-----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, HrISEr6daqhF1hSuhjD/7y7UNqDhh/Mlvm+QCfNWRUfa9O8r1smht+wAJ5cQP6Z9 IcBzYFtqgnJ8S/rODzNgiQ== /in/edgar/work/0001021408-00-003601/0001021408-00-003601.txt : 20001115 0001021408-00-003601.hdr.sgml : 20001115 ACCESSION NUMBER: 0001021408-00-003601 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GTS DURATEK INC CENTRAL INDEX KEY: 0000785186 STANDARD INDUSTRIAL CLASSIFICATION: [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: 767058 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 0001.txt 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, 2000 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 7, 2000: Class of stock Number of shares - -------------- ---------------- Common Stock, par value $0.01 per share 13,425,369 GTS DURATEK, INC. AND SUBSIDIARIES TABLE OF CONTENTS -----------------
PAGE ---- Part I Financial Information - ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999................................................... 2 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999............ 3 Condensed Consolidated Statement of Changes in Stockholders' Equity for the Nine Months Ended September 30, 2000.... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999................................... 5 Notes to Condensed Consolidated Financial Statements.................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 11 Item 3. Quantitative and Qualitative Information About Market Risk............ 13 Part II Other Information - ------- Item 1. Legal Proceedings..................................................... 14 Item 4. Submission of Matters to a Vote of Securities Holders................. 14 Item 5. Other Information..................................................... 14 Item 6. Exhibits and Reports on Form 8-K...................................... 15 Signatures............................................................ 16
1 Part I Financial Information - ------ Item 1. Financial Statements GTS DURATEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2000 1999 ------------- ------------ ASSETS (unaudited) * Current assets: Cash and cash equivalents................................................... $ 454,790 $ 59,525 Receivables, net............................................................ 52,715,797 33,309,141 Other accounts receivable................................................... 8,599,140 6,292,606 Costs and estimated earnings in excess of billings on uncompleted contracts...................................................... 31,271,058 15,924,413 Prepaid expenses and other current assets................................... 11,013,553 3,160,064 Net assets held for sale.................................................... - 6,618,836 ------------ ------------ Total current assets....................................................... 104,054,338 65,364,585 Property, plant and equipment, net........................................... 84,628,090 63,417,307 Investments in and advances to joint ventures, net........................... 742,402 4,183,773 Goodwill and other intangible assets, net.................................... 75,026,883 23,391,192 Other assets................................................................. 21,594,612 1,231,506 ------------ ------------ $286,046,325 $157,588,363 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings....................................................... $ 26,000,000 $ 9,000,000 Current portion of long-term debt........................................... 10,400,000 4,000,000 Accounts payable............................................................ 15,315,853 15,529,048 Accrued expenses and other current liabilities.............................. 30,509,289 5,269,875 Unearned revenues........................................................... 3,945,873 6,672,699 Waste processing and disposal liabilities................................... 660,000 3,910,155 ------------ ------------ Total current liabilities.................................................. 86,831,015 44,381,777 Long-term debt............................................................... 74,400,000 13,200,000 Convertible debenture........................................................ 12,889,810 12,334,813 Facility and equipment decontamination and decommissioning liabilities....... 25,298,942 8,507,641 Other noncurrent liabilities................................................. 1,905,023 2,259,984 ------------ ------------ Total liabilities........................................................... 201,324,790 80,684,215 Redeemable preferred stock (Liquidation value $16,320,000)............................................ 15,684,339 15,509,438 Stockholders' equity: Common stock................................................................ 148,238 148,238 Capital in excess of par value.............................................. 75,207,177 75,207,177 Retained earnings (deficit)................................................. 2,869,507 (4,772,979) Treasury stock, at cost..................................................... (9,187,726) (9,187,726) ------------ ------------ Total stockholders' equity................................................. 69,037,196 61,394,710 ------------ ------------ $286,046,325 $157,588,363 ============ ============
* The Consolidated Condensed Balance Sheet as of December 31, 1999 has been derived from the Company's audited Consolidated Balance Sheet as of that date. See notes to condensed consolidated financial statements. 2 GTS DURATEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months Nine months ended September 30, ended September 30, --------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ------------ ------------ Revenues................................... $73,855,773 $44,777,734 $167,730,117 $125,355,405 Cost of revenues........................... 53,922,677 31,840,713 123,044,768 90,986,457 ----------- ----------- ------------ ------------ Gross profit............................... 19,933,096 12,937,021 44,685,349 34,368,948 Selling, general and administrative expenses.................. 11,159,591 7,052,540 26,081,490 20,296,110 ----------- ----------- ------------ ------------ Income from operations..................... 8,773,505 5,884,481 18,603,859 14,072,838 Gain on sale of DuraTherm, Inc............. - - 1,166,000 - Interest expense, net...................... (3,019,924) (948,674) (5,039,957) (1,532,286) ----------- ----------- ------------ ------------ Income before income taxes and proportionate share of loss of joint venture................................... 5,753,581 4,935,807 14,729,902 12,540,552 Income taxes............................... 2,301,432 1,974,323 5,840,015 4,971,005 ----------- ----------- ------------ ------------ Income before proportionate share of loss of joint venture.......................... 3,452,149 2,961,484 8,889,887 7,569,547 Proportionate share of loss of joint venture................................... (62,500) (50,000) (112,500) (150,000) ----------- ----------- ------------ ------------ Net income................................. 3,389,649 2,911,484 8,777,387 7,419,547 Preferred stock dividends and charges for accretion..................... 378,518 377,651 1,134,901 1,132,306 ----------- ----------- ------------ ------------ Net income attributable to common shareholders....................... $ 3,011,131 $ 2,533,833 $ 7,642,486 $ 6,287,241 =========== =========== ============ ============ Basic net income per share................. $ 0.23 $ 0.19 $ 0.57 $ 0.47 =========== =========== ============ ============ Diluted net income per share............... $ 0.17 $ 0.15 $ 0.45 $ 0.37 =========== =========== ============ ============ Basic weighted average common stock outstanding............................... 13,301,892 13,183,653 13,301,892 13,449,605 =========== =========== ============ ============ Diluted weighted average common stock and dilutive securities outstanding........... 20,144,661 20,208,566 20,110,227 20,493,780 =========== =========== ============ ============
See notes to condensed consolidated financial statements. 3 GTS DURATEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Nine Months Ended September 30, 2000 (Unaudited)
Common Stock Capital Retained Total ---------------------- in Excess of earnings Treasury Stockholders' Share Amount Par Value (deficit) Stock Equity ---------- --------- ------------ ------------ ------------ ------------- Balance, December 31, 1999 14,823,850 $148,238 $75,207,177 $(4,772,979) $(9,187,726) $61,394,710 Net income - - - 8,777,387 - 8,777,387 Preferred dividends - - - (960,000) - (960,000) Accretion of redeemable preferred stock - - - (174,901) - (174,901) ---------- -------- ----------- ----------- ----------- ----------- Balance, September 30, 2000 14,823,850 $148,238 $75,207,177 $ 2,869,507 $(9,187,726) $69,037,196 ========== ======== =========== =========== ============ ===========
See notes to condensed consolidated financial statements. 4 GTS DURATEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, ----------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income............................................................................ $ 8,777,387 $ 7,419,547 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization....................................................... 6,318,560 4,094,681 Accrued interest on convertible debenture........................................... 554,997 439,754 Proportionate share of loss of joint venture........................................ 112,500 150,000 Gain on sale of DuraTherm, Inc...................................................... (1,166,000) - Changes in operating assets and liabilities, net of effects from businesses acquired and disposed of: Receivables, net................................................................ (4,748,587) (1,547,574) Cost in excess of billings...................................................... (6,901,636) (4,875,841) Prepaid expenses and other current assets....................................... (5,792,104) (2,142,355) Net assets held for sale........................................................ 161,172 - Accounts payables, accrued expenses and other current liabilities............... 3,634,126 2,948,926 Unearned revenues............................................................... (4,473,844) (1,869,362) Waste processing and disposal liabilities....................................... (3,250,155) (2,315,659) Facility and equipment decontamination and decommissioning liabilities......... 967,971 486,426 ------------ ------------- Net cash provided by (used in) operations............................................ (5,805,613) 2,788,543 ------------ ------------ Cash flows from investing activities: Additions to property, plant and equipment, net....................................... (10,616,311) (5,033,207) Proceeds from sale of DuraTherm, Inc., net of transaction costs....................... 7,623,664 - Acquisition of Waste Management Nuclear Services, net of cash acquired................ (66,988,658) - Acquisition of Frank W. Hake Associates, LLC.......................................... - (13,156,698) Advances to joint ventures............................................................ - (39,998) Other................................................................................. (3,809,198) (7,607) ------------ ------------ Net cash used in investing activities................................................ (73,790,503) (18,237,510) ------------ ------------ Cash flows from financing activities: Short-term borrowings, net............................................................ 17,000,000 (1,747,148) Proceeds from borrowings under long-term debt......................................... 90,000,000 20,000,000 Repayments of long-term debt.......................................................... (22,400,000) (1,060,280) Preferred stock dividends............................................................. (960,000) (960,000) Deferred financing costs.............................................................. (3,165,419) (1,062,630) Repayments of capital lease obligations............................................... (483,200) - Repurchase of treasury shares......................................................... - (4,140,773) Proceeds from issuance of common stock................................................ - 330,400 ------------ ------------ Net cash provided by financing activities............................................ 79,991,381 11,359,569 ------------ ------------ Net change in cash and cash equivalents................................................ 395,265 (4,089,398) Cash and cash equivalents at beginning of period....................................... 59,525 5,944,274 ------------ ------------ Cash and cash equivalents at end of period............................................. $ 454,790 $ 1,854,876 ============ ============
See notes to condensed consolidated financial statements. 5 GTS DURATEK, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements 1. Principles of consolidation and basis of presentation The accompanying unaudited condensed consolidated financial statements of GTS Duratek, Inc. and its wholly-owned subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. 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. All adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for the fair presentation of this interim financial information have been included. Results of interim periods are not necessarily indicative of results to be expected for the year as a whole. The effect of seasonal business fluctuations and the occurrence of many costs and expenses in annual cycles require certain estimations in the determination of interim results. The information contained in the interim financial statements should be read in conjunction with the Company's latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. Certain reclassifications have been made to prior period financial statements in order to conform to the presentation used in the 2000 interim financial statements. 2. Acquisitions On June 8, 2000, the Company acquired the nuclear services business of Waste Management, Inc. ("WMI"). The acquisition was effected as the purchase of all of the outstanding capital stock of Waste Management Federal Services, Inc. ("WMFS") from Rust International, Inc. ("Rust") and all of the outstanding membership interests of Chem-Nuclear Systems, LLC ("Chem-Nuclear") from Chemical Waste Management, Inc. ("CWM") and CNS Holdings, Inc. ("CNS"). Each of Rust, CWM, and CNS are indirect subsidiaries of WMI. The purchase price was $67 million in cash, consisting of $65 million in cash and $2 million of transaction costs. The purchase price is also subject to certain post closing adjustments. The acquired companies are referred to as Waste Management Nuclear Services ("WMNS"). WMNS is a leader in providing low-level radioactive waste management services for the commercial industry and the federal government. WMNS consists primarily of three operating segments: (i) the Federal Services Division which provides radioactive waste handling, transportation, treatment packaging, storage, disposal, site cleanup, and project management services primarily for the United States Department of Energy ("DOE") and other federal agencies; (ii) the Commercial Services Division which provides radioactive waste handling, transportation, licensing, packing, disposal, and decontamination and decommissioning services primarily to nuclear utilities; and (iii) the Commercial Processing and Disposal Division which operates a commercial low- level radioactive waste disposal facility at Barnwell, South Carolina. The acquisition has been accounted for under the purchase method of accounting. The aggregate purchase price in excess of the estimated fair value of tangible assets and identifiable intangible assets will be allocated to goodwill and amortized over 30 years. Results of WMNS for the period June 8, 2000 to September 30, 2000 are included in the Company's consolidated results for the three and nine months ended September 30, 2000. The aggregate purchase price for WMNS is as follows: Cash paid to Waste Management $ 65,000,000 Liabilities assumed 38,969,000 Transaction costs 2,000,000 ------------ Aggregate purchase price $105,969,000 ============ 6 GTS DURATEK, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements The aggregate purchase price was allocated to the acquired assets based upon their estimated fair values as follows: Accounts receivable $ 16,778,000 Unbilled revenues 8,445,000 Inventory 1,558,000 Property and equipment 13,116,000 Decommissioning trust fund 16,687,000 Other tangible assets 700,000 Goodwill and other intangible assets 48,685,000 ------------- $105,969,000 ============= The above information is based upon management's best estimate of the fair value of the assets acquired. The Company is in the process of completing appraisals of the assets acquired and liabilities assumed. Upon completion of this process the Company will adjust the amounts recorded to the final appraisals. Such adjustments could be material. The acquisition was financed with borrowings under the Company's amended and restated bank credit facility. Under the facility the Company has available borrowings of up to $135 million. The facility consists of a five year $45 million revolving line of credit, including $15 million for standby letters of credit, a five year $50 million term loan and a six and one-half year $40 million term loan. Borrowings under the credit facility bear interest at LIBOR plus an applicable margin, or at the Company's option, the prime rate plus an applicable margin. The applicable margin is determined based upon the Company's performance and was set at 3.25% for LIBOR based borrowings, and 2.25% for prime based borrowings during the first six months following the acquisition. Borrowings under the $40 million term loan bear an additional 0.5% interest. The term loans require aggregate quarterly principal payments of $7.8 million in 2000, $10.4 million in 2001, $10.4 million in 2002, $10.4 million in 2003, $15.1 million in 2004, $21.6 million in 2005, and $14.3 million in 2006. In addition, the Company is also required to prepay the term loans in an amount equal to 50% of excess cash flows, as defined. The bank credit facility requires the Company to maintain certain financial ratios and restricts the payment of dividends on the Company's common stock. At the time of the acquisition, the Company had borrowings of $90 million under the term loan and $6 million under the revolving line of credit. At September 30, 2000, the Company had $26.0 million under the revolving line of credit and $84.8 million outstanding under the term loans. At September 30, 2000, $20.4 million of additional borrowings were available under the revolving credit portion of the bank credit facility. 3. Sale of DuraTherm, Inc. In February 2000, the Company completed the sale of its 80% interest in DuraTherm, Inc. ("DTI") to DuraTherm Group, Inc. for $8.0 million in cash and a subordinated note for $336,000. Proceeds to the Company of $8.0 million were used by the Company to pay down borrowings under its bank credit facility. The note receivable bears interest at 14%, payable semi-annually during the first year following the sale, and 18% during the second year following the sale with the principal due in February 2002. The subordinated note has been paid in full. The Company recognized a pre-tax gain of $1.2 million on the sale. 4. Pro Forma Results The pro forma condensed consolidated statements of operations presented below give effect to the disposition of the assets of DTI and the acquisition of WMNS as if such transactions had occurred on January 1, 1999. The results presented are not necessarily indicative of results expected for the full year, and are not necessarily indicative of results expected for the remainder of 2000 or future years. 7 GTS DURATEK, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Pro forma revenues, net income, and diluted net income per share for the three and nine month periods ended September 30, 1999 and 2000, as if the transactions to dispose of DTI and acquire WMNS were consummated on January 1, 1999, are as follows:
Three months ended Nine months ended September 30, September 30, ----------------------------- -------------------------------- 2000 1999 2000 1999 ----------- ----------- ------------ ------------ Revenues $73,855,773 $96,342,338 $217,333,961 $268,185,566 Net income $ 3,389,649 $ 3,816,146 $ 11,587,587 $ 14,875,159 Diluted net income per share $ 0.17 $ 0.19 $ 0.58 $ 0.74
5. Earnings per share Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of stock options, convertible redeemable preferred stock, and convertible debentures that could share in the earnings of the Company. The reconciliation of amounts used in the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2000 and 1999 consist of the following:
Three months Nine months ended September 30, ended September 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Numerator: Net income attributable to common shareholders........ $ 3,011,131 $ 2,533,833 $ 7,642,486 $ 6,287,241 Plus: Income impact of assumed conversions Preferred stock dividends and charges foraccretion.. 378,518 377,651 1,134,901 1,132,306 Interest on convertible debenture, net of tax....... 115,799 96,451 331,993 263,853 ----------- ----------- ----------- ----------- 494,317 474,102 1,466,894 1,396,159 ----------- ----------- ----------- ----------- Net income attributable to common shareholders assuming conversion.................................. $ 3,505,448 $ 3,007,935 $ 9,109,380 $ 7,683,400 =========== =========== =========== =========== Denominator: Weighted-average shares outstanding................... 13,301,892 13,183,653 13,301,892 13,449,605 Effect of dilutive securities: Incremental shares from assumed conversion of: Employee stock options............................ 149,938 313,007 147,528 332,269 Restricted stock awards........................... 58,689 - 26,665 - Convertible redeemable preferred stock............ 5,252,567 5,330,331 5,252,567 5,330,331 Convertible debentures............................ 1,381,575 1,381,575 1,381,575 1,381,575 ----------- ----------- ----------- ----------- 6,842,769 7,024,913 6,808,335 7,044,175 ----------- ----------- ----------- ----------- Adjusted weighted average shares outstanding and assumed conversions............................. 20,144,661 20,208,566 20,110,227 20,493,780 =========== =========== =========== =========== Basic earnings per share.............................. $ 0.23 $ 0.19 $ 0.57 $ 0.47 =========== =========== =========== =========== Diluted earning per share............................. $ 0.17 $ 0.15 $ 0.45 $ 0.37 =========== =========== =========== ===========
8 GTS DURATEK, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Options to purchase common stock of the Company at September 30, 2000 and 1999 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive are as follows:
Three months Nine months ended September 30, ended September 30, ------------------------ ------------------------ 2000 1999 2000 1999 ---------- ---------- ---------- --------- Options to purchase common stock 778,300 328,300 778,300 328,300
6. Segment reporting The Company has three primary segments (i) commercial processing and disposal, (ii) federal services, and (iii) commercial services. Following the acquisition of WMNS, the Company has reorganized its reporting segments. Below is a brief description of each of the segments including WMNS: 1. Commercial Processing and Disposal (CPD) - The Company conducts its commercial processing and disposal operations principally at its Bear Creek Operations Facility located in Oak Ridge, Tennessee and Memphis, Tennessee and disposal site operated in Barnwell, South Carolina. The Company's waste treatment technologies include: incineration; compaction; metal decontamination and recycling; vitrification; steam reforming; and thermal desorption (prior to February, 2000). Commercial waste processing customers primarily include commercial nuclear utilities, governmental entites and petrochemical companies. Material is received and disposed of at the Barnwell facility primarily from commercial nuclear utilities. 2. Federal Services (FS) - 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, project management, waste characterization, on-site waste treatment, facility operation, packaging and shipping of residual waste, profiling and manifesting the processed waste, selected technical support services, and site clean up. 3. Commercial Services (CS) - The Company's technical support services encompass engineers, 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.
For the three months ended September 30, 2000 ----------------------------------------------------------------------------- Unallocated CPD FS CS Items Consolidated ----------- ----------- ----------- ------------ ------------- Revenues from external customers $24,998,995 $28,983,525 $19,873,253 $ - $73,855,773 Income from operations 3,712,867 4,427,876 632,762 - 8,773,505 Interest expense - - - (3,019,924) (3,019,924) Proportionate share of losses of joint ventures - - - (62,500) (62,500) Income tax expense - - - 2,301,432 2,301,432
9 GTS DURATEK, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements The Company's segment information is as follows:
For the three months ended September 30, 1999 ----------------------------------------------------------------------------- Unallocated CPD FS CS Items Consolidated ----------- ----------- ----------- ------------ ------------ Revenues from external customers $21,825,738 $9,633,984 $13,318,012 $ - $44,777,734 Income from operations 4,313,320 855,359 715,802 - 5,884,481 Interest expense - - - (948,674) (948,674) Proportionate share of losses of joint ventures - - - (50,000) (50,000) Income tax expense - - - 1,974,323 1,974,323
As of and for the nine months ended September 30, 2000 ------------------------------------------------------------------------------ Unallocated CPD FS CS Items Consolidated ------------ ----------- ----------- ----------- ------------- Revenues from external customers $ 68,669,349 $51,593,457 $47,467,311 $ - $167,730,117 Income from operations 10,338,792 7,056,213 1,208,854 - 18,603,859 Gain on sale of DuraTherm - - - 1,166,000 1,166,000 Interest expense - - - (5,039,957) (5,039,957) Depreciation and amortization expense 4,393,004 535,870 678,091 711,595 6,318,560 Proportionate share of losses of joint ventures - - - (112,500) (112,500) Income tax expense - - - 5,840,015 5,840,015 Capital expenditure for additions to long-lived assets 8,436,246 (15,460) 1,036,956 1,158,569 10,616,311 Total assets 161,489,612 67,375,913 42,350,822 14,829,978 286,046,325
As of and for the nine months ended September 30, 1999 ------------------------------------------------------------------------------ Unallocated CPD FS CS 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 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 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
10 GTS DURATEK, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 and the disposal site in Barnwell, South Carolina. 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. 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 and scope of DOE waste treatment projects, including the Hanford and Idaho Falls DOE projects; and the Company's waste receipts at its waste processing facility in South Carolina. On June 8, 2000, the Company acquired the nuclear services business of Waste Management, Inc. ("WMI"). The acquisition was effected as the purchase of all of the outstanding capital stock of Waste Management Federal Services, Inc. ("WMFS") from Rust International, Inc. ("Rust") and all of the outstanding membership interests of Chem-Nuclear Systems, LLC ("Chem-Nuclear") from Chemical Waste Management, Inc. ("CWM") and CNS Holdings, Inc. ("CNS"). Each of Rust, CWM, and CNS are indirect subsidiaries of WMI. The purchase price was $67 million in cash, consisting of $55 million in cash at closing, $10 million in additional cash consideration held in escrow until upon the satisfaction of certain post closing conditions, and $2 million of transaction costs. The purchase price is also subject to certain post closing adjustments. The acquired companies are referred to as Waste Management Nuclear Services ("WMNS"). WMNS is a leader in providing low-level radioactive waste management services for the commercial industry and the federal government. In February 2000, the Company completed the sale of its 80% interest in DuraTherm, Inc. to DuraTherm Group, Inc. for $8.0 million in cash and a subordinated note for $336,000. Proceeds to the Company of $8.0 million were used by the Company to pay down borrowings under its bank credit facility. The note receivable bears interest at 14%, payable semi-annually during the first year following the sale, and 18% during the second year following the sale with the principal due in February 2002. The subordinated note has been paid in full. The Company recognized a pre-tax gain of $1.2 million on the sale. Results of Operations Three Months Ended September 30, 1999 As Compared To Three Months Ended September 30, 2000 Revenues increased by $29.1 million, or 65.0%, from $44.8 million in 1999 to $73.9 million in 2000. The increase is comprised of revenue increases of $19.3 million in Federal Services, $3.2 million in Commercial Processing and Disposal, and $6.6 million in Commercial Services. The increase in revenues from Federal Services is primarily the result of $17.3 million in revenues from the federal services business of WMNS, which was acquired in June, 2000, and $2.0 million increase in other government waste processing and technical services revenues, which was primarily due to additional contract fees generated 11 GTS DURATEK, INC. AND SUBSIDIARIES by the Hanford River Protection Project. The increase in revenues from Commercial Processing and Disposal was primarily related to $4.1 million in revenues from the Barnwell South Carolina disposal site which was acquired as part of WMNS, and a $2.9 million increase at the Company's low level radioactive waste processing facilities located in Tennessee due to higher processing volume, partially offset by the decrease of $3.8 million in the Company's DuraTherm business that was sold in February, 2000. The increase in Commercial Services is primarily due to the commercial operation of WMNS purchased in June, 2000. Gross profit increased $7.0 million, or 54.3%, from $12.9 million in 1999 to $19.9 million in 2000. The increase is comprised of $5.2 million in Federal Services and $2.2 million in Commercial Services, partially offset by a $420,000 decrease in Commercial Processing and Disposal. The increase in gross profit from Federal Services is primarily the result of a $3.4 million increase attributable to the acquisition of WMNS and a $1.8 million increase in other government waste processing and technical service fees generated by the Hanford River Protection Project. The increase in Commercial Services is primarily due to the commercial operations of WMNS acquired in June, 2000. The decrease in Commercial Processing and Disposal is due to a $1.0 million decrease in gross profit related to the sale of the Company's DuraTherm business in February, 2000 and a $1.6 million decrease in gross profit from the Tennessee facilities as a result of changes in waste mix processed, offset by a $2.2 million increase in gross profit resulting from commercial operation of WMNS purchased in June, 2000. As a percentage of revenues, gross profit decreased from 28.9% in 1999 to 27.0% in 2000. Selling, general, and administrative expenses increased by $4.1 million, or 57.7%, from $7.1 million in 1999 to $11.2 million in 2000 primarily due to the acquisition of WMNS and activities supporting higher revenues. As a percentage of revenues, selling, general, and administrative expenses decreased from 15.8% in 1999 to 15.1% in 2000. Interest expense, net increased by $2.1 million from 1999 to 2000. The increase was the result of increased borrowings required to fund working capital needs and the acquisitions of WMNS in June, 2000 and Frank W. Hake Associates LLC ("Hake") in June, 1999, as well as higher borrowing costs. Income taxes expense increased $327,000 from $2.0 million in 1999 to $2.3 million in 2000. The Company is accruing income taxes at full statutory rates. Nine Months Ended September 30, 1999 As Compared To Nine Months Ended September 30, 2000 Revenues increased by $42.3 million, or 33.7%, from $125.4 million in 1999 to $167.7 million in 2000. The increase is comprised of revenue increase of $23.9 million in Federal Services, $9.5 million in Commercial Processing and Disposal, and $8.9 million in Commercial Services. The increase in revenues from Federal Services is primarily the result of $21.1 million in revenues from the federal services business of WMNS acquired in June, 2000 and a $2.8 million increase in other government waste processing and technical services revenues, which was primarily due to additional contract fees generated by the Hanford River Protection Project. The increase in revenues from Commercial Processing and Disposal was primarily related to $4.3 million in revenues from the Barnwell South Carolina disposal site acquired as part of WMNS in June, 2000 and a $14.8 million increase at the Company's low level radioactive waste processing facilities located in Tennessee due to higher processing volume and change in waste mix, partially offset by the decrease of $9.7 million in the Company's DuraTherm business that was sold in February, 2000. The increase in Commercial Services is primarily due to the commercial operation of WMNS purchased in June, 2000. Gross profit increased $10.3 million, or 29.9%, from $34.4 million in 1999 to $44.7 million in 2000. The increase is comprised of $5.5 million in Federal Services, $2.9 million in Commercial Processing and Disposal, and $1.9 million in Commercial Services. The increase in gross profit from Federal Services is the result of a $4.1 million increase attributable of the acquisition of WMNS and a $1.4 million increase in other government waste processing and technical services from higher processing volume. The 12 GTS DURATEK, INC. AND SUBSIDIARIES increase in Commercial Processing and Disposal is due to $3.4 million from the Barnwell South Carolina disposal site acquired as part of WMNS in June, 2000 and $1.4 million increase in the Tennessee facilities resulting from higher processing volume, partially offset by a $2.9 million decrease from, the Company's DuraThem business that was sold in February, 2000. Selling, general, and administrative expenses increased by $5.8 million, or 28.6%, from $20.3 million in 1999 to $26.1 million in 2000 primarily due to the acquisition of WMNS and activities supporting higher revenues. As a percentage of revenues, selling, general, and administrative expenses decreased from 16.2% in 1999 to 15.5% in 2000. Interest expense, net increased by $3.5 million from 1999 to 2000. The increase was the result of increased borrowings required to fund working capital needs and the acquisitions of WMNS in June, 2000 and Hake in June, 1999, as well as higher borrowing costs. Income taxes increased by $869,000 from 1999 to 2000. The Company's effective tax rate was 39.6% in both 1999 and in 2000. Liquidity and Capital Resources The Company has available an amended and restated bank credit facility which provides for borrowings of up to $135 million. The facility consists of a five year $45 million revolving line of credit, including $15 million for standby letters of credit, a five year $50 million term loan and a six and one- half year $40 million term loan. Borrowings under the credit facility bear interest at LIBOR plus an applicable margin, or at the Company's option, the prime rate plus an applicable margin. The acquisition of WMNS was financed with borrowings under the bank credit facility. The applicable margin is determined based upon the Company's performance and was set at 3.25% for LIBOR based borrowings, and 2.25% for prime based borrowings during the first six months following the acquisition. Borrowings under the $40 million term loan bear an additional 0.5% interest. The term loans require aggregate quarterly principal payments of $7.8 million in 2000, $10.4 million in 2001, $10.4 million in 2002, $10.4 million in 2003, $15.1 million in 2004, $21.6 million in 2005, and $14.3 million in 2006. In addition, the Company is also required to prepay the term loans in an amount equal to 50% of excess cash flows, as defined. The bank credit facility requires the Company to maintain certain financial ratios and restricts the payment of dividends on the Company's common stock. At the time of the acquisition, the Company had borrowings of $90 million under the term loan and $6 million under the revolving line of credit. At September 30, 2000, the Company had $26.0 million under the revolving line of credit and $84.8 million outstanding under the term loans. At September 30, 2000, $20.4 million of additional borrowings were available under the revolving credit portion of the bank credit facility. 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. Item 3. Quantitative and Qualitative Information about Market Risk The Company's major market risk relates to changing interest rates. At September 30, 2000, the Company had floating rate long-term debt of $84.8 million and floating short-term rate debt of $26.0 million. The long-term debt bears interest at LIBOR plus 2.25%. The short-term debt bears interest at the bank's base rate, as defined. The Company has not purchased any interest rate derivative instruments but may do so in the future. In addition, the Company does not have any foreign currency or commodity risk. 13 GTS DURATEK, INC. AND SUBSIDIARIES Part II Other Information - ------- Item 1. Legal Proceedings Refer to the Company's annual report on Form 10-K for the year ended December 31, 1999 for a discussion of legal proceedings. Item 4. Submission of Matters to a Vote of Securities Holders None. 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 awarding 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 recent acquisition of WMNS; 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 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 on Form 8-K/A filed on August 22, 2000. c. Financial Data Schedule ----------------------- Filed herewith. 15 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 14, 2000 By: /s/ Robert F Shawver -------------------------------- Robert F Shawver Executive Vice President and Chief Financial Officer Dated: November 14, 2000 By: /s/ Charles L. Standley -------------------------------- Charles L. Standley Controller 16 Exhibit 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 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 10.3 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) 10.4 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) 10.5 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) 10.6 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) 10.7 GTS Duratek, Inc. Executive Compensation Plan. Incorporated herein by reference to Exhibit 10.19 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (File No. 0-14292) 10.8 Stock Purchase 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 the Registrant's Current Report on Form 8-K filed on July 13, 1999. (File No. 0-14292) 10.9 Stock Purchase Agreement between DuraTherm Group, Inc. and GTSD Sub III, Inc. dated February 7, 2000. Incorporated herein by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on February 22, 2000. (File No. 0-14292) 10.10 Amended and Restated Credit Agreement dated as of June 8, 2000 by and among GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument Services, Incorporated, General Technical Services, Inc., GTSD Sub III, Inc., GTSD Sub IV, Inc., Frank W. Hake Associates LLC, Chem-Nuclear Systems L.L.C., Waste Management Federal Services, Inc., Waste Management Federal Services of Idaho, Inc., Waste Management Federal Services of Hanford, Inc., Waste Management Technical Services, Inc., Waste Management Geotech, Inc., the Lenders party thereto, First Union National Bank, as Administrative Agent, Credit Lyonnais New York Branch, as Documentation Agent, Fleet National Bank, as Syndication Agent, and First Union Securities, Inc., as Lead Arranger and Book Manager. (File No. 0- 14292) 10.11 Second Amended and Restated Security Agreement dated as of June 8, 2000 made by GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument Services, Incorporated, General Technical Services, Inc., GTSD Sub III, Inc., GTSD Sub IV, Inc., Frank W. Hake Associates, L.L.C., Chem-Nuclear Systems, L.L.C., Waste Management Federal Services, Inc., Waste Management Federal Services of Idaho, Inc., Waste Management Federal Services of Hanford, Inc., Waste Management Technical Services, Inc., Waste Management Geotech, Inc., and First Union National Bank, as Collateral Agent. (File No. 0-14292) 10.12 Purchase Agreement by and among Chemical Waste Management Inc., Rust International, Inc., CNS Holdings, Inc. and GTS Duratek, Inc. dated March 29, 2000. (File No. 0-14292) 10.13 Amendment No. 1 to Purchase Agreement and Disclosure Letter by and among Chemical Waste Management Inc., Rust International, Inc., CNS Holdings, Inc. and GTS Duratek, Inc. dated June 8, 2000. (File No. 0- 14292) E-2 27.1 Financial Data Schedule. (filed herewith) E-3 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Condensed Balance Sheet as of September 30, 2000 (unaudited) and the Consolidated Condensed Statement of Operations for the nine months ended September 30, 2000 (unaudited), of GTS Duratek, Inc. and Subsidiaries, and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 454,790 0 53,586,043 (870,246) 2,286,854 104,054,338 148,438,250 (63,810,160) 286,046,325 86,831,015 0 15,684,339 0 148,238 68,888,958 286,046,325 0 167,730,117 0 123,044,768 26,081,490 0 5,039,957 14,729,902 5,840,015 8,889,887 0 0 0 8,777,387 0.57 0.45
-----END PRIVACY-ENHANCED MESSAGE-----