-----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, VS0hLO7m/pfZW7s8f00Fh8rqL7NoxqWogR788lS/58YhtfdnBKA1x5jVTWvbZ9BB PBPVSfIOD1q8vhDsTtuXlA== 0000950109-99-004136.txt : 19991117 0000950109-99-004136.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950109-99-004136 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99756703 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10-Q /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 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 November 4, 1999: Common Stock, par value $0.01 per share 13,275,943 shares GTS DURATEK, INC. AND SUBSIDIARIES TABLE OF CONTENTS -----------------
PAGE ---- Part I Financial Information - ------ Item 1. Financial Statements Consolidated Condensed Balance Sheets as of September 30, 1999 and December 31, 1998............ 1 Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 1999 and 1998......... 2 Consolidated Condensed Statement of Changes in Stockholders' Equity for the Nine Months Ended September 30, 1999....... 3 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998............. 4 Notes to Condensed Consolidated Financial Statements......... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 10 Item 3. Quantitative and Qualitative Information About Market Risk.................................................. 13 Qualification Relating to Financial Information.............. 14 Part II Other Information - ------- Item 1. Legal Proceedings............................................ 14 Item 5. Other Information............................................ 14 Item 6. Exhibits and Reports on Form 8-K............................. 15 Signatures................................................... 16
Part I Financial Information - ------ Item 1. Financial Statements GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31, 1999 1998 ------------- ------------ ASSETS (unaudited) * Current assets: Cash and cash equivalents......................... $ 1,854,876 $ 5,944,274 Receivables, net.................................. 37,874,021 35,350,150 Other accounts receivable......................... 3,574,737 2,351,034 Costs and estimated earnings in excess of billings on uncompleted contracts............... 9,130,432 4,254,591 Prepaid expenses and other current assets......... 6,019,292 3,676,937 Deferred income taxes............................. 1,006,066 1,006,066 ------------ ------------ Total current assets............................ 59,459,424 52,583,052 Property, plant and equipment, net.................. 59,586,850 54,270,744 Investments in and advances to joint ventures, net.. 4,021,404 4,131,406 Goodwill and other intangible assets, net........... 25,525,952 13,658,521 Deferred charges and other assets, net.............. 1,703,150 804,933 Deferred income taxes............................... 3,085,976 3,085,976 ------------ ------------ $153,382,756 $128,534,632 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings............................. $ 9,200,000 $ 10,947,148 Accounts payable.................................. 13,947,018 12,837,623 Accrued expenses and other current liabilities.... 12,724,120 5,856,300 Unearned revenues................................. 1,511,115 3,380,477 Waste processing and disposal liabilities......... 1,886,902 4,202,561 ------------ ------------ Total current liabilities...................... 39,269,155 37,224,109 Convertible debenture............................... 12,261,336 11,821,582 Long-term debt...................................... 19,200,000 - Facility and equipment decontamination and decommissioning liabilities.................... 8,310,873 7,824,447 Other noncurrent liabilities........................ 1,392,452 1,363,822 ------------ ------------ Total liabilities.............................. 80,433,816 58,233,960 ------------ ------------ Redeemable preferred stock (Liquidation value $16,320,000)................... 15,450,485 15,279,085 ------------ ------------ Stockholders' equity: Common stock...................................... 143,557 142,257 Capital in excess of par value.................... 72,842,124 72,513,024 Deficit........................................... (8,455,283) (14,742,524) Treasury stock, at cost........................... (7,031,943) (2,891,170) ------------ ------------ Total stockholders' equity...................... 57,498,455 55,021,587 ------------ ------------ $153,382,756 $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 Nine Months Ended September 30, Ended September 30, -------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------ ------------- ------------ (Restated) (Restated) Revenues.............................. $44,777,734 $39,390,989 $125,355,405 $115,432,142 Cost of revenues...................... 31,840,713 29,610,260 90,986,457 91,108,701 ----------- ----------- ------------ ------------ Gross profit.......................... 12,937,021 9,780,729 34,368,948 24,323,441 Selling, general and administrative expenses............. 7,052,540 6,361,906 20,296,110 18,933,824 ----------- ----------- ------------ ------------ Income from operations................ 5,884,481 3,418,823 14,072,838 5,389,617 Interest expense, net................. (948,674) (207,840) (1,532,286) (463,240) ----------- ----------- ------------ ------------ Income before income taxes and proportionate share of loss of joint venture............ 4,935,807 3,210,983 12,540,552 4,926,377 Income taxes.......................... 1,974,323 1,240,044 4,971,005 1,867,500 ----------- ----------- ------------ ------------ Income before proportionate share of loss of joint venture...... 2,961,484 1,970,939 7,569,547 3,058,877 Proportionate share of loss of joint venture............................. (50,000) (50,000) (150,000) (1,424,000) ----------- ----------- ------------ ------------ Income before cumulative effect of change in accounting principle.... 2,911,484 1,920,939 7,419,547 1,634,877 Cumulative effect of change in accounting principle.............. - - - (420,000) ----------- ----------- ------------ ------------ Net income and comprehensive income... 2,911,484 1,920,939 7,419,547 1,214,877 Preferred stock dividends and charges for accretion................ 377,651 376,794 1,132,306 1,129,747 ----------- ----------- ------------ ------------ Net income attributable to common shareholders.................. $ 2,533,833 $ 1,544,145 $ 6,287,241 $ 85,130 =========== =========== ============ ============ Basic net income per share............ $0.19 $0.12 $0.47 $0.01 =========== =========== ============ ============ Diluted net income per share.......... $0.15 $0.09 $0.37 $0.07 =========== =========== ============ ============ Basic weighted average common stock outstanding............. 13,183,653 13,223,594 13,449,605 12,995,053 =========== =========== ============ ============ Diluted weighted average common stock and dilutive securities outstanding.............. 20,208,566 20,838,002 20,493,780 14,234,122 =========== =========== ============ ============
See notes to condensed consolidated financial statements 2 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Nine Months Ended September 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 - - - 7,419,547 - 7,419,547 Exercise of options and - - warrants 130,000 1,300 329,100 330,400 Treasury stock purchases - - - - (4,140,773) (4,140,773) Preferred dividends - - - (960,000) - (960,000) Accretion of redeemable - - - - preferred stock (172,306) (172,306) ---------- -------- ----------- ------------ ----------- ----------- Balance, September 30, 1999 14,355,750 $143,557 $72,842,124 $ (8,455,283) $(7,031,943) $57,498,455 ========== ======== =========== ============ =========== ===========
See notes to condensed consolidated financial statements 3 GTS DURATEK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, ------------------------------- 1999 1998 ------------ ----------- Cash flows from operating activities: (Restated) Net income............................................... $ 7,419,547 $ 1,214,877 Adjustments to reconcile net income to................... net cash provided by (used in) operating activities: Depreciation and amortization........................ 4,094,681 3,316,369 Accrued interest on convertible debenture............ 439,754 488,716 Proportionate share of loss of joint venture......... 150,000 1,424,000 Cumulative effect of change in accounting principle.. - 420,000 Changes in operating items, net of effects from business acquired in 1999: Receivables........................................ (1,547,574) 335,488 Cost in excess of billings......................... (4,875,841) 2,095,521 Prepaid expenses and other current assets.......... (2,142,355) (785,444) Accounts payables, accrued expenses and other current liabilities........................ 2,948,926 (69,515) Unearned revenues.................................. (1,869,362) (6,260,068) Waste processing and disposal liabilities.......... (2,315,659) (6,359,062) Facility and equipment decontamination and decommissioning liabilities....................... 486,426 425,917 ------------ ----------- Net cash provided by (used in) operations.................. 2,788,543 (3,753,201) ------------ ----------- Cash flows from investing activities:...................... Additions to property, plant and equipment, net ......... (5,033,207) (6,131,511) Advances to joint ventures............................... (39,998) (37,976) Acquisition of Frank W. Hake Associates, LLC............. (13,156,698) - Other.................................................... (7,607) 379,452 ------------ ----------- Net cash used in investing activities................ (18,237,510) (5,790,035) ------------ ----------- Cash flows from financing activities: Short-term borrowings (repayments), net.................. (1,747,148) 4,963,384 Borrowings under long-term debt.......................... 20,000,000 - Repayments under long-term debt.......................... (1,060,280) - Preferred stock dividends................................ (960,000) (960,000) Proceeds from issuance of common stock................... 330,400 4,817,735 Repurchase of treasury shares............................ (4,140,773) (318,759) Deferred financing costs................................. (1,062,630) - Reduction of capital lease obligations................... - (102,861) ------------ ----------- Net cash provided by financing activities.............. 11,359,569 8,399,499 ------------ ----------- Net decrease in cash and cash equivalents.................. (4,089,398) (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................. $ 1,854,876 $ 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:
September 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 13,183,653 and 13,223,594 for the three months ended September 30, 1999 and 1998, respectively, and 13,449,605 and 12,995,053 for the nine months ended September 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 20,208,566 and 20,838,002 for the three months ended September 30, 1999 and 1998, respectively, and 20,493,780 and 14,234,122 for the nine months ended September 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. 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; and thermal desorption. 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:
As of and for the Three Months Ended September 30, 1999 --------------------------------------------------------------------- Unallocated CWP GWP TS Items Consolidated -------------- ----------- ------------ ------------ ------------ Revenues from external customers $21,825,738 $ 9,633,982 $13,318,014 $ - $ 44,777,734 Income from operations 4,322,363 846,316 715,802 - 5,884,481 Interest expense - - - (948,674) (948,674) Depreciation and amortization expense 1,138,824 53,023 382,217 127,428 1,701,492 Proportionate share of losses of joint ventures - - - (50,000) (50,000) Income tax expense - - - 1,974,323 1,974,323 Investments in and advances to joint ventures - - - 4,021,404 4,021,404 Capital expenditure for additions to long-lived assets 1,340,066 53,120 223,772 17,649 1,634,607 Total assets 92,715,853 23,047,118 20,691,310 16,928,475 153,382,756
6 GTS DURATEK, INC. AND SUBSIDIARIES
As of and for the Three Months Ended September 30, 1998 --------------------------------------------------------------------- Unallocated CWP GWP TS Items Consolidated --------------------------------------------------------------------- Revenues from external customers $16,278,500 $10,012,364 $13,100,125 $ - $ 39,390,989 Income from operations 2,100,300 821,498 497,025 - 3,418,823 Interest expense - - - (207,840) (207,840) Depreciation and amortization expense 534,768 73,280 61,897 - 669,945 Proportionate share of losses of joint ventures - - - (50,000) (50,000) Income tax expense - - - 1,240,044 1,240,044 Investments in and advances to joint ventures - - - 4,976,502 4,976,502 Capital expenditure for additions to long-lived assets 359,602 220,018 1,475,470 27,241 2,082,331 Total assets 66,064,779 29,515,703 16,898,522 17,460,497 129,939,501 For the Nine Months Ended September 30, 1999 ----------------------------------------------------------------------- Unallocated CWP GWP TS Items Consolidated ----------------------------------------------------------------------- Revenues from external customers $59,094,083 $27,692,161 $38,569,161 $ - $125,355,405 Income from operations 9,186,746 3,582,315 1,303,777 - 14,072,838 Interest income - - - - - Interest expense - - - 1,532,286 1,532,286 Depreciation and amortization expense 3,231,413 153,212 582,628 127,428 4,094,681 Proportionate share of losses of joint ventures - - - (150,000) (150,000) Income tax expense - - - 4,971,005 4,971,005 Investments in and advances to joint ventures - - - 4,021,404 4,021,404 Capital expenditure for additions to long-lived assets 4,125,142 63,500 254,554 590,011 5,033,207 Total assets 92,715,853 23,047,118 20,691,310 16,928,475 153,382,756
7 GTS DURATEK, INC. AND SUBSIDIARIES
For the Nine Months Ended September 30, 1998 ----------------------------------------------------------------------- Unallocated CWP GWP TS Items Consolidated ----------------------------------------------------------------------- Revenues from external customers $53,136,251 $22,719,546 $39,576,345 $ - $115,432,142 Income (loss) from operations 4,570,500 1,267,133 (448,016) - 5,389,617 Interest income - - - 173,300 173,300 Interest expense - - - (636,540) (636,540) Depreciation and amortization expense 2,650,265 359,626 306,478 - 3,316,369 Proportionate share of losses of joint ventures - - - (1,424,000) (1,424,000) Income tax expense - - - 1,867,500 1,867,500 Investments in and advances to joint ventures - - - 4,976,502 4,976,502 Capital expenditure for additions to long-lived assets 2,364,756 1,799,198 1,714,372 253,185 6,131,511 Total assets 66,064,779 29,515,703 16,898,522 17,460,497 129,939,501
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 nine months ended September 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 September 30, 1998, the restatement increased net income by $32,097. For the nine months ended September 30, 1998, the restatement increased income before proportionate share of loss of joint venture by $96,291, decreased income before cumulative effect of change in accounting principles by $1,177,709 and decreased net income (loss) and net income (loss) attributable to common shareholders by $1,597,733. In addition, diluted net income (loss) per share was reduced by $0.05 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 certain liabilities. 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 The aquisition was effective as of June 30, 1999. 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 4,638,281 Transaction costs 199,016 ----------- $17,794,979 =========== The aggregate purchase price was allocated to acquired assets based upon their estimated fair values as follows: Current Assets $ 2,261,682 Due from Hake - estimated post closing adjustment 900,000 Property, plant and equipment 3,500,000 Goodwill and other intangible assets 11,033,297 Other assets 100,000 ----------- $17,794,979 ===========
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 nine month ended September 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 September 30, 1998, the restatement increased net income by $32,097. For the nine months ended September 30, 1998, the restatement increased income before proportionate share of loss of joint venture by $96,291, decreased income before cumulative effect of change in accounting principles by $1,177,709 and decreased net income (loss) and net income (loss) attributable to common shareholders by $1,597,733. In addition, diluted net income (loss) per share was reduced by $0.05 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 certain liabilities. 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 September 30, 1998 as compared to Three Months Ended September 30, 1999. Revenues increased by $5.4 million, or 13.7%, from $39.4 million in 1998 as compared to $44.8 million in 1999. The increase was primarily attributable to a $4.3 million increase in commercial waste processing services at the Company's Bear Creek low-level radioactive waste processing facility located in Oak Ridge, Tennessee, a $1.3 million increase in revenues at the Company's DuraTherm petrochemical waste treatment facility located in San Leon, Texas, and a $600,000 increase in technical support services revenues. The increase was partially offset by an $800,000 decrease in revenues in government waste processing services. The increase in revenues at the Bear Creek facility was the result of higher waste processing volumes from several decommissioning projects as compared to the same period in 1998. The increase in revenues at the DuraTherm facility was the result of higher waste processing volumes as compared to the same period in 1998. The increase in revenues from technical support services was the result of increased consulting services over the same period in the prior year. The decrease in government waste processing services was primarily the result of the type of work performed on the River Protection Project contract awarded by BNFL to build and operate a pilot melter at the Company's Columbia, Maryland headquarters during the 1998 period as compared to the current period. The decrease is attributable to higher revenue from the construction phase of the contract, which was performed in the prior year period and completed in December 1998, as compared to the operations phase of the contract being performed in the current period. Gross profit increased by $3.1 million from $9.8 million in 1998 to $12.9 million in 1999. The Bear Creek facility, technical support services and the DuraTherm facility accounted for increases in gross profit of $2.2 million, $600,000 and $400,000, respectively. The increase was partially offset by a decrease in gross profit from government waste processing of $100,000. 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 increase in gross profit from technical support services was the result of performance on higher margin consulting contracts. The decrease in gross profit in government waste processing was the result of decreased revenues previously mentioned at comparable gross margins. As a percentage of revenues, gross profit increased from 24.8% in 1998 to 28.9% in 1999. Selling, general and administrative expenses increased by $690,000 or 10.9% from $6.4 million in 1998 to $7.1 million in 1999. As a percentage of revenues, selling general and administrative expenses decreased from 16.2% in 1998 to 15.8% in 1999. Interest expense, net increased by $741,000 from 1998 to 1999. The increase was the result of increased borrowings required to fund working capital needs and the acquisition of Hake. Income taxes increased from $1.2 million in 1998 to $2.0 million in 1999. The Company is accruing income taxes at full statutory rates. 11 GTS DURATEK, INC. AND SUBSIDIARIES Nine Months Ended September 30, 1998 as compared to Nine Months Ended September 30, 1999. Revenues increased by $9.9 million, or 8.6%, from $115.4 million in 1998 to $125.3 million in 1999. The increase was primarily attributable to a $6.0 million increase in government waste processing services revenues, $3.9 million increase in revenues at the Company's DuraTherm petrochemical waste treatment facility located in San Leon, Texas, and a $2.1 million 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 $2.1 million decrease in revenues in technical support services. The increase in revenues from government waste processing services was primarily the result of work performed on the River Protection Project 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 primarily the result of higher waste processing volumes attributable to several decommissioning projects 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 1999 as compared to the same period in 1998. Gross profit increased by $10.0 million from $24.3 million in 1998 to $34.3 million in 1999. The Bear Creek facility, government waste processing, the DuraTherm facility, and technical support services accounted for increases in gross profit of $4.0 million, $3.4 million, $1.6 million and $1.0 million respectively. The increase in gross profit at the Bear Creek facility was primarily the result of a change in the mix of waste processing services performed. The increase in gross profit in government waste processing was the result of increased revenues previously mentioned at comparable gross margins. The increase in gross profit at the DuraTherm facility 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 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 27.4% in 1999. Selling, general and administrative expenses increased by $1.4 million or 7.2 % from $18.9 million in 1998 to $20.3 million in 1999. As a percentage of revenues, selling general and administrative expenses decreased from 16.4% in 1998 to 16.2% in 1999. Interest expense, net increased by $1.1 million from 1998 to 1999. The increase was the result of increased borrowings required to fund working capital needs and the acquisition of Hake. Income taxes increased by $3.1 million from 1998 to 1999. The Company's effective tax rate was 37.9% in 1998 as compared to 39.6% 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%. At September 30, 1999, the Company had $9.2 million outstanding under the revolving line of credit and $19.2 million outstanding under the acquisition line of credit. 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. 12 GTS DURATEK, INC. AND SUBSIDIARIES 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 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 are in place. Customer and Supplier Systems - The Company has Completed formal 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 customers' and vendors' ability to operate following January 1, 2000. The Company has established contingency plans as necessary. Costs Related to the Year 2000 Issue - To date the Company has incurred $360,000 to remediate its Year 2000 issues and expects to incur an additional $50,000 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 condtion and results of operations. Item 3. Quantitative and Qualitative Information about Market Risk The Company's major market risk is to changing interest rates. As of September 30, 1999, the Company had floating rate long-term debt of $19.2 million and floating short-term rate debt of $9.2 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. 13 GTS DURATEK, INC. AND SUBSIDIARIES 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. Part II Other Information - ------- 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'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 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, and the duration of such projects; and the timing of outage support projects and other large technical support services projects at its customers' facilities. 14 GTS DURATEK, INC. AND SUBSIDIARIES Item 6. Exhibits and Reports on Form 8-K a. Exhibits -------- See accompanying Index to Exhibits b. Reports ------- Current Report of Form 8-K filed on July 13, 1999. Amendment No. 1 to Current Report on Form 8-K filed on September 13, 1999. 15 GTS DURATEK, INC. AND SUBSIDIARIES September 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: November 15, 1999 BY: /s/ Robert F. Shawver ---------------------------- Robert F. Shawver Executive Vice President and Chief Financial Officer Dated: November 15, 1999 BY: /s/ Charles L. Standley ---------------------------- Charles L. Standley Controller 16 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 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND THE CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED), OF GTS DURATEK, INC. AND SUBSIDIARIES, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS 9-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 SEP-30-1999 SEP-30-1998 1,854,876 0 0 0 38,504,544 0 (630,523) 0 1,356,197 0 59,459,424 0 78,414,432 0 (18,827,582) 0 153,382,756 0 39,269,153 0 0 0 15,450,485 0 0 0 143,557 0 57,354,898 0 153,382,756 0 0 0 125,355,405 0 0 0 90,986,457 0 0 0 59,082 0 1,532,286 0 12,540,552 4,926,377 4,971,005 0 7,419,547 1,634,877 0 0 0 0 0 (420,000) 7,419,547 1,214,877 $0.47 $0.01 $0.37 $0.07
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