-----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, V6kk/HgO3P/QH7Leiz9vLxKY9twV+pJttvQjIxZEPRBaloI4ArvOvR8gDsfnvwXh 83Ficw5O1BgBr9QDfzIezQ== 0000928385-99-001809.txt : 19990518 0000928385-99-001809.hdr.sgml : 19990518 ACCESSION NUMBER: 0000928385-99-001809 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99626487 BUSINESS ADDRESS: STREET 1: 10100 OLD COLUMBIA ROAD CITY: COLUMBIA STATE: MD ZIP: 21046 BUSINESS PHONE: 4103125100 MAIL ADDRESS: STREET 1: 10100 OLD COLUMBIA ROAD CITY: COLUMBIA STATE: MD ZIP: 21046 FORMER COMPANY: FORMER CONFORMED NAME: DURATEK CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10Q 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 March 31, 1999 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 - ------------------------------------------- ----- (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 May 6, 1999: Common Stock, par value $0.01 per share 13,833,412 shares GTS DURATEK, INC. AND SUBSIDIARIES TABLE OF CONTENTS -----------------
Part I Financial Information PAGE - ------ ---- Item 1. Financial Statements Consolidated Condensed Balance Sheets as of March 31, 1999 and December 31, 1998............... 1 Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 1999 and 1998............... 2 Consolidated Condensed Statement of Changes in Stockholders' Equity for the Three Months Ended March 31, 1999......... 3 Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998............... 4 Notes to Consolidated Financial Statements................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 8 Item 3. Quantitative and Qualitative Information About Market Risk.............................................. 11 Qualification Relating to Financial Information.............. 11 Part II Other Information - ------- Item 1. Legal Proceedings............................................ 12 Item 5. Other Information............................................ 12 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
March 31, December 31, 1999 1998 ------------ ------------ ASSETS (unaudited) * Current assets: Cash and cash equivalents............................. $ 982,237 $ 5,944,274 Receivables, net...................................... 37,675,401 35,350,150 Other accounts receivable............................. 2,531,085 2,351,034 Costs and estimated earnings in excess of billings on uncompleted contracts................... 5,741,494 4,254,591 Prepaid expenses and other current assets............. 4,558,284 3,676,937 Deferred income taxes................................. 1,006,066 1,006,066 ------------ ------------ Total current assets................................ 52,494,567 52,583,052 Property, plant and equipment, net...................... 54,403,293 54,270,744 Investments in and advances to joint ventures, net...... 4,101,405 4,131,406 Goodwill and other intangible assets, net............... 13,651,428 13,658,521 Deferred charges and other assets, net.................. 1,447,244 804,933 Deferred income taxes................................... 3,085,976 3,085,976 ------------ ------------ $129,183,913 $128,534,632 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings................................... $ 2,000,000 $ 10,947,148 Accounts payable........................................ 6,368,254 12,837,623 Accrued expenses and other current liabilities.......... 12,412,787 5,856,300 Unearned revenues....................................... 1,964,450 3,380,477 Waste processing and disposal liabilities............... 5,477,865 4,202,561 ------------ ------------ Total current liabilities........................... 28,223,356 37,224,109 Convertible debenture................................... 11,939,834 11,821,582 Long-term debt.......................................... 8,000,000 - Facility and equipment decontamination and decommissioning liabilities........................ 8,004,521 7,824,447 Other noncurrent liabilities............................ 1,494,391 1,363,822 ------------ ------------ Total liabilities................................... 57,662,102 58,233,960 ------------ ------------ Redeemable preferred stock (Liquidation value $16,320,000)....................... 15,336,329 15,279,085 ------------ ------------ Stockholders' equity: Common stock.......................................... 142,277 142,257 Capital in excess of par value........................ 72,520,004 72,513,024 Deficit............................................... (13,315,785) (14,742,524) Treasury stock, at cost............................... (3,161,014) (2,891,170) ------------ ------------ Total stockholders' equity.......................... 56,185,482 55,021,587 ------------ ------------ $129,183,913 $128,534,632 ============ ============
* The Consolidated Condensed Balance Sheet as of December 31, 1998 has been derived from the Company's audited Consolidated Balance Sheet as of that date. See notes to condensed consolidated financial statements. 1 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended March 31, --------------------------------- 1999 1998 --------------- --------------- (Restated) Revenues............................................... $ 38,885,254 $ 37,230,952 Cost of revenues....................................... 29,075,839 29,394,613 --------------- --------------- Gross profit........................................... 9,809,415 7,836,339 Selling, general and administrative expenses........... 6,510,025 5,484,404 --------------- --------------- Income from operations................................. 3,299,390 2,351,935 Interest expense, net.................................. (284,822) (73,781) --------------- --------------- Income before income taxes and proportionate share of loss of joint venture......... 3,014,568 2,278,154 Income taxes........................................... 1,160,609 853,603 --------------- --------------- Income before proportionate share of loss of joint venture................................ 1,853,959 1,424,551 Proportionate share of loss of joint venture........... (50,000) (1,324,000) --------------- --------------- Income before cumulative effect of change in accounting principle.................... 1,803,959 100,551 Cumulative effect of change in accounting principle.... - (420,000) --------------- --------------- Net income (loss) and comprehensive income (loss)...... 1,803,959 (319,449) Preferred stock dividends and charges for accretion.... 377,220 376,371 --------------- --------------- Net income (loss) attributable to common stockholders.. $ 1,426,739 $ (695,820) =============== =============== Basic net income (loss) per share...................... $ 0.10 $ (0.05) =============== =============== Diluted net income (loss) per share.................... $ 0.09 $ (0.05) =============== =============== Basic weighted average common stock outstanding........ 13,773,860 12,811,495 =============== =============== Diluted weighed average common stock and dilutive securities outstanding...................... 20,840,081 12,811,495 =============== ===============
See notes to condensed consolidated financial statements 2 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Three Months Ended March 31, 1999 (Unaudited)
Common Stock Capital in ---------------------- Total Excess of Treasury Stockholders' Shares Amount Par Value Deficit Stock Equity ---------------------- ----------- ------------ ----------- -------------- Balance, December 31, 1998 14,225,750 $ 142,257 $72,513,024 $(14,742,524) $(2,891,170) $ 55,021,587 Net income 1,803,959 1,803,959 Exercise of options and warrants 2,000 20 6,980 7,000 Treasury stock purchases (269,844) (269,844) Preferred dividends (320,000) (320,000) Accretion of redeemable preferred stock (57,220) (57,220) ---------- --------- ----------- ------------ ----------- -------------- Balance, March 31, 1999 14,227,750 $ 142,277 $72,520,004 $(13,315,785) $(3,161,014) $ 56,185,482 ========== ========= =========== ============ =========== ==============
See notes to condensed consolidated financial statements 3 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended March 31, ---------------------------- 1999 1998 ------------ ------------ Cash flows from operations: Net income (loss)........................................ $ 1,803,959 $ (319,449) Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization........................ 840,489 1,141,394 Loss on sale of equipment............................ 110,979 - Accrued interest on convertible debenture.............. 118,252 168,884 Proportionate share of loss of joint venture......... 50,000 1,324,000 Cumulative effect of change in accounting principle.. - 420,000 Changes in operating items: Receivables........................................ (2,002,312) 725,362 Cost in excess of billings......................... (1,486,903) (2,602,911) Prepaid expenses and other current assets.......... (881,347) (592,350) Accounts payables, accrued expenses and other current liabilities....................... 87,118 (1,462,424) Unearned revenues.................................. (1,416,027) (5,269,095) Waste processing and disposal liabilities.......... 1,275,304 1,192,269 Facility and equipment decontamination and decommissioning liabilities..................... 180,074 229,802 Other................................................ 132,580 - ----------- ----------- Net cash used by operations.............................. (1,187,834) (5,044,518) ----------- ----------- Cash flows from investing activities: Additions to property, plant and equipment, net ....... (953,360) (620,318) Advances to joint ventures............................. (19,999) (20,492) Other.................................................. (626,554) (137,831) ----------- ----------- Net cash used by investing activities.............. (1,599,913) (778,641) ----------- ----------- Cash flows from financing activities: Short-term borrowings (repayments), net................ (8,947,148) 5,621,000 Borrowings under long-term debt........................ 8,000,000 - Preferred stock dividends.............................. (320,000) (320,000) Proceeds from issuance of common stock................. 7,000 23,500 Repurchase of treasury shares.......................... (269,844) - Deferred financing costs............................... (644,298) - Other.................................................. - (12,902) ----------- ----------- Net cash provided (used) by financing activities..... (2,174,290) 5,311,598 ----------- ----------- Net change in cash and cash equivalents.................. (4,962,037) (511,561) Cash and cash equivalents at beginning of period......... 5,944,274 7,026,249 ----------- ----------- Cash and cash equivalents at end of period............... $ 982,237 $ 6,514,688 =========== ===========
See notes to condensed consolidated financial statements 4 GTS DURATEK, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 1. Principles of consolidation and basis of presentation 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:
March 31, December 31, 1999 1998 ---------- ------------ Raw materials...................... $ 222,453 $ 202,087 Finished goods..................... 2,181,296 1,068,889 ---------- ---------- $2,403,749 $1,270,976 ========== ==========
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 13,773,860 and 12,811,495 for the three months ended March 31, 1999 and 1998. 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 20,840,081 and 12,811,495 for the three months ended March 31, 1999 and 1998. 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 year of calculation. Conversion of the Company's convertible debentures and preferred stock is assumed in the calculation of diluted EPS for the three months ended March 31, 1999. 4. Segment reporting The Company has three primary segments (i) commercial waste processing, (ii) government waste processing and (iii) technical services. Below is a brief description of each of the segments: 1. Commercial Waste Processing (CWP) The Company conducts its commercial waste processing operations principally at its Bear Creek Operations Facility located in Oak Ridge, Tennessee. The Company's waste treatment technologies include: incineration; compaction; metal decontamination and recycling; vitrification; steam reforming; thermal desorption; and ion exchange. Commercial waste processing customers primarily include commercial nuclear utilities and petrochemical companies. 2. Government Waste Processing (GWP) The Company provides on-site waste processing services on large government projects for the DOE. The on-site waste processing services provided by the Company on DOE projects include program development, waste characterization, on-site waste treatment, facility operation, packaging and shipping of residual waste, profiling and manifesting the processed waste and selected technical support services. 5 GTS DURATEK, INC. AND SUBSIDIARIES 3. Technical Services (TS) The Company's technical support services encompass approximately 500 employees, consultants and technicians, some of whom are full-time employees and the balance of whom are contract employees, who support and complement the Company's commercial and government waste processing operations and also provides highly specialized technical support services for the Company's customers. The Company's segment information is as follows:
March 31, 1999 --------------------------------------------------------------------- UNALLOCATED CWP GWP TS ITEMS CONSOLIDATED --------------------------------------------------------------------- Revenues from $17,568,395 $ 9,476,689 $11,840,170 $ - $ 38,885,254 external customers Income (loss) from 2,027,560 887,402 384,428 - 3,299,390 operations Interest income - - Interest expense (284,822) (284,822) Depreciation and 690, 189 50,095 100,205 - 840,489 amortization expense Proportionate share (50,000) (50,000) of losses of joint ventures Income tax expense 1,160,609 1,160,609 Investments in and 4,101,405 4,101,405 advances to joint ventures Capital expenditure 807,468 35,864 35,387 74,641 953,360 for additions to long-lived assets Total assets 60,644,004 31,712,363 20,562,061 16,265,485 129,183,913
6 GTS DURATEK, INC. AND SUBSIDIARIES
March 31, 1998 ---------------------------------------------------------------------------------- UNALLOCATED CWP GWP TS ITEMS CONSOLIDATED ---------------------------------------------------------------------------------- Revenues from $ 18,890,200 $ 5,801,200 $ 12,539,552 $ - $ 37,230,952 external customers Income (loss) from 1,381,500 897,435 73,000 - 2,351,935 operations Interest income 113,300 113,300 Interest expense (187,081) (187,081) Depreciation and 912,407 123,500 105,487 - 1,141,394 amortization expense Proportionate share (1,324,000) (1,324,000) of losses of joint ventures Income tax expense 853,603 853,603 Investments in and 6,333,018 6,333,018 advances to joint ventures Capital expenditure 294,285 270,987 35,740 19,306 620,318 for additions to long-lived assets Total assets 61,127,669 21,753,774 26,948,724 23,981,502 133,811,669
5. Start-up costs In the fourth quarter of 1998, the Company and its 45% owned subsidiary, DuraChem, Inc. ("DuraChem") adopted the provisions of SOP 98-5 "Reporting on Start-Up Costs," which requires companies to expense start-up expenses as incurred. The SOP requires that a company adopt the provisions effective as of the first day of the year in the year of adoption. Accordingly, the Company has restated the condensed consolidated statements of operations and cash flows for the three months ended March 31, 1998. In connection with the adoption, the Company recognized $1,274,000, its proportionate share of DuraChem's adoption of the SOP, as proportionate share of loss of joint venture and $420,000 as the cumulative effect of the Company's change in accounting principle. Each amount is net of applicable income tax benefit. Such restatement increased income before proportionate share of loss of joint venture by $32,097, decreased income before cumulative effect of change in accounting principles by $1,241,903 and decreased net income (loss) and net income (loss) attributable to common shareholders by $1,661,903. In addition, net income (loss) per share was reduced by $0.10 per share. 7 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 electric utilities, industrial facilities, commercial businesses and government agencies. 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. As of February 1999, the Company successfully completed the contract to vitrify 660,000 gallons of mixed waste sludge at its M-Area processing plant located at the DOE's Savannah River Site. 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 and the duration of the Hanford and Idaho Falls DOE projects. In the fourth quarter of 1998, the Company and its 45% owned subsidiary, DuraChem, Inc. ("DuraChem") adopted the provisions of SOP 98-5 "Reporting on Start-Up Costs," which requires companies to expense start-up expenses as incurred. The SOP requires that a company adopt the provisions effective as of the first day of the year in the year of adoption. Accordingly, the Company has restated the condensed consolidated statements of operations and cash flows for the three months ended March 31, 1998. In connection with the adoption, the Company recognized $1,274,000, its proportionate share of DuraChem's adoption of the SOP, as proportionate share of loss of joint venture and $420,000 as the cumulative effect of the Company's change in accounting principle. Each amount is net of applicable income tax benefit. Such restatement increased income before proportionate share of loss of joint venture by $32,097, decreased income before cumulative effect of change in accounting principles by $1,241,903 and decreased net income (loss) and net income (loss) attributable to common shareholders by $1,661,903. In addition, net income (loss) per share was reduced by $0.10 per share. 8 GTS DURATEK, INC. AND SUBSIDIARIES Results of Operations Revenues increased by $1.7 million or 4.4% from $37.2 million in the first quarter of 1998 as compared to $38.9 million for the first quarter of 1999. The increase was primarily attributable to a $3.7 million increase in government waste processing services and a $1.5 million increase in revenues at the Company's DuraTherm petrochemical waste treatment facility located in San Leon, Texas. The increase was partially offset by a $2.8 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 from 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. The increase in revenues at the DuraTherm facility was the result of higher processing volumes and higher average prices as compared to the same period in 1998. The decrease in revenues at the Bear Creek facility was the result of lower dry activated waste processing volumes attributable to less power plant outages being scheduled in the first quarter of 1999 as compared to the same period in 1998. The decline in revenues from technical support services was the result of work performed on a large decontamination and decommissioning project during the first quarter of 1998. Gross profit increased by $2.0 million from $7.8 million in the first quarter of 1998 to $9.8 million in the first quarter of 1999. The DuraTherm facility, government waste processing and technical support services accounted for increases in gross profit of $780,000, $760,000 and $750,000, respectively. The increase was partially offset by a decrease in gross profit from commercial waste operations of $290,000 at the Bear Creek facility. The increase in gross profit at the DuraTherm facility was the result of higher processing volumes and performance on higher margin contracts. 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 from technical support services was the result of performance on higher margin consulting services contracts as compared to the same period in 1998. As a percentage of revenues, gross profit increased from 21.1% in 1998 to 25.2% in 1999. Selling, general and administrative expenses increased by $1.0 million or 18.7% from $5.5 million in 1998 to $6.5 million in 1999. As a percentage of revenues, selling general and administrative expenses increased from 14.7% in 1998 to 16.7% in 1999. The increase is principally related to higher operating costs for government waste processing services as a result of business growth in this area. Interest expense, net increased by $211,000 from 1998 to 1999. The increase was the result of increased borrowings required to fund working capital needs. Income taxes increased by $307,000 from 1998 to 1999. The Company's effective income tax rate is 37.5% in 1998 as compared with 38.5% in 1999. Liquidity and capital resources In February 1999, the Company obtained a $60 million bank credit facility which includes (i) a $35 million revolving line of credit, based on eligible accounts receivable as defined in the credit agreement, to fund working capital requirements, (ii) a $20 million line of credit to finance acquisitions or stock repurchases, and (iii) a $5 million line of credit to finance up to 75% of new equipment purchases. Borrowings under the old credit facility were repaid from this credit facility. Borrowings outstanding under the revolving line of credit bear interest at either the bank's base rate, as defined, or at the LIBOR rate plus 2.25%. The rate is subject to adjustment after June 30, 1999, depending upon the Company's ratio of debt to operating income. At March 31, 9 1999, the Company had $2.0 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 for security for SEG's obligation to GTS DURATEK, INC. AND SUBSIDIARIES clean and remediate the Bear Creek facility upon its closure. The new credit facility has a five year term. In connection with this new facility, the Company has agreed to seek stockholder approval at its 1999 annual meeting of stockholders to extend the mandatory redemption date of the outstanding Convertible Preferred Stock beyond the maturity date of this new facility; if this approval is not obtained, the credit facility reverts to a three year term. The Company believes cash flows from operations and, if necessary, borrowings available under this credit facility 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 completed its assessment of the Year 2000 issue with respect to critical non-information systems. Remediation will be completed by June 1999. Programmable Logic Controller (PLC) devices identified throughout the organization have been prioritized. Replacement, remediation and contingency plans will be in place by October 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 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 to remediate the non-information systems are expected to be approximately $250,000. 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 10 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. GTS DURATEK, INC. AND SUBSIDIARIES Item 3. Quantitative and Qualitative Information about Market Risk The Company's major market risk is to changing interest rates. As of March 31,1999,the Company had floating rate long-term debt of $8.0 million and floating rate short-term debt of $2.0 million. The long-term debt bears interest at LIBOR plus 2.25%. The short-term debt bears interest at the bank's base rate, as defined. The Company has not purchased any interest rate derivative instruments but may do so in the future. In addition, the Company does not have any foreign currency or commodity risk. 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 1999 interim period are not necessarily indicative of results to be expected for the entire year. 11 Part II Other Information - ------- GTS DURATEK, INC. AND SUBSIDIARIES Item 1. Legal Proceedings See the Company's annual report on Form 10-K for the year ended December 31, 1998 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 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. In addition, the Company's future operating results are dependent upon the timing and award of contracts by the DOE for the cleanup of other 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. 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 March 31, 1999 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: May 14, 1999 BY: /s/ Robert F. Shawver ---------------------------- Robert F. Shawver Executive Vice President and Chief Financial Officer Dated: May 14, 1999 BY: /s/ Craig T. Bartlett ----------------------------- Craig T. Bartlett Treasurer 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 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) E-1 10.4 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) 10.5 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) 10.6 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) 10.7 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). 10.8 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). 10.9 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). 10.10 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). 10.11 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). 10.12 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). 10.13 Amended and Restated Credit Agreement as of February 1, 1999 between GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument Services, Incorporated, General Technical Services, Inc., Analytical Resources, Inc., GTSD Sub III, Inc. and First Union National Bank, First Union Commercial Corporation, Wachovia Bank, N.A. and National Bank of Canada. Incorporated herein by reference to Exhibit (c)(2) of the Registrant's Current Report on Form 8-K filed on February 1, 1999. (File No. 0-14292). E-2 10.14 Amended and Restated Security Agreement as of February 1, 1999 between GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument Services, Incorporated, General Technical Services, Inc., Analytical Resources, Inc., GTSD Sub III, Inc. and First Union National Bank, First Union Commercial Corporation, Wachovia Bank, N.A. and National Bank of Canada. Incorporated herein by reference to Exhibit (c)(2) of the Registrant's Current Report on Form 8-K filed on February 1, 1999 (Filed No. 0-14292). 27.1 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 BALANCE SHEET AS OF MARCH 31, 1999 (UNAUDITED) AND THE CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED), OF GTS DURATEK, INC. AND SUBSIDIARIES, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS 3-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 MAR-31-1999 MAR-31-1998 982,237 0 0 0 38,272,128 0 (596,727) 0 2,403,749 0 52,494,567 51,805,493 66,935,766 0 (12,532,473) 0 129,183,913 132,149,766 28,223,356 0 0 0 15,336,329 0 0 0 142,277 0 56,043,205 55,628,155 129,183,913 132,149,766 0 0 38,885,254 0 0 0 29,075,839 0 6,510,025 5,484,404 0 0 284,822 0 3,014,568 2,278,154 1,160,609 0 1,803,959 100,551 0 0 0 0 0 420,000 1,803,959 (319,449) .10 (.05) .09 (.05)
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