-----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, Htal7BI9yQIINRBUrAZHT/BCd50lLlaG21iiAmQnn3BFbb601F9rtNIoX1ga9JHt yuZQpVVmhZStvii6Mr9sTQ== 0000928385-99-002599.txt : 19990817 0000928385-99-002599.hdr.sgml : 19990817 ACCESSION NUMBER: 0000928385-99-002599 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691168 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 10-Q DTD 06/30/99 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 June 30, 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 August 6, 1999: Common Stock, par value $0.01 per share 13,408,204 shares GTS DURATEK, INC. AND SUBSIDIARIES TABLE OF CONTENTS -----------------
PAGE ---- Part I Financial Information - ------ Item 1. Financial Statements Consolidated Condensed Balance Sheets as of June 30, 1999 and December 31, 1998.................... 1 Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 1999 and 1998.................. 2 Consolidated Condensed Statement of Changes in Stockholders' Equity for the Six Months Ended June 30, 1999................ 3 Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998...................... 4 Notes to Consolidated Financial Statements..................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 9 Item 3. Quantitative and Qualitative Information About Market Risk.................................................. 13 Qualification Relating to Financial Information................ 13 Part II Other Information - ------- Item 1. Legal Proceedings.............................................. 15 Item 4. Submission of Matters to a Vote of Security Holders............ 15 Item 5. Other Information.............................................. 15 Item 6. Exhibits and Reports on Form 8-K............................... 16 Signatures..................................................... 17
Part I Financial Information - ------ Item 1. Financial Statements GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31, 1999 1998 ----------- ------------ ASSETS (unaudited) * Current assets: Cash and cash equivalents......................... $ 1,638,932 $ 5,944,274 Receivables, net.................................. 35,550,619 35,350,150 Other accounts receivable......................... 2,313,475 2,351,034 Costs and estimated earnings in excess of billings on uncompleted contracts............... 10,071,331 4,254,591 Prepaid expenses and other current assets......... 3,799,635 3,676,937 Deferred income taxes............................. 1,006,066 1,006,066 ------------ ------------ Total current assets............................ 54,380,058 52,583,052 Property, plant and equipment, net.................. 59,208,819 54,270,744 Investments in and advances to joint ventures, net.. 4,071,404 4,131,406 Goodwill and other intangible assets, net........... 25,594,217 13,658,521 Deferred charges and other assets, net.............. 1,686,763 804,933 Deferred income taxes............................... 3,085,976 3,085,976 ------------ ------------ $148,027,237 $128,534,632 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings............................. $ 4,859,016 $ 10,947,148 Accounts payable.................................. 13,584,373 12,837,623 Accrued expenses and other current liabilities.... 15,639,625 5,856,300 Unearned revenues................................. 299,987 3,380,477 Waste processing and disposal liabilities......... 690,871 4,202,561 ------------ ------------ Total current liabilities....................... 35,073,872 37,224,109 Convertible debenture............................... 12,100,585 11,821,582 Long-term debt...................................... 19,657,727 - Facility and equipment decontamination and decommissioning liabilities.................... 8,184,594 7,824,447 Other noncurrent liabilities........................ 1,474,852 1,363,822 ------------ ------------ Total liabilities............................... 76,491,630 58,233,960 ------------ ------------ Redeemable preferred stock (Liquidation value $16,320,000)................... 15,393,740 15,279,085 ------------ ------------ Stockholders' equity: Common stock...................................... 142,277 142,257 Capital in excess of par value.................... 72,520,004 72,513,024 Deficit........................................... (10,989,116) (14,742,524) Treasury stock, at cost........................... (5,531,298) (2,891,170) ------------ ------------ Total stockholders' equity...................... 56,141,867 55,021,587 ------------ ------------ $148,027,237 $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 Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 1999 1998 1999 1998 ----------- ---------- ----------- ---------- (Restated) (Restated) Revenues................................ $41,692,417 $38,810,201 $80,577,671 $76,041,153 Cost of revenues........................ 30,069,905 32,103,828 59,145,744 61,498,441 ----------- ----------- ----------- ----------- Gross profit............................ 11,622,512 6,706,373 21,431,927 14,542,712 Selling, general and administrative expenses............... 6,733,545 7,087,514 13,243,570 12,571,918 ----------- ----------- ----------- ----------- Income (loss) from operations........... 4,888,967 (381,141) 8,188,357 1,970,794 Interest expense, net................... (298,790) (181,619) (583,612) (255,400) ----------- ----------- ----------- ----------- Income (loss) before income taxes (benefit) and proportionate share of loss of joint venture.............. 4,590,177 (562,760) 7,604,745 1,715,394 Income taxes (benefit).................. 1,836,073 (226,147) 2,996,682 627,456 ----------- ----------- ----------- ----------- Income (loss) before proportionate share of loss of joint venture........ 2,754,104 (336,613) 4,608,063 1,087,938 Proportionate share of loss of joint venture............................... (50,000) (50,000) (100,000) (1,374,000) ----------- ----------- ----------- ----------- Income (loss) before cumulative effect of change in accounting principle...... 2,704,104 (386,613) 4,508,063 (286,062) Cumulative effect of change in accounting principle................ - - - (420,000) ----------- ----------- ----------- ----------- Net income (loss) and comprehensive income (loss)............ 2,704,104 (386,613) 4,508,063 (706,062) Preferred stock dividends and charges for accretion.................. 377,435 376,582 754,655 752,953 ----------- ----------- ----------- ----------- Net income (loss) attributable to common shareholders.................... $ 2,326,669 $ (763,195) $ 3,753,408 $(1,459,015) =========== =========== =========== =========== Basic net income (loss) per share....... $ 0.17 $ (0.06) $ .28 $ (0.12) =========== =========== =========== =========== Diluted net income (loss) per share..... $ 0.14 $ (0.06) $ .23 $ (0.12) =========== =========== =========== =========== Diluted weighted average common stock outstanding............... 13,454,926 12,830,071 13,582,581 12,820,783 =========== =========== =========== =========== Diluted weighted average common stock and dilutive securities outstanding................ 20,499,357 12,830,071 20,636,387 12,820,783 =========== =========== =========== ===========
See notes to condensed consolidated financial statements 2 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Six Months Ended June 30, 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 4,508,063 4,508,063 Exercise of options and warrants 2,000 20 6,980 7,000 Treasury stock purchases (2,640,128) (2,640,128) Preferred dividends (640,000) (640,000) Accretion of redeemable preferred stock (114,655) (114,655) ---------- -------- ----------- ------------ ----------- ----------- Balance, June 30, 1999 14,227,750 $142,277 $72,520,004 $(10,989,116) $(5,531,298) $56,141,867 ========== ======== =========== ============ =========== ===========
See notes to condensed consolidated financial statements 3 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 1999 1998 ------------ ----------- (Restated) Cash flows from operating activities: Net income (loss)........................................ $ 4,508,063 $ (706,062) Adjustments to reconcile net income (loss) to............ net cash provided by (used in) operating activities: Depreciation and amortization........................ 2,393,189 2,646,424 Accrued interest on convertible debenture......... 279,003 325,304 Proportionate share of loss of joint venture......... 100,000 1,374,000 Cumulative effect of change in accounting principle.. - 420,000 Changes in operating items, net of effects from business acquired in 1999: Receivables........................................ 2,037,090 (5,260,119) Cost in excess of billings......................... (5,816,740) 4,314,218 Prepaid expenses and other current assets.......... 77,303 (126,540) Accounts payables, accrued expenses and other current liabilities........................ 5,712,077 (642,632) Unearned revenues.................................. (3,080,490) (4,848,154) Waste processing and disposal liabilities.......... (3,511,690) (1,432,843) Facility and equipment decontamination and decommissioning liabilities....................... 360,147 459,604 ------------ ----------- Net cash provided by (used in) operations.................. 3,057,952 (3,476,800) ------------ ----------- Cash flows from investing activities: Additions to property, plant and equipment, net ......... (3,398,600) (4,049,180) Advances to joint ventures............................... (40,002) (16,853) Acquisition of Frank W. Hake Associates, LLC............. (13,156,698) - Other.................................................... (289,922) 40,851 ------------ ----------- Net cash used in investing activities................ (16,885,222) (4,025,182) ------------ ----------- Cash flows from financing activities: Short-term borrowings (repayments), net.................. (6,088,132) 6,780,622 Borrowings under long-term debt.......................... 19,768,757 - Preferred stock dividends................................ (640,000) (640,000) Proceeds from issuance of common stock................... 7,000 243,427 Repurchase of treasury shares............................ (2,640,128) - Deferred financing costs................................. (885,569) - Reduction of capital lease obligations................... - (25,804) ------------ ----------- Net cash provided by financing activities.............. 9,521,928 6,358,245 ------------ ----------- Net decrease in cash and cash equivalents.................. (4,305,342) (1,143,737) Cash and cash equivalents at beginning of period........... 5,944,274 7,026,249 ------------ ----------- Cash and cash equivalents at end of period................. $ 1,638,932 $ 5,882,512 ============ ===========
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:
June 30, December 31, 1999 1998 ----------- ------------ Raw materials... $ 235,253 $ 202,087 Finished goods.. 1,106,479 1,068,889 ---------- ---------- $1,341,732 $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 13,454,926 and 12,830,071 for the three months ended June 30, 1999 and 1998, respectively, and 13,582,581 and 12,820,783 for the six months ended June 30, 1999 and 1998, 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 20,499,357 and 12,830,071 for the three months ended June 30, 1999 and 1998, respectively, and 20,636,387 and 12,820,783 for the six months ended June 30, 1999 and 1998, 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 year of calculation. Conversion of the Company's convertible debentures and preferred stock is not assumed in the calculation of diluted EPS as the conversion is anti-dilutive. 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 provide highly specialized technical support services for the Company's customers. The Company's segment information is as follows:
Three Months Ended June 30, 1999 ------------------------------------------------------------------ Unallocated CWP GWP TS Items Consolidated ----------- ----------- ----------- ----------- ------------ Revenues from $19,699,951 $ 8,581,489 $13,410,977 $ - $ 41,692,417 external customers Income from operations 2,836,823 1,848,599 203,545 - 4,888,967 Interest income - - - - - Interest expense - - - (298,790) (298,790) Depreciation and 1,402,400 50,095 100,205 - 1,552,700 amortization expense Proportionate share - - - (50,000) (50,000) of losses of joint ventures Income tax expense - - - 1,836,073 1,836,073 Investments in and - - - 4,071,404 4,071,404 advances to joint ventures Capital expenditure 2,785,076 10,380 30,782 572,362 3,398,600 for additions to long-lived assets Total assets 87,586,962 19,623,670 21,283,071 19,533,534 148,027,237
6 GTS DURATEK, INC. AND SUBSIDIARIES
Three Months Ended June 30, 1998 -------------------------------------------------------------------- Unallocated CWP GWP TS Items Consolidated ----------- ----------- ----------- ----------- ------------ Revenues from $17,967,551 $ 6,905,982 $13,936,668 $ - $ 38,810,201 external customers Income (loss) from 1,088,700 (451,800) (1,018,041) - (381,141) operations Interest income - - - 60,000 60,000 Interest expense - - - (241,619) (241,619) Depreciation and 1,203,090 162,846 139,094 - 1,505,030 amortization expense Proportionate share - - - (50,000) (50,000) of losses of joint ventures Income tax expense - - - (226,147) (226,147) Investments in and - - - 5,005,378 5,005,378 advances to joint ventures Capital expenditure 2,005,154 1,579,180 238,902 225,944 4,049,180 for additions to long-lived assets Total assets 61,730,117 21,804,242 28,348,165 20,585,538 132,468,062 Six Months Ended June 30, 1999 -------------------------------------------------------------------- Unallocated CWP GWP TS Items Consolidated ----------- ----------- ----------- ----------- ------------ Revenues from $37,268,346 $18,058,178 $25,251,147 $ - $ 80,577,671 external customers Income from operations 4,864,383 2,736,001 587,973 - 8,188,357 Interest income - - - - - Interest expense - - - (583,612) (583,612) Depreciation and 2,092,589 100,190 200,410 - 2,393,189 amortization expense Proportionate share - - - (100,000) (100,000) of losses of joint ventures Income tax expense - - - 2,996,682 2,996,682 Investments in and - - - 4,071,404 4,071,404 advances to joint ventures Capital expenditure 2,785,076 10,380 30,782 572,362 3,398,600 for additions to long-lived assets Total assets 87,586,962 19,623,670 21,283,071 19,533,534 148,027,237
7 GTS DURATEK, INC. AND SUBSIDIARIES
Six Months Ended June 30, 1998 -------------------------------------------------------------------- Unallocated CWP GWP TS Items Consolidated ----------- ----------- ----------- ----------- ------------ Revenues from $36,857,751 $12,707,182 $26,476,220 $ - $ 76,041,153 external customers Income (loss) from 2,470,200 445,635 (945,041) - 1,970,794 operations Interest income - - - 173,300 173,300 Interest expense - - - (428,700) (428,700) Depreciation and 2,115,497 286,346 244,581 - 2,646,424 amortization expense Proportionate share - - - (1,374,000) (1,374,000) of losses of joint ventures Income tax expense - - - 627,456 627,456 Investments in and - - - 5,005,378 5,005,378 advances to joint ventures Capital expenditure 2,005,154 1,579,180 238,902 225,944 4,049,180 for additions to long-lived assets Total assets 61,730,117 21,804,242 28,348,165 20,585,538 132,468,062
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 the Costs of Start-Up Activities," 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 and six months ended June 30, 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. For the three months ended June 30, 1998, the restatement increased net income by $32,097. For the six months ended June 30, 1998, the restatement increased income before proportionate share of loss of joint venture by $64,194, decreased income before cumulative effect of change in accounting principles by $1,209,806 and decreased net income (loss) and net income (loss) attributable to common shareholders by $1,629,806. In addition, net income (loss) per share was reduced by $0.13 per share. 6. Acquisition of Frank W. Hake Associates, L.L.C. On June 30, 1999, the Company acquired 100% of the outstanding capital stock of Frank W. Hake Associates, L.L.C. ("Hake") from HakeTenn, Inc., a Delaware corporation and an affiliate of the Hake Group of Philadelphia, Pennsylvania, and two individuals for $12.9 million in cash and the assumption of $500,000 of indebtedness of Hake. The Company paid the cash portion of the purchase price out of available cash, principally from its credit facility with its bank. Hake is a specialist in the storage, transportation handling and processing of radioactive waste emanating from nuclear power generation plants throughout the United States. Hake also stores and services power generation equipment at their licensed facility in Memphis, Tennessee. 8 GTS DURATEK, INC. AND SUBSIDIARIES As the acquisition was effective as of June 30, 1999, the Company's results of operations for the six months ended June 30, 1999 do not include the results of Hake. The Company has accounted for the transaction under the purchase method of accounting. The aggregate purchase price of approximately $18 million, which includes liabilities assumed and transaction costs, exceeded the fair value of Hake's tangible assets by approximately $12.1 million. Such amount has been allocated to intangible assets, principally goodwill, and is being amortized over 30 years. The aggregate purchase price for Hake was as follows: Cash paid $12,957,682 Liabilities assumed 4,818,000 Transaction costs 199,016 ----------- $17,974,698 ===========
The aggregate purchase price was allocated to acquired assets based upon their estimated fair values as follows: Accounts receivable $ 2,200,000 Property, plant and equipment 3,500,000 Goodwill and other intangible assets 12,074,698 Other assets 200,000 ----------- $17,974,698 ===========
Revenues from Hake, on an annualized basis, are expected to be approximately $15 million. 9 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. 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 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 the Costs of Start-Up Activities," 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 and six month ended June 30, 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. For the three months ended June 30, 1998, the restatement increased net income by $32,097. For the six months ended June 30, 1998, the restatement increased income before proportionate share of loss of joint venture by $64,194, decreased income before cumulative effect of change in accounting principles by $1,209,806 and decreased net income (loss) and net income (loss) attributable to common shareholders by $1,629,806. In addition, net income (loss) per share was reduced by $0.13 per share. On June 30, 1999, the Company acquired 100% of the outstanding capital stock of Frank W. Hake Associates, L.L.C. ("Hake") from HakeTenn, Inc., a Delaware corporation and an affiliate of the Hake Group of Philadelphia, Pennsylvania, and two individuals for $12.9 million in cash and the assumption of $500,000 of indebtedness of Hake. Hake is a specialist in the storage, transportation handling and processing of radioactive waste emanating from nuclear power generation plants throughout the United States. Hake also stores and services power generation equipment at their licensed facility in Memphis, Tennessee. The Company paid the cash portion of the purchase price out of available cash, principally from its credit facility with its bank. Under this facility, the Company has an acquisition line of credit to finance acquisitions or stock repurchases providing for borrowings up to $20 million. Borrowings under the line of credit bear interest at the LIBOR rate plus 2.25%. 10 GTS DURATEK, INC. AND SUBSIDIARIES Results of Operations Three Months Ended June 30, 1998 as compared to Three Months Ended June 30, 1999. Revenues increased by $2.9 million or 7.4% from $38.8 million in 1998 as compared to $41.7 million in 1999. The increase was primarily attributable to a $3.2 million increase in government waste processing services revenues, a $1.0 million increase in revenues at the Company's DuraTherm petrochemical waste treatment facility located in San Leon, Texas, and a $700,000 increase in revenues in commercial waste processing services at the Company's Bear Creek low-level radioactive waste processing facility located in Oak Ridge, Tennessee. The increase was partially offset by a $2.0 million decrease in technical support services revenues. 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 increase in revenues at the Bear Creek facility was the result of higher waste processing volumes as compared to the same period in 1998. The decline in revenues from technical support services was the result of less power plant outages being scheduled in the second quarter of 1999 as compared to the same period in 1998. Gross profit increased by $4.9 million from $6.7 million in 1998 to $11.6 million in 1999. Government waste processing, the Bear Creek facility, and the DuraTherm facility accounted for increases in gross profit of $2.7 million, $2.1 million and $500,000, respectively. The increase was partially offset by a decrease in gross profit from technical services of $400,000. 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 Bear Creek facility was the result of higher processing volumes and a change in product mix. The increase in gross profit at the DuraTherm facility was the result of higher processing volumes and performance on higher margin contracts. The decrease in gross profit from technical support services was the result of decreased revenues previously mentioned at comparable gross margins. As a percentage of revenues, gross profit increased from 17.3% in 1998 to 27.9% in 1999. Selling, general and administrative expenses decreased by $400,000 or 5.0% from $7.1 million in 1998 to $6.7 million in 1999. As a percentage of revenues, selling general and administrative expenses decreased from 18.3% in 1998 to 16.2% in 1999. Interest expense, net increased by $117,000 from 1998 to 1999. The increase was the result of increased borrowings required to fund working capital needs. Income taxes (benefit) increased from a benefit of $226,000 in 1998 to expense of $1.8 million in 1999. The Company is accruing income taxes (benefit) at full statutory rates. Six Months Ended June 30, 1998 as compared to Six Months Ended June 30, 1999. Revenues increased by $4.5 million or 6.0% from $76.0 million in 1998 to $80.5 million in 1999. The increase was primarily attributable to a $6.8 million increase in government waste processing services revenues and a $2.5 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 $2.7 million decrease in revenues in technical support services revenues and a $2.1 million decrease in revenues in commercial waste processing services at the Company's Bear Creek low-level radioactive waste processing facility located in Oak Ridge, Tennessee. 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 decline in revenues from technical support services was primarily the result of less power plant outages being scheduled in the second quarter of 11 GTS DURATEK, INC. AND SUBSIDIARIES 1999 as compared to the same period in 1998 and work performed during 1998 on a large decontamination and decommissioning project. The decrease in revenues at the Bear Creek facility was primarily the result of lower waste processing volumes attributable to less power plant outages being scheduled in 1999 as compared to the same period in 1998. Gross profit increased by $6.9 million from $14.5 million in 1998 to $21.4 million in 1999. Government waste processing, the Bear Creek facility, the DuraTherm facility and technical support services accounting for increases in gross profit of $3.5 million , $1.8 million, $1.2 million and $400,000 respectively. 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 Bear Creek facility was primarily the result of a change in product mix. 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 from technical support services was principally the result of performance of higher margin consulting services contracts as compared to the same period in 1998. As a percentage of revenues, gross profit increased from 19.1% in 1998 to 26.6% in 1999. Selling, general and administrative expenses increased by $600,000 or 5.3% from $12.6 million in 1998 to $13.2 million in 1999. As a percentage of revenues, selling general and administrative expenses decreased from 16.5% in 1998 to 16.4% in 1999. Interest expense, net increased by $328,000 from 1998 to 1999. The increase was the result of increased borrowings required to fund working capital needs. Income taxes increased by $2.4 million from 1998 to 1999. The Company's effective tax rate was 36.5% in 1998 as compared to 39.4% 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 June 30, 1999, the Company had $4.8 million outstanding under the revolving line of credit and $19.7 million outstanding under the acquisition line of credit. Under this credit facility, the Company's bank has also issued letters of credit in the aggregate amount of $17.8 million to the State of Tennessee to provide for security for SEG's obligation to clean and remediate the Bear Creek facility upon its closure. The new credit facility has a five year term. The Company believes cash flows from operations and, if necessary, borrowings available under its 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 12 GTS DURATEK, INC. AND SUBSIDIARIES 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 has remediated information systems in San Leon, TX and Pittsburgh, PA. The Company is monitoring software and hardware Year 2000 patches and information as it relates to all current and future systems. Non-Information Systems - The Company has completed its assessment of the Year 2000 issue with respect to critical non-information systems. Remediation of critical non-information systems has been completed. 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 $260,000 to remediate its Year 2000 issues and expects to incur an additional $150,000 to complete the remediation and testing of the PLC devices. Costs to remediate the non-information systems are expected to be approximately $500,000. 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 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. 13 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 June 30, 1999, the Company had floating rate long-term debt of $19.7 million and floating short-term rate debt of $4.8 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. 14 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 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Stockholders held on May 19, 1999 the following matters were voted upon: a. Daniel A. D'Aniello, Earle C. Williams, J.A. Fred Brothers and Dr. Francis J. Harvey were elected to serve as directors of the Company by the convertible preferred stockholders for a one-year term. Admiral James D. Watkins, George V. McGowan and Robert E. Prince were elected to serve as directors for a one-year term by the common stockholders and convertible preferred stockholders, voting together as a single class. b. The proposal to approve an amendment to the Certificate of Designations of the 8% Cumulative Convertible Redeemable Preferred Stock, par value $.01 per share, to extend the mandatory redemption date from January 24, 2002 to February 5, 2004 was approved by the common stockholders and convertible preferred stockholders, voting together as a single class, by a vote of 8,882,633 for and 543,479 against. The Annual Meeting of Stockholders was adjourned with respect to the vote on this matter by the convertible preferred stockholders, voting together as a separate class. The matter was subsequently approved by the unanimous vote of the holders of the Convertible Preferred Stock. c. The proposal to reappoint KPMG LLP as the Company's independent auditors for the year ending December 31, 1999 was adopted by a vote of 12,864,835 for and 53,728 against this proposal. 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's future operating results are largely dependent upon the Company's ability to manage its commercial waste processing operations, including obtaining commercial waste processing contracts and processing 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 Company's ability to integrate acquired 15 GTS DURATEK, INC. AND SUBSIDIARIES businesses, including the Company's most resent acquisition of Hake; 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. 16 GTS DURATEK, INC. AND SUBSIDIARIES June 30, 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: August 13, 1999 BY: /s/ Robert F. Shawver ---------------------------- Robert F. Shawver Executive Vice President and Chief Financial Officer Dated: August 13, 1999 BY: /s/ Craig T. Bartlett ----------------------------- Craig T. Bartlett Treasurer 17 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 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 Registrant's Current Report on Form 8-K filed on February 1, 1999. (File No. 0-14292). 10.15 Purchase and Sale Agreement between HakeTenn, Inc. George T. Hamilton and Richard Wilson and GTS Duratek, Inc. dated as of June 30, 1999. Incorporated herein by reference to Exhibit (c)(2) of Registrant's Current Report on Form 8-K filed on July 13, 1999. (File No. 0-14292). 27.1 Financial Data Schedule. (filed herewith) E-3 EX-27 2 EXHIBIT 27 - FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1999 (UNAUDITED) AND THE CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED), OF GTS DURATEK, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS 6-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 JUN-30-1999 JUN-30-1998 1,638,932 0 0 0 36,135,142 0 (584,523) 0 1,672,199 0 54,380,058 0 76,881,006 0 (17,672,187) 0 148,027,237 0 35,073,872 0 0 0 15,393,740 0 0 0 142,277 0 55,999,590 0 148,027,237 0 0 0 80,577,671 0 0 0 59,145,744 0 0 0 13,082 0 583,612 0 7,604,745 1,715,394 2,996,682 0 4,508,063 (286,062) 0 0 0 0 0 (420,000) 4,508,063 (706,062) 0.28 (0.12) 0.23 (0.12)
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