-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HTCyPWM8gG9KR3mzexRceFf4xMrZlBe3qTFRFPF76C7yfsoNPZanSPr+KNPYqlSQ CGdgnsH5V1kB5LRatvpMUA== 0000928385-98-002311.txt : 19981118 0000928385-98-002311.hdr.sgml : 19981118 ACCESSION NUMBER: 0000928385-98-002311 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GTS DURATEK INC CENTRAL INDEX KEY: 0000785186 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 222476180 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14292 FILM NUMBER: 98750177 BUSINESS ADDRESS: STREET 1: 8955 GUILFORD RD SUITE 200 CITY: COLUMBIA STATE: MD ZIP: 21046 BUSINESS PHONE: 4103125100 MAIL ADDRESS: STREET 1: 8955 GUILFORD RD SUITE 200 STREET 2: 8955 GUILFORD RD SUITE 200 CITY: COLUMBIA STATE: MD ZIP: 21046 FORMER COMPANY: FORMER CONFORMED NAME: DURATEK CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1998 OR [_] 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 GTS DURATEK, INC. (Exact name of Registrant as specified in its charter) Delaware 22-2476180 - ------------------------------- ------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10100 Old Columbia Road, Columbia, Maryland 21046 21046 - ------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (410) 312-5100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Number of shares outstanding of each of the issuer's classes of common stock as of September 30, 1998 Common Stock, par value $0.01 per share 14,083,992 shares GTS DURATEK, INC. AND SUBSIDIARIES TABLE OF CONTENTS -----------------
PAGE ---- Part I FINANCIAL INFORMATION - ------ Item 1. Financial Statements Consolidated Condensed Balance Sheets as of September 30, 1998 and December 31, 1997............... 1 Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 1998 and 1997............ 2 Consolidated Condensed Statement of Changes in Stockholders' Equity for the Nine Months Ended September 30, 1998.......... 3 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997........ 4 Notes to Consolidated Financial Statements..................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 6 Qualification Relating to Financial Information................ 10 Part II OTHER INFORMATION - ------- Item 1. Legal Proceedings.............................................. 11 Item 5. Other Information.............................................. 11 Item 6. Exhibits and Reports on Form 8-K............................... 12 Signatures..................................................... 13
Part I Financial Information - ------ Item 1. Financial Statements GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31, 1998 1997 ------------- ------------ (unaudited) * ASSETS Current assets: Cash and cash equivalents......................... $ 5,882,512 $ 7,026,249 Receivables, net.................................. 28,357,734 28,912,271 Other accounts receivable......................... 1,592,753 1,373,704 Costs and estimated earnings in excess of billings on uncompleted contracts................ 6,977,307 9,072,828 Prepaid expenses and other current assets......... 3,978,668 3,193,224 ------------ ------------ Total current assets............................ 46,788,974 49,578,276 Property, plant and equipment, net.................. 63,425,478 60,356,784 Investments in and advances to joint ventures, net.. 6,250,502 6,362,526 Intangibles, net.................................... 13,732,891 13,877,802 Deferred charges and other assets................... 1,339,365 2,122,793 ------------ ------------ $131,537,210 $132,298,181 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................. $ 8,167,863 $ 12,235,006 Short term borrowings............................. 4,963,384 - Accrued expenses and other current liabilities.... 15,594,072 12,042,413 Unearned revenues................................. 1,996,473 8,256,541 Waste processing and disposal liabilities......... 2,322,040 8,681,102 ------------ ------------ Total current liabilities....................... 33,043,832 41,215,062 Convertible debenture............................... 11,837,641 11,348,925 Facility and equipment decontamination and decommissioning liabilities.................... 7,696,598 7,270,681 Other non current liabilities....................... 1,125,888 981,824 ------------ ------------ Total liabilities............................... 53,703,959 60,816,492 ------------ ------------ Redeemable preferred stock (Liquidation value $16,320,000)................... 15,222,078 15,052,355 ------------ ------------ Stockholders' equity: Common stock...................................... 141,721 128,790 Capital in excess of par value.................... 72,083,543 67,278,739 Deficit........................................... (9,123,555) (10,806,418) Treasury stock, at cost........................... (490,536) (171,777) ------------ ------------ Total stockholders' equity....................... 62,611,173 56,429,334 ------------ ------------ $131,537,210 $132,298,181 ============ ============
* The Consolidated Condensed Balance Sheet as of December 31, 1997 has been derived from the Company's audited Consolidated Balance Sheet as of that date. 1 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Nine Months Ended September 30, Ended September 30, -------------------------- --------------------------- 1998 1997 1998 1997 ------------ ------------ ------------- ------------ Revenues.............................. $39,390,989 $36,355,384 $115,432,142 $86,316,446 Cost of revenues...................... 29,610,260 30,501,464 91,108,701 79,273,311 ----------- ----------- ------------ ----------- Gross profit.......................... 9,780,729 5,853,920 24,323,441 7,043,135 Selling, general and administrative expenses............. 6,394,003 4,428,846 19,030,115 10,479,443 ----------- ----------- ------------ ----------- Income (loss) from operations......... 3,386,726 1,425,074 5,293,326 (3,436,308) Interest income (expense), net........ (207,840) 51,779 (463,240) 586,869 ----------- ----------- ------------ ----------- Income (loss) before income taxes (benefit) and proportionate share of loss of joint venture............ 3,178,886 1,476,853 4,830,086 (2,849,439) Income taxes (benefit)................ 1,240,044 - 1,867,500 (750,000) ----------- ----------- ------------ ----------- Income (loss) before proportionate share of loss of joint venture...... 1,938,842 1,476,853 2,962,586 (2,099,439) Proportionate share of loss of joint venture............................. (50,000) (45,000) (150,000) (135,000) ----------- ----------- ------------ ----------- Net income (loss)..................... 1,888,842 1,431,853 2,812,586 (2,234,439) Preferred stock dividends and charges for accretion................ 376,770 375,951 1,129,723 1,127,232 ----------- ----------- ------------ ----------- Net income (loss) attributable to common shareholders.................. $ 1,512,072 $ 1,055,902 $ 1,682,863 $(3,361,671) =========== =========== ============ =========== Basic net income (loss) per share..... $0.11 $.08 $.13 $(0.27) =========== =========== ============ =========== Diluted net income (loss) per share... $0.10 $.07 $.12 $(0.27) =========== =========== ============ =========== Weighted average common stock outstanding............. 13,223,594 12,662,474 12,995,053 12,553,551 =========== =========== ============ =========== Weighted average common stock and dilutive securities outstanding...... 20,838,002 19,644,644 14,234,122 12,553,551 =========== =========== ============ ===========
2 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
Common Stock Capital in Total --------------------- Excess of Treasury Stockholders' Shares Amount Par Value Deficit Stock Equity ---------- -------- ----------- ------------ --------- ----------- Balance, December 31, 1997 12,879,057 $128,790 $67,278,739 $(10,806,418) $(171,777) $56,429,334 Net income 2,812,586 2,812,586 Exercise of options and warrants 1,292,993 12,931 4,804,804 4,817,735 Purchase of treasury stock (318,759) (318,759) Preferred dividends (960,000) (960,000) Accretion of redeemable preferred stock (169,723) (169,723) ---------- -------- ----------- ------------ --------- ----------- Balance, September 30, 1998 14,172,050 $141,721 $72,083,543 $ (9,123,555) $(490,536) $62,611,173 ========== ======== =========== ============ ========= ===========
3 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ----------- ------------ Cash flows from operations: Net income (loss)..................................... $ 2,812,586 $ (2,234,439) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization..................... 3,412,660 2,790,190 Accrued interest on convertible debenture...... 488,716 497,724 Proportionate share of loss of joint venture...... 150,000 135,000 Changes in operating items: Receivables..................................... 335,488 (8,198,074) Cost in excess of billings...................... 2,095,521 463,113 Prepaid expenses and other current assets....... (785,444) 806,273 Accounts payables, accrued expenses and other current liabilities.................... (69,515) (2,151,564) Unearned revenues............................... (6,260,068) - Waste processing and disposal liabilities....... (6,359,062) - Facility and equipment decontamination and decommissioning liabilities.................. 425,917 1,091,348 ----------- ------------ Net cash used in operating activities................. (3,753,201) (6,800,429) ----------- ------------ Cash flows from investing activities: Additions to property, plant and equipment ......... (6,131,511) (7,148,928) Advances to joint ventures.......................... (37,976) (1,195,626) Acquisition of The Scientific Ecology Group, Inc., net of cash acquired.............................. - (23,042,377) Other............................................... 379,452 2,417,647 ----------- ------------ Net cash used in investing activities................. (5,790,035) (28,969,284) ----------- ------------ Cash flows from financing activities: Short term borrowings............................... 4,963,384 - Reduction of long term debt and capital lease obligations......................... (102,861) (35,548) Proceeds from issuance of common stock.............. 4,817,735 527,278 Purchase of treasury shares......................... (318,759) - Payment of preferred stock dividends................ (960,000) (960,000) ----------- ------------ Net cash provided by (used in) financing activities... 8,399,499 (468,270) ----------- ------------ Net decrease in cash and cash equivalents............. (1,143,737) (36,237,983) Cash and cash equivalents at beginning of period...... 7,026,249 46,336,126 ----------- ------------ Cash and cash equivalents at end of period............ $ 5,882,512 $ 10,098,143 =========== ============
4 GTS DURATEK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned except for DuraTherm, Inc. which is 80% owned. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in subsidiaries and joint ventures in which the Company does not have control or majority ownership are accounted for under the equity method. 2. INVENTORIES Inventories, consisting of material, labor and overhead, are classified as follows:
SEPTEMBER 30 December 31, 1998 1997 ------------ ------------ Raw materials............................... $ 203,160 $324,843 Finished goods.............................. 807,956 307,214 ---------- -------- $1,011,116 $632,057 ========== ========
Such amounts are included in other current assets. 3. NET INCOME PER SHARE Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Weighted average shares used in computing basic EPS were 13,223,594 and 12,662,474 for the three months ended September 30, 1998 and 1997, respectively, and 12,995,053 and 12,553,551 for the nine months ended September 30, 1998 and 1997, respectively. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Weighted average shares used in computing diluted EPS were 20,838,002 and 19,644,644 for the three months ended September 30, 1998 and 1997, respectively, and 14,234,122 and 12,553,551 for the nine months ended September 30, 1998 and 1997, respectively. The difference between basic and diluted weighted average shares relates to the dilutive effect of stock options and warrants where the exercise price is less than the average market value of the Company's common stock for the period of calculation. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GTS DURATEK, INC. AND SUBSIDIARIES OVERVIEW GTS Duratek, Inc. (the "Company") derives substantially all of its revenues from commercial and government waste processing operations, and from technical support services to government agencies, electric utilities, industrial facilities and commercial businesses. Commercial waste processing operations are provided primarily at the Company's Bear Creek low-level radioactive waste processing facility located in Oak Ridge, Tennessee which was the business formerly conducted as The Scientific Ecology Group, Inc. ("SEG"). The Company also provides on-site waste processing services on large government projects for the United States Department of Energy ("DOE"). Technical support services are generally provided pursuant to multi-year time and materials contracts. Revenues are recognized as costs are incurred according to predetermined rates. The contract costs primarily include direct labor, materials and the indirect costs related to contract performance. On April 18, 1997, the Company acquired 100% of the outstanding capital stock of SEG from Westinghouse Electric Corporation for approximately $22.4 million in cash including transaction costs and 156,986 shares of the Company's Common Stock. The Company paid the cash portion of the purchase price out of available cash. The acquisition of SEG was effective April 1, 1997 and, accordingly, the Company's results of operations for the year ended December 31, 1997 reflect the operating results of SEG from April 1, 1997. The Company has accounted for the transaction under the purchase method of accounting. The aggregate purchase price of $72.5 million, which includes liabilities assumed and transaction costs, exceeded the estimated fair value of SEG's tangible assets by approximately $13.8 million. Such amount has been allocated to intangible assets, principally goodwill, and is being amortized over 30 years. SEG provided over 50% of the Company's revenue for the three and nine month periods ended September 30, 1998 and had a significant impact on the results of operations in the period to period comparison. Prior to the acquisition of SEG, the Company's waste treatment revenues historically had been generated from government waste processing operations pursuant to fixed-price and cost-plus-fixed-fee contracts with the United States Department of Energy ("DOE"). Waste treatment revenues from the DOE were not significant in 1997 and 1998. In March 1997, the Company decided to temporarily suspend processing of radioactive waste and initiate an unscheduled controlled cool down of its glass melter at its M-Area processing plant located at the DOE's Savannah River site as a result of observations, by operations personnel, indicating that excessive wear could be occurring on certain internal components of the melter. After an extensive inspection of the condition of the melter at the Savannah River site, the Company's management made the decision to undertake more extensive repairs and modification of the facility, including melter box replacement, before resumption of radioactive waste processing. As a result of the necessary repairs and the delay in completing the waste processing required by the contract, the Company recorded a loss of $5.9 million on the M-Area contract in the first quarter of 1997 which included the estimated costs of repairs to the melter and for estimated losses to complete the fixed price contract. In December 1997, the Company recommenced radioactive operations and recorded an additional charge of $1.3 million on the M-Area contract in the fourth quarter of 1997 for the estimated increased costs to complete the contract as a result of it taking longer than original estimates to bring the system to full processing throughput levels. As of September 30, 1998, substantially all the waste processing has 6 been completed and work has begun on clean closure of the tanks. The Company is currently negotiating an extension of the contract. However, in the event the Company is not able to obtain a contract extension, the Company could incur additional losses which could be material. The Company's future operating results will be affected by, among other things, the duration of commercial waste processing contracts and amount of waste to be processed by the Company's commercial waste processing operations pursuant to these contracts; the timing of new DOE waste treatment projects, including those pursued jointly with BNFL, Inc.; the duration of the Hanford and Idaho Falls DOE projects; and the amount of new waste streams, if any, awarded to the Company for processing at the M-Area facility in Savannah River. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998. Revenues increased by $3.0 million or 8.3% from $36.4 million in 1997 to $39.4 million in 1998. The increase was primarily attributable to a $6.1 million increase in government waste processing services and an increase in waste processing revenues of $100,000 at the Company's DuraTherm hazardous waste treatment facility located in San Leon, Texas. The increase was partially offset by a $2.5 million decrease in commercial waste processing services at the Company's Bear Creek low-level radioactive waste processing facility located in Oak Ridge, Tennessee and a decrease in technical support services revenues of $700,000. The increase in revenues in government waste processing services was primarily the result of work performed on the Hanford Tank Waste Remediation System contract awarded by BNFL to build and operate a pilot melter at the Company's Columbia, Maryland headquarters and performance on a project at Idaho Falls, Idaho. Revenues at the DuraTherm facility were $2.6 million for the three months ended September 30, 1998 as compared to $2.5 million for the same period in 1997. The decline in revenues at the Bear Creek facility was primarily due to a change in product mix and to a lesser extent, a price reduction for incineration and compaction processing services. The decline in revenues in technical support services was the result of the completion of several large projects in 1997. Gross profit increased by $3.9 million from $5.9 million in 1997 to $9.8 million in 1998. The Bear Creek facility and government waste processing services accounted for increases in gross profit of $2.0 million and $1.5 million, respectively. Additionally, the DuraTherm facility and technical support services accounted for increases in gross profit of $250,000 and $200,000 respectively. The increase in gross profit at the Bear Creek facility was the result of measures taken in the third quarter to reduce fixed and variable operating costs. The increase in gross profit in government waste processing was the result of increased revenues previously mentioned at comparable gross margins. The increase in gross profit at the DuraTherm facility is attributable to performance on higher margin contracts as compared to the same period in 1997. The gross margin for technical support services was comparable to the same period in 1997. As a percentage of revenues, gross profit increased from 16.1% in 1997 to 24.8% in 1998 for the reasons previously mentioned. Selling, general and administrative expenses increased by $2.0 million or 44.4% from $4.4 million in 1997 to $6.4 million in 1998. As a percentage of revenues, selling general and administrative expenses increased from 12.2% in 1997 to 16.2% in 1998. The increase was primarily attributable to higher operating costs for government waste processing services as a result of business growth in this area. Interest income (expense), net changed from income of $52,000 in 1997 to expense of $208,000 in 1998. The change was the result of the decrease in cash due to the 7 purchase of SEG in April of 1997 and interest on short term borrowings required to fund working capital needs. Income taxes increased to $1,240,000 in 1998. As of December 31, 1997 the Company has recognized the benefit of its available net operating loss carryforward. Accordingly, for 1998 the Company is accruing income taxes at full statutory rates. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998. Revenues increased by $29.1 million or 33.7% from $86.3 million in 1997 to $115.4 million in 1998. The increase was attributable to $24.1 million in revenues from the operations of SEG which was acquired by the Company effective April 1, 1997, an increase in government waste processing revenues of $10.5 million, and an increase of $1.0 million at the Company's DuraTherm commercial waste treatment facility. The increase in revenues was partially offset by a decrease in revenues at the Bear Creek facility and technical support services of $5.5 million and $1.0 million, respectively. The increase in revenues from government waste processing was primarily the result of performance on the Hanford Tank Waste Remediation System contract awarded by BNFL to build and operate a pilot melter at the Company's Columbia, Maryland headquarters and performance on a project at Idaho Falls, Idaho. Revenues at the DuraTherm facility were $7.1 million for the nine months ended September 30, 1998 as compared to $6.1 million for the same period in 1997. The decline in revenues at the Bear Creek facility was primarily the result of lower metal melt processing, a change in product mix and to a lesser extent, a price reduction in the incineration and compaction processes. The decline in revenues from technical support services was the result of less power plant outages as compared to the same period in 1997 partially offset by an increase in revenues from higher margin consulting services. Gross profit increased by $17.3 million from $7.0 million in 1997 to $24.3 million in 1998. SEG, government waste processing, and DuraTherm accounted for increases in gross profit of $5.0 million, $7.7 million, $500,000, respectively. In addition the Bear Creek facility and technical support services accounted for increases in gross profit of $1.7 million and $2.4 million, respectively. The increase in gross profit from government waste processing principally relates to a $5.9 million dollar loss recorded on the M-Area project in the first quarter of 1997. The increase in gross profit at the Bear Creek facility was the result of measures taken in the third quarter to reduce fixed and variable operating costs. The increase in gross profit from technical support services was the result of performance on higher margin consulting contracts for the nine months ended September 30, 1998 as compared to the same period in 1997. Selling, general and administrative expenses increased by $8.5 million or 81.6% from $10.5 million in 1997 to $19.0 million in 1998. As a percentage of revenues, selling, general and administrative expenses increased from 12.1% in 1997 to 16.5% in 1998. The increase in selling, general and administrative expenses was primarily attributable to: (i) the operations of SEG, which was acquired by the Company effective April 1, 1997, (ii) higher than expected costs incurred on proposals for two major commercial nuclear power plant decommissioning projects of $600,000, (iii) severance charges associated with the re-engineering of the processing methods at the Bear Creek facility of $800,000, and (iv) higher operating costs for government waste processing services as a result of business growth in this area. Interest income (expense), net changed from income of $587,000 in 1997 to expense of $463,000 in 1998. The change was the result of the decrease in cash due to the purchase of SEG in April of 1997 and interest on short term borrowings required to fund working capital needs. Income taxes (benefit) increased from a benefit of $750,000 in 1997 to expenses 8 of $1,868,000 in 1998. As of December 31, 1997 the Company has recognized the benefit of its available net operating loss carryforward. Accordingly, for 1998 the Company is accruing income taxes at full statutory rates. LIQUIDITY AND CAPITAL RESOURCES The Company has a revolving line of credit agreement with a bank providing for borrowings up to $12.0 million based upon eligible amounts of accounts receivable, as defined in the credit agreement. Borrowings under the revolving line of credit bear interest at the LIBOR rate plus 2%. At September 30, 1998, the Company had $4.9 million outstanding under the line of credit. Under this credit facility, the Company's bank has also issued letters of credit in the aggregate amount of $15.3 million to the State of Tennessee to provide security for SEG's obligation to clean and remediate the Company's Bear Creek facility upon its closure. The Company believes cash flows from operations and, if necessary, borrowings available under the bank line of credit will be sufficient to meet its operating needs, including the quarterly preferred dividend requirement of $320,000 for at least the next twelve months. INFORMATION SYSTEMS AND THE IMPACT OF THE YEAR 2000 ISSUE The Year 2000 issue results from a programming convention in which computer programs use two digits rather than four to define the applicable year. The inability of computer programs to recognize a year that begins with "20" could result in system failures, miscalculations or errors causing disruptions of operations or other business activities. GTS Duratek has undertaken a program to address the Year 2000 issue with respect to (i) the Company's information systems, (ii) the Company's non- information systems, and (iii) certain systems for the Company's major customers and suppliers. As described below, the Company's Year 2000 program includes (i) assessment of the problem, (ii) development of remedies, (iii) testing of such remedies and (iv) the preparation of contingency plans to deal with the worst case scenarios. INFORMATION SYSTEMS - The Company maintains information systems at each of its operating divisions. Information systems at all of these locations have been assessed. Information systems in Columbia, MD and Oak Ridge, TN have been certified by the hardware and software manufacturers as Year 2000 compliant. The Company is in the process of remediating information systems in San Leon, TX and Pittsburgh, PA. The Company expects to have these systems remediated and tested by June 1999. NON-INFORMATION SYSTEMS - The Company has not completed its assessment of the Year 2000 issue with respect to critical non-information systems. However, management believes that such issues, if any, would be limited to its telephone systems. The Company expects to complete this assessment by December 1998. Remediation required, if any, will be completed by June 1999. CUSTOMER AND SUPPLIER SYSTEMS - The Company has begun informal discussions with major customers and suppliers with respect to the Year 2000 issue. The Company currently has limited electronic interfaces with customers and vendors and, accordingly, is focused on its customer's and vendor's ability to operate following January 1, 2000. The Company intends to make formal inquiries of its key customers and suppliers during 1999 to complete this assessment and establish contingency plans as necessary. COSTS RELATED TO THE YEAR 2000 ISSUE - To date the Company has incurred less 9 than $25,000 to remediate its Year 2000 information systems issues and expects to incur an additional $150,000 to complete the remediation and testing of the information systems. Costs, if any, to remediate the non-information systems are not expected to be material. RISK RELATED TO THE YEAR 2000 ISSUE - Although the Company's Year 2000 efforts are intended to minimize the adverse effects of the Year 2000 issue on the Company's operations, the actual effects of the issue cannot be known until the Year 2000. Failure of the Company and its major customers and suppliers to appropriately remediate the Year 2000 issue could have a material adverse effect on the Company's financial condition and results of operations. NEW ACCOUNTING PRONOUNCEMENT During 2000, the Company will adopt the provisions of Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities". The Company does not expect the new pronouncement will have a material effect on the Company's financial condition or results of operations. QUALIFICATION RELATING TO FINANCIAL INFORMATION The consolidated financial information included herein is unaudited, and does not include all disclosures required under generally accepted accounting principles because certain note information included in the Company's Annual Report, filed on Form 10-K, has been omitted; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of the 1998 interim periods are not necessarily indicative of results to be expected for the entire year. 10 PART II OTHER INFORMATION - ------- Item 1. Legal Proceedings See the Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a discussion of legal proceedings. Item 5. Other Information In response to the "safe harbor" provisions contained in the Private Securities Litigation Reform Act of 1995, the Company is including in this Quarterly Report on Form 10-Q the following cautionary statements which are intended to identify certain important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements of the Company made by or on behalf of the Company. Many of these factors have been discussed in prior filings with the Securities and Exchange Commission. The Company experienced significant growth in revenues during 1997 and the first nine months of 1998, primarily as a result of the acquisition of SEG in April 1997. The Company's future operating results are largely dependent upon the Company's ability to manage its commercial waste processing operations, which are formerly the operations of SEG, including obtaining commercial waste processing contracts and processing waste under such contracts in a timely and cost effective manner. The Company's future operating results are also largely dependent upon the Company's ability to extend the existing contract with the DOE for the Savannah River M-Area Site, complete the waste processing required by the contract without further delay and secure contracts to handle additional waste streams at that facility or deploy the equipment on future waste treatment projects. In addition, the Company's future operating results are largely dependent upon the timing and awarding of contracts by the DOE for the cleanup of the waste sites administered by it. The timing and award of such contracts by the DOE is directly related to the response of governmental authorities to public concerns over the treatment and disposal of radioactive, hazardous, mixed and other wastes. The lessening of public concern in this area or other changes in the political environment could adversely affect the availability and timing of government funding for the cleanup of DOE and other sites containing radioactive and mixed wastes. Additionally, revenues from technical support services have in the past and continue to account for a substantial portion of the Company's revenues and the loss of one or more technical support service contracts could adversely affect the Company's future operating results. The Company's future operating results may fluctuate due to factors such as: the timing of new commercial waste processing contracts and duration of and amount of waste to be processed pursuant to those contracts: the acceptance and implementation of its waste treatment technologies in the government and commercial sectors, the evaluation by the DOE and other customers of the Company's technologies versus other competing technologies as well as conventional storage and disposal alternatives; the timing of new waste treatment projects, including those pursued jointly with BNFL, the duration of such projects; and the timing of outage support projects and other large technical support services projects at its customers' facilities. 11 Item 6. Exhibits and Reports on Form 8-K a. Exhibits -------- See accompanying Index to Exhibits b. Reports ------- None. 12 GTS DURATEK, INC. AND SUBSIDIARIES SEPTEMBER 30, 1998 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GTS DURATEK, INC. Dated: November 13, 1998 BY: /s/ Robert F. Shawver ---------------------------- Robert F. Shawver Executive Vice President and Chief Financial Officer Dated: November 13, 1998 BY: /s/ Craig T. Bartlett ----------------------------- Craig T. Bartlett Treasurer and Controller 13 Exhibits Index 3.1 Amended and Restated Certificate of Incorporation of the Registrant. Incorporated herein by reference to Exhibit 3.1 of the Registrant's Quarterly Report on From 10-Q for the quarter ended March 31, 1996. (File No. 0-14292) 3.2 By-Laws of the Registrant. Incorporated herein by reference to Exhibit 3.3 of the Registrant's Form S-1 Registration Statement No. 33-2062. 4.1 Certificate of Designations of the 8% Cumulative Convertible Redeemable Preferred Stock dated January 23, 1995. Incorporated herein by reference to Exhibit 4.1 of the Registrants Form 8-K filed on February 1, 1995. (File No. 0-14292) 4.2 Stock Purchase Agreement among Carlyle Partners II, L.P., Carlyle International Partners II, L.P., Carlyle International Partners III, L.P., C/S International Partners, Carlyle-GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P. and GTS Duratek, Inc. and National Patent Development Corporation dated as of January 24, 1995. Incorporated herein by reference to Exhibit 4.2 of the Registrants Form 8-K filed on February 1, 1995. (File No. 0-14292) 4.3 Stockholders Agreement by and among GTS Duratek, Inc., Carlyle Partners II, L.P., Carlyle International Partners II, L.P., Carlyle International Partners III, L.P., C/S International Partners, Carlyle-GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P. and GTS Duratek, Inc. and National Patent Development Corporation dated as of January 24, 1995. Incorporated herein by reference to Exhibit 4.3 of the Registrants Form 8-K filed on February 1, 1995. (File No. 0-14292) 4.4 Registration Rights Agreement by and among GTS Duratek, Inc., Carlyle Partners II, L.P., Carlyle International Partners II, L.P., Carlyle International Partners III, L.P., C/S International Partners, Carlyle-GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P.and GTS Duratek, Inc. and National Patent Development Corporation dated as of January 24, 1995. Incorporated herein by reference to Exhibit 4.4 of the Registrants Form 8-K filed on February 1, 1995. (File No. 0-14292). 4.5 Convertible Debenture issued by GTS Duratek, Inc., General Technical Services, Inc. and GTS Instrument Services Incorporated to BNFL Inc. dated November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 0-14292). 10.1 1984 Duratek Corporation Stock Option Plan, as Amended. Incorporated herein by reference to Exhibit 10.9 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. 10.2 Asset Purchase Agreement dated August 20. 1990 between Chem-Nuclear Systems, Inc. and Duratek Corporation. Incorporated herein by reference to Exhibit 1 to the Registrant's Form 8-K filed on August 20, 1990. (File No. 0-14292) 10.3 Credit and Security Agreements dated April 18, 1997 between First Union National Bank of Maryland and First Union National Bank of North Carolina and GTS Duratek, Inc., The Scientific Ecology Group, Inc., SEG Colorado, Inc., Hittman Transport Services, Inc., General Technical Service, Inc., GTS E-1 Instrument Services, Inc. and Analytical Resources, Inc. Incorporated herein by reference to Exhibits (C)(3), (C)(4), and (C)(5) of the Registrant's Current Report on Form 8-K filed on April 18, 1997. (File No. 0-14292) 10.4 License Agreement dated as of August 17, 1992 between GTS Duratek, Inc. and Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo. Incorporated herein by reference to Exhibit 10.9 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (File No. 0-14292) 10.5 Purchase Agreement dated October 15, 1993 between GTS Duratek, Inc. and Environmental Corporation of America. Incorporated herein by reference to Exhibit 2 of the Registrant's Form 8-K Current Report dated October 15, 1993. (File No. 0-14292) 10.6 Warrant Agreement dated October 15, 1993 between GTS Duratek, Inc. and Environmental Corporation of America. Incorporated herein by reference to Exhibit 2 of the Registrant's Form 8-K Current Report dated October 15, 1993. (File No. 0-14292) 10.7 Stock Purchase Agreement dated December 22, 1993 between GTS Duratek, Inc. and Jack J. Spitzer. Incorporated herein by reference to Exhibit 1 of the Registrant's Form 8-K Current Report dated December 22, 1993. (File No. 0-14292) 10.8 Stock Purchase Agreement dated December 22, 1993 between GTS Duratek, Inc. and Joseph H. Domberger. Incorporated by reference to Exhibit 2 of the Registrant's Form 8-K Current Report dated December 22, 1993. (File No. 0-14292) 10.9 Stockholders' Agreement dated December 28, 1993 between GTS Duratek, Inc. and Vitritek Holdings, L.L.C. Incorporated by reference to Exhibit 3 of the Registrant's Form 8-K Current Report dated December 22, 1993. (File No. 0-14292) 10.10 Agreement dated January 14, 1994 between GTS Duratek, Inc. and Westinghouse Savannah River Company. Incorporated by reference to Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. (File No. 0-14292) 10.11 Agreement dated February 24, 1994 between GTS Duratek, Inc. and the University of Chicago (Operator of Argonne National Laboratory). Incorporated by reference to Exhibit 10.18 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. (File No. 0-14292) 10.12 Agreement dated September 15, 1994 between DuraChem Limited Partnership a Maryland Limited Partnership, by and among CNSI Sub, Inc. and GTSD Sub, Inc. as the General Partners, and Chemical Waste Management, Inc. and GTS Duratek, Inc. as the Limited Partners. Incorporated herein by reference to Exhibit 10-19 of the Registrants Annual Report on 10-K for the year ended December 31, 1994 (File No. 0-14292) 10.13 Teaming Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 0-14292). 10.14 Sublicense Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 0-14292). E-2 10.15 Stock Purchase Agreement by and among Bird Environmental Gulf Coast, Inc., Bird Environmental Technologies, Inc., Bird Corporation, GTS Duratek, Inc. and GTSD Sub II, Inc. dated as of November 29, 1995. Incorporated herein by reference to Exhibit (c)(2) of Registrant's Current Report on Form 8-K filed on December 11, 1995 (File No. 0-14292). 10.16 Stockholders' Agreement by and among Bird Environmental Gulf Coast, Inc. GTS Duratek, Inc., GTSD Sub II, Inc., Jim S. Hogan, Mark B. Hogan, Barry K. Hogan and Sam J. Lucas III dated November 29, 1995. Incorporated herein by reference to Exhibit (c)(3) of the Registrant's Current Report on Form 8-K filed on December 11, 1995 (File No. 0-14292). 10.17 Technology License Agreement by and among GTS Duratek, Inc., Bird Environmental Gulf Coast, Inc. and Jim S. Hogan dated November 29, 1995. Incorporated herein by reference to Exhibit (c)(4) of the Registrant's Current Report on Form 8-K filed on December 11, 1995. (File No. 0-14292). 10.18 Stock Purchase Agreement by and between Westinghouse Electric Corporation and GTS Duratek, Inc. dated as of April 8, 1997. Incorporated herein by reference to Exhibit (c)(2) of Registrant's Current Report on Form 8-K filed on April 18, 1997. (File No. 0-14292). 10.19 GTS Duratek, Inc. Executive Compensation Plan. Incorporated herein by reference to Exhibit 10.19 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (File No. 0-14292). 27 Financial Data Schedule. (filed herewith) E-3 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 5,882,512 0 28,958,719 (600,985) 1,011,116 46,788,974 73,993,191 (10,567,713) 131,537,210 33,043,832 0 15,222,078 0 141,721 62,469,452 131,537,210 0 39,390,989 0 29,610,260 0 117,806 207,840 3,178,886 1,240,044 1,888,842 0 0 0 1,888,842 0.11 0.10
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