAgreement*

* *

Priorto our initial public offering, our parent entered into a limited liabilitycompany operating agreement (the LLC Agreement), which governed our operations.Under the LLC Agreement, ENV Holdings LLC was our sole member and owned all ofthe outstanding membership interests. Our parent created a board of managers ofsix persons to manage our company and our business affairs, and our parent hadsole authority to designate each of the members of the board of managers.  This agreement was terminated on November 20,2007 in connection with the completion of our initial public offering.

 

Distributions were madeby us to our parent at such times and in such amounts as were determined at ourparent’s sole discretion.  During thethree months ended March 31, 2007 we made distributions of $2.6 million toENV Holdings LLC.

 

*AdvisoryServices Agreements*

* *

On January 31, 2005,we entered into three separate advisory service agreements with GoldbergLindsay & Co. LLC (“Goldberg Lindsay”), an affiliate of LindsayGoldberg & Bessemer, L.P., Peterson Capital Inc. (“Peterson Capital”),an affiliate of Peterson Partners, L.P., and Creamer Investments, Inc. (“CreamerInvestments”), an affiliate of our Chief Executive Officer, R Steve Creamer,and our Vice Chairman, J.I. Everest, II. Each advisory services agreementincluded indemnification provisions by us in favor of ENV Holdings and itsaffiliates. Pursuant to these respective advisory services agreements, GoldbergLindsay, Peterson Capital and Creamer Investments each agreed to provide uswith financial advisory, monitoring and oversight services.

 

We incurred feesto Goldberg Lindsay, Peterson Capital and Creamer Investments of $500,000, $88,000and $25,000, respectively, for management advisory services for the threemonths ended March 31, 2007.  Theseadvisory service agreements were terminated on November 20, 2007 inconnection with the completion of our initial public offering.

 

**(12) Acquisitions**

 

The determinationof the final purchase prices for RSMC, NUKEM and Monserco are preliminary andsubject to potential adjustments related primarily to income taxes, which couldimpact their purchase price allocations. There were no significant changes to the purchase price allocationsduring the three months ended March 31, 2008 and we do not expect anychanges to the purchase price allocations to materially increase or decreasedepreciation or amortization expense.

 

8

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operation.**

** **

*Thefollowing discussion and analysis of the financial condition and results of ouroperations should be read together with the condensed consolidated financialstatements and the related notes of EnergySolutions included elsewhere in this Form 10-Q.*

* *

**CautionaryStatement Regarding Forward-Looking Statements**

** **

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

 

While most risksaffect only future revenues or expenses, some risks may relate to accruals thathave already been reflected in earnings.  Our failure to receive paymentsof accrued amounts or incurrence of liabilities in excess of amounts previouslyrecognized, could result in a charge against future earnings.

 

Additionalinformation concerning these and other factors can be found in our periodicfilings with the Securities and Exchange Commission (the “SEC”), including thediscussion under the heading “Item 1A. Risk Factors” in our Form 10-Kfiled March 28, 2008.  These filings are available publicly on theSEC’s website at www.sec.gov, on Energy*Solutions’*website at www.energysolutions.com or upon request from Energy*Solutions’* Investor Relations Department atir@energysolutions.com.**** Wedisclaim any intent or obligation to update the forward-looking statements,whether as a result of new information, future events or otherwise.

 

**Overview**

** **

We are a leading provider ofspecialized, technology-based nuclear services to governmental and commercialcustomers. Our customers rely on our expertise to address their needsthroughout the lifecycle of their nuclear operations. Our broad range ofnuclear services includes engineering, operation of nuclear reactors, in-plantsupport services, spent nuclear fuel management, decontamination and decommissioning(“D&D”), logistics, transportation, processing and disposal. We derivealmost 100% of our revenues from the provision of nuclear services.

 

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

 

**Recent Developments**

 

As previously reported, we have engaged in discussionswith Sogin, SpA, the Italian state-owned utility company, to provide D&Dand radioactive materials management services in support of the clean-up ofSogin’s nuclear facilities.  Our pendinglicense application with the Nuclear Regulatory Commission (NRC) to importmaterial from Italy, to process it at our facility in Tennessee and to dispose theresidual material at our Clive facility in Utah has generated local andnational expressions of opposition.  Webelieve our license application is consistent with all applicable laws andregulations and with past practices.  Moreover,the Italian material – metals, paper and clothing – is the same type ofmaterial that we handle every day from the domestic nuclear industry.  

 

9

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The NRC has issued numerous licenses over the past tenyears allowing the importation of LLRW to be processed and ultimately disposedat our Clive facility.  Under these licenses,our Clive Facility has received Class A LLRW originating in Germany, Canada,France, Taiwan, and the United Kingdom. 

 

The States of Tennessee and Utah have confirmed to theNRC that the proposed Italian project is consistent with the licenses andpermits issued by those States. However, the Governor of the State of Utahannounced on April 23, 2008, that he would send his representative to the May8, 2008 meeting of the Northwest Interstate Compact on Low-Level RadioactiveWaste Management (the “Northwest Compact”) to vote against any proposal thatwould allow us to receive international waste at our Clive facility.  

 

On May 5, 2008, we filed a declaratory judgment actionin the U.S. District Court of Utah asking the court to declare that (i) theNorthwest Compact does not have regulatory authority over our Clive facility,which is a private commercial facility rather than a regional facility createdby the Compact, (ii) the U.S. Constitution does not allow the Northwest Compactto discriminate between identical domestic and foreign materials handled at ourClive facility, and (iii) any effort by the Northwest Compact to restrict ourreceipt of foreign LLRW is pre-empted by federal statutes and regulations.

 

At the Northwest Compact meeting on May 8, 2008, therepresentatives of the eight member States of the Northwest Compact unanimouslyadopted a clarifying resolution proposed by the Utah committee member,clarifying that the Northwest Compact has never adopted a resolution permittingus to receive international waste at our Clive facility.  We continue to believe that the NorthwestCompact does not have the authority, and that the U.S. Constitution or Federallaw does not permit the Northwest Compact, to prohibit us from receivinginternational waste at our Clive facility. We therefore intend to pursue ourfederal action for a declatory judgment.

 

Although we believe we will ultimately prevail in ourdeclaratory judgment action, we do not believe we will be able to perform anyof the work contemplated by the Italian initiative during fiscal 2008.

 

10

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**Results of Operations**

** **

The following table showscertain items from our income statements for the three months ended March 31,2008 and 2007.

 
| ** **                                                 | ** ** | **Three Months**                        | ** ** | **Three Months** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **Ended**                                    | ** ** | **Ended**             | ** ** |
| ** **                                                 | ** ** | **March 31,**                           | ** ** | **March 31,**    | ** ** |
| ** **                                                 | ** ** | **2008**                                     | ** ** | **2007**              | ** ** |
| ** **                                                 | ** ** | **(in thousands of dollars)** | ** ** |
| Revenues:                                                  |       |                                         |       |                  |       |
| Federal Services Segment                                   |       | $                                            | 44,587     |                  | $          | 34,927 |   |
| Commercial Services Segment                                |       | 30,595                                       |       | 25,341                |       |
| LP&D Segment                                           |       | 54,115                                       |       | 53,883                |       |
| International Segment                                      |       | 372,456                                      |       | —                |       |
| Total revenues                                             |       | 501,753                                      |       | 114,151               |       |
|                                                       |       |                                         |       |                  |       |
| Cost of revenues:                                          |       |                                         |       |                  |       |
| Federal Services Segment                                   |       | 36,471                                       |       | 26,255                |       |
| Commercial Services Segment                                |       | 19,015                                       |       | 20,520                |       |
| LP&D Segment                                           |       | 35,087                                       |       | 36,582                |       |
| International Segment                                      |       | 338,197                                      |       | —                |       |
| Total cost of revenues                                     |       | 428,770                                      |       | 83,357                |       |
|                                                       |       |                                         |       |                  |       |
| Gross profit:                                              |       |                                         |       |                  |       |
| Federal Services Segment                                   |       | 8,116                                        |       | 8,672                 |       |
| Commercial Services Segment                                |       | 11,580                                       |       | 4,821                 |       |
| LP&D Segment                                           |       | 19,028                                       |       | 17,301                |       |
| International Segment                                      |       | 34,259                                       |       | —                |       |
| Total gross profit                                         |       | 72,983                                       |       | 30,794                |       |
|                                                       |       |                                         |       |                  |       |
| Segment selling, general and administrative expenses:      |       |                                         |       |                  |       |
| Federal Services Segment                                   |       | 1,768                                        |       | 2,452                 |       |
| Commercial Services Segment                                |       | 1,936                                        |       | 4,760                 |       |
| LP&D Segment                                           |       | 2,704                                        |       | 2,197                 |       |
| International Segment                                      |       | 4,154                                        |       | —                |       |
| Total segment selling, general and administrative expenses |       | 10,562                                       |       | 9,409                 |       |
|                                                       |       |                                         |       |                  |       |
| Segment operating income:                                  |       |                                         |       |                  |       |
| Federal Services Segment                                   |       | 6,348                                        |       | 6,220                 |       |
| Commercial Services Segment                                |       | 9,644                                        |       | 61                    |       |
| LP&D Segment                                           |       | 16,324                                       |       | 15,104                |       |
| International Segment                                      |       | 30,105                                       |       | —                |       |
| Total segment operating income                             |       | 62,421                                       |       | 21,385                |       |
|                                                       |       |                                         |       |                  |       |
| Corporate selling, general and administrative expenses     |       | 18,028                                       |       | 18,919                |       |
| Total income from operations                               |       | 44,393                                       |       | 2,466                 |       |
|                                                       |       |                                         |       |                  |       |
| Interest expense                                           |       | 11,660                                       |       | 15,370                |       |
| Other income (expenses), net                               |       | (2,061                                       | )          | 148                   |       |
| Income (loss) before income taxes                          |       | 30,672                                       |       | (12,756               | )          |
|                                                       |       |                                         |       |                  |       |
| Minority interest                                          |       | 195                                          |       | —                |       |
| Income tax expense (benefit)                               |       | 11,184                                       |       | (2,412                | )          |
| Net income (loss)                                          |       | $                                            | 19,293     |                  | $          | (10,344 | ) |

 

11

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***Three Months Ended March 31,2008 Compared to Three Months Ended March 31, 2007***

*** ***

*Revenues*

* *

Revenues increased$387.6 million, or 339.4%, to $501.8 million for the three months ended March 31,2008 from $114.2 million for the three months ended March 31, 2007.This increase was primarily the result of our acquisitions of RSMC and Nukem,the consolidation of our Isotek, LLC and UDS, LLC joint venture interests, andincreased revenues in our Commercial Services segment operations.

 

Revenues in our FederalServices segment increased $9.7 million, or 27.8%, to $44.6 million for thethree months ended March 31, 2008 from $34.9 million for the three monthsended March 31, 2007.  This increaseis primarily attributable to revenues earned from the clean up of the Atlasmill tailings near Moab, Utah during the three months ended March 31, 2008and the consolidation of two of our joint venture interests, Isotek, LLC andUDS, LLC.  The joint venture interestsare now consolidated because we obtained majority voting rights for Isotek, LLCin November 2007 and for UDS, LLC in March 2008.  During the three months ended March 31,2007, income from these joint venture interests was reported using the equitymethod in other income, net, in our consolidated statements of operations.  This increase was partially offset bydecreased revenues from work we performed as a subcontractor on two contractsat the Hanford site.

 

Revenues in our CommercialServices segment increased $5.3 million, or 20.9%, to $30.6 million forthe three months ended March 31, 2008 from $25.3 million for the threemonths ended March 31, 2007.   Thisis primarily the result of our acquisition of Nukem in July, 2007 and increasedrevenues in our commercial decommissioning services and our utility servicesprojects.

 

Revenues in our LP&Dsegment increased $0.2 million, or 0.4%, to $54.1 million for the threemonths ended March 31, 2008 from $53.9 million for the three monthsended March 31, 2007.  This increaseis mostly due to increased revenues at our Clive, Utah facility and theacquisition of Monserco in December, 2007, offset by decreased revenues at ourBear Creek facility in Oakridge, Tennessee.

 

Primarily as a result of ouracquisition of RSMC, revenues in our International segment were$372.5 million for the three months ended March 31, 2008.  RSMC recognizes as revenues the full amountof reimbursed allowable costs incurred plus the amount of fees earned.  RSMC recognizes project delivery-basedincentive fees, which are typically a percentage of allowable costs, throughoutthe contract year which ends March 31 and recognizes efficiency fees mainlyduring the final month of the contract year when these fees becomedeterminable.  We recognized $24.6million of efficiency fees during the three months ended March 31, 2008.  During the three months ended March 31, 2007,our international operations were reported in our Commercial Services segmentbecause they constituted less than 3% of our total revenues.

 

*Cost of revenues*

 

Cost of revenues increased$345.4 million, or 414.1%, to $428.8 million for the three monthsended March 31, 2008 from $83.4 million for the three months ended March31, 2007. This increase was primarily the result of our acquisition of RSMC andNukem and the consolidation of our Isotek, LLC and UDS, LLC joint ventureinterests.

 

Cost of revenues in ourFederal Services segment increased $10.2 million, or 38.8%, to $36.5 millionfor the three months ended March 31, 2008 from $26.3 million for the threemonths ended March 31, 2007.  Thisincrease is attributable to the consolidation of two of our joint ventureinterests, Isotek, LLC and UDS, LLC, during the three months ended March 31,2008.  During the three months endedMarch 31, 2007, cost of revenues from these joint venture interests wasreported using the equity method in other income, net,in our consolidated statements of operations. In addition, we began clean up of the Atlas mill tailings near Moab, Utah.  This increase was partially offset bydecreased cost of revenues from work we performed as a subcontractor on twocontracts at the Hanford site.

 

Cost of revenues in ourCommercial Services segment decreased $1.5 million, or 7.3%, to $19.0 millionfor the three months ended March 31, 2008 from $20.5 million for the threemonths ended March 31, 2007.  Thisdecrease is primarily attributable to decreased costs incurred on utilityservices projects due to favorable resolutions on cost escalation of materialsand lower cost alternatives for demolition.

 

Cost of revenues in ourLP&D segment decreased $1.5 million, or 4.1%, to $35.1 million for thethree months ended March 31, 2008 from $36.6 million for the three monthsended March 31, 2007.  This decrease isprimarily attributable to decreases in equipment maintenance, demurrage costsand labor.

 

12

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Primarily as a result of ouracquisition of RSMC, cost of revenues in our International segment was$338.2 million for the three months ended March 31, 2008.  Cost of revenues in our International segmentconsist of compensation and benefits to employees, travel expenses, outsourcingcosts for subcontractor services and cost of goods purchased.

 

Cost of revenues as apercentage of total revenues increased to 85.5% for the three months ended March 31,2008 from 73.0% for the three months ended March 31, 2007. The acquisitionof RSMC, for which cost of revenues as a percentage of revenues were 91.4% forthe three months ended March 31, 2008, had a significant impact on ourrevenue mix when compared to our historical operations. As a result, a greaterportion of our revenues in 2008 have significantly lower contribution margins.

 

*Gross profit*

 

Gross profit increased$42.2 million, or 137.0%, to $73.0 million for the three months endedMarch 31, 2008 from $30.8 million for the three months ended March 31,2007. Our gross margin decreased to 14.5% in the 2008 period from 27.0% in thecorresponding 2007 period.  The increasein gross profit and the corresponding reduction in gross margin are primarilythe result of our acquisition of RSMC, which significantly changed our revenuemix.

 

Gross profit in our FederalServices segment decreased $0.6 million, or 6.9%, to $8.1 million for the threemonths ended March 31, 2008 from $8.7 million for the three months ended March 31,2007.  This decrease is primarilyattributable to decreased gross profit from work we performed as asubcontractor on two contracts at the Hanford site partially offset byincreased gross profit on the Isotek, UDS and Moab operations.

 

Gross profit in ourCommercial Services segment increased $6.8 million, or 141.7%, to$11.6 million for the three months ended March 31, 2008 from $4.8million for the three months ended March 31, 2007.  The increase is primarily attributable toperformance of large decontamination and decommissioning projects and utilityservices projects with higher margins.

 

LP&D segment grossprofit increased $1.7 million, or 9.8%, to $19.0 million for the three monthsended March 31, 2008 from $17.3 million for the three months ended March 31,2007.  This increase is primarily the result of decreased equipmentmaintenance, demurrage costs and labor expenses.

 

Primarily as a result of our acquisition of RSMC, gross profit in ourInternational segment was $34.3 million with a gross profit margin of 9.2%for the three months ended March 31, 2008. The gross profit margin is higher for the three months ended March 31,2008 than we expect in future quarters of 2008 due to the recognition ofapproximately $24.6 million of efficiency fees during the three months ended March 31,2008.  As a result, we expect grossprofit in our International segment to be greater in the first quarter than inany other quarter of the year.

 

*Segment selling, general and administrative expenses*

 

Segment selling, general andadministrative expenses in our Federal Services segment decreased $0.7 millionto $1.8 million for the three months ended March 31, 2008 from $2.5million for the three months ended March 31, 2007.  The decrease is primarily due to decreasedlabor and severance expenses related to the termination of a key employee inthe first quarter of 2007.

 

Segment selling, general andadministrative expenses in our Commercial Services segment decreased $2.9million to $1.9 million for the three months ended March 31, 2008from $4.8 million for the three months ended March 31, 2007.  The decrease is primarily attributable tolower business development costs.  Duringthe three months ended March 31, 2007, Commercial Services incurredsignificant due diligence expenses related to our license stewardship contractwith Exelon Generation Company, LLC.

 

Segment selling, general andadministrative expenses in our LP&D segment increased $0.5 million to$2.7 million for the three months ended March 31, 2008 from$2.2 million for the three months ended March 31, 2007 mostly due toincreased business development costs.

 

Segment selling, general andadministrative expenses in our International segment were $4.2 million forthe three months ended March 31, 2008 primarily due to amortizationexpense associated with intangible assets of RSMC, which we acquired in June 2007,bid and proposal expenses relating to potential contracts in the United Kingdomand other administrative expenses of our UK operations.

 

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Total segment selling,general and administrative expenses as a percentage of revenues decreased to2.1% for the three months ended March 31, 2008 from 8.2% for the sameperiod for 2007 primarily due to increased revenues without a correspondingpercentage increase in selling, general and administrative expenses.

 

*Corporate selling, general and administrativeexpenses*

 

Corporate selling, generaland administrative expenses decreased $0.9 million, or 4.7%, to$18.0 million for the three months ended March 31, 2008 from $18.9 millionfor the three months ended March 31, 2007. This decrease is attributable to the termination of management advisoryfees previously paid to our equity sponsors in connection with our initialpublic offering and decreased legal, business development and marketingcosts.  This is offset by increases inprofessional accounting fees related to Sarbanes-Oxley compliance, insurancecosts and investor relations costs.  As apercentage of revenue, corporate selling, general and administrative expensesdecreased to 3.6% for the three months ended March 31, 2008 from 16.6% forthe same period for 2007.  The decreasein expenses as a percentage of revenues is primarily due to the significantincrease in revenues with no corresponding increase in corporate selling,general and administrative expenses.

 

*Interest expense*

 

Interest expense decreased$3.7 million, or 24.0%, to $11.7 million for the three months ended March 31,2008 from $15.4 million for the three months ended March 31, 2007.The decrease is primarily attributable to a decline in both our averageborrowings outstanding and interest rates related to our credit facilities.

 

*Other income (expense), net*

 

Other income (expense), net,decreased $2.2 million, or 1,492.6%, to an expense of $2.1 million for thethree months ended March 31, 2008 from income of $148,000 for the threemonths ended March 31, 2007. This amount primarily reflects lossesattributable to foreign currency exchanges and a decline in the fair value ofour derivative contracts.  Thesedecreases are offset by increases in interest income and our proportional shareof income from two joint ventures in which we have a non-controlling interest.

 

*Income taxes*

 

We recognized income taxexpense of $11.2 million for the three months ended March 31, 2008based on an estimated annual effective tax rate on our consolidated operationsof 36.6%.  Prior to our reorganization onNovember 20, 2007, Energy*Solutions*, LLCoperated as a limited liability company and was treated as a disregarded entityowned by a partnership for federal income tax purposes.  As such, during the three months ended March 31,2007, we recognized an income tax benefit of $2.4 million attributable toa net taxable loss from our taxable subsidiaries acquired in 2006, primarily BNGAand Duratek.

 

**Liquidity and Capital Resources**

 

We finance our operationsprimarily through cash provided by operations. As of March 31, 2008, ourprincipal sources of liquidity consisted of $38.1 million of cash and cashequivalents and $56.8 million of availability under the $75.0 millionrevolving portion of our credit facilities, which is net of $18.2 million ofoutstanding letters of credit. We also have a synthetic letter of creditfacility of $100.0 million, from which $99.9 million of letters of creditwere issued as of March 31, 2008.

 

During the three monthsended March 31, 2008, our cash and cash equivalents increased$1.7 million, to $38.1 million. This compares to a decrease in cashand cash equivalents of $1.8 million for the three months ended March 31,2007. During the three months ended March 31, 2008, we had net cashinflows from operating activities of $25.7 million.  This was offset by net cash outflows frominvesting and financing activities of $1.3 million and $22.7 million,respectively, related primarily to purchases of property, plant and equipment,the repayment of long-term debt and dividends paid to stockholders.

 

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Our principal need forliquidity has been, and will continue to be, for working capital, to pay downdebt and for capital expenditures. We also expect to use cash flow fromoperations to pay quarterly dividends. However, the declaration and payment offuture dividends to holders of our common stock will be at the discretion ofour board of directors and will depend on many factors, including our resultsof operations, financial condition, liquidity requirements, restrictions thatmay be imposed by applicable law and our contracts and other factors deemedrelevant by our board of directors. To the extent we maintain an annualdividend of $0.10 per share, our annual cash requirements for this dividendwould be $8.8 million, based on the number of shares currentlyoutstanding. We believe that our cash flow from operations, available cash andcash equivalents and available borrowings under the revolving portion of ourcredit facilities will be sufficient to meet our future liquidity needs,including the payment of such dividend, through at least the next twelvemonths.

 

Although we have no specificcurrent plans to do so, if we decide to pursue one or more significantstrategic acquisitions, we may incur additional debt or sell additional equityto finance the purchase of those businesses.

 

***Capital Expenditures***

 

We had capital expendituresof $1.3 million and $1.7 million for the three months ended March 31,2008 and 2007, respectively.  We expectcapital expenditures for the year ending December 31, 2008 will beapproximately $37.0 million, relating primarily to required equipment forthe Atlas mill tailings contract awarded to us in June 2007 andmaintenance at our facilities.

 

***Credit Facilities***

 

We have entered into creditfacilities with Citicorp North America, Inc., or CNAI, as administrativeagent and collateral agent, which we refer to collectively in this Form 10-Qas our “credit facilities.” The credit facilities consist of a$75.0 million revolving credit facility, which matures on June 7,2011, $770.0 million first lien term loan facilities, which mature on June 7,2013, a $100.0 million synthetic letter of credit facility, which matureson June 7, 2013.

 

The obligations under thecredit facilities are unconditional and irrevocably guaranteed by us and eachof our existing and subsequently acquired or organized domestic subsidiaries.In addition, the credit facilities and such guarantees are secured on a first-and second-priority basis by security interests (subject to permitted liens asdefined in the credit agreements governing the credit facilities) insubstantially all tangible and intangible assets owned by us, the obligorsunder the credit facilities, and each of our other domestic subsidiaries,subject to certain exceptions, including limiting pledges of voting stock offoreign subsidiaries to 65% of voting stock of first-tier foreign subsidiaries.

 

Borrowings under the creditfacilities bear interest at a rate equal to (1) in the case of the firstlien term loans, (i) the greater of the rate of interest announced byCNAI, from time to time, as its prime rate in effect at its principal office inthe city of New York, and the federal funds rate plus 0.50% per annum (the “baserate”), plus 0.75% (or 0.50% when the leverage ratio (as defined in the creditagreements) as of the most recently completed fiscal quarter is less than 2.0to 1.0) or (ii) for any portion of the term loans as to which we haveelected to pay interest on a Eurodollar basis, LIBOR plus 2.25% (or 2.00% whenthe leverage ratio (as defined in the credit agreements) as of the mostrecently completed fiscal quarter is less than 2.0 to 1.0), (2) in thecase of the revolving loans, (i) the base rate plus 0.75% or (ii) forany portion of the revolving loans as to which we have elected to pay intereston a Eurodollar basis, LIBOR plus 2.25% (3) in the case of syntheticletters of credit under the first lien credit facilities, 2.25% (or 2.00% whenthe leverage ratio (as defined in the related credit agreement) as of the mostrecently completed fiscal quarter is less than 2.0 to 1.0).

 

Commencing September 30,2006 and at the end of each calendar quarter for the next 26 quarters, thefirst lien term loans under the credit facilities amortize in quarterlyinstallments of 0.25% of the outstanding principal balance on September 30,2006, adjusted for optional prepayments made, provided that the finalinstallment shall be equal to the amount outstanding in respect of the termloans.

 

We are generally required toprepay borrowings under the credit facilities with (1) 100% of the netproceeds we receive from non-ordinary course of business asset sales or as aresult of a casualty or condemnation, subject to reinvestment provisions, (2) 100%of the net proceeds we receive from the issuance of debt obligations other thanspecified debt obligations and (3) the excess, if any, of 50% (or, if ourleverage ratio is less than 3.0 and greater than 1.0, 25%) of excess cash flow(as defined in the credit agreements) reduced by the aggregate amount of termloans optionally prepaid during the applicable fiscal year. Under the credit facilities,we are not required to prepay borrowings with excess cash flow if our leverageratio is less than or equal to 1.0. As of March 31, 2008, we were notrequired to make a mandatory prepayment.

 

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As of March 31, 2008,the weighted average interest rate under our credit facilities was 7.1%. Atthis rate and assuming an outstanding balance of $587.0 million as of March 31,2008, our annual debt service obligations would be $47.7 million,consisting of $41.7 million of interest and $6.0 million of scheduledprincipal payments. However, due to optional prepayments made through March 31,2008, only $1.5 million of our scheduled payments are currently due within thenext year.

 

The credit facilitiesrequire us to maintain certain financial ratios, including maximum leverageratios (based upon the ratios of consolidated funded debt, first lienindebtedness to consolidated operating cash flow) and a minimum cash interestcoverage ratio (based upon the ratio of consolidated operating cash flow toconsolidated cash interest expense), which are tested quarterly. Based on theformulas set forth in the credit agreements as of March 31, 2008, we arerequired to maintain a maximum leverage ratio and a first lien leverage ratioof 4.75 and 4.25, respectively, and minimum cash interest coverage ratio of2.25. Failure to comply with these financial ratio covenants would result in adefault under our credit facilities and, absent a waiver or an amendment fromthe lenders, preclude us from making further borrowings under our creditfacilities and permit the lenders to accelerate all outstanding borrowingsunder the credit facilities. As of March 31, 2008, we performed thecalculations associated with these financial covenants and determined that wewere in compliance with them.

 

The credit facilities alsocontain a number of affirmative and restrictive covenants including limitationson mergers, consolidations and dissolutions; sales of assets; investments andacquisitions; indebtedness; liens; affiliate transactions; and dividends andrestricted payments. Under the credit facilities, we are permitted maximumannual capital expenditures of up to $30.0 million under the first liencredit facilities in the fiscal year ending December 31, 2007 and in anyfiscal year thereafter, plus the lesser of (1) a one year carry-forward ofthe unused amount from the previous fiscal year and (2) 50% of the amountpermitted for capital expenditures in the prior fiscal year. Our permittedmaximum annual capital expenditures for 2008 is $45.0 million.  The credit facilities contain events ofdefault for non-payment of principal and interest when due, a cross-defaultprovision with respect to other indebtedness having an aggregate principalamount of at least $5.0 million and an event of default that would betriggered by a change of control, as defined in the credit facilities. As of March 31,2008, we were in compliance with all of our covenants and other obligationsunder the credit facilities.

 

**Off Balance Sheet Arrangements**

 

We have routine operatingleases, primarily related to real estate and rail equipment, and investments injoint ventures at March 31, 2008.

 

As of March 31, 2008,we had outstanding floating-rate term loans of $587.0 million. Under ourcredit facilities, we are required to maintain one or more interest rate swapagreements for the aggregate notional amount of at least 33% of the outstandingaggregate principal amount of the term loans to partially mitigate our exposureto fluctuations in interest rate changes. Accordingly, we entered into a swapagreement effective July 1, 2005. As of March 31, 2008, the swapagreement had a notional amount of $480.0 million and a fair valueliability of approximately $3.4 million.

 

We are required to post,from time to time, standby letters of credit and surety bonds to supportcontractual obligations to customers, self-insurance programs, closure andpost-closure financial assurance and other obligations. As of March 31,2008, we had $99.9 million in letters of credit which are issued under oursynthetic letter of credit facilities and $18.2 million in letters of creditwhich are issued under the revolving portion of our credit facility.  As of March 31, 2008, we had$27.7 million in surety bonds outstanding. With respect to the suretybonds, we have entered into certain indemnification agreements with theproviders of the surety bonds, which would require funding by us only if wefail to perform under the contracts being insured and the surety bond issuerwas obligated to make payment to the insured parties.

 

Our processing and disposalfacilities operate under licenses and permits that require financial assurancefor closure and post-closure costs. We provide for these requirements through acombination of restricted cash, cash deposits, letters of credit and insurancepolicies. As of March 31, 2008, the closure and post-closure stateregulatory requirements for our facilities were $142.2 million, whichamount is not determined on the same basis as the asset retirement obligationcalculated under SFAS No. 143, *Accountingfor Asset Retirement Obligations*.

 

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**Critical Accounting Policies**

 

This management’s discussionand analysis of financial condition and results of operations is based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires us to make estimates and assumptionsabout matters that are uncertain. These estimates and assumptions are oftenbased on judgments that we believe to be reasonable under the circumstances,but all such estimates and assumptions are inherently uncertain and unpredictable.Actual results may differ from those estimates and assumptions, and it ispossible that other professionals, applying their own judgment to the samefacts and circumstances, could develop and support alternative estimates andassumptions that would result in material changes to our operating results andfinancial condition.  For a further discussion of our criticalaccounting policies, see our Annual Report on Form 10-K for the year endedDecember 31, 2007, which was filed on March 28, 2008.

 

**Disclosure of Impact of Recently Issued AccountingStandards**

 

***Disclosures about DerivativeInstruments and Hedging Activities***

 

In March 2008,the FASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities*.  SFAS No. 161 changes the disclosurerequirements for derivative instruments and hedging activities.  Entities are required toprovide enhanced disclosures about (a) how and why an entity usesderivative instruments, (b) how derivative instruments and related hedgeditems are accounted for under SFAS No. 133 and its relatedinterpretations, and (c) how derivative instruments and related hedgeditems affect an entity’s financial position, financial performance, and cashflows.  SFAS No. 161 is effective for financialstatements for fiscal years beginning on or after November 15, 2008, withearly adoption encouraged.  While SFAS No. 161will have no impact on our financial condition, results of operations and cashflows, management is currently evaluating the changes in disclosure requirements.

 

***Business Combinations***

 

In December 2007, theFASB issued SFAS No. 141(R), *BusinessCombinations*. SFAS No. 141(R) replaces SFAS No. 141, *Business Combinations*, but retains therequirement that the purchase method of accounting for acquisitions be used forall business combinations. SFAS No. 141(R) expands on the disclosurespreviously required by SFAS No. 141, further defines the acquirer and theacquisition date in a business combination, and establishes principles forrecognizing and measuring the assets acquired (including goodwill), theliabilities assumed and any noncontrolling interests in the acquired business.SFAS No. 141(R) also requires an acquirer to record an adjustment toincome tax expense for changes in valuation allowances or uncertain taxpositions related to acquired businesses. SFAS No. 141(R) iseffective for all business combinations with an acquisition date in the firstannual period following December 15, 2008; early adoption is notpermitted. We will adopt this statement as of January 1, 2009. Managementis currently evaluating the impact SFAS No. 141(R) will have on ourfinancial condition, results of operations and cash flows; however, in general,this standard will only impact the accounting for future acquisitions.

 

***Noncontrolling Interest inConsolidated Financial Statements***

 

In December 2007, theFASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements—an amendment of ARB No. 51*.SFAS No. 160 requires that noncontrolling (or minority) interests insubsidiaries be reported in the equity section of a company’s balance sheet,rather than in a mezzanine section of the balance sheet between liabilities andequity. SFAS No. 160 also changes the manner in which the net income of asubsidiary is reported and disclosed in the controlling company’s incomestatement. SFAS No. 160 also establishes guidelines for accounting forchanges in ownership percentages and for deconsolidation. SFAS No. 160 iseffective for financial statements for fiscal years beginning on or after December 1,2008 and interim periods within those years. The adoption of SFAS No. 160is not expected to have a material impact on our financial position, results ofoperations or cash flows.

 

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***Fair Value Measurements***

 

                InSeptember 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*. This standardclarifies the principle that fair value should be based on the assumptions thatmarket participants would use when pricing an asset or liability. Additionally,it establishes a fair value hierarchy that prioritizes the information used todevelop those assumptions. SFAS No. 157 is effective for financialstatements issued for fiscal years beginning after November 14, 2007. In February 2008,the FASB issued FASB Staff Position (FSP) FAS 157-2, *Partial Deferral of the Effective Date ofStatement 157*, which delays the effective date for allnonfinancial assets and nonfinancial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis. The FSP defers the effective date of SFAS No. 157 tofiscal years beginning after November 15, 2008.   In accordance with this staff position,effective at the beginning of fiscal year 2008, we adopted the provisions ofSFAS No. 157 with respect to financial assets and liabilities, whichdid not have an impact on our financial position, results of operations or cashflows. We will adopt the provisions of SFAS No. 157 for non-financialassets and liabilities in the first quarter of 2009 and are currentlyevaluating the impact of the provisions of the standard.

 

**Item 3. Qualitative and Quantitative Disclosures about Market Risk**

 

Our primary market riskrelates to changing interest rates. As of March 31, 2008, we hadoutstanding floating-rate term loan debt of $587.0 million, of which$1.5 million is currently due within the next year. Under our creditfacilities, we are required to maintain one or more interest rate swapagreements for the aggregate notional amount of at least 33% of the outstandingaggregate principal amount of the term loans. Accordingly, we entered into aswap agreement effective July 1, 2005. As of March 31, 2008, the swapagreement had a notional amount of $480.0 million and a fair valueliability of approximately $3.4 million.  A hypotheticalinterest rate change of 1% on our swap agreement would have changed the fairvalue of the interest swap at March 31, 2008 approximately $1.2 million.

 

We have foreign currencyexposure related to our operations in the United Kingdom as well as otherforeign locations. This foreign currency exposure arises primarily from thetranslation or re-measurement of our foreign subsidiaries’ financial statementsinto U.S. dollars. For example, a substantial portion of our annual sales andoperating costs are denominated in GBP and we have exposure related to salesand operating costs increasing or decreasing based on changes in currencyexchange rates. If the U.S. dollar increases in value against these foreigncurrencies, the value in U.S. dollars of the assets and liabilities originallyrecorded in these foreign currencies will decrease. Conversely, if the U.S.dollar decreases in value against these foreign currencies, the value in U.S.dollars of the assets and liabilities originally recorded in these foreigncurrencies will increase. Thus, increases and decreases in the value of theU.S. dollar relative to these foreign currencies have a direct impact on thevalue in U.S. dollars of our foreign currency denominated assets andliabilities, even if the value of these items has not changed in their originalcurrency. As such, a 10% change in the U.S. dollar exchange rates in effect asof March 31, 2008, would cause a change in consolidated net assets of approximately$3.6 million and a change in gross profit of approximately$3.3 million, primarily due to GBP-denominated exposures.  We attempt to mitigate the impact of thisexchange rate risk by utilizing financial instruments, including derivativetransactions pursuant to our policies. As of March 31, 2008, we do not have any foreign currencyderivatives.

 

**Item 4. Controls and Procedures.**

 

As of the end of the periodcovered by this report, an evaluation was performed under the supervision andwith the participation of our management, including our chief executive officerand chief financial officer (together, our “certifying officers”), of theeffectiveness of the design and operation of our disclosure controls andprocedures. Disclosure controls and procedures are controls and otherprocedures designed to ensure that information required to be disclosed by usin our periodic reports filed with the SEC is recorded, processed, summarizedand reported within the time periods specified by the SEC’s rules and SECreports, and that the information is accumulated and communicated to ourmanagement, including the certifying officers, as appropriate to allow timelydecisions regarding required disclosure. Based on their evaluation, ourcertifying officers concluded that these disclosure controls and procedureswere effective as of the end of the period covered by this report.

 

                There were nochanges to our control over financial reporting that occurred during the threemonths ended March 31, 2008 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II**

 

**Item 1. Legal Proceedings.**

 

We are not currentlyinvolved in any material legal proceedings. 

 

**Item 1A. Risk Factors.**

 

The discussion of our business and operations shouldbe read together with the risk factors contained in Item 1A of our AnnualReport on Form 10-K for the year ended December 31, 2007, whichdescribes various risks and uncertainties to which we are or may becomesubject. These risks and uncertainties have the potential to affect ourbusiness, financial condition, results of operations, cash flows, strategies orprospects in a material and adverse manner. There have been no material changesto the risk factors set forth in the above-referenced filing.

 

**Item 6. Exhibits.**

 

31.1                           Certificationof Chief Executive Officer Pursuant to Rule 13a-14a.  Filed herewith.

 

31.2                           Certificationof Chief Financial Officer Pursuant to Rule 13a-14a.  Filed herewith.

 

32.1                           Certification of Chief Executive Officer and Chief Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Furnished herewith.

 

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, this 13th day of May, 2008.

 
|   | ENERGY*SOLUTIONS*, INC. |
|--------|------------------------------|
|   |                         |   |
|   |                         |   |
|   | By:                          | /s/  PHILIP O. STRAWBRIDGE |
|   |                         | Philip  O. Strawbridge |   |
|   |                         | *Executive Vice President and* |   |
|   |                         | *Chief Financial Officer* |   |

 

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