UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

ý		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended September 26, 2004
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)

 

 

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

 

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

 

Number of shares outstanding of each of the issuer’s classes of common stock as of November 1, 2004:

 

 

 

DURATEK, INC.

 

TABLE OF CONTENTS

 

Part I	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 26, 2004 and December 31, 2003
	Consolidated Statements of Operations for the Three and Nine Months Ended September 26, 2004 and September 28, 2003
	Consolidated Statements of Cash Flows for the Nine Months Ended September 26, 2004 and September 28, 2003
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
Item 4.	Controls and Procedures
Part II	Other Information
Item 1.	Legal Proceedings
Item 5.	Other information
Item 6.	Exhibits
	Signatures

 

 

Forward-Looking Information

 

This report contains forward-looking statements.  Additional written or oral forward-looking statements may be made by us from time to time in filings with the Securities and Exchange Commission or otherwise.  The words “believe,” “expect,” “anticipate,” and “project” and similar expressions identify forward-looking statements, which speak only as of the date the statement is made.  Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Such statements may include, but are not limited to, information regarding our ability to manage our commercial waste processing operations, the timing and award of contracts by the U.S. Department of Energy (“DOE”) for the cleanup of waste sites administered by the DOE, the acceptance and implementation of our waste treatment technologies in the government and commercial sectors and other large technical support services projects. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.  Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.  Statements in this report, including those set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe factors, among others, that could contribute to or cause such differences.

 

Although we believe that our expectations that are expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct.  Our actual results could be materially different from and worse than our expectations.  Important risks and factors that could cause our actual results to be materially different from our expectations include the factors that are disclosed elsewhere herein and in Item 1 in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2003, as filed with the Securities and Exchange Commission.

 

 

Part I      Financial Information

Item 1.    Financial Statements

 

DURATEK, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

(in thousands of dollars, except per share amounts)

 

		September 26, 2004			December 31, 2003
		(unaudited)			*
Assets
Current assets:
Cash		$	5,576		$	35,174
Accounts receivable, less allowance for doubtful accounts of $176 in 2004 and $842 in 2003		36,163			38,378
Cost and estimated earnings in excess of billings on uncompleted contracts		20,410			15,464
Prepaid expenses and other current assets		6,271			7,760
Total current assets		68,420			96,776
Retainage		6,979			6,685
Property, plant and equipment, net		65,886			69,416
Goodwill		70,797			70,797
Other intangible assets		3,992			4,718
Decontamination and decommissioning trust fund		19,242			20,767
Other assets		19,678			13,985
Total assets		$	254,994		$	283,144
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt		$	1,957		$	1,150
Accounts payable		5,900			12,851
Due to State of South Carolina		3,765			12,634
Accrued expenses and other current liabilities		26,215			26,958
Unearned revenues		14,249			21,410
Waste processing and disposal liabilities		8,005			8,001
Total current liabilities		60,091			83,004
Long-term debt, less current portion		89,018			114,825
Facility and equipment decontamination and decommissioning liabilities		40,004			40,855
Other noncurrent liabilities		6,806			6,294
Total liabilities		195,919			244,978
8% Cumulative Convertible Redeemable Preferred Stock, $.01 par value; 160,000 shares authorized, none issued and outstanding at September 26, 2004 and 3,002 shares issued and outstanding at December 31, 2003		—			300
Stockholders’ equity:
Preferred stock – $0.01 par value; authorized 4,740,000 shares; none issued		—			—
Series B junior participating preferred stock, $.01 par value; 100,000 shares authorized; none issued		—			—
Common stock – $0.01 par value; authorized 35,000,000 shares; issued 15,957,456 shares at September 26, 2004 and 15,229,100 shares at December 31, 2003		158			152
Capital in excess of par value		81,862			78,375
Accumulated deficit		(12,045		)	(30,026		)
Treasury stock at cost, 1,770,306 shares at September 26, 2004, and 1,738,720 shares at December 31, 2003		(10,900		)	(10,635		)
Total stockholders’ equity		59,075			37,866
Total liabilities and stockholders’ equity		$	254,994		$	283,144

 

* The Consolidated Balance Sheet as of December 31, 2003 has been derived from our audited Consolidated Balance Sheet included in our Annual Report on Form 10-K for the year ended December 31, 2003, as amended.

 

See accompanying notes to consolidated financial statements.

 

2

 

DURATEK, INC. AND SUBSIDIARIES

 

Consolidated Statements of Operations

 

(in thousands, except per share amounts)

 

		Three months ended						Nine months ended
		September 26, 2004			September 28, 2003			September 26, 2004			September 28, 2003
		(unaudited)						(unaudited)
Revenues		$	77,403		$	72,517		$	215,140		$	213,137
Cost of revenues		52,561			53,577			156,659			161,673
Gross profit		24,842			18,940			58,481			51,464
Selling, general and administrative expenses		8,006			8,772			24,045			24,045
Income from operations		16,836			10,168			34,436			27,419
Interest expense		(1,741		)	(912		)	(5,295		)	(3,103		)
Other income, net		129			71			261			54
Income before income taxes, equity in income of joint ventures, and cumulative effect of a change in accounting principle		15,224			9,327			29,402			24,370
Income taxes		5,941			3,731			11,467			9,748
Income before equity in income of joint ventures and cumulative effect of a change in accounting principle		9,283			5,596			17,935			14,622
Equity in income of joint ventures		27			36			106			185
Net income before cumulative effect of a change in accounting principle		9,310			5,632			18,041			14,807
Cumulative effect of a change in accounting principle, net of taxes		—			—			—			(2,414		)
Net income		9,310			5,632			18,041			12,393
Preferred stock dividends		—			(315		)	(60		)	(945		)
Net income attributable to common stockholders		$	9,310		$	5,317		$	17,981		$	11,448
Weighted average common stock outstanding:
Basic		14,143			13,568			13,944			13,551
Diluted		14,686			19,373			14,504			19,341
Income per share:
Basic:
Before cumulative effect of a change in accounting principle		$	0.66		$	0.39		$	1.29		$	1.02
Cumulative effect of a change in accounting principle		—			—			—			(0.18		)
		$	0.66		$	0.39		$	1.29		$	0.84
Diluted:
Before cumulative effect of a change in accounting principle		$	0.63		$	0.29		$	1.24		$	0.77
Cumulative effect of a change in accounting principle		—			—			—			(0.13		)
		$	0.63		$	0.29		$	1.24		$	0.64

 

See accompanying notes to consolidated financial statements.

 

3

 

DURATEK, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

 

(in thousands of dollars)

 

		Nine months ended
		September 26, 2004			September 28, 2003
		(Unaudited)
Cash flows from operating activities:
Net income		$	18,041		$	12,393
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		8,036			8,991
Cumulative effect of a change in accounting principle, net of taxes		—			2,414
Stock compensation expense		—			239
Allowance for doubtful accounts		(614		)	(40		)
Equity in (income) loss of joint ventures, net of distributions		86			(116		)
Changes in operating assets and liabilities:
Accounts receivable		2,829			(304		)
Costs and estimated earnings in excess of billings on uncompleted contracts		(9,739		)	(9,729		)
Prepaid expenses and other current assets		1,547			1,111
Accounts payable, and accrued expenses and other current liabilities		(7,652		)	(1,015		)
Due to State of South Carolina		(8,869		)	(9,203		)
Unearned revenues		(7,161		)	9,954
Waste processing and disposal liabilities		4			(2,102		)
Facility and equipment decontamination and decommissioning liabilities		673			663
Retainage		282			(1,980		)
Other		(989		)	(821		)
Net cash provided by (used in) operating activities		(3,526		)	10,455
Cash flows from investing activities:
Additions to property, plant and equipment		(3,605		)	(3,643		)
Other		(205		)	(183		)
Net cash used in investing activities		(3,810		)	(3,826		)
Cash flows from financing activities:
Repayments of long-term debt		(25,000		)	(5,200		)
Proceeds from issuance of common stock		3,099			205
Repayments of capital lease obligations		(220		)	(325		)
Preferred stock dividends paid		(114		)	(630		)
Deferred financing costs		(27		)	(413		)
Net cash used in financing activities		(22,262		)	(6,363		)
Net increase (decrease) in cash		(29,598		)	266
Cash, beginning of period		35,174			2,323
Cash, end of period		$	5,576		$	2,589

 

Supplemental disclosure of non-cash financing activities:

 

During the nine months ended September 26, 2004, the holders of our 8% Cumulative Convertible Redeemable Preferred Stock converted 3,002 shares of the 8% Cumulative Convertible Redeemable Preferred Stock into 100,067 shares of common stock valued at $300.

 

During the nine months ended September 26, 2004, we contributed restricted stock units, representing the outstanding units that vested in 2004, to the Duratek, Inc. Deferred Compensation Plan. All restricted stock units were exchanged for our common stock and increased treasury stock by $265.

 

During the nine months ended September 26, 2004, we entered into $174 in capital lease agreements to finance the purchase of machinery and equipment.

 

See accompanying notes to consolidated financial statements.

 

4

 

DURATEK, INC.

 

Notes to Consolidated Financial Statements

 

(in thousands of dollars, except per share amounts)

 

1.                                      Principles of Consolidation and Basis of Presentation

 

(a)         Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company (Duratek, Inc. and our wholly owned subsidiaries).  Investments in joint ventures in which we do not have control or majority ownership are accounted for using the equity method.  All significant intercompany balances and transactions have been eliminated in consolidation.

 

All adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for the fair presentation of this interim financial information have been included.  Results of interim periods are not necessarily indicative of results to be expected for the year as a whole.  The effect of seasonal business fluctuations and the occurrence of many costs and expenses in annual cycles require certain estimations in the determination of interim results.  The information contained in these interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003, as amended, filed with the Securities and Exchange Commission.

 

We recognize our tax provision based on an estimated annual effective tax rate for the year for federal and state income tax.

 

(b)         Fiscal Quarters

 

Our year ends on December 31, while the first three fiscal quarters of each year end on the Sunday nearest to the last day of each such calendar quarter.  The interim financial results presented herein are as of September 26, 2004 and for the three and nine months ended September 26, 2004 and September 28, 2003.

 

(c)          Reclassifications

 

Certain amounts for 2003 have been reclassified to conform to the presentation for 2004.

 

2.                                      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.  Statement of Financial Accounting Standards (“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 table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each year:

 

5

 

		Three months ended						Nine months ended
		September 26, 2004			September 28, 2003			September 26, 2004			September 28, 2003
Net income attributable to common stockholders		$	9,310		$	5,317		$	17,981		$	11,448
Add: Income impact of assumed conversions - preferred stock dividends		8			315			60			945
Net income		9,318			5,632			18,041			12,393
Add: stock-based employee compensation expense included in reported net income, net of taxes		—			8			—			24
Deduct: total stock-based employee compensation expense determined under fair-value-based method for all awards, net of taxes		248			260			744			779
Pro forma net income		9,070			5,380			17,297			11,638
Add: cumulative effect of a change in accounting principle, net of taxes		—			—			—			2,414
Pro forma net income before cumulative effect of a change in accounting principle		$	9,070		$	5,380		$	17,297		$	14,052
Pro forma income per share:
Basic:
Before cumulative effect of a change in accounting principle		$	0.64		$	0.37		$	1.24		$	0.97
Cumulative effect of a change in accounting principle		—			—			—			(0.18		)
		$	0.64		$	0.37		$	1.24		$	0.79
Diluted:
Before cumulative effect of a change in accounting principle		$	0.62		$	0.28		$	1.19		$	0.73
Cumulative effect of a change in accounting principle		—			—			—			(0.13		)
		$	0.62		$	0.28		$	1.19		$	0.60

 

6

 

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 during the nine months ended September 26, 2004 and September 28, 2003:

 

		Nine months ended
		September 26, 2004		September 28, 2003
Risk free interest rate		4.04	%	4.44	%
Expected volatility		61	%	64	%
Expected life		10 years		10 years
Contractual life		10 years		10 years
Expected dividend yield		0	%	0	%
Fair value of options granted		$9.70		$3.33

 

3.                                      Goodwill and Other Intangible Assets

 

Goodwill and other intangible assets acquired in a purchase business combination that are determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually.  We do not have any other intangible assets that are not subject to amortization.  Other intangible assets with estimable useful lives are amortized over their respective estimated useful lives and reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

Other intangible assets subject to amortization consist principally of amounts assigned to operating rights related to the Barnwell, South Carolina low-level radioactive waste disposal facility, covenants not-to-compete, and costs incurred to obtain patents.  Other intangible assets as of September 26, 2004 and December 31, 2003 consist of the following:

 

				As of September 26, 2004						As of December 31, 2003
		Amorti- zation period		Gross carrying amount			Accumulated amortization			Gross carrying amount			Accumulated amortization
Amortizing intangible assets:
Barnwell operating rights		8 yrs		$	7,340		$	(3,899	)	$	7,340		$	(3,211	)
Patents		20 yrs		1,553			(1,031		)	1,545			(990		)
Covenants-not-to-compete		17 yrs		102			(73		)	102			(68		)
Total				$	8,995		$	(5,003	)	$	8,987		$	(4,269	)

 

Aggregate amortization expense was $245 for the three months ended September 26, 2004, $245 for the three months ended September 28, 2003, $735 for the nine months ended September 26, 2004, and $734 for the nine months ended September 28, 2003.  Anticipated annual amortization expense for the five years beginning January 1, 2005 is as follows: $979 for fiscal years ended December 31, 2005 through December 31, 2007, $521 for fiscal year ended December 31, 2008, and $60 for fiscal year ended December 31, 2009.

 

7

 

Goodwill represents the excess of costs over fair value of assets of businesses acquired.  During the first quarters of 2004 and 2003, we tested our goodwill for impairment and concluded that no impairment charge was required.  We did not make any acquisitions during 2004 or 2003, and the carrying amount of our goodwill has remained unchanged during 2004 and 2003.

 

4.                                      Cost and Estimated Earnings in Excess of Billings on Uncompleted Contracts

 

Cost and estimated earnings in excess of billings on uncompleted contracts represent amounts recognized as revenue that have not been billed.  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 $29,397 as of September 26, 2004, of which $20,410 is expected to be collected in the next 12 months and is classified as a current asset.  As of September 26, 2004, cost and estimated earnings in excess of billings on uncompleted contracts that will not be collected within the next 12 months of $8,987 is included in other assets in our consolidated balance sheets.  As of December 31, 2003, cost and estimated earnings in excess of billings on uncompleted contracts was $19,658, of which $15,464 was expected to be collected in the next 12 months and was classified as a current asset.  As of December 31, 2003, cost and estimated earnings in excess of billings on uncompleted contracts that will not be collected within the next 12 months of $4,194 is included in other assets in our consolidated balance sheets.

 

5.                                      Retainage

 

Retainage represents amounts billable but withheld, due to contract provisions, until the satisfaction of contract provisions.  As of September 26, 2004, we have retainage balances of $8,468, of which $1,489 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, 2003, we had retainage balances of $8,750, of which $2,065 was expected to be collected within the next 12 months and was included in prepaid expense and other current assets in the consolidated balance sheets.

 

6.                                      Decontamination and Decommissioning Liabilities

 

We are responsible for the cost to decontaminate and decommission (“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 Atlantic Interstate Low-Level Radioactive Waste Compact Implementation Act (the “Act”), for costs associated with the ultimate closure of the Barnwell Low-Level Radioactive Waste Disposal Facility in South Carolina and our buildings and equipment located at the Barnwell site (“Barnwell closure”).  Under the terms of the Act and our license with the State of South Carolina, we are required to maintain a trust fund to cover the Barnwell closure financial obligation, which limits our obligation to the amount of the trust fund.  During the nine months ended September 26, 2004, the Barnwell closure liability decreased due to the decommissioning activity at the Barnwell low-level radioactive waste disposal facility.

 

On January 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations.  Upon adoption, 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 ($4,023 pre-tax).

 

8

 

Our D&D liabilities consist of the following as of September 26, 2004 and December 31, 2003:

 

		September 26, 2004			December 31, 2003
Facilities & equipment ARO		$	20,762		$	20,088
Barnwell closure		19,242			20,767
		$	40,004		$	40,855

 

We recognized accretion expense of $242 for the three months ended September 26, 2004, $257 for the three months ended September 28, 2003, $721 for the nine months ended September 26, 2004, and $663 for the nine months ended September 28, 2003.

 

The following is a reconciliation of our facilities & equipment ARO from January 1, 2004 to September 26, 2004:

 

Balance at January 1, 2004		$	20,088
Accretion expense		721
Settlement of asset retirement obligation		(47		)
Balance at September 26, 2004		$	20,762

 

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.

 

7.                                      Long-Term Debt

 

Long-term debt as of September 26, 2004 and December 31, 2003 consisted of the following:

 

		September 26, 2004			December 31, 2003
Bank Credit Facility:
Borrowings under revolving line of credit		$	—		$	—
Term note, interest payable quarterly, due December 16, 2009		90,000			115,000
Cumulative Convertible Redeemable Preferred Stock		975			975
		90,975			115,975
Less: current portion of long-term debt		1,957			1,150
		$	89,018		$	114,825

 

9

 

As of December 31, 2003, our 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.  During the nine months ended September 26, 2004, we made $25,000 in principal payments on the term loan.  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.  During the nine months ended September 26, 2004, we have recognized $4,346 in interest expense on the term loan.  We did not have any borrowings under the revolving line of credit during the nine months ended September 26, 2004.

 

8.                                      Derivative Financial Instrument

 

We entered into an interest rate swap agreement effective on July 22, 2003, to partially 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 reduction in the outstanding balance of the related long-term debt under the prior credit facility.  The new credit facility requires us to have in place an interest rate protection arrangement for an aggregate notional amount of at least 40% of the aggregate outstanding principal amount of the term loans until June 30, 2006.  This interest rate swap agreement is not designated as a hedge.  The contract’s notional amount is $40,045 at September 26, 2004.  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 September 26, 2004 is $172, which is included in prepaid expenses and other current assets in the consolidated balance sheets.

 

9.                                      Net Income Per Share

 

Basic net income per share is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted net income per share is calculated by dividing net income by the diluted weighted average common shares, which reflects the potential dilution of stock options, restricted stock, and our convertible redeemable preferred stock that could share in our income.  The reconciliation of amounts used in the computation of basic and diluted net income per share for the three and nine months ended September 26, 2004 and September 28, 2003 consists of the following:

 

10

 

		Three months ended						Nine months ended
(in thousands, except per share amounts)		September 26, 2004			September 28, 2003			September 26, 2004			September 28, 2003
Numerator:
Net income attributable to common stockholders		$	9,310		$	5,317		$	17,981		$	11,448
Add: Income impact of assumed conversions - preferred stock dividends		8			315			60			945
Net income		9,318			5,632			18,041			12,393
Add: cumulative effect of a change in accounting principle, net of taxes		—			—			—			2,414
Net income before cumulative effect of a change in accounting principle		$	9,318		$	5,632		$	18,041		$	14,807
Denominator:
Weighted average shares outstanding		14,143			13,568			13,944			13,551
Effect of dilutive securities:
Incremental shares from assumed conversion of:
Employee stock options		543			403			560			396
Restricted stock		—			151			—			143
Convertible redeemable preferred stock		—			5,251			—			5,251
		543			5,805			560			5,790
Diluted weighted average common shares outstanding		14,686			19,373			14,504			19,341
Income per common share:
Basic:
Before cumulative effect of a change in accounting principle		$	0.66		$	0.39		$	1.29		$	1.02
Cumulative effect of a change in accounting principle		—			—			—			(0.18		)
		$	0.66		$	0.39		$	1.29		$	0.84
Diluted:
Before cumulative effect of a change in accounting principle		$	0.63		$	0.29		$	1.24		$	0.77
Cumulative effect of a change in accounting principle		—			—			—			(0.13		)
		$	0.63		$	0.29		$	1.24		$	0.64

 

The effect 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 per share because the effect would have been anti-dilutive was 35,111 shares as of September 26, 2004 and 204,357 shares as of September 28, 2003.

 

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10.          Segment Reporting

 

We have three primary segments: (i) Federal Services, (ii) Commercial Services, and (iii) Commercial Processing and Disposal.  During the first quarter of 2004, we realigned certain projects from our Commercial Services segment to our Commercial Processing and Disposal segment.  As required by SFAS No. 131, paragraph 32, Disclosures About Segments of an Enterprise and Related Information, these changes have been reflected 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 (“FS”)

 

Our FS segment provides the following services for the United States Department of Energy (“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 (“CS”)

 

Our CS segment provides a broad range of technologies and services to nuclear power plants, government and industrial facilities, universities, and research/pharmaceutical laboratories, including:

 

•                              liquid waste processing;

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

•                              radiological emergency response;

•                              area, building, and site characterization and 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.

 

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

 

Our CPD 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.

 

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

 

•                              Department of Defense materials processing and packaging for disposal;

•                              specialty waste processing for nuclear power plants; and

•                              operate a low level radioactive waste disposal facility for the State of South Carolina.

 

		For the Three Months Ended September 26, 2004
		FS			CS			CPD			Unallocated Items			Consolidated
Revenues from external customers (1)		$	30,640		$	23,340		$	23,423		$	—		$	77,403
Income from operations		6,921			6,054			3,861			—			16,836
Interest expense		—			—			—			(1,733		)	(1,733		)
Other income, net		—			—			—			129			129
Income taxes		—			—			—			5,941			5,941
Equity in loss of joint ventures		47			—			—			(20		)	27
Net income		6,968			6,054			3,861			(7,565		)	9,318
Depreciation and amortization expense		114			697			1,617			293			2,721
Capital expenditures for additions to property, plant and equipment		13			145			326			65			549

 

		For the Three Months Ended September 28, 2003
		FS			CS			CPD			Unallocated Items			Consolidated
Revenues from external customers (1)		$	33,735		$	19,872		$	18,910		$	—		$	72,517
Income from operations		3,456			5,524			1,188			—			10,168
Interest expense		—			—			—			(912		)	(912		)
Other income, net		—			—			—			71			71
Income taxes		—			—			—			3,731			3,731
Equity in loss of joint ventures		72			—			—			(36		)	36
Net income		3,528			5,524			1,188			(4,608		)	5,632
Depreciation and amortization expense		150			571			1,639			534			2,894
Capital expenditures for additions to property, plant and equipment		115			658			310			69			1,152

 

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