UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the quarterly period ended March 30, 2003

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 0-14292

DURATEK, INC.

(Exact name of Registrant as specified in its charter)

Delaware		22-2427618
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

10100 Old Columbia Road, Columbia, Maryland		21046
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (410) 312-5100

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o

Number of shares outstanding of each of the issuer’s classes of common stock as of May 2, 2003:

Class of stock		Number of shares
Common stock, par value $0.01 per share		13,547,257

DURATEK, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Part I	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of March 30, 2003 and December 31, 2002

	Condensed Consolidated Statements of Operations for the Three Months Ended March 30, 2003 and March 31, 2002

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 30, 2003 and March 31, 2002

	Notes to Condensed Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Item 4.	Controls and Procedures

Part II	Other Information

Item 1.	Legal Proceedings

Item 3.	Defaults Upon Senior Securities

Item 6.	Exhibits and Reports on Form 8-K

	Signatures

	Certifications

Forward-Looking Information

In response to the “safe harbor” provisions contained in the Private Securities Litigation Reform Act of 1995, Duratek, Inc. (the “Company”) is including in this Quarterly Report on Form 10-Q the following cautionary statements which are intended to identify certain important factors that could cause the Company’s actual results to differ materially from those projected in forward-looking statements of the Company made by or on behalf of the Company. Many of these factors have been discussed in prior filings with the Securities and Exchange Commission.

The Company’s future operating results are largely dependent upon the Company’s ability to manage its commercial waste processing operations, including obtaining commercial waste processing contracts and processing the waste under such contracts in a timely and cost-effective manner. In addition, the Company’s future operating results are dependent upon the timing and awarding of contracts by the United States Department of Energy (“DOE”) for the cleanup of other waste sites administered by the DOE. The timing and award of such contracts by the DOE

is directly related to the response of governmental authorities to public concerns over the treatment and disposal of radioactive, hazardous, mixed, and other wastes. The lessening of public concern in this area or other changes in the political environment could adversely affect the availability and timing of government funding for the cleanup of DOE and other sites containing radioactive and mixed wastes. Additionally, revenues from technical support services have in the past and continue to account for a substantial portion of the Company’s revenues. The loss of one or more technical support service contracts could adversely affect the Company’s future operating results. Finally, a significant component of the Company’s direct costs include the cost of disposal of materials in licensed landfills. The ability to reflect increased costs in pricing to customers, the availability of these licensed facilities, and any changes in the rate structures of such licensed facilities have the potential to affect the operating results of the Company.

The Company’s future operating results may fluctuate due to factors such as: the timing of new commercial waste processing contracts and duration of and amount of waste to be processed pursuant to those contracts; the acceptance and implementation of the Company’s waste treatment technologies in the government and commercial sectors; the evaluation by the DOE and commercial customers of the Company’s technologies versus other competing technologies as well as conventional storage and disposal alternatives; the timing of new government waste processing projects, including those pursued jointly with others; the duration of such projects; and the timing of commercial nuclear power plant outages and other large technical support services projects at its customers’ facilities.

An element of the Company’s growth strategy is to continue to pursue strategic acquisitions that expand and complement the Company’s business, technologies, and service offerings. Under the Company’s amended credit facility, which was completed in February 2003, the Company is permitted to enter into certain acquisitions, as defined in the credit agreement, subject to certain conditions. If the Company does complete an acquisition, the Company’s future operating results may be affected by the costs and timing of completion and integration of such an acquisition.

Part I Financial Information
Item 1. Financial Statements
DURATEK, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands of dollars, except per share amounts)

	March 30,			December 31,
	2003			2002
Assets	(unaudited)			*
Current assets:
Cash	$	836		$	2,323
Accounts receivable, net	47,414			48,420
Income taxes recoverable	1,140			1,140
Cost and estimated earnings in excess of billings on uncompleted contracts	11,394			12,828
Prepaid expenses and other current assets	6,651			7,915
Deferred income taxes	2,168			2,168
Total current assets	69,603			74,794

Property, plant and equipment, net	73,524			69,287
Goodwill	70,797			70,797
Other intangible assets	5,440			5,675
Decontamination and decommissioning trust fund	19,698			19,693
Retainage	5,895			4,969
Other assets	8,850			8,917
Total assets	$	253,807		$	254,132

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	10,400		$	10,400
Accounts payable	8,231			13,911
Accrued expenses and other current liabilities	38,587			41,872
Unearned revenues	15,175			15,751
Waste processing and disposal liabilities	9,820			9,936
Total current liabilities	82,213			91,870

Long-term debt, less current portion	51,510			50,749
Facility and equipment decontamination and decommissioning liabilities	38,506			28,778
Other noncurrent liabilities	4,924			4,472
Deferred income taxes	1,040			2,649
Total liabilities	178,193			178,518

Redeemable preferred stock (liquidation value $18,588)	15,752			15,752

Stockholders’ equity:
Preferred stock — $0.01 par value; authorized 4,840,000 shares; none issued	—			—
Common stock — $0.01 par value; authorized 35,000,000 shares; issued 15,154,666 shares in 2003 and 15,142,419 shares in 2002	152			151
Capital in excess of par value	77,771			77,715
Accumulated deficit	(8,245		)	(8,108		)
Treasury stock at cost, 1,612,376 shares in 2003 and 2002	(9,577		)	(9,577		)
Deferred compensation	(239		)	(319		)
Total stockholders’ equity	59,862			59,862

Total liabilities and stockholders’ equity	$	253,807		$	254,132

* The Condensed Consolidated Balance Sheet as of December 31, 2002 has been derived from the Company’s audited Consolidated Balance Sheet included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. See accompanying notes to condensed consolidated financial statements.

DURATEK, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

	Three months ended
	March 30, 2003			March 31, 2002
	March 30, 2003			March 31, 2002
	(unaudited )
Revenues	$	63,830		$	69,424
Cost of revenues	50,561			56,240

Gross profit	13,269			13,184
Selling, general and administrative expenses	8,033			7,320

Income from operations	5,236			5,864
Interest expense, net	(1,065		)	(1,667		)
Other expense, net	(111		)	—

Income before income taxes, proportionate share of income (loss) of joint ventures and cumulative effect of a change in accounting principle	4,060			4,197
Income taxes	1,624			1,700

Income before proportionate share of income (loss) of joint ventures and cumulative effect of a change in accounting principle	2,436			2,497
Proportionate share of income (loss) of joint ventures	156			(37		)

Net income before cumulative effect of a change in accounting principle	2,592			2,460
Cumulative effect of a change in accounting principle, net of tax	(2,414		)	—
Net income	178			2,460
Preferred stock dividends and charges for accretion	(315		)	(334		)

Net income (loss) attributable to common stockholders	$	(137	)	$	2,126

Weighed average common stock outstanding:
Basic	13,532			13,496
Diluted	19,269			18,826
Net income (loss) per share:
Basic
Before cumulative effect of a change in accounting principle	$	0.17		$	0.16
Cumulative effect of a change in accounting principle	(0.18		)	—
	$	(0.01	)	$	0.16
Diluted
Before cumulative effect of a change in accounting principle	$	0.13		$	0.13
Cumulative effect of a change in accounting principle	(0.12		)	—
	$	0.01		$	0.13

See accompanying notes to condensed consolidated financial statements.

DURATEK, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands of dollars)
	Three months ended
	March 30, 2003			March 31, 2002

	(unaudited)
Cash flows from operating activities:
Net income	$	178		$	2,460
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	3,019			2,925
Cumulative effect of a change in accounting principle	2,414			—
Stock compensation expense	80			80
Proportionate share of loss of joint ventures, net of distributions	—			37
Changes in operating assets and liabilities:
Accounts receivable, net	1,080			(74		)
Costs and estimated earnings in excess of billings on uncompleted contracts	1,434			(3,843		)
Prepaid expenses and other current assets	1,315			903
Accounts payable, and accrued expenses and other current liabilities	(8,720		)	6,074
Unearned revenues	(576		)	4,876
Waste processing and disposal liabilities	(116		)	(1,205		)
Facility and equipment decontamination and decommissioning liabilities	208			550
Other	(869		)	(627		)

Net cash (used in) provided by operating activities	(553		)	12,156

Cash flows from investing activities:
Additions to property, plant and equipment	(1,173		)	(350		)
Other	(58		)	(12		)

Net cash used in investing activities	(1,231		)	(362		)

Cash flows from financing activities:
Proceeds from short-term borrowings	—			4,092
Net proceeds from (repayments of) borrowings under revolving credit facility	3,361			(10,500		)
Repayments of long-term debt	(2,600		)	(2,600		)
Repayments of capital lease obligations	(111		)	(121		)
Deferred financing costs	(410		)	(1,097		)
Proceeds from issuance of common stock	57			—

Net cash provided by (used in) financing activities	297			(10,226		)

Net (decrease) increase in cash	(1,487		)	1,568
Cash, beginning of period	2,323			441
Cash, end of period	$	836		$	2,009

See accompanying notes to condensed consolidated financial statements.

DURATEK, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(in thousands of dollars, except per share amounts)

1. Principles of Consolidation and Basis of Presentation

(a) Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of Duratek, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in subsidiaries and joint ventures in which the Company does not have control or majority ownership are accounted for under the equity method.

All adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for the fair presentation of this interim financial information have been included. Results of interim periods are not necessarily indicative of results to be expected for the year as a whole. The effect of seasonal business fluctuations and the occurrence of many costs and expenses in annual cycles require certain estimations in the determination of interim results. The information contained in the interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission.

(b) Fiscal Quarters

The Company’s year ends on December 31, while the first three fiscal quarters of each fiscal year end on the Sunday nearest to the last day of each such calendar quarter. The quarterly financial results presented herein are as of March 30, 2003 and for the three months ended March 30, 2003 and March 31, 2002.

(c) Reclassifications

Certain amounts for 2002 have been reclassified to conform to the presentation for 2003. The Company reclassified costs associated with the support of direct operations, which were previously included as selling, general and administrative expenses, to cost of revenues. Amounts for all periods presented have been reclassified to conform to this presentation.

2. Goodwill and Other Intangible Assets

Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company adopted the provisions of Statements of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002.

Goodwill is tested annually for impairment, or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. During 2003, the Company tested its goodwill in accordance with the standard and concluded that no impairment charge was required.

Other intangibles subject to amortization consist principally of amounts assigned to operating rights related to the Barnwell, South Carolina low-level radioactive waste disposal facility, covenants not-to-compete, and costs

incurred to obtain patents. The Barnwell operating rights are being amortized on a straight-line basis over the remainder of the eight-year life of the facility. Covenants not to compete and patent amounts are being amortized over 10 and 17 years, respectively, on a straight-line basis. Other intangible assets, net of accumulated amortization as of March 30, 2003 and December 31, 2002 were $5,440 and $5,675, respectively. Aggregate amortization expense for the three months ended March 30, 2003 and March 31, 2002 was $244 and $308, respectively. Anticipated annual amortization expense for the five years beginning January 1, 2003 is $984.

3. Decontamination and Decommissioning Liabilities

The Company is responsible for the cost to decontaminate and decommission (“D&D”) its facilities and equipment in Tennessee and South Carolina and certain equipment used at customer sites. Such cost will generally be paid upon the closure of such facilities or the disposal of such equipment. The Company is also obligated, under its license granted by the State of South Carolina and the Atlantic Interstate Low-Level Radioactive Waste Compact Implementation Act (the “Act”), for costs associated with the ultimate closure of the Barnwell Low-Level Radioactive Waste Disposal Facility in South Carolina and its buildings and equipment located at the Barnwell site (“Barnwell closure”). Under the terms of the Act and its license with the State of South Carolina, the Company was required to establish a trust fund to cover the Barnwell closure obligation, which limits the Company’s obligation.

On January 1, 2003, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation (“ARO”) as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. The Company is also required to record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the ARO, the ARO will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation.

Prior to the adoption of SFAS No. 143, the Company had estimated the total cost to D&D its facilities and equipment in Tennessee and South Carolina and had been accruing such costs over 25 years, which was the facilities’ estimated useful life. Additionally, the Company recognized its Barnwell closure obligation, which is effectively limited to the amount in the trust fund, for an amount equal to the balance in the trust fund.

Upon the adoption of SFAS No. 143 on January 1, 2003, the Company recognized the following changes to the Company’s consolidated financial statements: increased property, plant and equipment by $5,492; increased D&D liabilities by $9,515; and recognized a cumulative effect of a change in accounting principle, net of tax of $2,414 ($4,023 pre-tax).

The Company’s D&D liabilities consist of the following as of March 30, 2003 and December 31, 2002:

	March 30, 2003		December 31, 2002
Facilities & equipment ARO	$	18,809	$	—
Facilities & equipment D&D	—		9,085
Barnwell closure	19,697		19,693
	$	38,506	$	28,778

The Company recognized D&D expense of $208 and $251 during the three months ended March 30, 2003 and March 31, 2002, respectively. Had the Company adopted SFAS No. 143 on January 1, 2002, the Company’s net income before cumulative effect of a change in accounting principle and the per diluted share net income before cumulative effect of a change in accounting principle for the three months ended March 31, 2002 would have been $2,284 and $0.12, respectively.

The following is a reconciliation of the Company’s facility & equipment ARO from January 1, 2003 to March 30, 2003:

Balance at January 1, 2003	$	18,601
Accretion expense	208
Balance at March 30, 2003	$	18,809

Management updates its closure and remediation cost estimates for D&D on an annual basis. These estimates are based on current technology, regulations, and burial rates. Management is unable to reasonably estimate the impact that changes in technology, regulations, and burial rates will have on the ultimate costs. Future changes in these factors could have a material impact on these estimates.

4. Stock Option Plan

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including Financial Accounting Standards Board (“FASB”) Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock Based Compensation- Transition and Disclosure, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS Nos. 123 and 148. The following table illustrates the effect on net income (loss) if the fair-value-based method had been applied to all outstanding and unvested awards for the three months ended March 30, 2003 and March 31, 2002:

	Three months ended
	March 30, 2003			March 31, 2002
Net income (loss) attributable to common stockholders	$	(137	)	$	2,126

Income impact of assumed conversions - preferred stock dividends and charges for accretion	315			334

Net income attributable to common stockholders assuming conversion	178			2,460

Add stock-based employee compensation expense included in reported net income, net of tax	8			8

Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax	263			262

Pro forma net income (loss) attributable to common stockholders assuming conversion	(77		)	2,206

Plus: Cumulative effect of a change in accounting principle, net of tax	2,414			—

Pro forma net income before cumulative effect of a change in accounting principle	$	2,337		$	2,206

Pro forma net income (loss) per diluted share:
Before cumulative effect of a change in accounting principle	$	0.12		$	0.12
Cumulative effect of a change in accounting principle	(0.12		)	—
	$	—		$	0.12

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the first quarter of 2003 and 2002:

	Three months ended
	March 30, 2003			March 31, 2002
Risk free interest rate	4.23		%	3.75		%
Expected volatility	63		%	64		%
Expected life	4 years			4 years
Contractul life	5 to 10 years			5 to 10 years
Expected dividend yield	0		%	0		%
Fair value of options granted	$	3.34		$	3.25

5. Income Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution of stock options, restricted stock, and convertible redeemable preferred stock that could share in the earnings of the Company. The reconciliation of amounts used in the computation of basic and diluted net income (loss) per share for the three months ended March 30, 2003 and March 31, 2002 consist of the following:

	Three months ended
	March 30, 2003			March 31, 2002
Numerator:
Net income (loss) attributable to common stockholders	$	(137	)	$	2,126

Plus: Income impact of assumed conversions - preferred stock dividends and charges for accretion	315			334

Net income attributable to common stockholders assuming conversion	178			2,460

Plus: Cumulative effect of a change in accounting principle, net of tax	2,414			—

Net income before cumulative effect of a change in accounting principle	$	2,592		$	2,460

Denominator:
Weighted-average shares outstanding	13,532			13,496

Effect of dilutive securities:
Incremental shares from assumed conversion of:
Employee stock options	351			23
Restricted stock	135			56
Convertible redeemable preferred stock	5,251			5,251
	5,737			5,330

Diluted weighted average common shares outstanding	19,269			18,826

Net income (loss) per share:

Basic
Before cumulative effect of a change in accounting principle	$	0.17		$	0.16
Cumulative effect of a change in accounting principle	(0.18		)	—
	$	(0.01	)	$	0.16
Diluted
Before cumulative effect of a change in accounting principle	$	0.13		$	0.13
Cumulative effect of a change in accounting principle	(0.12		)	—
	$	0.01		$	0.13

The effects on weighted average shares outstanding of options to purchase common stock and other potentially dilutive securities of the Company that were not included in the computation of diluted earnings per share because the effect

would have been anti-dilutive were 445 and 1,335 for the three months ended March 30, 2003 and March 31, 2002, respectively.

6. Segment Reporting

The Company has three primary segments: (i) Federal Services, (ii) Commercial Services, and (iii) Commercial Processing and Disposal. During the first quarter of 2003, the Company realigned its reporting segments to include the results of the Memphis operations in its Commercial Services operations from its Commercial Processing and Disposal operations. The impact of this change was not significant and all amounts presented have been revised to be consistent for all periods presented. The following is a brief description of each of the segments:

(a) Federal Services (“FS”)

FS provides on-site waste processing and disposal services, off-site waste disposition, on-site management of nuclear facility operations, and on-site clean up (remedial action) services on large government projects for the Department of Energy (“DOE”) and other governmental entities. The Company’s services include program development, project management, nuclear facility operation, waste characterization, packaging and shipping of waste, selected technical services, and site cleanup.

(b) Commercial Services (“CS”)

CS provides waste treatment and disposition services to a diverse group of commercial clients, including nuclear power utilities. These services include water processing, nuclear waste handling and treatment, transportation, licensing, packaging, heavy hauling, disposal, and nuclear facility D&D.

(c) Commercial Processing and Disposal (“CPD”)

The Company conducts its CPD operations at its two Tennessee locations: the Bear Creek Operations Facility in Oak Ridge and the Gallaher Road Operations Facility in Kingston. The Company also operates two facilities in Barnwell, South Carolina: the Duratek Consolidation & Services Facility (“DCSF”) and the Barnwell Low-Level Radioactive Waste Management Disposal Facility. CPD uses a combination of technologies to process waste to achieve volume and mass reduction. CPD customers primarily include nuclear utilities and government agencies.

	As of and for the Three Months Ended March 30, 2003
	FS		CS		CPD		Unallocated Items			Consolidated
Revenues from external customers (1)	$	29,258	$	15,229	$	19,343	$	—		$	63,830

Income from operations	2,921		1,459		856		—			5,236

Interest expense, net	—		—		—		(1,065		)	(1,065		)

Income taxes	—		—		—		1,624			1,624

Proportionate share of income of joint ventures	156		—		—		—			156

Cumulative effect of a change in accounting principle, net of tax	—		—		—		(2,414		)	(2,414		)

Depreciation and amortization expense	154		596		1,667		602			3,019

Long-lived assets (2)	33,701		54,093		59,394		2,573			149,761

Capital expenditures for additions to long-lived assets	34		488		558		93			1,173

Total assets	71,357		69,681		97,209		15,560			253,807

	As of and for the Three Months Ended March 31, 2002
	FS		CS		CPD		Unallocated Items			Consolidated
Revenues from external customers (1)	$	35,238	$	13,516	$	20,670	$	—		$	69,424

Income from operations	2,975		1,223		1,666		—			5,864

Interest expense, net	—		—		—		(1,667		)	(1,667		)

Income taxes	—		—		—		1,700			1,700

Proportionate share of losses of joint ventures	—		—		—		(37		)	(37		)

Depreciation and amortization expense	160		427		1,707		631			2,925

Long-lived assets (2)	35,713		50,171		61,790		4,818			152,492

Capital expenditures for additions to long-lived assets	27		112		165		46			350

Total assets	85,512		66,431		103,993		20,900			276,836

(1) Intercompany revenues have been eliminated. Revenues by segment represents revenues earned based on third party billings to customers.

(2) Long-lived assets include property, plant and equipment, goodwill and other intangible assets.

7. New accounting pronouncements

In November 2002, the Emerging Issues Task Force reached a consensus on Issue No. 00-21 Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). EITF 00-21 addresses the accounting for contractual arrangements in which multiple revenue-generating activities are performed. In some situations, the different revenue-generating activities (deliverables) are sufficiently separable and there exists sufficient evidence of fair values to account separately for the different deliverables (that is, there are separate units of accounting). In other situations, some or all of the different deliverables are closely interrelated or there is not sufficient evidence of fair value to account separately for the different deliverables. EITF 00-21 addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate units of accounting. EITF 00-21 is effective for the Company for contracts executed after June 30, 2003. The Company is in the process of determining the impact that EITF 00-21 will have on its consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 15, 2002 and are not expected to have a material effect on the Company’s consolidated financial statements.

The Company is required to post, from time to time, financial assurance instruments to meet contractual obligations. In addition, the Company has entered into certain indemnification agreements with the providers of the surety instruments, which would require funding if the Company failed to perform under the contracts being insured and the surety bond issuer was obligated to make payment to the insured parties. As of March 30, 2003, the Company had outstanding assurance instruments of $18,059, which expire at the respective contract completion dates, and is not in default or material breach of any contract that requires the financial assurance. There was not a material impact to the Company’s financial results for the quarter ended March 30, 2003 as a result of the outstanding assurance instruments.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This Interpretation addresses the consolidation by enterprises of variable interest entities as defined in the Interpretation. The application of this Interpretation is not expected to have a material effect on the Company’s consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s consolidated financial statements and the notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. In the fourth quarter of 2002, the Company reclassified costs associated with the support of direct operations, which were previously included as selling, general and administrative expenses, to cost of revenues. The corresponding amounts for all periods presented have been reclassified to conform to this presentation.

Overview

Duratek, Inc., together with its wholly owned subsidiaries (the “Company” or “Duratek”), provides safe, secure radioactive materials disposition and nuclear facility operations for commercial and government customers. The Company’s operations are organized into three primary segments: (i) Federal Services, (ii) Commercial Services, and (iii) Commercial Processing and Disposal.

The Company’s Federal Services (“FS”) operations primarily provide on-site waste processing and disposal services, off-site waste disposition, on-site management of nuclear facility operations, and on-site clean up (remedial action) services on large government projects for the United States Department of Energy (“DOE”) and other governmental entities. The Company’s services include program development, project management, nuclear facility operation, waste characterization, packaging and shipping of waste, selected technical services, and site cleanup.

The Company’s Commercial Services (“CS”) operations provide waste treatment and disposition services to a diverse group of commercial clients, including nuclear power utilities. These services include water processing, nuclear waste handling and treatment, transportation, licensing, packaging, heavy hauling, disposal, and nuclear facility decontamination and decommissioning (“D&D”).

The Company conducts its Commercial Processing and Disposal (“CPD”) operations at its two Tennessee locations: the Bear Creek Operations Facility in Oak Ridge and the Gallaher Road Operations Facility in Kingston. The Company also operates two facilities in Barnwell, South Carolina: the Duratek Consolidation & Services Facility (“DCSF”) and the Barnwell Low-Level Radioactive Waste Management Disposal Facility. The technologies used at the Tennessee based processing operations include incineration, compaction, metal decontamination and recycling, and Green is Clean.

The Company’s future operating results will be affected by, among other things, the duration of commercial waste processing contracts and amount of waste to be processed by the Company’s commercial waste processing operations pursuant to these contracts and the timing and scope of DOE waste treatment projects.

Critical Accounting Policies

Critical accounting policies are those that are both important to the presentation of the Company’s financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. The Company’s most critical accounting policies, which relate to revenue recognition, D&D liabilities, and recoverability of long-lived assets including goodwill, are discussed below.

Revenue Recognition

Commercial Waste Processing

The commercial waste processing operations have short-term and long-term contracts with commercial companies to provide waste processing services. The Company’s services are primarily provided under fixed-unit price contracts. Under the fixed-unit price contracts, revenue is recognized as waste is processed. The Company records the associated costs with out-bound transportation, burial, and secondary waste processing as the related waste is processed. The Company’s fixed-unit price contracts provide for additional customer billings if the characterization of the waste received is different from contract specifications or for certain increases in burial costs, both of which are estimated at the time of waste processing.

Contract Revenue and Cost Recognition

The Federal Services and Commercial Services operations have long-term contracts to provide engineering and technical support services to the Federal government and its agencies and to commercial companies. The Company’s services are provided under time-and-materials, fixed unit rate, cost-plus-fixed-fee and fixed-price contracts. Under time-and-materials contracts the Company records revenues based on costs incurred at agreed upon contractual rates. For fixed unit rate contracts, the Company recognizes revenues as units are processed in accordance with the contract. For cost-plus-fixed-fee contracts the Company records revenue based upon costs incurred and a proportionate amount of the fixed-fee or percentage stipulated in the contract. For fixed-price contracts, the Company recognizes revenue based upon applying the ratio of current cumulative costs incurred to total estimated cost at completion. The Company considers the nature of the work involved in determining whether such measures are appropriate. Cumulative revenues recognized may be less or greater than cumulative costs and profits billed at any point in time during a contract’s term. The resulting difference is recognized as costs and estimated earnings in excess of billings on uncompleted contracts, a current asset, or unearned revenues, a current liability. Contracts typically provide for billing of costs incurred and estimated earnings on a monthly or quarterly basis. The estimates of revenues and expenses on client contracts change periodically in the normal course of business and due to contract modifications. The Company receives award fees on certain Federal government contracts which are accrued when estimable and collection is reasonably assured. Provisions for estimated losses on individual contracts are made in the period in which the loss was identified. Contract acquisition costs are expensed as incurred.

Any estimation process, including that used in preparing contract estimates, involves inherent risk. The Company reduces the inherent risk relating to revenue and cost estimates through corporate policy, approval and monitoring processes, which includes a detailed monthly review and status report to management of all significant contracts with such risk.

D&D Liabilities

The Company has responsibility related to the cost to D&D the facilities and equipment in Tennessee and South Carolina and equipment used at customer sites in the Commercial Services operations. Such costs will generally be paid upon closure of such facilities or disposal of such equipment.

Similarly, under its license granted by the State of South Carolina and the Atlantic Interstate Low-Level Radioactive Waste Compact Implementation Act, the Company will be obligated for costs associated with the ultimate closure of the Barnwell Low-Level Radioactive Waste Disposal Facility in South Carolina and its buildings and equipment located at the Barnwell site. The Company has recorded accruals related to these D&D liabilities.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation (“ARO”) as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. The Company is also required to record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the ARO, the ARO will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company adopted SFAS No. 143 on January 1, 2003, as required, and recognized the following changes to the Company’s consolidated financial statements: increase property, plant and equipment by $5.6 million and increase facility and equipment D&D liabilities by $9.5 million. The Company recognized a $2.4 million cumulative effect of a change in accounting principle, net of tax ($4.0 million pre-tax) in the first quarter of 2003.

The Company’s D&D liabilities as of December 31, 2002 consists of facility and equipment D&D of $9,085 and Barnwell closure of $19,693. The Company’s D&D liabilities as of March 30, 2003 consists of facility and equipment ARO of $18,809 and Barnwell closure of $19,697.

Management updates its closure and remediation cost estimates for D&D on an annual basis. These estimates are based on current technology, regulations, and burial rates. Management is unable to reasonably estimate the impact that changes in technology, regulations, and burial rates will have on the ultimate costs. Changes in these factors could have a material impact on these estimates.

Recoverability of Long-Lived Assets, Including Goodwill

The Company has made significant business acquisitions for which it has recorded the fair value of long-lived assets acquired and related goodwill and other intangible assets. The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or circumstances indicate the carrying value of such assets may not be recoverable.

The Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, on January 1, 2002. Under the provisions of SFAS No. 142, goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but rather tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective useful lives and reviewed for impairment in accordance with the SFAS No. 144. As of March 30, 2003, the Company had $70.8 million of goodwill and $5.4 million of intangible assets with estimable useful lives on its

consolidated balance sheet. The Company does not have any other intangible assets with indefinite useful lives.

In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount of excess carrying value over fair value.

Results of Operations

Three Months Ended March 30, 2003 As Compared To Three Months Ended March 31, 2002

The table below sets forth certain consolidated statement of operations information for the three months ended March 30, 2003 and March 31, 2002. Certain amounts for 2002 have been reclassified to conform to the presentation for 2003. In the fourth quarter of 2002, the Company reclassified costs associated with the support of direct operations, which were previously included as selling, general and administrative expenses, to cost of revenues. The corresponding amounts for all periods presented have been reclassified to conform to this presentation.

The Company’s year ends on December 31, while the first three fiscal quarters of each fiscal year end on the Sunday nearest to the last day of each such calendar quarter. The quarterly financial results presented herein are for the three months ended March 30, 2003 and March 31, 2002.

	Three months ended
(in thousands)	March 30, 2003			March 31, 2002
	(unaudited)
Revenues	$	63,830		$	69,424
Cost of revenues	50,561			56,240

Gross profit	13,269			13,184
Percent of revenues	20.8		%	19.0		%

Selling, general and administrative expenses	8,033			7,320
Percent of revenues	12.6		%	10.5		%

Income from operations	5,236			5,864
Percent of revenues	8.2		%	8.4		%

Interest expense, net	(1,065		)	(1,667		)
Other expense, net	(111		)	—
Income taxes	1,624			1,700
Proportionate share of income (loss) of joint ventures	156			(37		)

Net income before cumulative effect of a change in accounting principle	2,592			2,460

Cumulative effect of a change in accounting principle, net of tax	(2,414		)	—

Net income	178			2,460

Preferred stock dividends and charges for accretion	(315		)	(334		)

Net income (loss) attributable to common stockholders	$	(137	)	$	2,126

Duratek, Inc.

Revenues for the Company decreased by $5.6 million, or 8.1%, from $69.4 million in the first quarter of 2002 to $63.8 million in the first quarter of 2003. This decrease was primarily related to the FS operation. Gross profit for the Company increased slightly from $13.2 million in the first quarter of 2002 to $13.3 million in the first quarter of 2003. The slight increase in gross profit was primarily related to the CS operation, partially offset by the CPD operation. As a percentage of revenues, gross profit increased from 19.0% in the first quarter of 2002 to 20.8% in the first quarter of 2003. The increase in gross profit as a percent of revenues is a result of the Company’s shift towards higher gross margin operations. Selling, general and administrative expenses increased by $0.7 million, or 9.7%, from $7.3 million in the first quarter of 2002 to $8.0 million in the first quarter of 2003. As a percentage of revenues, selling, general and administrative expenses increased from 10.5% in the first quarter of 2002 to 12.6% in the first quarter of 2003. The increase in selling, general and administrative expense was primarily attributable to higher employee benefit expenses and information systems related expenses, which was offset by lower personnel related expenses due to the reduction in work force in 2002.

The following table summarizes revenues, gross profit and income from operations by business segments for the periods presented:

	Three months ended
(in thousands)	March 30, 2003		March 31, 2002
	(unaudited)
Federal Services
Revenues	$	29,258	$	35,238
Gross profit	6,094		5,598
Income from operations	2,921		2,975

Commercial Services
Revenues	$	15,229	$	13,516
Gross profit	3,809		2,752
Income from operations	1,459		1,223

Commercial Processing and Disposal
Revenues	$	19,343	$	20,670
Gross profit	3,366		4,834
Income from operations	856		1,666

Federal Services (“FS”):

FS revenues decreased by $6.0 million, or 17.0%, from $35.2 million in the first quarter of 2002 to $29.3 million in the first quarter of 2003. The decrease was primarily due to $6.9 million in revenue recognized in the first quarter of 2002 relating to the Environmental Management Waste Management Facility (“EMWMF”) contract. Revenues relating to the cost incurred during the construction phase could not be recognized until completion of this phase, which occurred in the first quarter of 2002. During the first quarter of 2003, the Company recognized $0.6 million in revenues on this contract related to the operation and maintenance of this facility, which will be on-going. In addition, revenues decreased by $3.2 million relating to staff augmentation work performed in 2002 that did not occur in 2003, $1.0 million relating to a decrease in work performed at the Los Alamos National Laboratories, and $1.7 million relating to the River Protection Project (“RPP”) Vitrification projects due to a decrease in contract costs incurred. These decreases were offset by a $3.3 million increase in revenues relating to contracts with the Federal government that have award fees. These award fees were renegotiated in the first quarter of 2003. In addition, incremental revenues of $2.6 million were recognized in the first quarter of 2003 primarily related to the award of new work or additional work scope.

Gross profit from FS increased by $0.5 million, or 8.9%, from $5.6 million in the first quarter of 2002 to $6.1 million in the first quarter of 2003. As a percentage of revenues, gross profit increased from 15.9% in the first quarter of 2002 to 20.8% in the first quarter of 2003. The increase in gross profit primarily related to the increase in revenues relating to contracts with the Federal government that have award fees and due to the award of new work or additional work scope with higher gross margins. In addition, in the first quarter of 2002, a loss was recognized relating to work performed to clean up and close an environmental technology site in Colorado. Offsetting these increases were decreases relating to revenue decreases on the EMWMF contract and the RPP Vitrification projects.

FS income from operations decreased slightly in the first quarter of 2003 compared to the first quarter of 2002. In the first quarter of 2003, FS incurred higher selling, general and administrative expenses due to higher employee benefit expenses and expenses incurred related to bid and proposal work.

Commercial Services (“CS”):

CS revenues increased by $1.7 million, or 12.7%, from $13.5 million in the first quarter of 2002 to $15.2 million in the first quarter of 2003. The increase in revenues was primarily due to $1.3 million in revenues from the transportation services operations relating to higher sales from the rental of casks and an increase in market share due to the bankruptcy of a competitor. In addition, revenues increased $0.9 million due to the award of new work in the site decontamination and decommissioning business and the radiological engineering services business. Offsetting these increases was a $0.6 million decrease in revenues due to the completion of work in the first quarter of 2003 on existing contracts.

Gross profit from CS increased by $1.1 million, or 38.4%, from $2.8 million in the first quarter of 2002 to $3.8 million in the first quarter of 2003. As a percentage of revenues, gross profit increased from 20.4% in the first quarter of 2002 to 25.0% in the first quarter of 2003. The increase in gross profit was primarily due to the increase in revenues from the transportation and site decontamination and decommissioning operations with higher gross margins.

CS income from operations increased $0.2 million from $1.2 million in the first quarter of 2002 to $1.5 million in the first quarter of 2003. This increase is primarily attributable to increases in revenues, offset by higher selling, general and administrative expenses due to higher labor related expense and employee benefit expenses.

Commercial Processing and Disposal (“CPD”):

CPD revenues decreased by $1.3 million, or 6.4%, from $20.7 million in the first quarter of 2002 to $19.3 million in the first quarter of 2003. This decrease was primarily the result of a $0.6 million decrease in revenues from a large component project, a decrease of $0.6 million in revenues relating to the fixed-based processing facility in Tennessee, and a $0.2 million decrease in revenues from the DCSF. The decrease in revenues from the Tennessee fixed-based facility was due to a decrease in the volume of processed waste and a change in the mix of waste processed, partially offset by an increase in the price of the waste processed.

Gross profit from CPD decreased by $1.5 million, or 30.4%, from $4.8 million in the first quarter of 2002 to $3.4 million in the first quarter of 2003. As a percentage of revenues, gross profit decreased from 23.4% in the first quarter of 2002 to 17.4% in the first quarter of 2003. The decrease in gross profit was primarily attributable to the commercial processing operation in Tennessee. In 2002, this operation recognized a favorable burial expense adjustment relating to a more favorable mix of waste than anticipated on a significant high radiation project completed in 2002. In addition, this operation had higher decontamination and decommissioning expense due to the adoption of Statement of Financial Accounting Standards No. 143 (“SFAS No. 143”), Accounting for Asset Retirement Obligations, higher utility expense, and expenses relating to production supplies. Offsetting these expenses were lower secondary waste and transportation expenses.

CPD income from operations decreased $0.8 million from $1.7 million in the first quarter of 2002 to $0.9 million in the first quarter of 2003. This decrease was primarily attributable to lower gross profit and higher selling, general and administrative expenses. Selling, general and administrative expenses were higher due to higher employee benefit expenses, which was partially offset by lower personnel related expenses due to a work force reduction in 2002.

Selling, General and Administrative Expense and Other Non-operating Items:

Selling, general and administrative expense increased $0.7 million, or 9.7%, from $7.3 million in the first quarter of 2002 to $8.0 million in the first quarter of 2003. The increase in selling, general and administrative expense was primarily attributable to higher employee benefit expenses and information systems related expenses, which was offset by lower personnel related expense due to a work force reduction in 2002.

Interest expense, net of interest income, decreased by $0.6 million from $1.7 million in the first quarter of 2002 to $1.1 million in the first quarter of 2003. The decrease was the result of the lower average borrowings and lower interest rates.

Income taxes decreased from $1.7 million in the first quarter of 2002 to $1.6 million in the first quarter of 2003. The Company’s effective tax rate was 40.0% and 40.5% in the first quarter of 2003 and 2002, respectively.

The Company recognized a cumulative effect of a change in accounting principle of $2.4 million, net of tax relating to the adoption of SFAS No. 143. (See note 3 in the Notes to Condensed Consolidated Financial Statements.)

Liquidity and Capital Resources

The Company used $0.6 million in cash flows from operating activities in the first quarter of 2003, primarily from an increase in the investment in working capital of $6.2 million, which was partially offset by income from operations before depreciation and amortization of $3.2 million and the cumulative effect of a change in accounting principle of $2.4 million. During the three months ended March 31, 2002, the Company’s operating activities provided net cash of $12.2 million. The net cash provided by operating activities in the first quarter of 2002 was primarily generated by $5.4 million in income from operations before depreciation and amortization and the reduction in the investment in working capital of $6.7 million. Cash flow from operating activities includes activities relating to the operations of the Barnwell low-level radioactive waste disposal facility in South Carolina. Under South Carolina law, the Company is required to bill customers based on the amounts agreed upon with the State. On an annual basis, following the State’s fiscal year-end on June 30, the Company will remit amounts billed to customers of the waste disposal site less its fee for operating the site during such fiscal year. During the three months ended March 30, 2003, the Company had collected approximately $3.0 million, net of allowable costs from waste processing activity plus an applicable margin, from customers of the waste disposal facility that will be remitted to the state in July 2003.

The Company used approximately $1.2 million in cash flows for investing activities for purchases of property and equipment in the first quarter of 2003.

Net cash provided by financing activities consisted of proceeds from short-term borrowings under the Company’s bank credit facility, largely offset by repayments of long-term debt.

At December 31, 2002, the Company’s amended credit facility consisted of a five year $40.0 million revolving line of credit (which included temporary limits from $15.0 million to $35.0 million to meet certain working capital requirements of the Company), a five year $50.0 million term loan, and a six and one-half year $40.0 million term loan. The term loans must be repaid in an amount equal to 50% of excess cash flows, as defined in the credit agreement. Borrowings under the credit facility bear interest at LIBOR plus an applicable margin or, at the Company’s option, the prime rate plus an applicable margin. The applicable margin is determined based on the Company’s performance and can range from 2.75% to 5.0% for LIBOR based borrowings and 1.75% to 4.0% for prime based borrowings. The facility required the Company to maintain certain financial ratios and restricted the payment of dividends on the Company’s common stock and preferred stock and the Company’s ability to make acquisitions. At March 30, 2003 the Company had accrued dividends of $2.8 million on its outstanding convertible redeemable preferred stock, which are included in other noncurrent liabilities on the consolidated balance sheets.

In accordance with the terms of the March 2002 amendment to the Company’s bank credit agreement, the amount of available borrowings under the revolving line of credit after February 28, 2003 would be determined by the Company’s lenders. On February 28, 2003, the bank credit agreement was amended to reset the amount of available borrowings under the revolving line of credit as well as to adjust certain covenants. Such covenants included several financial ratios and financial and operational requirements, which are measured on a monthly, quarterly, or annual basis. The amendment required a fee of approximately $115,000 and the payment of certain other fees and expenses. Under the amendment, the Company has no temporary limits under the $40.0 million revolving line of credit. In addition, the amended facility permits the Company to restart the payment of dividends on the Company’s 8% Cumulative Convertible Redeemable Preferred Stock in 2003, pay accrued dividends on the Convertible Preferred Stock in 2004, and make permitted acquisitions, subject to the satisfaction of certain conditions set forth in the amended credit agreement. At March 30, 2003, after giving effect to this amendment, $31.0 million of additional borrowings were available under the revolving credit portion of the credit facility. As of March 30, 2003 the Company had $3.4 of outstanding borrowings under its revolving line of credit facility, $19.9 million of five year term loans bearing interest at LIBOR plus 3.00% (4.27%) and $38.6 million of six and one-half year term loans bearing interest at LIBOR plus 3.50% (4.77%).

The following table summarizes the Company’s contractual cash obligations as of March 30, 2003 (in 000’s):

	Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total
Long-term debt	$	10,400	$	36,566	$	11,583	$	—	$	58,549
Capital leases	349		234		—		—		583
Operating leases	2,609		3,326		617		67		6,619
Convertible preferred stock dividends	1,260		2,520		—		—		3,780

The Company has issued and outstanding 157,525 shares of Convertible Preferred Stock that is initially convertible into the Company’s common stock at a conversion price of $3.00 per share and, if not previously converted, the Company is required to redeem the outstanding Convertible Preferred Stock on February 5, 2004 for $100 per share plus accrued and unpaid dividends, unless such date is extended with the approval of the holders of the Convertible

Preferred Stock.

The Company believes that cash flows from operations, cash resources at March 30, 2003 and, if necessary, borrowings available under its credit facility will be sufficient to meet its operating needs, including the quarterly preferred dividend payments of approximately $0.3 million, for at least the next twelve months.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s major market risk relates to changing interest rates. At March 30, 2003, the Company had floating rate long-term debt of $61.9 million, of which the current portion is $10.4 million. Average outstanding borrowings under the revolving credit portion of the credit facility were $0.11 million during the three months ended March 30, 2003. The Company has not purchased any interest rate derivative instruments but may do so in the future. In addition, the Company does not have any material foreign currency or commodity risk.

Item 4. Controls and Procedures

Within 90 days prior to the date of this report, the Company carried out, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information which is required to be included in the periodic reports that the Company must file with the Securities and Exchange Commission.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.

Part II Other Information

Item 1. Legal Proceedings

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 for a discussion of legal proceedings.

Item 3. Defaults Upon Senior Securities

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits

See accompanying Index to Exhibits.

b. Reports

Current report on Form 8-K filed on March 28, 2003.

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 the undersigned thereunto duly authorized.

		DURATEK, INC.


Dated:	May 12, 2003	BY:	/s/ Robert F. Shawver
			Robert F. Shawver
			Executive Vice President and
			Chief Financial Officer


Dated:	May 12, 2003	BY:	/s/ William M. Bambarger, Jr.
			William M. Bambarger, Jr
			Corporate Controller

CERTIFICATIONS

I, Robert E. Prince, Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Duratek, Inc. (“Duratek”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Duratek as of, and for, the periods presented in this quarterly report;

4. Duratek’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Duratek and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to Duratek, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of Duratek’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. Duratek’s other certifying officer and I have disclosed, based on our most recent evaluation, to Duratek’s auditors and the audit committee of Duratek’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect Duratek’s ability to record, process, summarize and report financial data and have identified for Duratek’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in Duratek’s internal controls; and

6. Duratek’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated:	May 12, 2003	BY:	/s/ Robert E. Prince
			Robert E. Prince
			Chief Executive Officer

I, Robert F. Shawver, Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Duratek, Inc. (“Duratek”);

b) evaluated the effectiveness of Duratek’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in Duratek’s internal controls; and

Dated:	May 12, 2003	BY:	/s/ Robert F. Shawver
			Robert F. Shawver
			Executive Vice President and
			Chief Financial Officer

EXHIBITS INDEX

Exhibit No.
3.1		Amended and Restated Certificate of Incorporation of the Registrant. Incorporated herein by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (File No. 0-14292)

3.2		By-Laws of the Registrant. Incorporated herein by reference to Exhibit 3.3 of the Registrant’s Form S-1 Registration Statement No. 33-2062.

4.1		Certificate of Designations of the 8% Cumulative Convertible Redeemable Preferred Stock dated January 23, 1995. Incorporated herein by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on February 1, 1995. (File No. 0-14292)

4.2		Stock Purchase Agreement among Carlyle Partners II, L.P., Carlyle International Partners II, L.P., Carlyle International Partners III, L.P., C/S International Partners, Carlyle-GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P., GTS Duratek, Inc. and National Patent Development Corporation dated as of January 24, 1995. Incorporated herein by reference to Exhibit 4.2 of the Registrant’s Form 8-K filed on February 1, 1995. (File No. 0-14292)

4.3		Stockholders Agreement by and among Carlyle Partners II, L.P., Carlyle International Partners II, L.P., Carlyle International Partners III, L.P., C/S International Partners, Carlyle-GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P., GTS Duratek, Inc. and National Patent Development Corporation dated as of January 24, 1995. Incorporated herein by reference to Exhibit 4.3 of the Registrant’s Form 8-K filed on February 1, 1995. (File No. 0-14292)

4.4		Registration Rights Agreement by and among Carlyle Partners II, L.P., Carlyle International Partners II, L.P., Carlyle International Partners III, L.P., C/S International Partners, Carlyle-GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P., GTS Duratek, Inc. and National Patent Development Corporation dated as of January 24, 1995. Incorporated herein by reference to Exhibit 4.4 of the Registrant’s Form 8-K filed on February 1, 1995. (File No. 0-14292)

10.1		1984 Duratek Corporation Stock Option Plan, as amended. Incorporated herein by reference to Exhibit 10.9 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990.

10.2		License Agreement dated as of August 17, 1992 between GTS Duratek, Inc. and Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo Incorporated herein by reference to Exhibit 10.9 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992. (File No. 0-14292)

Exhibit No.
10.3		Amended and Restated Credit Agreement dated as of June 8, 2000 by and among GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument Services, Incorporated, General Technical Services, Inc., GTSD Sub III, Inc., GTSD Sub IV, Inc., Frank W. Hake Associates LLC, Chem-Nuclear Systems L.L.C., Waste Management Federal Services, Inc., Waste Management Federal Services of Idaho, Inc., Waste Management Federal Services of Hanford, Inc., Waste Management Technical Services, Inc., Waste Management Geotech, Inc., the Lenders party thereto, First Union National Bank, as Administrative Agent, Credit Lyonnais New York Branch, as Documentation Agent, Fleet National Bank, as Syndication Agent, and First Union Securities, Inc., as Lead Arranger and Book Manager. Incorporated herein by reference to Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed on June 22, 2000. (File No. 0-14292)

10.4		Second Amended and Restated Security Agreement dated as of June 8, 2000 made by GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument Services, Incorporated, General Technical Services, Inc., GTSD Sub III, Inc., GTSD Sub IV, Inc., Frank W. Hake Associates, L.L.C., Chem-Nuclear Systems, L.L.C., Waste Management Federal Services, Inc., Waste Management Federal Services of Idaho, Inc., Waste Management Federal Services of Hanford, Inc., Waste Management Technical Services, Inc., Waste Management Geotech, Inc., and First Union National Bank, as Collateral Agent. Incorporated herein by reference to Exhibit 99.5 of the Registrant’s Current Report on Form 8-K filed on June 22, 2000. (File No. 0-14292)

10.5		Purchase Agreement by and among Chemical Waste Management Inc., Rust International, Inc., CNS Holdings, Inc. and GTS Duratek, Inc. dated March 29, 2000. Incorporated herein by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K filed on June 22, 2000. (File No. 0-14292)

10.6		Amendment No. 1 to Purchase Agreement and Disclosure Letter by and among Chemical Waste Management Inc., Rust International, Inc., CNS Holdings, Inc. and GTS Duratek, Inc. dated June 8, 2000. Incorporated herein by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K filed on June 22, 2000. (File No. 0-14292)

10.7		1999 GTS Duratek, Inc. Stock Option and Incentive Plan. Incorporated herein by reference to Exhibit A of the Registrant’s 2000 Proxy Statement. (File No. 0-14292)

10.8		Executive Employment Agreement dated June 1, 2002 by and between Duratek, Inc. and Robert E. Prince. Incorporated herein by reference to Exhibit 10.15 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.9		Executive Employment Agreement dated June 1, 2002 by and between Duratek, Inc. and Robert F. Shawver. Incorporated herein by reference to Exhibit 10.16 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

Exhibit No.

10.10		Executive Employment Agreement dated June 1, 2002 by and between Duratek, Inc. and C. Paul Deltete. Incorporated herein by reference to Exhibit 10.17 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.11		Executive Employment Agreement dated June 1, 2002 by and between Duratek, Inc. and Regan E. Voit. Incorporated herein by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.12		Employment Agreement dated June 8, 2000 by and between Waste Management Federal Services, Inc. and Thomas E. Dabrowski. Incorporated herein by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.13		Amendment to Employment Agreement dated June 1, 2002 by and between Duratek Federal Services, Inc. and Thomas E. Dabrowski. Incorporated herein by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.14		Executive Employment Agreement dated June 1, 2002 by and between Duratek, Inc. and Michael F. Johnson. Incorporated herein by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.15		Executive Employment Agreement dated November 1, 2002 by and between Duratek, Inc. and William R. Van Dyke. Incorporated herein by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.

10.16		Duratek Inc. 2002 Executive Compensation Plan. Incorporated herein by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.

10.17		Fourth Amendment to Credit Agreement dated as of February 28, 2003 made by Duratek, Inc., as borrower and as agent for the Subsidiary Borrowers, the Lenders party to the Credit Agreement, and Wachovia Bank, National Association, as Administrative Agent. Incorporated herein by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

10.18		Duratek, Inc. Deferred Compensation Plan. Filed herewith.

Exhibit 10.18

DEFERRED COMPENSATION PLAN

prepared for

DURATEK, INC.

DURATEK, INC.

DEFERRED COMPENSATION PLAN

ARTICLE I - PURPOSE; EFFECTIVE DATE

1.1. Purpose. The purpose of this Deferred Compensation Plan (hereinafter, the “Plan”) is to permit a select group of management and highly compensated employees of DURATEK, INC. and its subsidiaries to defer the receipt of income which would otherwise become payable to them. It is intended that this plan, by providing this deferral opportunity, will assist the Company in retaining and attracting individuals of exceptional ability by providing them with these benefits.

1.2. Effective Date. The Plan shall be effective as of February 1, 2003.

ARTICLE II - DEFINITIONS

For the purpose of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise:

2.1. Account(s). “Account(s)” means the account or accounts maintained on the books of the Company used solely to calculate the amount payable to each Participant under this Plan and shall not constitute a separate fund of assets. The Accounts available for each Participant shall be identified as:

a) Retirement Account

b) In-Service Account; each Participant may maintain up to two (2) In-Service Accounts based on selecting different times of payments as selected under Article 5, below.

2.2. Actuarial Equivalent. “Actuarial Equivalent” means an equivalence in value between two (2) or more forms and/or times of payment based on a determination by an actuary chosen by the Company, using sound actuarial assumptions at the time of such determination, and may be modified from time to time consistent with sound actuarial assumptions at that time.

2.3. Beneficiary. “Beneficiary” means the person, persons or entity as designated by the Participant, entitled under Article VI to receive any Plan benefits payable after the Participant’s death.

2.4. Board. “Board” means the Board of Directors of the Company.

2.5. Change in Control. A “Change in Control” means a merger, consolidation, or reorganization of the Company with one or more other entities in which the Company is not the surviving entity, a

sale of substantially all of the assets of the Company to another entity, or any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving entity) that results in any person or entity (or persons or entities acting as a group or otherwise in concert) other than The Carlyle Group and/or its affiliates, becoming the beneficial owner of fifty percent (50%) or more of the combined voting power of all classes of securities of the Company or obtaining (through stock ownership, proxies, or otherwise) the right to elect a majority of the Board of Directors of the Company.

2.6. Committee. “Committee” means the Committee appointed by the Board to administer the Plan pursuant to Article VII.

2.7. Company. “Company” means DURATEK, INC., a Delaware corporation, and any directly or indirectly affiliated subsidiary corporations, any other affiliate designated by the Board, or any successor to the business thereof.

2.8. Compensation. “Compensation” means the base salary payable to and bonus or incentive compensation earned by a Participant with respect to employment services performed for the Company by the Participant during a particular calendar year and considered to be “wages” for purposes of federal income tax withholding. For purposes of this Plan only, Compensation shall be calculated before reduction for any amounts deferred by the Participant pursuant to the Company’s tax qualified plans which may be maintained under Section 401(k) or Section 125 of the Internal Revenue Code of 1986, as amended, (the “Code”), or pursuant to this Plan or any other non-qualified plan which permits the voluntary deferral of compensation. Inclusion of any other forms of compensation is subject to Committee Approval.

2.9. Deferral Commitment. “Deferral Commitment” means a commitment made by a Participant to defer a portion of Compensation as set forth in Article III. The Deferral Commitment shall apply to each payment of salary and/or bonus payable to a Participant, and shall specify the Account or Accounts to which the Compensation deferred shall be credited. Such designation shall be made in whole percentages and shall be made in a form acceptable to the Committee. A Deferral Commitment shall remain in effect until amended or revoked as provided under Sections 3.3, or 3.5, below.

2.10. Deferral Period..“Deferral Period” means each calendar year.

2.11. Determination Date. “Determination Date” means each day.

2.12. Disability. “Disability” means a physical or mental condition that prevents the Participant from satisfactorily performing the Participant’s usual duties for Company and qualifies as a “disability” under the terms of the Company’s Long Term Disability program as then in existence at that time.

2.13. Discretionary Contribution. “Discretionary Contribution” means the Company contribution credited to a Participant’s Account(s) under Section 4., below.

2.14. Distribution Election. “Distribution Election” means the form prescribed by the Committee and completed by the Participant, indicating the chosen form of payment for benefits payable from each Account under this Plan, as elected by the Participant.

2.15. Financial Hardship. “Financial Hardship” means a severe financial hardship of the Participant resulting from a Disability of the Participant, a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstance arising as a result of events beyond the control of the Participant. Financial Hardship shall be determined based upon such standards as are, from time to time, established by the Committee, and such determination shall be in the sole discretion of the Committee.

2.16. 401(k) Plan. “401(k) Plan” means the Duratek 401(k) Plan, or any other successor defined contribution plan maintained by the Company that qualifies under Section 401(a) of the Code and satisfies the requirements of Section 401(k) of the Code.

2.17. Interest. “Interest” means the amount credited to a Participant’s Account(s) on each Determination Date, which shall be based on the Valuation Funds chosen by the Participant as provided in Section 2.22, below and in a manner consistent with Section 4.3, below. Such credits to a Participant’s Account may be either positive or negative to reflect the increase or decrease in value of the Account in accordance with the provisions of this Plan.

2.18. Participant. “Participant” means any employee who is eligible, pursuant to Section 3.1, below, to participate in this Plan, and who has elected to defer Compensation under this Plan in accordance with Article III, below. The Participant shall be designated as being a Group 1 Participant or a Group 2 Participant. Except as provided in Section 3.6, below, such employee shall remain a Participant in this Plan for the period of deferral and until such time as all benefits payable under this Plan have been paid in accordance with the provisions hereof.

2.19. Plan. “Plan” means this Deferred Compensation Plan as amended from time to time.

2.20. Retirement. “Retirement” means the termination of employment with the Company of the Participant after attaining age sixty (60).

2.21. Predecessor Plan. “Predecessor Plan” means any supplemental executive retirement plan, executive severance plan or like plan maintained by the Company from which account credits are transferred to the Plan in a manner and at a time specified by the Committee.

2.22. Valuation Funds. “Valuation Funds” means one or more of the independently established funds or indices that are identified and listed by the Committee. These Valuation Funds are used solely to calculate the Interest that is credited to each Participant’s Account(s) in accordance with Article IV, below, and does not represent, nor should it be interpreted to convey any beneficial interest on the part of the Participant in any asset or other property of the Company. The

determination of the increase or decrease in the performance of each Valuation Fund shall be made by the Committee in its reasonable discretion. The Committee shall select the various Valuation Funds available to the Participants with respect to this Plan and shall set forth a list of these Valuation Funds attached hereto as Exhibit A, which may be amended from time to time in the discretion of the Committee.

2.23. Years of Service. “Years of Service” shall have the meaning provided for such term for purposes of vesting under the 401(k) Plan, whether or not the Participant is a participant in such plan.

ARTICLE III - ELIGIBILITY AND PARTICIPATION

3.1. Eligibility and Participation.

a) Eligibility. Eligibility to participate in the Plan shall be limited to those select key employees of Company who are designated by management, from time to time, and approved by the Committee.

b) Participation. An employee’s participation in the Plan shall be effective upon notification to the employee by the Committee of eligibility to participate, and completion and submission of a Deferral Commitment, an Allocation Form, and a Form of Payment Designation to the Committee prior to the beginning of the Deferral Period.

c) First-Year Participation. When an individual first becomes eligible to participate in this Plan during a Deferral Period, a Deferral Commitment may be submitted to the Committee within thirty (30) days after the Committee notifies the individual of eligibility to participate. Such Deferral Commitment will be effective only with regard to Compensation earned and payable following submission of the Deferral Commitment to the Committee.

3.2. Form of Deferral Commitment. A Participant may elect to make a Deferral Commitment in the form permitted by the Committee. The Deferral Commitment shall specify the following:

a) Deferral Amounts; Accounts. A Deferral Commitment shall be made with respect to each payment of salary and/or bonus payable by the Company to a Participant during the Deferral Period, and shall designate the portion of each deferral that shall be allocated among the various Accounts, except that no deferral shall be made to an Account at the same time that a distribution is to be made from that Account. The Participant shall set forth the amount to be deferred as a full percentage of salary and/or bonus (the Participant may designate a different percentage of salary and bonus that is to be deferred under this Plan). Salary Deferral Commitments shall be made in roughly equal amounts over the Deferral Period.

b) Allocation to Valuation Funds. The Participant shall specify in a separate form (known as the “Allocation Form”) filed with the Committee, the Participant’s initial allocation of the amounts deferred into each Account among the various available Valuation Funds.

c) Maximum Deferral. The maximum amount of each payment of base salary that may be

deferred by a Group 1 Participant shall be fifty percent (50%); Group 2 Participants shall not be permitted to defer any portion of base salary. The maximum amount of each payment of bonus or incentive compensation that may be deferred by any Participant shall be one hundred percent (100%).

3.3. Period of Commitment. Once a Participant has made a Deferral Commitment, that Commitment shall remain in effect for the next succeeding Deferral Period and shall remain in effect for all future Deferral Periods unless revoked or amended in writing by the Participant and delivered to the Committee no later than fifteen (15) days prior to the beginning of a subsequent Deferral Period.

3.4. Commitment Limited by Termination or Disability. If a Participant suffers a Disability or terminates employment with Company prior to the end of the Deferral Period, the Deferral Period shall end as of the date of Disability or termination.

3.5. Modification of Deferral Commitment. Except as provided in Sections 3.3, 3.4, above, and 5.4 below, a Deferral Commitment shall be irrevocable by the Participant during a Deferral Period, except that a Participant may choose to cease in its entirety the deferral of salary at any time during a Deferral Period. This cessation will be effective as soon as practical after the receipt by the Committee of such a request and shall apply only with respect to salary earned and payable after the time that this request is filed with the Committee. Any resumption of such a Participant’s deferrals shall be permitted by the Committee only by the election of the Participant in accordance with the provisions of this Article III.

3.6. Change in Employment Status. If the Committee determines that a Participant’s employment performance is no longer at a level that warrants reward through participation in this Plan, but does not terminate the Participant’s employment with Company, the Participant’s existing Deferral Commitment shall terminate at the end of the Deferral Period, and no new Deferral Commitment may be made by such Participant after notice of such determination is given by the Committee, unless the Participant later satisfies the requirements of §3.1, above. If the Committee, in its sole discretion, determines that the Participant no longer qualifies as a member of a select group of management or highly compensated employees, as determined in accordance with the Employee Retirement Income Security Act of 1974, as amended, the Committee may, in its sole discretion terminate any Deferral Commitment for that year, prohibit the Participant from making any future Deferral Commitments and/or distribute the Participant’s Account Balances in accordance with Article V of this Plan as if the Participant had terminated employment with the Company as of that time.

3.7. Defaults in Event of Incomplete or Inaccurate Deferral Commitments. In the event that a Participant submits a Deferral Commitment to the Committee that contains information necessary to the smooth operation of this Plan which, in the sole discretion of the Committee, is incomplete or inaccurate, the Committee shall be authorized to assume the following, and such assumptions shall be communicated to the Participant:

a) If no Account is listed – assume Retirement Account was selected;

b) If Accounts listed equal less than 100% - assume balance is deferred into Retirement Account;

c) If Accounts listed equal more than 100% – assume proportionate reduction to each Account selected;

d) If no Valuation Fund is selected – assume Money Market Fund was selected;

e) If Valuation Fund(s) selected equal less than 100% - assume that Money Market Fund was selected for balance;

f) If Valuation Fund(s) selected equal more than 100% - assume proportionate reduction to each Valuation Fund selected;

g) If no Distribution Election is chosen – assume lump sum for In-Service Account and three (3) year for Retirement Account was selected; and,

h) If no time of payment is chosen for In-Service Account – assume the earliest possible date available under the provisions of Section 5.2, below was selected.

ARTICLE IV - DEFERRED COMPENSATION ACCOUNT

4.1. Accounts. The Compensation deferred by a Participant under the Plan, any Discretionary Contributions and Interest shall be credited to the Participant’s Account(s). Separate accounts may be maintained on the books of the Company to reflect the different Accounts chosen by the Participant, and the Participant shall designate the portion of each deferral that will be credited to each Account as set forth in Section 3.2(a), above. These Accounts shall be used solely to calculate the amount payable to each Participant under this Plan and shall not constitute a separate fund of assets.

4.2. Timing of Credits; Withholding. A Participant’s deferred Compensation shall be credited to each Account designated by the Participant as of the date which the compensation deferred would have otherwise been payable to the Participant, or a soon thereafter as is practical and as provided by the Committee. Any Discretionary Contributions shall be credited to the appropriate Account(s) as provided by the Committee. Any withholding of taxes or other amounts with respect to deferred Compensation that is required by local, state or federal law shall be withheld from the Participant’s corresponding non-deferred portion of the Compensation to the maximum extent possible, and any remaining amount shall reduce the amount credited to the Participant’s Account in a manner specified by the Committee.

4.3. Valuation Funds.

a) Designation of Funds. A Participant shall designate, at a time and in a manner acceptable to the Committee, one or more Valuation Funds for each Account for the sole purpose of determining the amount of Interest to be credited or debited to such Account. Such election shall designate the portion of each deferral of Compensation made into each Account that shall be allocated among the available Valuation Fund(s), and such election shall apply to each succeeding deferral of Compensation until such time as the Participant shall file a new

election with the Committee.

b) Reallocation of Fund Balances. Upon notice to the Committee, the Participant may also reallocate the balance in each Valuation Fund among the other available Valuation Funds as of the next succeeding Determination Date, and the reallocation shall become effective as of the first day of the following month.

c) Company Stock Valuation Fund. Notwithstanding the prior subparagraph, no Participant shall be permitted to reallocate any portion of an Account balance which had previously been allocated into a Valuation Fund designated as a Company Stock Valuation Fund.

4.4. Discretionary Contributions. Company may make Discretionary Contributions to a Participant’s Account. Discretionary Contributions shall be credited at such times and in such amounts as recommended by the Committee and approved by the Compensation Committee of the Board, or the Board in its sole discretion. Unless the Committee specifies otherwise, such Discretionary Contribution shall be allocated among the various Accounts in the same proportion as set forth in section 4.1, above. Discretionary Contributions shall include any Account credits transferred from a Predecessor Plan pursuant to an action by the Company or pursuant to a timely election by a Participant in the manner prescribed by the Committee. In accordance with rules established by the Committee, a Participant who is entitled to a benefit under a Predecessor Plan may agree with the Company to have the Company credit to the Plan an amount equal to the amount credited on behalf of the Participant under the Predecessor Plan in exchange for the relinquishment by the Participant of all rights and interests in and under the Predecessor Plan, provided that the agreement is executed by the Company and the Participant before the amounts accrued by the Participant under the Predecessor Plan is first made available to the Participant. Amounts so credited under the Plan will be considered Discretionary Contributions under the Plan.

4.5. Determination of Accounts. Each Participant’s Account as of each Determination Date shall consist of the balance of the Account as of the immediately preceding Determination Date, adjusted as follows:

a) New Deferrals. Each Account shall be increased by any deferred Compensation credited since such prior Determination Date in the proportion chosen by the Participant, except that no amount of new deferrals shall be credited to an Account at the same time that a distribution is to be made from that Account.

b) Discretionary Contributions. Each Account shall be increased by any Discretionary Contributions credited since such prior Determination as set forth above in sections 4.1 and 4.4 or as otherwise directed by the Committee.

c) Distributions. Each Account shall be reduced by the amount of each benefit payment made from that Account since the prior Determination Date. Distributions shall be deemed to have been made proportionally from each of the Valuation Funds maintained within such Account based on the proportion that such Valuation Fund bears to the sum of all Valuation Funds maintained within such Account for that Participant as of the Determination Date immediately preceding the date of payment.

d) Interest. Each Account shall be increased or decreased by the Interest credited to such

Account since such Determination Date as though the balance of that Account as of the beginning of the current month had been invested in the applicable Valuation Funds chosen by the Participant.

4.6. Vesting of Accounts. Each Participant shall be vested in the amounts credited to such Participant’s Account and Interest thereon as follows:

a) Amounts Deferred. A Participant shall be one hundred percent (100%) vested at all times in the amount of Compensation elected to be deferred under this Plan and Interest thereon.

b) Discretionary Contributions. A Participant’s Discretionary Contributions and Interest thereon shall become vested as determined by the Compensation Committee of the Board, or the Board. Discretionary Contributions transferred from a Predecessor Plan shall be vested as and to the extent the credits would have vested under the terms of the Predecessor Plan.

Notwithstanding the preceding, in the event of a Change in Control, a Participant’s Discretionary Contributions and Interest shall immediately become one hundred percent (100%) vested (if not already vested).

4.7. Statement of Accounts. The Committee shall give to each Participant a statement showing the balances in the Participant’s Account on a quarterly basis.

ARTICLE V - PLAN BENEFITS

5.1. Retirement Account. The vested portion of a Participant’s Retirement Account shall be distributed to the Participant upon the termination of employment with the Company. Benefits under this section shall be payable as soon as administratively practical after termination of employment. The form of benefit payment shall be that form selected by the Participant pursuant to Section 5.6, below, unless the Participant terminates employment prior to Retirement, in which event, the Retirement Account shall be paid in the form of a lump sum payment. Payment of any benefit from the Retirement Account shall commence as soon as practical after the date of the Participant’s termination of service with the Company, and subsequent payments, if the Form of Payment selected provides for subsequent payments, shall be made on the anniversary of the initial payment.

5.2. In-Service Account. The vested portion of a Participant’s In-Service Account shall be distributed to the Participant upon the date chosen by the Participant in the first Deferral Commitment which designated a portion of the Compensation deferred be allocated to the In-Service Account, but in no event shall the date selected be earlier than the first day of the fourth calendar year following the initial filing of the Deferral Commitment with respect to that In-Service Account. The benefit payment shall be that form selected by the Participant pursuant to Section 5.6, below. However, if the Participant terminates employment with the Company prior to the date so chosen by the Participant, the vested portion of the In-Service Account shall be

added to the Retirement Account as of the date of termination of service and shall be paid in accordance with the provisions of Section 5.1, above. Payment shall commence as soon as practical after the date selected by the Participant under this Section, and subsequent payments, if the Form of Payment selected provides for subsequent payments, shall be made on the anniversary of the initial payment.

5.3. Death Benefit. Upon the death of a Participant prior to the commencement of benefits under this Plan from any particular Account, Company shall pay to the Participant’s Beneficiary an amount equal to the vested Account balance in that Account in the form of a lump sum payment, except that the Committee may, in its sole discretion, approve a request for payment in an Actuarial Equivalent form. In the event of the death of the Participant after the commencement of benefits under this Plan from any Account, the benefits from that Account(s) shall be paid to the Participant’s designated Beneficiary from that Account at the same time and in the same manner as if the Participant had survived.

5.4. Hardship Distributions. Upon a finding that a Participant has suffered a Financial Hardship or Disability, the Committee may, in its sole discretion, amend the existing Deferral Commitment, or make distributions from any or all of the Participant’s Accounts. The amount of such distribution shall be limited to the amount reasonably necessary to meet (1) the Participant’s needs resulting from the Financial Hardship or Disability, and (2) any federal, state or local income taxes or penalties reasonably anticipated to result from the hardship distribution, and will not exceed the Participant’s vested Account balances. If payment is made due to Financial Hardship, the Participant’s deferrals under this Plan shall cease for the period of the Financial Hardship or Disability and for twelve (12) months thereafter. Any resumption of the Participant’s deferrals under the Plan after such twelve (12) month period shall be made only at the election of the Participant in accordance with Article III herein.

5.5. Effect of Change in Control. Notwithstanding anything herein to the contrary, upon a Change in Control, each Participant shall become entitled to receive the entire balance of his or her Account(s) in a single lump sum payment on the ninetieth (90^th) day following the Change in Control (or as soon thereafter as administratively feasible). Notwithstanding the preceding, the Participant may irrevocably elect, prior to the end if such ninety (90) day period, to waive his or her right to receive such Change in Control distribution. If such waiver election is timely made, the Participant shall receive his or her benefits under this Plan as otherwise provided under the terms of the Plan.

5.6. Form of Payment. Unless otherwise specified in paragraphs 5.1, 5.2, 5.3 or 5.5, the benefits payable from any Account under this Plan shall be paid in the form of benefit as provided below, and specified by the Participant in the Distribution Election. The most recently submitted Distribution Election shall be effective for the entire vested Account balance unless amended in writing by the Participant and delivered to the Committee. If, at the time payment of benefits under this Plan become due and payable, the Participant’s most recent election as to the form of payment was made within one (1) year of such payment, then the most recent election made by the Participant more that one year prior to the time of payment shall be used to determine the

form of payment. The permitted forms of benefit payments are:

a) A lump sum amount which is equal to the vested Account balance; and,

b) Annual installments for a period of up to ten (10) years (or in the event of payment of the In-Service Account, a maximum of five (5) years) where the annual payment shall be equal to the balance of the Account immediately prior to the payment, multiplied by a fraction, the numerator of which is one (1) and the denominator of which commences at the number of annual payment initially chosen and is reduced by one (1) in each succeeding year. Interest on the unpaid balance shall be based on the most recent allocation among the available Valuation Funds chosen by the Participant, made in accordance with Section 4.3, above.

5.7. Small Account. If the total of a Participant’s vested, unpaid Account balance as of the time the payments are to commence from the Participant’s Account is less than $15,000, the remaining unpaid, vested Account shall be paid in a lump sum, notwithstanding any election by the Participant to the contrary.

5.8. Withholding; Payroll Taxes. Company shall withhold from any payment made pursuant to this Plan any taxes required to be withheld from such payments under local, state or federal law. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Section 3405(a)(2) of the Code, or any successor provision thereto.

5.9. Payment to Guardian. If a Plan benefit is payable to a minor or a person declared incompetent or to a person incapable of handling the disposition of the property, the Committee may direct payment to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution. Such distribution shall completely discharge the Committee and Company from all liability with respect to such benefit.

5.10. Effect of Payment. The full payment of the applicable benefit under this Article V shall completely discharge all obligations on the part of the Company to the Participant (and the Participant’s Beneficiary) with respect to the operation of this Plan, and the Participant’s (and Participant’s Beneficiary’s) rights under this Plan shall terminate.

ARTICLE VI - BENEFICIARY DESIGNATION

6.1. Beneficiary Designation. Each Participant shall have the right, at any time, to designate one (1) or more persons or entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of Participant’s death prior to complete distribution of the Participant’s vested Account balance. Each Beneficiary designation shall be in a written form prescribed by the Committee and shall be effective only when filed with the Committee during the Participant’s lifetime.

6.2. Changing Beneficiary. Any Beneficiary designation may be changed by a Participant without the consent of the previously named Beneficiary by the filing of a new Beneficiary designation with the Committee.

6.3. No Beneficiary Designation. If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant’s benefits, the Participant’s Beneficiary shall be the person in the first of the following classes in which there is a survivor:

a) The Participant’s surviving spouse;

b) The Participant’s children in equal shares, except that if any of the children predeceases the Participant but leaves surviving issue, then such issue shall take by right of representation the share the deceased child would have taken if living;

c) The Participant’s estate.

6.4. Effect of Payment. Payment to the Beneficiary shall completely discharge the Company’s obligations under this Plan.

ARTICLE VII - ADMINISTRATION

7.1. Committee; Duties. This Plan shall be administered by the Committee, which shall consist of not less than three (3) persons appointed by the Board, except in the event of a Change in Control as provided in Section 7.5 below. The Committee shall have the authority, in its discretion, to make, amend, interpret and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions, including interpretations of the Plan, as they may arise in such administration. A majority vote of the Committee members shall control any decision. Members of the Committee may be Participants under this Plan.

7.2. Agents. The Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company.

7.3. Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan.

7.4. Indemnity of Committee. The Company shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan on account of such member’s service on the Committee, except in the case of gross negligence or willful misconduct.

7.5. Election of Committee After Change in Control. After a Change in Control, vacancies on the Committee shall be filled by majority vote of the remaining Committee members and Committee members may be removed only by such a vote. If no Committee members remain, a new Committee shall be elected by majority vote of the Participants in the Plan immediately preceding such Change in control. No amendment shall be made to Article VII or other Plan provisions regarding Committee authority with respect to the Plan without prior approval by the Committee.

ARTICLE VIII - CLAIMS PROCEDURE

8.1. Claim. Any person or entity claiming a benefit, requesting an interpretation or ruling under the Plan (hereinafter referred to as “Claimant”), or requesting information under the Plan shall present the request in writing to the Committee, which shall respond in writing as soon as practical.

8.2. Denial of Claim. If the claim or request is denied, the written notice of denial shall state:

a) The reasons for denial, with specific reference to the Plan provisions on which the denial is based;

b) A description of any additional material or information required and an explanation of why it is necessary; and

c) An explanation of the Plan’s claim review procedure.

8.3. Review of Claim. Any Claimant whose claim or request is denied or who has not received a response within sixty (60) days may request a review by notice given in writing to the Committee. Such request must be made within sixty (60) days after receipt by the Claimant of the written notice of denial, or in the event Claimant has not received a response sixty (60) days after receipt by the Committee of Claimant’s claim or request. The claim or request shall be reviewed by the Committee which may, but shall not be required to, grant the Claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing.

8.4. Final Decision. The decision on review shall normally be made within sixty (60) days after the Committee’s receipt of claimant’s claim or request. If an extension of time is required for a hearing or other special circumstances, the Claimant shall be notified and the time limit shall be one hundred twenty (120) days. The decision shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned.

ARTICLE IX - AMENDMENT AND TERMINATION OF PLAN

9.1. Amendment. The Board may at any time amend the Plan by written instrument, notice of which is given to all Participants and to Beneficiary receiving installment payments, subject to the following:

a) Preservation of Account Balance. No amendment shall reduce the amount accrued in any Account as of the date such notice of the amendment is given.

b) Changes in Interest Rate. No amendment shall reduce, either prospectively or retroactively, the rate of Interest to be credited to the amount already accrued in any of the Participant’s Account and any amounts credited to the Account under Deferral Commitments already in effect on that date, except as may be provided in section 2.22, above as a result of a selection or deletion of available Valuation Funds.

9.2. Company’s Right to Terminate. The Board may at any time partially or completely terminate the Plan if, in its judgement, the tax, accounting or other effects of the continuance of the Plan, or potential payments thereunder would not be in the best interests of Company.

a) Partial Termination. The Board may partially terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments. If such a partial termination occurs, the Plan shall continue to operate and be effective with regard to Deferral Commitments entered into prior to the effective date of such partial termination.

b) Complete Termination. The Board may completely terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments, and by terminating all ongoing Deferral Commitments. In the event of complete termination, the Plan shall cease to operate and Company shall distribute each Account to the appropriate Participant. Payment shall be made as a lump sum or in the number of annual installments indicated below based on the sum of the Participant’s Account Balances at the time of termination of the Plan by the Board where the annual payment shall be equal to the balance of the Accounts immediately prior to the payment, multiplied by a fraction, the numerator of which is one (1) and the denominator of which commences at the number of annual payment indicated below and is reduced by one (1) in each succeeding year:

Account Balance		Payout Period

Less than $10,000		Lump Sum
$ 10,000 but less than $50,000		3 Years
More than $50,000		5 Years

Interest on the unpaid balance shall be based on the most recent allocation among the available Valuation Funds chosen by the Participant in accordance with Section 4.3.

ARTICLE X - MISCELLANEOUS

10.1. Unfunded Plan. This plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of “management or highly-compensated employees” within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Board may terminate the Plan and make no further benefit payments or remove certain employees as Participants if it is determined by the United States Department of Labor, a court of competent jurisdiction, or an opinion of counsel that the Plan constitutes an employee pension benefit plan within the meaning of Section 3 (2) of ERISA (as currently in effect or hereafter amended) which is not so exempt.

10.2. Company Obligation. The obligation to make benefit payments to any Participant under the Plan shall be an obligation solely of the Company with respect to the deferred Compensation receivable from, and contributions by, that Company and shall not be an obligation of another company.

10.3. Unsecured General Creditor. Notwithstanding any other provision of this Plan, Participants and Participants’ Beneficiary shall be unsecured general creditors, with no secured or preferential rights to any assets of Company or any other party for payment of benefits under this Plan. Any property held by Company for the purpose of generating the cash flow for benefit payments shall remain its general, unpledged and unrestricted assets. Company’s obligation under the Plan shall be an unfunded and unsecured promise to pay money in the future.

10.4. Trust Fund. Company shall be responsible for the payment of all benefits provided under the Plan. At its discretion, Company may establish one (1) or more trusts, with such trustees as the Board may approve, for the purpose of assisting in the payment of such benefits. Although such a trust shall be irrevocable, its assets shall be held for payment of all Company’s general creditors in the event of insolvency. To the extent any benefits provided under the Plan are paid from any such trust, Company shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of Company.

10.5. Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgements, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

10.6. Not a Contract of Employment. This Plan shall not constitute a contract of employment between Company and the Participant. Nothing in this Plan shall give a Participant the right to be

retained in the service of Company or to interfere with the right of the Company to discipline or discharge a Participant at any time.

10.7. Protective Provisions. A Participant will cooperate with Company by furnishing any and all information requested by Company, in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as Company may deem necessary and taking such other action as may be requested by Company.

10.8. Governing Law. The provisions of this Plan shall be construed and interpreted according to the laws of the State of Maryland, except as preempted by federal law.

10.9. Validity. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.

10.10. Notice. Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Committee shall be directed to the company’s address. Mailed notice to a Participant or Beneficiary shall be directed to the individual’s last known address in company’s records.

10.11. Successors. The provisions of this Plan shall bind and inure to the benefit of Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Company, and successors of any such corporation or other business entity.