UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K/A

Amendment No. 1

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
	For the fiscal year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock, par value $0.01 Per Share

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 xNo o

Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of Regulation S-K (§229.405 of the Charter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes xNo o

As of June 29, 2003, the aggregate market value of the outstanding shares of the Registrant’s Common Stock, par value $0.01 per share, held by non-affiliates was approximately $84,062,326 based on the average closing price of the Common Stock as reported by the NASDAQ National Market on June 29, 2003. Determination of affiliate status for this purpose is not a determination of affiliate status for any other purpose.

Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock, as of the most recent practicable date.

Class	Outstanding at March 8, 2004
Common stock, par value $0.01 per share	13,951,128 shares

Explanatory Note:

The sole purpose of this Form 10-K/A filing is to correct our presentation of the Consolidated Statements of Cash Flows relating to the presentation of a non-cash item (restricted stock units contributed by two executives to the Deferred Compensation Plan) which had previously been shown in our Annual Report on Form 10-K under “Treasury Stock Purchases” in Cash Flows from Financing Activities in 2003 but should have been included under “Other” in Cash Flows from Operating Activities for 2003. Total cash flows for the year ended December 31, 2003 and cash flow information included in Management’s Discussion and Analysis of Financial Condition and Results of Operations or elsewhere in the Annual Report on Form 10-K (and in our Annual Report to Stockholders furnished to stockholders pursuant to Rule 14a-3(b) of the Securities Exchange Act of 1934) are not affected.

Item 8. Financial Statements and Supplementary Data

DURATEK, INC. AND SUBSIDIARIES
Table of Contents

	Page
Independent Auditors’ Report	47
Consolidated Balance Sheets as of December 31, 2003 and 2002	48
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001	49
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2003, 2002 and 2001	50
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001	51
Notes to Consolidated Financial Statements	52

46

Independent Auditors’ Report

The Board of Directors
Duratek, Inc.:

We have audited the consolidated financial statements of Duratek, Inc. and subsidiaries as listed in the accompanying table of contents. In connection with our audits of the consolidated financial statements, we have also audited the consolidated financial statement schedule listed under Item 15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duratek, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 2, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, as of January 1, 2003, and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002.

/s/ KPMG LLP

Baltimore, Maryland

February 24, 2004

47

DURATEK, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 2003 and 2002
(in thousands of dollars, except per share amounts)

	2003			2002
Assets
Current assets:
Cash	$	35,174		$	2,323
Accounts receivable, less allowance for doubtful accounts of $842 in 2003 and $2,694 in 2002	38,378			48,420
Cost and estimated earnings in excess of billings on uncompleted contracts	15,464			12,828
Prepaid expenses and other current assets	5,778			9,055
Deferred income taxes	1,112			2,168
Total current assets	95,906			74,794
Retainage	7,555			4,969
Property, plant and equipment, net	69,416			69,287
Goodwill	70,797			70,797
Other intangible assets	4,718			5,675
Decontamination and decommissioning trust fund	20,767			19,693
Other assets	13,985			8,917
Total assets	$	283,144		$	254,132
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	1,150		$	10,400
Accounts payable	12,851			13,911
Accrued expenses and other current liabilities	39,592			41,147
Unearned revenues	21,410			16,476
Waste processing and disposal liabilities	8,001			9,936
Total current liabilities	83,004			91,870
Long-term debt, less current portion	114,825			50,749
Facility and equipment decontamination and decommissioning liabilities	40,855			28,778
Other noncurrent liabilities	1,860			4,472
Deferred income taxes	4,434			2,649
Total liabilities	244,978			178,518
8% Cumulative Convertible Redeemable Preferred Stock, $.01 par value; 160,000 shares authorized, 3,002 shares issued and outstanding at December 31, 2003 and 157,525 shares issued and outstanding at December 31, 2002	300			15,752
Stockholders’ equity:
Preferred stock—$0.01 par value; authorized 4,740,000 shares; none issued	—			—
Series B junior participating preferred stock, $0.1 par value; 100,000 shares authorized; none issued	—			—
Common stock—$0.01 par value; authorized 35,000,000 shares; issued 15,229,100 shares in 2003 and 15,142,419 shares in 2002	152			151
Capital in excess of par value	78,375			77,715
Accumulated deficit	(30,026		)	(8,108		)
Treasury stock at cost, 1,738,720 shares in 2003, 1,612,376 shares in 2002	(10,635		)	(9,577		)
Deferred compensation	—			(319		)
Total stockholders’ equity	37,866			59,862
Commitments and contingencies (notes 2 and 20)
Toal liabilities and stockholders’ equity	$	283,144		$	254,132

See accompanying notes to consolidated financial statements.

48

DURATEK, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2003, 2002 and 2001

(in thousands of dollars, except per share amounts)

	2003			2002			2001
Revenues	$	285,901		$	291,536		$	279,173
Cost of revenues	217,493			229,134			237,454
Gross profit	68,408			62,402			41,719
Selling, general and administrative expenses	33,462			33,583			34,991
Income from operations	34,946			28,819			6,728
Interest expense	(6,903		)	(5,518		)	(10,606		)
Other income, net	76			285			191
Income (loss) before income taxes (benefit), equity in income (loss) of joint ventures, and cumulative effect of a change in accounting principle	28,119			23,586			(3,687		)
Income taxes (benefit)	11,671			9,673			(729		)
Income (loss) before equity in income (loss) of joint ventures and cumulative effect of a change in accounting principle	16,448			13,913			(2,958		)
Equity in income (loss) of joint ventures	202			(148		)	(148		)
Net income (loss) before cumulative effect of a change in accounting principle	16,650			13,765			(3,106		)
Cumulative effect of a change in accounting principle, net of taxes	(2,414		)	—			—
Net income (loss)	14,236			13,765			(3,106		)
Preferred stock repurchase premium, dividends and charges for accretion	(36,154		)	(1,279		)	(1,495		)
Net income (loss) attributable to common stockholders	$	(21,918	)	$	12,486		$	(4,601	)
Income (loss) per share:
Basic:
Before cumulative effect of a change in accounting principle	$	(1.44	)	$	0.92		$	(0.34	)
Cumulative effect of a change in accounting principle	(0.18		)	—			—
	$	(1.62	)	$	0.92		$	(0.34	)
Diluted:
Before cumulative effect of a change in accounting principle	$	(1.44	)	$	0.72		$	(0.34	)
Cumulative effect of a change in accounting principle	(0.18		)	—			—
	$	(1.62	)	$	0.72		$	(0.34	)

See accompanying notes to consolidated financial statements.

49

DURATEK, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

Years ended December 31, 2003, 2002 and 2001

(in thousands of dollars)

					Capital in											Deferred				Total
	Common stock				excess of				Accumulated				Treasury			stock				stockholders’
	Shares	Amount			par value				deficit				stock			compensation				equity
Balance, December 31, 2000	14,992,705		$	150		$	77,134			$	(15,993	)	$	(9,251	)		$	(955	)		$	51,085
Net loss	—		—			—				(3,106		)	—				—				(3,106		)
Amortization of deferred stock compensation	—		—			—				—			—				318				318
Exercise of stock options	12,500		—			70				—			—				—				70
Other issuances of common stock	65,674		—			321				—			—				—				321
Adjustments related to stock option excercises	—		—			(285		)		—			—				—				(285		)
Treasury stock purchases	—		—			—				—			(24		)		—				(24		)
Preferred stock dividend and charges for accretion	—		—			—				(1,495		)	—				—				(1,495		)
Balance, December 31, 2001	15,070,879		150			77,240				(20,594		)	(9,275		)		(637		)		46,884
Net income	—		—			—				13,765			—				—				13,765
Amortization of deferred stock compensation	—		—			—				—			—				318				318
Exercise of stock options	57,411		1			329				—			—				—				330
Other issuances of common stock	14,129		—			83				—			—				—				83
Income tax benefit from exercise of non-qualified stock options	—		—			63				—			—				—				63
Treasury stock purchases	—		—			—				—			(302		)		—				(302		)
Preferred stock dividend and charges for accretion	—		—			—				(1,279		)	—				—				(1,279		)
Balance, December 31, 2002	15,142,419		151			77,715				(8,108		)	(9,577		)		(319		)		59,862
Net income	—		—			—				14,236			—				—				14,236
Amortization of deferred stock compensation	—		—			—				—			—				319				319
Exercise of stock options	78,662		1			419				—			—				—				420
Other issuances of common stock	8,019		—			45				—			—				—				45
Income tax benefit from exercise of non-qualified stock options	—		—			196				—			—				—				196
Treasury stock transactions	—		—			—				—			(1,058		)		—				(1,058		)
Preferred stock repurchase premium, dividend and charges for accretion	—		—			—				(36,154		)	—				—				(36,154		)
Balance, December 31, 2003	15,229,100		$	152		$	78,375			$	(30,026	)	$(10,635		)		$	—			$	37,866

See accompanying notes to consolidated financial statements.

50

DURATEK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2003, 2002 and 2001
(in thousands of dollars)

	2003			2002			2001
Cash flows from operating activities:
Net income (loss)	$	14,236		$	13,765		$	(3,106	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	15,279			11,850			14,428
Deferred income taxes	4,445			5,038			36
Cumulative effect of a change in accounting principle, net of taxes	2,414			—			—
Stock compensation expense	319			318			318
Income tax benefit from exercise of non-qualified stock options	196			63			—
Allowance for doubtful accounts	46			458			981
Equity in (income) loss, net of distributions	(46		)	148			148
Gain on settlement, net of settlement expenses	—			—			(4,182		)
Changes in operating assets and liabilities:
Accounts receivables	10,151			(844		)	1,059
Costs and estimated earnings in excess of billings on uncompleted contracts	(6,830		)	12,711			(1,103		)
Prepaid expenses and other current assets	871			364			9,514
Accounts payable, and accrued expenses and other current liabilities	(2,188		)	(3,258		)	(2,757		)
Unearned revenues	4,934			2,984			(2,254		)
Waste processing and disposal liabilities	(1,935		)	(4,226		)	2,267
Facility and equipment decontamination and decommissioning liabilities	959			943			176
Retainage	(1,582		)	(2,932		)	(2,496		)
Other	(598		)	(261		)	296
Net cash provided by operating activities	40,671			37,121			13,325
Cash flows from investing activities:
Additions to property, plant and equipment	(4,839		)	(2,649		)	(4,211		)
Advances to employees, net	71			(85		)	79
Other	(449		)	(79		)	1,711
Net cash used in investing activities	(5,217		)	(2,813		)	(2,421		)
Cash flows from financing activities:
Net repayments of borrowings under revolving credit facility	$	—		$	(12,500	)	$	(6,000	)
Net proceeds from (repayments of) short-term borrowings	—			(7,763		)	7,763
Proceeds from long-term debt	115,000			—			—
Repayments of long-term debt	(61,149		)	(10,651		)	(10,400		)
Preferred stock repurchase	(49,176		)	—			—
Deferred financing costs	(4,209		)	(1,098		)	(1,246		)
Preferred stock dividends paid	(3,101		)	—			(267		)
Treasury stock purchases	—			(302		)	(24		)
Repayments of capital lease obligations	(388		)	(442		)	(790		)
Proceeds from issuance of common stock	420			330			70
Net cash used in financing activities	(2,603		)	(32,426		)	(10,894		)
Net increase in cash	32,851			1,882			10
Cash, beginning of year	2,323			441			431
Cash, end of year	$	35,174		$	2,323		$	441

Supplemental disclosure of non-cash financing activities:

During 2001, we entered into a Settlement and Mutual Release Agreement with BNFL, Inc. As a result, there was a non-cash settlement on outstanding accounts receivable of $9,974, and our outstanding $10,000 convertible debenture and related accrued interest of $3,508 were cancelled.

During 2003, we entered into $343 in capital lease agreements to finance the purchase of computer equipment.

See accompanying notes to consolidated financial statements.

51

DURATEK, INC.
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

(1) Description of Business

Duratek, Inc., together with our wholly owned subsidiaries (“we”, “our”, “Duratek”, or the “Company”), provide services to commercial and government customers primarily in the United States that ensures safe and secure radioactive materials disposition and nuclear facility operations. We possess a breadth of capabilities, technologies, assets, facilities, and qualified technical personnel that enable us to provide a full array of safe and secure radioactive materials disposition services. Our services include decommissioning services, nuclear facility operations, radioactive material characterization, processing, transportation, accident containment and restoration services, and final disposal. Our strength lies in our vertical integration of the following:

·on-site work at customer sites;

·transportation and logistics services;

·processing of customer waste at our facilities; and

·waste disposal.

We own a number of patents and related trademarks pertaining to the detection, storage, decontamination, processing and handling of radioactive and hazardous waste materials. Our revenues are derived almost equally from government and commercial customers. Our government work comes largely from the Department of Energy (“DOE”). The majority of our commercial clients are commercial nuclear utilities. We also provide services to non-utilities, including pharmaceutical companies, research laboratories, universities, and industrial facilities. We have three business segments: (i) Federal Services, (ii) Commercial Services, and (iii) Commercial Processing and Disposal.

(2) Summary of Significant Accounting Policies

(a)Principles of Consolidation

The consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. Investments in joint ventures in which we do not have control or majority ownership are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated in consolidation.

(b)Accounts Receivable

Accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in the existing accounts receivable. We determine the allowance based on historical experience, review of specific accounts, and past due balances over 90 days and over a specific amount. Account balances are written off against the allowance after all means of collection have been exhausted and recovery is considered remote.

(c)Cost and Estimated Earnings in Excess of Billings on Uncompleted Contracts, Unearned Revenues, and Retainage

Cost and estimated earnings in excess of billings on uncompleted contracts represents amounts recognized as revenue that have not been billed. Unearned revenue represents amounts billed and

52

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

collected for which revenue has not been recognized. Contracts typically provide for the billing of costs incurred and estimated earnings on a monthly basis or based on contract milestone. We have cost and estimated earnings in excess of billings on uncompleted contracts of $19,658 as of December 31, 2003, of which $15,464 is expected to be collected in the next 12 months. As of December 31, 2003, cost and estimated earnings in excess of billings on uncompleted contracts that will not be collected within the next twelve months of $4,194 is included in other assets in our consolidated balance sheets. As of December 31, 2002, cost and estimated earnings in excess of billings on uncompleted contracts was $12,828, and was classified as a current asset.

Retainage represents amounts billable but withheld, due to contract provisions, until the satisfaction of contract provisions. As of December 31, 2003, we have retainage balances of $8,750, of which $1,195 is expected to be collected within the next 12 months and is included in prepaid expense and other current assets in the consolidated balance sheets. As of December 31, 2002, we had retainage balances of $7,168, of which $2,199 was included in prepaid expense and other current assets in the consolidated balance sheets.

(d)Property, Plant and Equipment

Property, plant, and equipment are stated at cost. Equipment under capital leases are stated at the present value of minimum lease payments.

Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful life of buildings is 20 to 35 years, machinery and equipment is 5 to 12 years, and furniture and fixtures is 5 to 7 years. Equipment held under capital leases and leasehold improvements are amortized on the straight-line method over the shorter of the lease term or estimated useful life of the asset. Total depreciation and amortization of property, plant, and equipment is $10,518 for 2003, $8,929 for 2002, and $9,235 for 2001. Maintenance and repairs that do not extend the lives of the assets are expensed as incurred.

(e)Impairment of Long-lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets such as property, plant, and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that 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 an 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 for the excess of carrying amount over the fair value of the asset. Assets to be disposed of would be separately presented in our consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Goodwill is tested annually for impairment, and is tested for impairment 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.

53

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

We tested our goodwill at the end of the first quarters of 2003 and 2002 in accordance with the standard and concluded that no impairment charge was required.

(f)Goodwill and Other Intangible Assets

Goodwill represents the excess of costs over fair value of assets of businesses acquired. We adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 144. Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis over the expected periods to be benefited, generally 30 years, and assessed for recoverability by determining whether the amortization of the goodwill balance over its remaining life could be recovered through undiscounted future operating cash flows of the acquired operation (see note 5).

(g)Facility and Equipment Decontamination and Decommissioning (“D&D”) Liabilities

On January 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires us to record the fair value of an asset retirement obligation (“ARO”) as a liability in the period in which we incur 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. We are 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 obligations.

Upon the adoption of SFAS No. 143 on January 1, 2003, we recognized the following changes to our consolidated financial statements: increased property, plant and equipment by $5,926; increased D&D liabilities by $9,949; and a cumulative effect of a change in accounting principle, net of tax of $2,414 ($4,018 pre-tax).

Prior to the adoption of SFAS No. 143, we had estimated the total cost to D&D our 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, we recognized our 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.

(h)Derivative Financial Instruments

We account for derivative instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, which requires that all derivative instruments be recognized as assets or liabilities in the balance sheet and that they are measured at fair value. These fair value adjustments are included in the determination of net income or as a component of comprehensive income, depending on the purpose of the derivative transaction.

54

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

We use derivative financial instruments to manage our exposure to movements in interest rates. The use of these financial instruments modifies the exposure of these risks with the intent to reduce the risk to us as well as achieve a desired proportion of variable and fixed rate debt. Our initial strategy was to lock into a fixed rate of interest with a pay-fixed, receive-variable interest rate swap, thereby hedging exposure to the variability in market interest rate fluctuations. We have implemented policies which restrict the usage of derivatives to non-trading purposes.

(i)Revenue Recognition

Contract Revenue and Cost Recognition

The Federal Services and Commercial Services segments have long-term contracts to provide engineering and technical support services to the Federal government and its agencies and to commercial companies. We recognize revenues when a contract is executed, the contract price is fixed and determinable, funding has been received (in the case of federal government contracts), delivery of the service or products has occurred, and collectibility of the contract price is considered probable. Our Federal government contracts are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the term on the contract as the services are provided. From time to time, we may proceed with work based on customer direction pending a Request for Equitable Adjustment (“REA”) or finalization and signing of formal funding documents. We have an internal process for approving such work. All revenue recognition is deferred during periods in which funding is not received and costs are expensed as they are incurred. As of December 31, 2003, there are approximately $4,600 of outstanding requests for equitable adjustments in Federal Services and approximately $1,100 outstanding in Commercial Services. As of December 31, 2003, no amount of these claims has been included in the contract value.

Our services are provided under time-and-materials, cost-plus award or incentive-fee, firm-fixed-price, and fixed-unit-rate contracts. We do not enter into fixed-price research and development contracts. As of December 31, 2003, based on revenues, we had 22% of time-and-materials contracts, 25% of cost-plus award or incentive-fee contracts, 19% of firm-fixed-price contracts, and 34% of fixed-unit-rate contracts. Under our time-and-materials contracts, we are paid for labor and costs incurred at negotiated contractual rates. Under our cost-plus award or incentive fee contracts, some of which are subject to contract ceiling amounts, we are reimbursed for allowable costs and fees, which may be fixed or performance-based. If our costs exceed the contract ceiling or are not allowable under the provisions of the contract or any applicable regulations, we may not be able to obtain reimbursement for all such costs. We receive award and incentive fees on certain Federal government contracts, which are accrued when estimable, and collection is reasonably assured. We had recognized $9,052 in incentive fee revenues in 2003, $5,979 in 2002, and $4,921 in 2001. Under our incentive fee contracts, we are awarded fees if we meet certain contract commitments, including schedule, budget, and safety. If any of these commitments are not accepted, we could have a reduction in expected revenues. Quarterly assessments are made to measure our compliance with established contract commitments. We accrue award or incentive fees when estimable and collection is reasonably assured. Under our firm-fixed-price and fixed-unit-rate contracts, we receive a fixed price irrespective of the actual costs we incur and, consequently, we are exposed to a number of risks. These risks include

55

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

underestimation of costs, problems with new technologies, unforeseen costs or difficulties, delays beyond our control, and economic and other changes that may occur during the contract period. For firm-fixed-price contracts, our revenues are recognized using the percentage-of-completion method of accounting, and is based on the proportion of costs incurred to total estimated contract costs or units of production. For fixed-unit-rate contracts, our revenues are recognized as units are completed based on the contractual unit rates.

For contracts entered into subsequent to July 1, 2003, we consider the segmentation criteria in Emerging Issues Task Force No. 00-21 (“EITF 00-21”), Revenue Arrangements with Multiple Deliverables, and determine if there are elements of our contracts that are inconsistent with the scope of percentage-of-completion accounting as set forth in Statement of Position 81-1, Accounting for Performance of Construction-type and Certain Production-type Contracts (“SOP 81-1”). For those elements that are consistent with the scope of SOP 81-1, we consider the segmentation criteria of SOP 81-1 and the AICPA Audit and Accounting Guide, Audits of Federal Government Contracts. Through December 31, 2003, we have segmented only one contract.

The estimates of revenues and expenses on client contracts change periodically in the normal course of business and due to contract modifications. We record contract claims and pending change orders when revenue is probable, which generally is when accepted in writing by the customer. As of December 31, 2003, no amount of these pending claims or pending change orders has been included in the revenue. The cost to perform the work related to these claims and pending change orders is included in our estimates of contract profitability. Subcontractors have requested contract change orders totaling approximately $8.0 million related to scope changes requested by our customers where we have made identical claims to the customers. Based on agreement with our customers and our understanding of the contracts, recovery by these subcontractors is contingent upon our recovery from our customers. These amounts have not been included in the results of our operations.

Provisions for estimated losses on individual contracts are made in the period in which the losses are identified and include all estimated direct costs to complete the contract (excludes future general and administrative costs expected to be allocated to the contract). Contract acquisition costs are expensed as incurred.

Contracts typically provide for periodic billings monthly or based on contract milestones. The difference between costs and estimated earnings in excess of billings on uncompleted contracts is classified as unbilled receivables and billings in excess of costs and estimated earnings on uncompleted contracts are classified as unearned revenues. As of December 31, 2003, we have unbilled receivables for Commercial Services and Federal Services segments of $14.0 million of which $6.6 million related to work performed that is currently billable and deferred revenues for the Commercial Services and Federal Services segments of $10.0 million for cash collections in advance of performance of services.

Revisions in revenues, cost, and profit estimates, or measurements in the extent of progress toward completion are changes in accounting estimates accounted for in the period of change (cumulative catch-up method). Such revisions could occur at any time and the effects could be material. A change order is included in total estimated contract revenue when revenue is probable,

56

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

which generally is when accepted in writing by the customer. Until then, no revenue or profit is recognized.

Although we have a history of making reasonably dependable estimates of the extent of progress towards completion of contract revenue and of contract completion costs on our long-term engineering and construction contracts, due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates, and it is possible that such variances could be material to our operating results.

Any estimation process, including that used in preparing contract estimates, involves inherent risk. We reduce the inherent risk relating to estimates of the percentage-of-completion, award and incentive fees, claims/pending change orders, 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. The Project Manager submits a formal monthly activity report to management and all estimates are reviewed by the Management for consistency and reasonableness.

Commercial Waste Processing

The commercial waste processing operations have short-term and long-term contracts with commercial companies and governmental entities to provide waste processing services. Our services are primarily provided under fixed-unit-price contracts and usually require us to ship the processed waste product for burial on behalf of the customer. Our value added service is volume reduction of contaminated materials such as metal, wood, and paper to reduce the economic costs of burial. We recognize revenues when a contract has been executed, the contract price is fixed and determinable, as waste is processed, and collectibility of the contract price is considered probable. Revenue is recognized during the processing phase as units of waste are processed based on the unit prices quoted in the contracts (i.e. as the waste product is output from the process). Revenues related to the out-bound transportation and burial are deferred until the waste is shipped from our facility. Our 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 waste is received and sorted. As of December 31, 2003, we have deferred revenues of $2,583 relating to burial expense for waste that has been processed but has not been shipped from our facility. As of December 31, 2003, we have unbilled receivables of $3,894 related to work performed that is billable upon completion of work and deferred revenues of $10,570 for cash collections in advance of our performance of service. As of December 31, 2003, no amount of pending claims or pending change orders has been included in our revenues. Sometimes variances in weight and waste classification occur. These variances are identified when the waste is sorted and during the processing cycle and can have either a positive or negative impact on revenue, depending on the contract. When these variances are identified, revenue is adjusted to the correct weight or classification assuming the contract allows for such an adjustment.

57

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

Disposal

Revenues from the disposal operation, related to our operating rights agreement with the State of South Carolina, are recognized under the Atlantic Interstate Low-Level Radioactive Waste Compact Implementation Act (the “Act”). Under the Act, we are reimbursed for allowable costs incurred in operating the site that are identified by the South Carolina Public Service Commission and incurred by us plus an operating margin of 29% on certain of those allowable costs. In addition, costs incurred for decommissioning activities at the site are reimbursed by the State of South Carolina from a trust fund established to cover the Barnwell closure obligation. We receive a 14% operating margin on these costs. Our results from July 1, 2000 forward are based on the economic regulation imposed by the Act.

(j)Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We establish a valuation allowance if we determine that it is more likely than not that a deferred tax asset will not be realized.

(k)Stock Option Plan

We apply 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 our 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 (as amended by 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, we have elected to continue to apply the intrinsic-value-based method of accounting described above, and have adopted only the disclosure requirements of SFAS No. 123. The following

58

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

table illustrates the effect on net income (loss) if the fair-value-based method had been applied to all outstanding and unvested awards in each year:

	2003			2002		2001
Net income (loss) attributable to common stockholders	$	(21,918	)	$	12,486	$	(4,601	)
Add: Income impact of assumed conversions—preferred stock dividends and charges for accretion(1)	—			1,279		—
Net income attributable to common stockholders assuming conversion	(21,918		)	13,765		(4,601		)
Add: stock-based employee compensation expense included in reported net income, net of taxes	31			31		31
Deduct: total stock-based employee compensation expense determined under fair-value-based method for all awards, net of taxes	1,002			1,048		984
Pro forma income (loss) attributable to common stockholders assuming conversion	(22,889		)	12,748		(5,554		)
Add: 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	$	(20,475	)	$	12,748	$	(5,554	)
Pro forma income (loss) per share:
Basic:
Before cumulative effect of a change in accounting principle	$	(1.51	)	$	0.85	$	(0.41	)
Cumulative effect of a change in accounting principle	(0.18		)	—		—
	$	(1.69	)	$	0.85	$	(0.41	)
Diluted:
Before cumulative effect of a change in accounting principle	$	(1.51	)	$	0.67	$	(0.41	)
Cumulative effect of a change in accounting principle	(0.18		)	—		—
	$	(1.69	)	$	0.67	$	(0.41	)

(1)In 2003 and 2001, we had a net loss atrributable to common stockholders. Accordingly, there is no dilutive impact on earnings per share for dilutive securities.

59

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

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 2003, 2002, and 2001:

	2003			2002			2001
Risk free interest rate	4.3		%	3.8		%	5.5		%
Expected volatility	64		%	64		%	64		%
Expected life	4 years			4 years			4 years
Contractual life	10 years			10 years			5 to 10 years
Expected dividend yield	0		%	0		%	0		%
Fair value of options granted	$	6.06		$	3.30		$	3.06

(l)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. EITF 00-21 was effective for us for contracts executed after June 30, 2003 and did not have a material impact on our results of operations during the six months ended December 31, 2003. It is not expected to have a material impact on future results of operations.

FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was generally effective for financial instruments entered into or modified after May 31, 2003. The Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement does not have a material impact to the consolidated financial statement.

In December 2003, the FASB issued FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R addresses consolidation by business enterprises of variable interest entities which have one or both of the following characteristics: the equity investment risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity; the equity investors lack certain essential characteristics of a controlling financial interest. FASB Interpretation No. 46R has been adopted and currently does not have an impact on our consolidated financial statements.

(m)Research and Development

In connection with our various contracts or subcontracts, The Vitreous State Laboratory of The Catholic University of America in Washington, D.C. (“VSL”) conducts research and development for us under fixed price and cost reimbursable contracts. Under these contracts all inventions and discoveries are owned by the research scientists of the VSL and licensed to us under an exclusive license agreement.

60

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

For waste cleanup projects in which the VSL’s technical services are utilized by us, we reimburse the VSL on a time and expense basis and include the estimated cost for such services in our formal bid proposal. The VSL is a not-for-profit institution, therefore it does not include fees or percentage profits in its cost estimates.

(n)Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period. Significant estimates and judgments made by our management include: (i) the amount of waste processing and disposal liabilities, (ii) the cost to decontaminate and decommission (“D&D”) facilities and equipment, (iii) the cost to complete long-term contracts, (iv) recovery of long-lived assets, including goodwill, and (v) contingencies and litigation. Actual results could differ significantly from those estimates.

(o)Commitments and Contingencies

Liabilities for loss contingencies, including environmental remediation costs not within the scope of FASB Statement No. 143, Accounting for Asset Retirement Obligations, arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Probable recoveries for environmental remediation costs from third parties would be separately recorded as a receivable.

(p)Reclassifications

Certain amounts for 2002 and 2001 have been reclassified to conform to the presentation for 2003.

61

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

(3) Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the diluted weighted average common shares, which reflect the potential dilution of stock options, restricted stock, and convertible redeemable preferred stock that could share in our income. The reconciliation of amounts used in the computation of basic and diluted net income (loss) per share for the years ended December 31, 2003, 2002, and 2001 consist of the following:

	2003			2002		2001
Numerator:
Net income (loss) attributable to common stockholders	$	(21,918	)	$	12,486	$	(4,601	)
Add: Income impact of assumed conversions—preferred stock dividends and charges for accretion(1)	—			1,279		—
Net income (loss) attributable to common stockholders assuming conversion	(21,918		)	13,765		(4,601		)
Add: cumulative effect of a change in accounting principle, net of tax	2,414			—		—
Net income (loss) before cumulative effect of a change in accounting principle	$	(19,504	)	$	13,765	$	(4,601	)
Denominator:
Weighted-average shares outstanding	13,561			13,504		13,449
Effect of dilutive securities:
Incremental shares from assumed conversion of:
Employee stock options	—			260		—
Restricted stock	—			95		—
Convertible redeemable preferred stock	—			5,251		—
	—			5,606		—
Diluted weighted average common shares outstanding	13,561			19,110		13,449
Income (loss) per common share:
Basic:
Before cumulative effect of a change in accounting principle	$	(1.44	)	$	0.92	$	(0.34	)
Cumulative effect of a change in accounting principle	(0.18		)	—		—
	$	(1.62	)	$	0.92	$	(0.34	)
Diluted:
Before cumulative effect of a change in accounting principle	$	(1.44	)	$	0.72	$	(0.34	)
Cumulative effect of a change in accounting principle	(0.18		)	—		—
	$	(1.62	)	$	0.72	$	(0.34	)

(1)In 2003 and 2001, we had a net loss atrributable to common stockholders. Accordingly, there is no dilutive impact on earnings per share.

62

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

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 net income (loss) per share because the effect would have been anti-dilutive were 2,362 shares as of December 31, 2003, 646 shares as of December 31, 2002, and 6,932 shares as of December 31, 2001.

(4) Property, Plant and Equipment

Property, plant and equipment as of December 31, 2003 and 2002 consist of the following:

	2003		2002
Land and land improvements	$	3,522	$	2,867
Buildings	42,659		40,827
Computer hardware and software	4,270		5,810
Furniture and fixtures	2,584		3,659
Machine and equipment	59,862		47,361
Trucks and vehicles	1,815		1,518
Leasehold improvements	162		131
Capital leases	1,538		1,197
Construction in progress	2,590		493
	119,002		103,863
Less accumulated depreciation and amortization	49,586		34,576
	$	69,416	$	69,287

(5) Goodwill

Under SFAS No. 142, we no longer amortize goodwill, rather goodwill is tested for impairment at least annually. During 2003 and 2002, we tested our goodwill in accordance with the standard and concluded that no impairment charge was required.

The following table reconciles previously reported income (loss) attributable to common stockholders as if the provisions of SFAS No. 142 were in effect in 2001.

	2003			2002		2001
Net income (loss) attributable to common stockholders	$	(21,918	)	$	12,486	$	(4,601	)
Add back goodwill amortization	—			—		1,722
Adjusted net income (loss) attributable to common stockholders	$	(21,918	)	$	12,486	$	(2,879	)
Reported diluted income (loss) per common share	$	(1.62	)	$	0.72	$	(0.34	)
Adjusted diluted income (loss) per common share	$	(1.62	)	$	0.72	$	(0.21	)

63

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

(6) Other Intangible Assets

Other intangible assets as of December 31, 2003 consist of the following:

			As of December 31, 2003						As of December 31, 2002
	Amortization period		Gross carrying amount		Accumulated amortization				Gross carrying amount		Accumulated amortization
Amortizing intangible assets:
Barnwell operating rights		8 yrs	$	7,340		$	(3,211	)	$	7,340		$	(2,294	)
Patents		17 yrs	1,545			(990		)	1,523			(935		)
Covenants-not-to-compete		17 yrs	102			(68		)	102			(62		)
Total			$	8,987		$	(4,269	)	$	8,965		$	(3,291	)

Aggregate amortization expense for amortizing intangible assets was $978 for the year ended December 31, 2003, $1,654 for the year ended December 31, 2002, and $3,593 for the year ended December 31, 2001. Estimated annual amortization expense for the next five years beginning January 1, 2004 is $979.

(7) Long-Term Debt

Long-term debt as of December 31, 2003 and 2002 consisted of the following:

	2003		2002
Bank Credit Facility:
Borrowings under revolving line of credit	$	—	$	—
Term note, interest payable quarterly, due June 8, 2005	—		22,391
Term note, interest payable quarterly, due December 8, 2006	—		38,758
Term note, interest payable quarterly, due December 16, 2009	115,000		—
Cumulative Convertible Redeemable Preferred Stock (see note 11)	975		—
	115,975		61,149
Less: current portion of long-term debt	1,150		10,400
	$	114,825	$	50,749

On December 16, 2003, in connection with the 8% Cumulative Convertible Redeemable Preferred Stock $.01 par value (the “Cumulative Convertible Redeemable Preferred Stock”) repurchase transaction (see note 11), we entered into a new bank credit facility. As of December 31, 2003, the new bank credit facility consists of a $30,000 revolving line of credit, including a $15,000 sub limit for the issuance of standby letters of credit, to fund working capital requirements and a six-year $115,000 term loan. Proceeds of the term note were used to repay our then outstanding debt and to finance the repurchase of the Cumulative Convertible Redeemable Preferred Stock. Borrowings under the credit facility bear interest at the prime rate plus an applicable margin or, at our option, London Interbank Offered Rates (“LIBOR”) plus an applicable margin. For term loans, the applicable margin is 2.75% for prime rate loans and 4.00% for LIBOR loans. For revolving loans, the applicable margin is determined based on our leverage ratio and can range from 2.00% to 2.50% for prime rate loans and from 3.25% to 3.75% for LIBOR loans. The term

64

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

loan must be prepaid if there are excess cash flows, as defined. The new bank credit facility requires us to maintain certain financial ratios and contains restrictions on our ability to pay cash dividends, other than on the remaining shares of Cumulative Convertible Redeemable Preferred Stock, and limitations on our ability to make acquisitions. As of December 31, 2003, we were in compliance with all of these requirements. The new bank credit facility is secured by substantially all of the assets of the company and its direct and indirect subsidiaries. As of December 31, 2003, the $30,000 in total available borrowings under the revolving line of credit was reduced by $7,518 in outstanding letters of credit, for a net borrowing availability of $22,482 under the revolving line of credit.

Aggregate maturities of long-term debt as of December 31, 2003 are as follows:

2004	$	1,150
2005	2,125
2006	1,150
2007	1,150
2008	1,150
2009	109,250
	$	115,975

We paid interest of $2,705 in 2003, $4,230 in 2002, and $8,139 in 2001.

(8) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of December 31, 2003 and 2002 consisted of the following:

	2003		2002
Salaries and related expenses	$	11,300	$	11,036
Amount due to the State of South Carolina	12,634		13,175
Contract costs—subcontractors	6,255		10,607
Other accrued expenses	9,403		6,329
	$	39,592	$	41,147

On an annual basis, following the State of South Carolina’s fiscal year end on June 30, we remit the net of the amounts billed and paid by customer of the waste disposal site less our fee for operating the site during such fiscal year, pursuant to the provisions of the Act (see note 2(i)). The amount due to the State of South Carolina includes amounts billed but uncollected of $3,628.

(9) Waste Processing and Disposal Liabilities

Our waste processing technologies create waste by-products (“secondary waste”), which generally require further transportation and disposal. We accrue the estimated costs of burial and transportation based on characterization of the waste and current disposal sites. The ultimate cost of disposal will depend on the actual contamination of the waste, volume reduction, activity, and disposal density. We had an

65

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

accrual for the expected cost of secondary waste of $2,760 as of December 31, 2003, and $4,491 as of December 31, 2002.

In addition, we had accrued for customer waste that has been completely processed and awaiting shipment for burial of $5,241 as of December 31, 2003, and $5,445 as of December 31, 2002, based on contractual rates, which are negotiated annually.  These amounts include deferred revenues of $2,583 as of December 31, 2003.

(10) Facility and Equipment Decontamination and Decommission (“D&D”)

We are responsible for the cost to D&D our facilities and equipment in Tennessee and South Carolina and certain equipment used at customer sites. These costs will generally be paid upon the closure of these facilities or the disposal of this equipment. We are also obligated, under our license granted by the State of South Carolina and the Act, for costs associated with the ultimate closure of the Barnwell Low-Level Radioactive Waste Disposal Facility in South Carolina and our 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, we were required to establish a trust fund to cover the Barnwell closure obligation, which limits our obligation to the amount of the trust fund.

Our D&D liabilities consist of the following as of December 31, 2003 and 2002:

	2003		2002
Facilities & equipment ARO	$	20,088	$	—
Facilities & equipment D&D	—		9,085
Barnwell closure	20,767		19,693
	$	40,855	$	28,778

We recognized D&D expense of $969 in 2003, $877 in 2002, and $990 in 2001. Had we adopted SFAS No. 143 on January 1, 2001, our net income (loss) and income (loss) per diluted share would have been $12,968 and $0.68 for 2002, and ($4,532) and ($0.45) for 2001.

The following is a reconciliation of our facility & equipment ARO from January 1, 2003 to December 31, 2003:

Balance at January 1, 2003	$	19,019
Accretion expense	969
Liabilities incurred during 2003	55
ARO estimate adjustments	45
Balance at December 31, 2003	$	20,088

We update our closure and remediation cost estimates for D&D on an annual basis. These estimates are based on current technology, regulations, and burial rates. We are 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.

66

DURATEK, INC.
Notes to Consolidated Financial Statements  (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

We have purchased insurance to fund our obligation to clean and remediate our Tennessee facilities upon closure. We are accounting for these insurance policies using deposit accounting, whereby a portion of the premiums paid are viewed as funding to cover our obligation and is capitalized as a deposit asset. This asset has no impact on the asset retirement obligation. The remainder of the premium is being charged to earnings in the period in which the premiums are paid. The deposit asset is included in other assets in our consolidated balance sheets and is $1,805 as of December 31, 2003 and $1,209 as of December 31, 2002. Related insurance expense was $614 in 2003, $627 in 2002, and $439 in 2001. In addition, we were required to place $1,000 in 2003 and $1,000 in 2002 in escrow relating to the insurance policy for the Bear Creek Operations Facility.

(11) 8% Cumulative Convertible Redeemable Preferred Stock

In January 1995, we issued 160 shares of Cumulative Convertible Redeemable Preferred Stock and an option (the “Carlyle Option”) to purchase up to an additional 1,250 shares of our common stock. The Cumulative Convertible Redeemable Preferred Stock is initially convertible into our common stock at a conversion price of $3.00 per share and, if not previously converted, we are required to redeem the outstanding Cumulative Convertible Redeemable Preferred Stock on September 30, 2005 for $100 per share plus accrued and unpaid dividends, unless such date is extended with the approval of the holders of the Cumulative Convertible Redeemable Preferred Stock.

The proceeds, net of offering expenses of $1,310, from the issuance of the Cumulative Convertible Redeemable Preferred Stock and Carlyle Option were $14,690, of which $14,410 was allocated to the Cumulative Convertible Redeemable Preferred Stock and $280 was allocated to the fair value of the Carlyle Option. The difference between the carrying value of the Cumulative Convertible Redeemable Preferred Stock and the redemption value has been accreted through charges to stockholders’ equity and is included in preferred stock purchase premium, dividends and charges for accretion on our consolidated statement of operations.

On December 16, 2003, we repurchased 151 shares of our Cumulative Convertible Redeemable Preferred Stock from investment partnerships controlled by The Carlyle Group for $49,176 in cash plus accrued and unpaid dividends of $2,472. The purchase was based on a price of $9.74 per share of our common stock. Each share of Cumulative Convertible Redeemable Preferred Stock is convertible into 33.333 shares of our common stock. As of December 31, 2003, there were 3 shares of Cumulative Convertible Redeemable Preferred Stock outstanding that are held by The Carlyle Group. These shares remain outstanding at December 31, 2003 and are included in long-term debt as Cumulative Convertible Redeemable Preferred Stock. Prior to this repurchase transaction, there were 157 shares of Cumulative Convertible Redeemable Preferred Stock outstanding.

In connection with the repurchase transaction, we entered into a stockholder agreement with The Carlyle Group. Pursuant to the stockholders agreement, we agreed that we would use our best efforts to cause one individual designated by The Carlyle Group to be nominated to our Board of Directors so long as The Carlyle Group owns at least 15% of our outstanding voting securities.  The Carlyle Group agreed to waive its right to elect a majority of the directors to our Board of Directors by virtue of the terms of the Cumulative Convertible Redeemable Preferred Stock and to vote its shares to entirely eliminate that right at our next meeting of stockholders. In addition, under the stockholders agreement, The Carlyle Group

67

DURATEK, INC.
Notes to Consolidated Financial Statements  (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

has agreed to waive its right to convert these 3 share of Cumulative Convertible Redeemable Preferred Stock into common stock. The stockholders agreement also provides that we are obligated to purchase the outstanding 3 shares of Cumulative Convertible Redeemable Preferred Stock from The Carlyle Group on or before September 29, 2005 at a minimum purchase price of $324.67 per share. As a result of the waiver of the conversion right, this obligation is included in long-term debt on the consolidated balance sheet as of December 31, 2003.

We are required to pay quarterly dividends on the Cumulative Convertible Redeemable Preferred Stock. As of December 31, 2003, we had accrued dividends of $60 included in accrued expenses and other current liabilities, and $2,520 as of December 31, 2002 included in other noncurrent liabilities on the consolidated balance sheet.

(12) Derivative Financial Instrument

We entered into an interest rate swap agreement effective on July 22, 2003 partially to mitigate our exposure to fluctuations in interest rates relating to our outstanding variable rate debt. The contract’s notional amount was $55,949 at inception and declines each quarter over the life of the contract in proportion to our estimated outstanding balance of the related long-term debt. The contract’s notional amount is $50,749 at December 31, 2003. Under the terms of the contract, we pay a fixed rate of 1.895% and receive LIBOR, which resets every 90 days. The contract matures on June 30, 2006. The fair value of the contract at December 31, 2003 is approximately $7.

(13) Fair Value of Financial Instruments

The fair value of cash, accounts receivable, other receivables, accounts payable, and accrued expenses approximates the carrying amount due to the short maturities of these instruments. On December 16, 2003, we entered into a new bank credit facility and issued $115,000 in long-term debt, which approximates the fair value as of December 31, 2003. We have outstanding 3 shares of Cumulative  Convertible Redeemable Preferred Stock that remain outstanding with parties other than The Carlyle Group, whose fair value is $975, which is estimated based on the common stock valuation on December 16, 2003.

(14) Stock Compensation and Stockholders’ Rights

(a)Stock Option Plan

In May 2000, our stockholders approved the 1999 Stock Option and Incentive Plan (the “Plan”) which authorizes a committee of the Board of Directors to grant various types of incentive awards (including incentive stock options, non-qualified options, stock appreciation rights, restricted shares, and performance units on shares) to our directors, officers, and employees for issuance of up to 5,000 shares of common stock in the aggregate. As of December 31, 2003, there were 3,133 additional shares available for grant under the Plan. We granted options in 1999 and prior years pursuant to the 1984 Stock Option Plan. No further grants will be made under this plan. As of December 31, 2003, we had 3,133 shares reserved for grants of stock options and 2,004 shares subject to outstanding options.

68

DURATEK, INC.
Notes to Consolidated Financial Statements  (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

Changes in options outstanding are as follows:

	Weighted average exercise price			Number of shares
December 31, 2000		$	7.82		1,303
Granted		4.02			310
Exercised		5.65			(13	)
Terminated and expired		12.91			(77	)
December 31, 2001		6.81			1,523
Granted		4.41			537
Exercised		5.75			(57	)
Terminated and expired		6.30			(20	)
December 31, 2002		6.19			1,983
Granted		8.11			309
Exercised		5.39			(82	)
Terminated and expired		7.60			(207	)
December 31, 2003		$	6.19		2,004

The following table summarizes information about outstanding and exercisable options at December 31, 2003:

Outstanding							Exercisable
Range of exercise price	Number outstanding		Weighted average remaining contractual life	Weighted average exercise price			Number exercisable		Weighted average exercise price
$  3.92 – $  5.88		1,190	7.01 years		$	4.79		619		$	5.24
$  8.13 – $  8.75		656	7.73 years		$	8.27		208		$	8.41
$10.13 – $10.63		158	3.91 years		$	10.52		158		$	10.52
		2,004						985

Certain options issued in 2000, granted to our executive officers, have exercise prices that were less than the fair value of our common stock on the date of grant. The difference of $269 was recorded as deferred compensation and was being recognized over the vesting period. As of December 31, 2003, these options are fully vested. We recognized compensation expense of $54 each year during the years ended December 31, 2003, 2002, and 2001.

(b)Restricted Stock Units

Upon approval of the Plan by the stockholders in May 2000, two of our senior executives were granted 158 restricted stock units. The units vested over a four-year period. Upon vesting, the executive had the right to receive common stock in exchange for such units. We have accounted for

69

DURATEK, INC.
Notes to Consolidated Financial Statements  (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

this plan as a compensatory fixed plan under APB Opinion No. 25, which resulted in a compensation charge of approximately $1,323 of which $264 were recognized during each of the years ended December 31, 2003, 2002, and 2001. As of December 31, 2003, these shares are fully vested. During January 2004, these restricted stock units were exchanged for our common stock and transferred to the Duratek Deferred Compensation Plan (see note 17).

(c)Stockholder Rights

On December 16, 2003, our board of directors approved a stockholder rights plan. Under this plan, each share of our common stock and each share of our Cumulative Convertible Redeemable Preferred Stock is accompanied by a right that entitles the holder of that share, upon the occurrence of specified events that may be intended to affect a change in control, to purchase one one-thousandth of a share of Series B Junior Participating Preferred Stock at an exercise price of $58.00. In the event the rights become exercisable, the rights plan allows for our stockholders to acquire our stock or the stock of the surviving corporation, whether or not we are the surviving corporation, having a value twice that of the exercise price of the rights.  Due to The Carlyle Group and its affiliates’ current ownership position in excess of 20% of our outstanding common stock, under the stockholder rights plan, The Carlyle Group and its affiliates and associates shall not be considered an acquiring person unless it and its affiliates and associates shall acquire more than an additional 5% of our outstanding common stock in excess of the amount owned by such persons on the date of adoption of the stockholder rights plan.

(15) Income Taxes

Income taxes (benefit) for the years ended December 31 2003, 2002, and 2001 consist of the following:

	2003		2002		2001
Current:
State	$	933	$	691	$	457
Federal	6,293		3,885		(1,222		)
Foreign	—		59		—
	7,226		4,635		(765		)
Deferred:
State	1,019		854		(260		)
Federal	3,426		4,184		296
	4,445		5,038		36
	$	11,671	$	9,673	$	(729	)

70

DURATEK, INC.
Notes to Consolidated Financial Statements  (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

Income taxes (benefit) is reconciled to the amount computed by applying the statutory Federal income tax rate of 35% for 2003 and 2002, and 34% for 2001, to income (loss) before income taxes and equity in income (loss) of joint ventures as follows:

	2003		2002			2001
Federal income taxes (benefit) at statutory rate	$	9,842	$	8,255		$	(1,254	)
State income taxes, net of Federal tax benefit	1,269		1,004			130
Valuation allowance	178		(182		)	(76		)
Other	382		596			471
	$	11,671	$	9,673		$	(729	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2003 and 2002 are presented below:

	2003			2002
Deferred tax assets:
Accounts receivable principally due to allowance for doubtful accounts	$	354		$	764
Waste processing and disposal liabilities	—			118
Decontamination and decommissioning liabilities	1,378			1,484
Net operating loss carryforwards	865			1,794
Alternative minimum tax credit carryforwards	—			2,303
Accrued compensation	1,461			917
Other	593			581
	4,651			7,961
Less: valuation allowance	650			472
Net deferred tax assets	4,001			7,489
Deferred tax liabilities:
Plant, equipment, and intangibles principally due to differences in depreciation and amortization	(7,323		)	(7,970		)
Net deferred tax liabilities	$	(3,322	)	$	(481	)

In assessing the realizability of deferred tax assets, we considered whether it was more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible. We considered income taxes paid during the previous two years, projected future taxable income, the types of temporary differences, and the timing of the reversal of such differences in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are deductible, we have deemed a valuation allowance of $650 as necessary at December 31, 2003, and $472 at December 31, 2002, relating to an audit by Internal Revenue Service.  During 2003, we increased our valuation allowance by $178, primarily for certain capital loss carryforwards that may not be realized.

71

DURATEK, INC.
Notes to Consolidated Financial Statements  (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

We paid income taxes of $3,532 in 2003, $5,144 in 2002, and $1,382 in 2001.

(16) Profit Investment Plan

We maintain a Profit Investment Plan for employees. The Profit Investment Plan permits pre-tax contributions to the Profit Investment Plan by participants pursuant to Section 401(k) of the Internal Revenue Code of 1% to 60% of base compensation. We match 25% of a participant’s eligible contributions based on a formula set forth in the Profit Investment Plan and may make additional matching contributions. Our contributions vest at a rate of 20% per year of service. Our matching contributions were $1,381 for the year ended December 31, 2003, $1,247 for the year ended December 31, 2002, and $1,186 for the year ended December 31, 2001.

(17) Deferred Compensation Plan

In 2003, we established the Duratek, Inc. Deferred Compensation Plan (“the Plan”) to allow certain eligible key employees to defer a portion of their compensation. The participant’s contributions earn income based on the performance of the investment funds they select. In December 2003, the vested portion of the restricted stock units issued to two of our senior executives were contributed to the Plan (see note 14) and are being held in trust. In January 2004, the remaining portion of restricted stock units vested and was contributed to the Plan and all restricted stock units were exchanged for our common stock. The Plan restricts the distribution relating to the contribution of the restricted stock units in the form of our common stock. The deferred compensation obligation for the restricted stock is $1,058 and is recorded at book value.

We are invested in two life insurance products that are designed to closely mirror the performance of the investment funds that the participants select. These investments, which are recorded at the fair market value, and the restricted stock units, which are valued at the issuance price, are included in other assets in our consolidated balance sheets.

72

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

(18) Related Party Transactions

Two of our executive officers held loans in the amount of $431 at December 31, 2003, and $672 at December 31, 2002. The loans bear interest at 5% and are due on December 31, 2009. These loans are included in other noncurrent assets in the accompanying consolidated balance sheets.

(19) Segment Reporting and Business Concentrations

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

(a)Federal Services

Our Federal Services segment provides the following services for the United States DOE and other government entities:

·radioactive and hazardous waste characterization;

·storage, processing, packaging, transportation, and disposal services;

·nuclear facility commissioning, operations, and decommissioning;

·technology and engineering expertise; and

·on-site environmental remediation services on large government projects.

(b)Commercial Services

Our Commercial Services segment provides a broad range of technologies and services to our commercial customers, including:

·liquid waste processing;

·transportation logistics (including complete brokerage services and large component disposition);

·radiological emergency response;

·area, building, and site decommissioning;

·instrumentation calibration and rental; and

·training (transportation, regulatory compliance/environmental, safety, and health).

We also provide technical support services to clients including project management, engineering, radiation protection support, and environmental consulting.

73

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

(c)Commercial Processing and Disposal

Our Commercial Processing and Disposal segment operates two facilities in Tennessee and two facilities in South Carolina. At the Tennessee facilities, we use multiple technologies to volume reduce and package customer waste for final disposition such as:

·incineration;

·compaction;

·metal melting and decontamination; and

·survey and release.

At the South Carolina facilities, we perform the following operations:

·materials disposal for the Department of Defense;

·specialty waste processing for nuclear power plants; and

·operate a disposal facility for the State of South Carolina.

	As of and for the Year Ended December 31, 2003
	FS		CS		CPD		Unallocated Items				Consolidated
Revenues from external customers(1)	$	125,839	$	74,945	$	85,117		$	—			$	285,901
Income from operations	11,847		15,611		7,488			—				34,946
Interest expense	—		—		—			(6,903		)		(6,903		)
Other income, net	—		—		—			76				76
Income taxes	—		—		—			11,671				11,671
Equity in income (loss) of joint ventures	250		—		—			(48		)		202
Cumulative effect of a change in accounting principle, net of tax	—		—		—			(2,414		)		(2,414		)
Net income (loss)	12,097		15,611		7,488			(20,960		)		14,236
Depreciation and amortization expense	1,093		2,400		6,754			5,032				15,279
Long-lived assets(2)	33,596		54,660		55,442			1,233				144,931
Capital expenditures for additions property, plant and equipment	180		2,565		1,823			271				4,839
Total assets	70,678		68,446		99,883			45,195				284,202

74

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

	As of and for the Year Ended December 31, 2002
	FS		CS		CPD		Unallocated Items				Consolidated
Revenues from external customers(1)	$	135,310	$	64,931	$	91,295		$	—			$	291,536
Income from operations	11,510		10,125		7,184			—				28,819
Interest expense	—		—		—			(5,518		)		(5,518		)
Other income, net	—		—		—			285				285
Income taxes	—		—		—			9,673				9,673
Equity in loss of joint ventures	—		—		—			(148		)		(148		)
Net income (loss)	11,510		10,125		7,184			(15,054		)		13,765
Depreciation and amortization expense	646		1,186		7,011			3,007				11,850
Long-lived assets(2)	34,506		44,272		64,302			2,679				145,759
Capital expenditures for additions property, plant and equipment	419		757		633			840				2,649
Total assets	69,311		62,994		108,032			13,795				254,132

	As of and for the Year Ended December 31, 2001
	FS		CS		CPD			Unallocated Items				Consolidated
Revenues from external customers(1)	$	119,936	$	71,446	$	87,791			$	—			$	279,173
Income (loss) from operations	15,509		10,260		(19,041		)		—				6,728
Interest expense	—		—		—				(10,606		)		(10,606		)
Other income, net	—		—		—				191				191
Income tax benefit	—		—		—				(729		)		(729		)
Equity in loss of joint ventures	—		—		—				(148		)		(148		)
Net income (loss)	15,509		10,260		(19,041		)		(9,834		)		(3,106		)
Depreciation and amortization expense	2,097		2,185		7,581				2,565				14,428
Long-lived assets(2)	38,402		41,140		72,665				2,409				154,616
Capital expenditures for additions property, plant and equipment	264		676		2,360				911				4,211
Total assets	78,197		44,794		132,392				17,266				272,649

(1)Intercompany revenues have been eliminated.

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

75

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

(d)Business Concentrations

Our revenues are derived primarily from subcontracts and utility companies through a combination of DOE contractors and subcontractors. Revenues from DOE contractors and subcontractors represented approximately 45% of consolidated revenues in 2003, 50% in 2002, and 44% in 2001. The Federal Services work that we performed for customers that represent greater than 10% of our revenues were with: Bechtel Hanford, Inc., Bechtel Jacobs Company LLC, and Bechtel National, Inc. on the Hanford RPP-WTP project,  Fluor Hanford, Inc., and Flour Fernald, Inc. No commercial customer represented more than 10% of consolidated revenues for the years ended December 31, 2003, 2002, and 2001.

Accounts receivable and costs and estimated earnings in excess of billing on uncompleted contracts relating to DOE contractors and subcontractors amounted to $16,226 and $12,706, respectively, at December 31, 2003, and $19,079 and $6,539, respectively, at December 31, 2002.

The commercial processing and disposal segment is primarily reliant upon a single provider for its burial services for both customer and secondary waste disposal. We have an agreement in place at set rates through December 31, 2004.

(20) Commitments and Contingencies

(a)Leases

We have several noncancellable leases which cover real property, machinery and equipment, and certain manufacturing facilities. Such leases expire at various dates with, in some cases, options to extend their terms. Several of the leases contain provisions for rent escalation based primarily on increases in real estate taxes and operating costs incurred by the lessor. Rent expense was $3,531 for the year ended December 31, 2003, $3,588 for the year ended December 31, 2002, and $5,715 for the years ended December 31, 2001.

We are obligated under capital leases covering computer equipment and certain machinery and equipment that expire at various dates during the next four years. At December 31, 2003 and 2002, the gross amount of plant and equipment and related accumulated amortization recorded under capital leases were as follows:

	2003		2002
Computer equipment	$	341	$	—
Machinery and equipment	2,026		2,026
	2,367		2,026
Less accumulated amortization	1,649		1,261
	$	718	$	765

Amortization of assets held under capital leases is included with depreciation expense.

76

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

The following is a schedule of future minimum annual lease payments for all operating and capital leases with initial or remaining lease terms greater than one year at December 31, 2003:

	Operating			Capital
2004		$	3,102		$	274
2005		2,308			242
2006		1,113			95
2007		363			2
2008		144			—
Future minimum lease payments		$	7,030		613
Less: portion representing interest					26
Less: current portion of capital lease obligation					257
Long-term portion of capital lease obligation					$	330

The long-term portion of capital lease obligation is included in other noncurrent liabilities in our consolidated balance sheets.

(b)Financial Assurance Instruments

We are required to post, from time to time, standby letters of credit and surety bonds to meet certain customer contract requirements. We do not directly post financial assurance instruments or other guarantees for our subcontractors. As of December 31, 2003, we had outstanding assurance instruments of $20,794, including $7,518 in letters of credit and $13,276 in surety bonds, which expire at various contract completion dates. We have entered into certain indemnification agreements with the providers of the surety bonds, which would require funding only if we failed to perform under the contracts being insured and the surety bond issuer was obligated to make payment to the insured parties. The letters of credit are issued under our bank credit agreement up to $15,000 as a sublimit to the $30,000 revolving line of credit. The bank credit agreement limits the amount of outstanding surety bonds to $35,000.

(c)Legal Proceedings

In December 2003, we received a Request for Equitable Adjustment (“REA”) from a subcontractor, Performance Abatement Services, Inc. (“PAS”), that seeks a price adjustment of approximately $7,000 to an ongoing, fixed-price subcontract between PAS and us for asbestos-abatement services. The subcontract at issue arises under a fixed-price contract that we are performing for Bechtel Jacobs Company, LLC (“Bechtel Jacobs”).

We are evaluating the REA to determine whether PAS has both stated a valid basis for entitlement and priced the REA in a manner that supports the requested adjustment. We have already passed through certain elements of the REA for payment by our prime contractor, Bechtel Jacobs, because the additional costs claimed by PAS in those REA elements were caused by the actions and inactions of Bechtel Jacobs.

77

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

We are still evaluating the remainder of the REA. It is unclear at this time whether the remaining elements of the REA have merit; however, we believe that we have valid defenses to some, if not all, of the claims asserted by PAS. If we determine that additional elements of the REA have merit, it is unclear what portion of those REA elements, if any, may be passed through to Bechtel Jacobs for payment.

On February 6, 2004, we were sued in the United States Bankruptcy Court for the District of Delaware by the Official Committee of Unsecured Creditors of the IT Group, Inc., et al for the avoidance and recovery of money paid to us for up to a year before The IT Group filed Chapter 11 Bankruptcy on January 16, 2004. The complaint alleges that because certain members of The Carlyle Group were members of the Board of Directors of both The IT Group and Duratek, Inc., we received preferential treatment regarding payments from The IT Group. The total amount of payments listed in the complaint is $6,900. We believe that the claim of the Unsecured Creditors of The IT Group is frivolous and without merit. We intend to defend ourselves vigorously.

On December 2, 1999, our wholly owned subsidiary, Scientific Ecology Group, Inc. (“SEG”) (now named Duratek Services, Inc.), was named as a defendant in an adversary proceeding in the United States Bankruptcy Court for the District of Massachusetts. The Chapter 11 Trustee, on behalf of the debtor Molten Metal Technology, Inc. (“MMT”) and its creditors, filed an adversary “Complaint to Avoid Fraudulent Transfer” naming as defendants Viacom Inc., the successor to CBS Corporation and Westinghouse Electric Corporation (“Westinghouse”), and SEG.  The complaint alleges that the sale of Westinghouse’s interest in a joint venture to MMT resulted in a fraudulent conveyance. The primary allegations against SEG are that MMT’s release of SEG from obligations to pay $8,000 to equalize capital expenditures and additional amounts for MMT’s share of profits, and MMT’s assumption of at least $1,500 of SEG’s liabilities, are avoidable because MMT did not receive reasonably equivalent value for the transfers.  The complaint purports to state four bankruptcy and five common law counts. We intend to vigorously contest MMT’s allegations on the basis that MMT did in fact receive reasonably equivalent value for its transfers. In addition, we may have a right of indemnification from Westinghouse pursuant to the relevant purchase agreement. It is too early in the litigation to provide an accurate assessment of our liability, if any. Westinghouse has agreed to assume all litigation costs associated with the defense of the case, but has reserved the right to challenge our claim for indemnification for any settlement or judgment that may arise from the case. Westinghouse has moved to dismiss the complaint filed by the Chapter 11 Trustee. While Westinghouse’s motion to dismiss was pending, the Chapter 11 Trustee sought to amend its complaint and that motion was granted. After the amended complaint was filed, Westinghouse filed a motion to dismiss the common law counts and the Court granted that motion.

In addition, from time to time, we are a party to litigation or administrative proceedings relating to claims arising from our operations in the normal course of our business. Our management, on the advice of counsel, believes that the ultimate resolution of such litigation, administrative proceedings, or other matters, including those described above, currently pending against us is unlikely, either individually or in the aggregate, to have a material adverse effect on our results of operations or financial condition.

78

DURATEK, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2003, 2002, and 2001
(in thousands of dollars and shares, except earnings per share dollars)

(21) Quarterly Financial Data (Unaudited)

	Year Ended December 31, 2003
	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter			Total
Revenues	$	63,830		$	76,790	$	72,517	$	72,764		$	285,901
Income from Operations	5,236			12,015		10,168		7,527			34,946
Cumulative effect of a change in accounting principle, net of tax	(2,414		)	—		—		—			(2,414		)
Net income	178			6,583		5,632		1,843			14,236
Net income available to common stockholders	(137		)	6,268		5,317		(33,366		)	(21,918		)
Income (loss) per common share:
Basic:
Before cumulative effect of a change in accounting principle	$	0.17		$	0.46	$	0.39	$	(2.46	)	$	(1.44	)
Cumulative effect of a change in accounting principle	(0.18		)	—		—		—			(0.18		)
	$	(0.01	)	$	0.46	$	0.39	$	(2.46	)	$	(1.62	)
Diluted:
Before cumulative effect of a change in accounting principle	$	0.13		$	0.34	$	0.29	$	(2.46	)	$	(1.44	)
Cumulative effect of a change in accounting principle	(0.12		)	—		—		—			(0.18		)
	$	0.01		$	0.34	$	0.29	$	(2.46	)	$	(1.62	)

	Year Ended December 31, 2002
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		Total
Revenues	$	69,424	$	72,100	$	72,837	$	77,175	$	291,536
Income from operations	5,864		8,242		7,677		7,036		28,819
Net income	2,460		4,131		3,903		3,271		13,765
Net income available to common
stockholders	2,126		3,816		3,588		2,956		12,486
Income per common share:
Basic	$	0.16	$	0.28	$	0.27	$	0.22	$	0.92
Diluted	0.13		0.22		0.20		0.17		0.72

79

Part IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(c) Exhibits: The following exhibits are filed with this form 10-K/A:

23.1	Consent of KPMG LLP. Filed herewith.
31.01	Certification of Chief Executive Officer pursuant to Rule 13a-14a/15d-14a. Filed herewith.
31.02	Certification of Chief Financial Officer pursuant to Rule 13a-14a/15d-14a. Filed herewith.
32.01	Written Statement of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
32.02	Written Statement of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

80

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 26, 2004	By:	/s/ Robert E. Prince
	Robert E. Prince
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.

	Principal Executive Officer:
March 26, 2004	By:	/s/ Robert E. Prince
	Robert E. Prince
	President and Chief Executive Officer
	Principal Financial Officer:
March 26, 2004	/s/ Robert F. Shawver
	Robert F. Shawver
	Executive Vice President and
	Chief Financial Officer
	Principal Accounting Officer:
March 26, 2004	/s/ William M. Bambarger, Jr.
	William M. Bambarger, Jr.
	Corporate Controller
	The Board of Directors:
March 26, 2004	/s/ Daniel A. D’aniello
	Daniel A. D’Aniello
March 26, 2004	/s/ Admiral James D. Watkins
	Admiral James D. Watkins
March 26, 2004	/s/ Dr. Francis J. Harvey
	Dr. Francis J. Harvey
March 26, 2004	/s/ George V. McGowan
	George V. McGowan
March 26, 2004	/s/ Michael J. Bayer
	Michael J. Bayer
March 26, 2004	/s/ Alan J. Fohrer
	Alan J. Fohrer
March 26, 2004	/s/ Robert E. Prince
	Robert E. Prince

81