<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarter Ended March 31, 1997
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.
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(Exact name of Registrant as specified in its charter)
Delaware 22-2476180
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10100 Old Columbia Road, Columbia, Maryland 21046
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 312-5100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Number of shares outstanding of each of the issuer's classes of common stock as
of May 8, 1997:
Common Stock, par value $0.01 per share 12,596,765 shares
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PAGE
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Part I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets
as of March 31, 1997 and December 31, 1996.............. 1
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 1997 and 1996.............. 2
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Three Months Ended March 31, 1997........ 3
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996.............. 4
Notes to Consolidated Financial Statements.................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 7
Qualification Relating to Financial Information............... 10
Part II OTHER INFORMATION
- -------
Item 2. Changes in Securities......................................... 11
Item 5. Other Information............................................. 11
Item 6. Exhibits and Reports on Form 8-K.............................. 12
Signatures.................................................... 13
<PAGE>
Part I Financial Information
- ------
Item 1. Financial Statements
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ -------------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 41,858,469 $ 46,336,126
Receivables, net.................................. 9,641,504 7,462,688
Other accounts receivable......................... 2,125,824 1,547,755
Costs and estimated earnings in excess of
billings on uncompleted contracts............... 8,290,167 8,956,200
Inventories....................................... 632,057 467,775
Prepaid expenses and other current assets......... 616,357 432,317
Deferred tax asset................................ 993,159 993,159
------------ ------------
Total current assets........................... 64,157,537 66,196,020
Property, plant and equipment, net.................. 11,288,457 10,780,748
Investments in and advances to joint ventures, net.. 6,678,336 5,960,984
Intangibles, net.................................... 451,223 464,344
Deferred charges and other assets................... 2,370,927 1,797,290
------------ ------------
$ 84,946,480 $ 85,199,386
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and obligations under capital leases.............. $ 51,013 $ 49,403
Accounts payable and accrued expenses.............. 8,306,823 3,985,157
------------ ------------
Total current liabilities...................... 8,357,836 4,034,560
Long-term debt and obligations under capital lease.. 193,612 206,794
Convertible debenture............................... 10,838,701 10,682,897
Deferred tax liability.............................. 299,302 299,302
------------ ------------
Total liabilities.............................. 19,689,451 15,223,553
------------ ------------
Redeemable preferred stock
(Liquidation value $16,320,000)................... 14,884,500 14,828,965
------------ ------------
Stockholders' equity:
Common stock...................................... 125,065 124,191
Capital in excess of par value.................... 64,518,942 64,216,440
Deficit........................................... (14,099,701) (9,021,986)
Treasury stock, at cost........................... (171,777) (171,777)
------------ ------------
Total stockholders' equity...................... 50,372,529 55,146,868
------------ ------------
$ 84,946,480 $ 85,199,386
============ ============
</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1996 has been
derived from the Company's audited Consolidated Balance Sheet as of that date.
1
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues............................................... $11,950,645 $10,336,235
Cost of revenues....................................... 15,959,821 7,605,184
----------- -----------
Gross profit (loss).................................... (4,009,176) 2,731,051
Selling, general and administrative expenses........... 1,820,040 1,930,680
----------- -----------
Income (loss) from operations.......................... (5,829,216) 800,371
Interest income (expense), net......................... 422,036 (43,827)
----------- -----------
Income (loss) before income taxes (benefit) and
proportionate share of loss of joint venture......... (5,407,180) 756,544
Income taxes (benefit)................................. (750,000) 210,261
----------- -----------
Income (loss) before proportionate share of
loss of joint venture................................ (4,657,180) 546,283
Proportionate share of loss of joint venture........... (45,000) (45,834)
----------- -----------
Net income (loss)...................................... (4,702,180) 500,449
Preferred stock dividends and charges for accretion.... 375,535 374,712
----------- -----------
Net income (loss) attributable to common shareholders.. (5,077,715) 125,737
=========== ===========
Net income (loss) per share............................ $ ( .41) $ .01
=========== ===========
Weighted number of common shares outstanding
and common stock equivalents......................... 12,383,987 12,048,951
=========== ===========
</TABLE>
2
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Capital in Total
------------ Excess of Treasury Stockholders'
Shares Amount Par Value Deficit Stock Equity
---------- ---------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 12,419,231 $ 124,191 $64,216,440 $ (9,021,986) $(171,777) $55,146,868
Net Income (Loss) (4,702,180) (4,702,180)
Exercise of options and
warrants 87,350 874 302,502 303,376
Preferred dividends (320,000) (320,000)
Accretion of redeemable
preferred stock (55,535) (55,535)
---------- ---------- ----------- ------------ --------- -----------
Balance, March 31, 1997 12,506,581 $ 125,065 $64,518,942 $(14,099,701) $(171,777) $50,372,529
========== ========== =========== ============ ========= ===========
</TABLE>
3
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operations:
Net income (loss)................................... $(4,702,180) $ 500,449
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization..................... 173,735 163,086
Accrued interest on convertible debenture......... 155,804 143,816
Provision for estimated loss on long-term contract 4,454,756 -
Proportionate share of loss of joint venture...... 45,000 45,834
Changes in operating items:
Receivables..................................... (2,178,816) (630,208)
Cost in excess of billings...................... 666,033 (608,994)
Inventories..................................... (164,282) (10,090)
Accounts payables and accrued expenses.......... (133,090) (768,681)
Other operating items........................... (934,040) (453,146)
----------- -----------
Net cash used by operations................... (2,617,080) (1,617,934)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment, net .... (613,262) (2,106,955)
Advances to joint ventures.......................... (762,352) (425,458)
Other............................................... (456,767) (171,028)
----------- -----------
Net cash used by investing activities........... (1,832,381) (2,703,441)
----------- -----------
Cash flows from financing activities:
Reduction of long-term debt and
capital lease obligations......................... (11,572) (170,670)
Proceeds from issuance of common stock.............. 303,376 498,979
Payment of preferred stock dividends................ (320,000) (320,000)
Other............................................... - 58,004
----------- -----------
Net cash provided (used) by financing activities.. (28,196) 66,313
----------- -----------
Net change in cash and cash equivalents............... (4,477,657) (4,255,062)
Cash and cash equivalents at beginning of period...... 46,336,126 11,396,008
----------- -----------
Cash and cash equivalents at end of period............ $41,858,469 $ 7,140,946
----------- -----------
</TABLE>
4
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned except for DuraTherm, Inc.
which is 80% owned. All significant intercompany balances and transactions have
been eliminated in consolidation. Investments in subsidiaries and joint
ventures in which the Company does not have control or majority ownership are
accounted for under the equity method.
2. INVENTORIES
Inventories, consisting of material, labor and overhead, are classified as
follows:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Raw materials.................... $324,843 $187,787
Finished goods................... 307,214 279,988
-------- --------
$632,057 $467,775
======== ========
</TABLE>
3. DOE SAVANNAH RIVER M-AREA PROJECT
On March 27, 1997, the Company decided to temporarily suspend processing of
radioactive waste and initiate an unscheduled controlled cool down of its glass
melter at its M-Area processing plant located at the DOE's Savannah River site.
This decision was the result of recent observations by operations personnel that
indicated that excessive wear could be occurring on certain internal components
of the melter. On April 16, 1997, after an extensive inspection of the
condition of the melter at the Savannah River site, the Company's management
made the decision to undertake more extensive repairs and modification of the
facility, including melter box replacement, before resumption of radioactive
waste processing. The Company's management estimated that the M-Area facility
will resume radioactive waste processing operations by the end of the fourth
quarter of 1997. As a result of the necessary repairs and the delay in
completing the waste processing required by the contract, the Company incurred a
loss of $5.9 million on the M-Area contract in the first quarter of 1997 which
includes the estimated costs of the repair to the melter and for estimated
losses to complete the fixed price contract. The Company is seeking to extend
the date by which it is required to complete the waste processing under the
contract from the current completion date of October 1997.
4. ACQUISITION OF THE SCIENTIFIC ECOLOGY GROUP, INC.
On April 18, 1997, the Company acquired 100% of the outstanding capital
stock of The Scientific Ecology Group, Inc. ("SEG") from Westinghouse Electric
Corporation for $28.0 million in cash, subject to certain post-closing
adjustments, and 156,986 shares of the Company's Common Stock. SEG, which is
based in Oak Ridge, Tennessee, is the largest commercial radioactive waste
processing Company in the United States, offering an extensive range of waste
processing services and technologies including incineration, compaction and
metal processing to commercial generators of radioactive and mixed waste. SEG
also provides transportation services for radioactive wastes, maintaining a
fleet of tractors, trailers and shipping containers for transporting the wastes,
and provides radiological decommissioning and field waste processing services to
nuclear clients including government facilities, commercial facilities and
university/research/test facilities. SEG's revenues for the year ended December
31, 1996 were approximately $105 million. The acquisition of SEG was
consummated following the end of the first quarter of 1997 and, accordingly, the
Company's results of operations and financial condition for the
5
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
three months ended March 31, 1997 do not reflect SEG. Beginning in the second
quarter of 1997, the Company's results of operations will reflect the operations
of SEG from the effective date of the acquisition and future statements of
financial condition will include the assets and liabilities of SEG with the
necessary purchase accounting adjustments.
5. RESTRUCTURED CREDIT AGREEMENT
The Company has a revolving line of credit agreement with a bank providing
for borrowings up to $7.0 million based upon eligible amounts of account
receivable, as defined in the agreement. Borrowings outstanding under the
agreement are due on demand and bear interest at the London Interbank Offered
Rate ("LIBOR") rate plus 2% (7.75% as of March 31, 1997). At March 31, 1997, no
borrowings were outstanding and the Company had available borrowings of $5.9
million. Subsequent to March 31, 1997 the revolving line of credit agreement
was restructured to increase borrowings up to $8.8 million based upon eligible
amounts of accounts receivable, as defined in the credit agreement. Borrowings
under the revolving line of credit bear interest at the LIBOR rate plus 2%.
Under this credit facility, the Company's bank has also issued letters of credit
in the aggregate amount of $15.3 million to the State of Tennessee to provide
security for SEG's obligation to clean and remediate SEG's facility upon its
closure.
6
<PAGE>
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") has historically derived substantially
all of its revenues from technical support services to government agencies,
electric utilities, industrial facilities and commercial businesses. 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 waste treatment revenues historically have been generated
from projects in which the Company acts as subcontractor for the United States
Department of Energy ("DOE") pursuant to fixed-price and cost-plus-fixed-fee
contracts. Substantially all of the Company's waste treatment revenues during
the first quarter of 1996 were derived from the DOE's Savannah River M-Area
project which is a $14 million fixed price contract. Waste treatment revenues
were not significant in the first quarter of 1997.
On March 27, 1997, the Company decided to temporarily suspend processing of
radioactive waste and initiate an unscheduled controlled cool down of its glass
melter at its M-Area processing plant located at the DOE's Savannah River site.
This decision was the result of recent observations by operations personnel that
indicated that excessive wear could be occurring on certain internal components
of the melter. On April 16, 1997, after an extensive inspection of the
condition of the melter at the Savannah River site, the Company's management
made the decision to undertake more extensive repairs and modification of the
facility, including melter box replacement, before resumption of radioactive
waste processing. The Company's management estimated that the M-Area facility
will resume radioactive waste processing operations by the end of the fourth
quarter of 1997. As a result of the necessary repairs and the delay in
completing the waste processing required by the contract, the Company incurred a
loss of $5.9 million on the M-Area contract in the first quarter of 1997 which
includes the estimated costs of the repair to the melter and for estimated
losses to complete the fixed price contract. The Company is seeking to extend
the date by which it is required to complete the waste processing under the
contract from the current completion date of October 1997.
On April 18, 1997, the Company acquired 100% of the outstanding capital
stock of The Scientific Ecology Group, Inc. ("SEG") from Westinghouse Electric
Corporation for $28.0 million in cash, subject to certain post-closing
adjustments, and 156,986 shares of the Company's Common Stock. SEG, which is
based in Oak Ridge, Tennessee, is the largest commercial radioactive waste
processing company in the United States, offering an extensive range of waste
processing services and technologies including incineration, compaction and
metal processing to commercial generators of radioactive and mixed waste. SEG
also provides transportation services for radioactive wastes, maintaining a
fleet of tractors, trailers and shipping containers for transporting the wastes,
and provides radiological decommissioning and field waste processing services to
nuclear clients including government facilities, commercial facilities and
university/research/test facilities. With respect to commercial radioactive
waste processing activities, SEG recognizes revenues when waste is processed,
except for revenue related to the costs of future disposal which is recognized
when the related disposal costs are incurred and revenues on field service
contracts are recognized when services are performed and billed. SEG's revenues
for the year ended December 31, 1996 were approximately $105 million. The
acquisition of SEG was consummated following the end of the first quarter of
1997 and, accordingly, the Company's results of operations and financial
condition for the three months ended March 31, 1997 do not reflect SEG.
Beginning in the second quarter of 1997, the Company's results of operations
will reflect the operations of SEG from the effective date of the acquisition
and future statements of financial condition will include the assets and
liabilities of SEG with the necessary purchase accounting adjustments.
7
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Prior to the acquisition of SEG, the Company had generated insignificant
revenues from waste treatment projects for commercial customers. The Company's
current commercial waste treatment projects are DuraTherm, Inc. ("DuraTherm"),
which owns the San Leon, Texas thermal desorption facility, and the DuraChem
joint venture with Chem-Nuclear, Inc. DuraTherm commenced commercial operations
in the second quarter of 1996 and the Company consolidates the results of
DuraTherm adjusting for the 20% minority interest in consolidation. Income or
loss from the Company's 45% share in DuraChem will be recorded by the Company on
the equity method.
As a result of the Company focusing its management and capital resources on
(i) restarting the M-Area melter, (ii) successfully and rapidly incorporating
SEG's business following the acquisition and (iii) meeting commitments to the
DOE privatization cleanups in Hanford, Washington and Idaho, the Company
announced on April 16, 1997 that it will reduce the priority of, and capital
commitments to, other projects which have higher levels of marketplace
uncertainty or have longer-term financial prospects. Accordingly, the Company
announced that the DuraChem facility will not commence commercial operations in
1997 as previously reported.
In November 1995, the Company formed a strategic alliance with BNFL Inc.
("BNFL") to jointly pursue up to five major DOE waste treatment projects.
Pursuant to the terms of the strategic alliance, the Company will receive a $1.0
million teaming fee for each time that BNFL and the Company agree to jointly
pursue a major DOE waste treatment project. The Company reached agreements to
pursue the first three projects in November 1995, February 1996 and September
1996 and recognized as revenue the $1.0 million fees in the fourth quarter of
1995 and the first and third quarters of 1996, respectively. The Company is
unable to predict the timing of recognition of future teaming fees, if any. In
addition, BNFL will provide the Company with research and development funding of
$500,000 annually for five years which will be used to offset certain of the
Company's research and development expenses.
The Company's future operating results and period-to-period comparisons of
such operating results will be affected by, among other things, the timing of
new commercial waste processing contracts through SEG, the duration of and
amount of waste to be processed pursuant to these contracts, the timing of new
DOE waste treatment projects, including those pursued jointly with BNFL, the
duration of such projects, and the form in which such projects are to be owned
and operated.
RESULTS OF OPERATIONS
Revenues increased by $1.6 million or 15.6% from $10.3 million in the first
quarter of 1996 as compared to $11.9 million for the first quarter of 1997. The
increase was attributable to an increase in revenues from technical support
services of $2.6 million and waste processing of $1.7 million at the Company's
DuraTherm facility located in San Leon, Texas partially offset by a decrease in
waste treatment projects revenue of $2.7 million. The most significant technical
support contract is with Duke Power. Under this contract, revenues were $4.3
million for the first quarter of 1997 as compared to $1.9 million for the same
period in 1996. Revenues at the Company's DuraTherm facility were $1.7 million
for the first quarter of 1997. The DuraTherm facility was not operational
during the first quarter of 1996. The decline in revenues in waste treatment
projects was the result of the Company's decision to suspend operations at the
Company's M-Area processing plant located at the DOE's Savannah River site. The
$5.9 million loss includes a provisions of $4.5 million for the estimated
costs of the repair at the facility and the estimated losses on the fixed price
contract resulting from the delay and a $1.4 million loss incurred by the
Company on that contract during the first quarter of 1997. The decline in
revenues in waste treatment projects was also the result of the absence of
teaming fees from BNFL in the first quarter 1997. During the first quarter of
1996 the Company received a $1 million teaming fee from BNFL.
8
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Gross profit decreased from $2.7 million in the first quarter of 1996 to a
loss of $4.0 million in the first quarter of 1997 primarily as a result of the
$5.9 million loss with respect to the M-Area processing facility. The gross
profit percentage from technical support services was relatively unchanged for
the first quarter of 1996 as compared to the first quarter of 1997. The gross
profit percentage from waste treatment projects was lower in the first quarter
of 1997 as compared to the same period in 1996 principally due to the charge
taken against operations on the M-Area Project at the Savannah River facility.
Selling, general and administrative expenses decreased by $111,000 or 5.7%
from the first quarter of 1996 as compared to the first quarter of 1997. As a
percentage of revenues, selling general and administrative expenses decreased
from 18.7% in the first quarter of 1996 to 15.2% for the same period in 1997.
The decrease was principally the result of lower operating costs for waste
treatment projects for the DOE partially offset by higher costs for the
DuraTherm commercial waste treatment facility.
Interest income, net increased by $466,000 for the first quarter of 1997 as
compared to the same period in 1996. The increase was principally the result of
interest income from the net proceeds of the Company's public stock offering in
April 1996 partially offset by interest expense on the convertible debenture
held by BNFL.
The Company's proportionate share in the loss of its 50% owned joint
venture, Vitritek Environmental, Inc. ("Vitritek"), was approximately the same
for the first quarter of 1996 as compared to the same period in 1997 The
Company expects the joint venture to have limited business operations during
1997.
LIQUIDITY AND CAPITAL RESOURCES
On April 26, 1996, the Company completed a public offering of 2,500,000
shares of Common Stock sold by the Company and 1,100,000 shares of Common Stock
sold by certain shareholders. The shares were sold to the public at a price of
$18.50 per share. Net proceeds to the Company after underwriting discounts,
commissions and expenses were approximately $43.3 million. The Company used a
significant portion of the net proceeds to purchase SEG and intends to use the
balance of the net proceeds to expand its waste treatment technology operations,
including for working capital, funding of waste treatment technology projects,
and research and development. The Company may use a portion of the balance of
the net proceeds for the acquisition of additional businesses or technologies
complementary to the Company's business.
During the three months ended March 31, 1997, the Company used $1.8 million
of cash in investing activities principally related to property, plant and
equipment acquired for the Company's new corporate headquarters, equipment
acquired for improvements to the Company's DuraTherm facility in San Leon,
Texas, additional investment in DuraChem and transaction costs related to the
Company's pending acquisition of SEG from Westinghouse Electric Corporation.
The Company had a revolving line of credit agreement with a bank providing
for borrowings up to $7.0 million based upon eligible amounts of accounts
receivable, as defined in the agreement. Borrowings outstanding under that
agreement are due on demand and bear interest at the LIBOR rate plus 2%. At
March 31, 1997, no borrowings were outstanding and the Company had available
borrowings of $5.9 million.
9
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
On April 18, 1997, the Company acquired 100% of the outstanding capital
stock of SEG from Westinghouse Electric Corporation for $28.0 million in cash,
subject to certain post-closing adjustments, and 156,986 shares of the Company's
Common Stock. The Company paid the cash portion of the purchase price out of
available cash, principally from the proceeds of the public offering in April
1996. In connection with the acquisition of SEG, the Company entered into a new
credit facility with its bank. Under this new facility, the Company has a
revolving line of credit providing for borrowings up to $8.8 million based upon
eligible amounts of accounts receivable, as defined in the credit agreement.
Borrowings under the revolving line of credit bear interest at the LIBOR rate
plus 2%. Under this credit facility, the Company's bank has also issued letters
of credit in the aggregate amount of $15.3 million to the State of Tennessee to
provide security for SEG's obligation to clean and remediate SEG's facility upon
its closure.
The Company believes cash flows from operations, cash resources, the net
proceeds of the public offering and, if necessary, borrowings under the bank
line of credit will be sufficient to meet its operating needs, including the
quarterly preferred dividend requirement of $320,000.
ITEM 2. 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 1997 interim period are not necessarily
indicative of results to be expected for the entire year.
10
<PAGE>
PART II OTHER INFORMATION
- -------
GTS DURATEK, INC. AND SUBSIDIARIES
Item 2. Changes in Securities
On April 18, 1997, the Company acquired 100% of the outstanding stock
of SEG from Westinghouse Electric Corporation for $28.0 million in cash, subject
to certain post-closing adjustments, and 156,986 shares of the Company's Common
Stock. The 156,986 shares of the Company's Common Stock were not registered
under the Securities Act of 1933, as amended (the "Securities Act"), but were
issued to Westinghouse Electric Corporation pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act. Subsequent to the
issuance of those shares and pursuant to the terms of the acquisition
transaction, the Company filed a registration statement on Form S-3 to register
such shares under the Securities Act.
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, including the discussion of "Risk Factors" contained in the
Company's Registration Statement on Form S-3 (File No. 333-26623) which was
filed by the Company with the Securities and Exchange Commission on May 7, 1997,
to which reference is hereby made.
The Company experienced significant growth in revenues during 1996 and
through the first quarter of 1997. Net income in 1996 was also significantly
greater than in 1995. However, there can be no assurance that the Company will
be able to sustain these favorable operating trends in future periods. The
Company's future operating results are largely dependent upon the Company's
ability to complete the necessary repairs at its M-Area processing plant located
at the DOE's Savannah River Site, resume operations in a timely manner, extend
the existing contract with the DOE, complete the waste processing required by
the contract without further delay and secure contracts to handle additional
waste streams at that facility or deploy the equipment on future waste treatment
projects. The Company's future operating results are also largely dependent
upon its ability to integrate the SEG acquisition and effectively manage SEG's
operations. The acquisition of SEG also involves a number of additional specific
risks including: adverse short-term effects on the Company's operating results,
environmental risks and potential liabilities associated with operating a
radioactive waste processing facility and radioactive waste transportation
business, risk associated with operating SEG's business in a highly regulated
environment, risks associated with maintaining compliance with operating
licenses and permits, dependence on retaining key customers, dependence on
retaining key personnel and risks associated with unanticipated problems,
liabilities or contingencies following the acquisition of a business. In
addition, the Company's future operating results are largely dependent upon the
timing and awarding of contracts by the DOE for the cleanup of the waste sites
administered by it. The timing and award of such contracts by the DOE is
directly related to the response of governmental authorities to public concerns
over the treatment and disposal of radioactive, hazardous, mixed and other
wastes. The lessening of public concern in this area or other changes in the
political environment could adversely affect the availability and timing of
government funding for the cleanup of DOE and other sites containing radioactive
and mixed wastes. Additionally, revenues from technical support services have
in the past and continue to account for a substantial portion of the Company's
revenues and the loss of one or more technical support service contracts could
adversely affect the Company's future operating results.
11
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
The Company's future operating results may fluctuate due to factors
such as: the acceptance and implementation of its waste treatment technologies
in the government and commercial sectors, the evaluation by DOE and other
customers of the Company's technologies versus other competing technologies as
well as conventional storage and disposal alternatives; the timing of new waste
treatment projects, including those pursued jointly with BNFL, the Company's
ability to maintain existing collaborative relationships or enter into new
collaborative arrangements in order to commercialize its waste treatment
technologies, the timing of new commercial waste processing contracts through
SEG and the duration of and amount of waste to be processed pursuant to those
contracts.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
See accompanying Index to Exhibits
b. Reports
-------
Form 8-K filed by the Company on January 31, 1997 announcing
that the Company had agreed with Westinghouse Electric
Corporation to acquire 100% of the outstanding stock of SEG.
12
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
MARCH 31, 1997
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GTS DURATEK, INC.
Dated: May 13, 1997 BY: /s/ Robert F. Shawver
----------------------------
Robert F. Shawver
Executive Vice President and
Chief Financial Officer
Dated: May 13, 1997 BY: /s/ Craig T. Bartlett
----------------------------
Craig T. Bartlett
Treasurer
13
<PAGE>
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)
E - 1
<PAGE>
10.3 Credit and Security Agreements dated April 18, 1997 between First Union
National Bank of Maryland and First Union National Bank of North Carolina
and GTS Duratek, Inc., The Scientific Ecology Group, Inc., SEG Colorado,
Inc., Hittman Transport Services, Inc., General Technical Service, Inc.,
GTS Instrument Services, Inc. and Analytical Resources, Inc. Incorporated
herein by reference to Exhibits (C)(3), (C)(4), and (C)(5) of the
Registrant's Current Report on Form 8-K filed on April 18, 1997. (File No.
0-14292)
10.4 License Agreement dated as of August 17, 1992 between GTS Duratek, Inc.
and Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo.
Incorporated herein by reference to Exhibit 10.9 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992. (File No.
0-14292)
10.5 Purchase Agreement dated October 15, 1993 between GTS Duratek, Inc. and
Environmental Corporation of America. Incorporated herein by reference to
Exhibit 2 of the Registrant's Form 8-K Current Report dated October 15,
1993. (File No. 0-14292)
10.6 Warrant Agreement dated October 15, 1993 between GTS Duratek, Inc. and
Environmental Corporation of America. Incorporated herein by reference to
Exhibit 2 of the Registrant's Form 8-K Current Report dated October 15,
1993. (File No. 0-14292)
10.7 Stock Purchase Agreement dated December 22, 1993 between GTS Duratek, Inc.
and Jack J. Spitzer. Incorporated herein by reference to Exhibit 1 of the
Registrant's Form 8-K Current Report dated December 22, 1993. (File No. 0-
14292)
10.8 Stock Purchase Agreement dated December 22, 1993 between GTS Duratek, Inc.
and Joseph H. Domberger. Incorporated by reference to Exhibit 2 of the
Registrant's Form 8-K Current Report dated December 22, 1993. (File No.
0-14292)
10.9 Stockholders' Agreement dated December 28, 1993 between GTS Duratek, Inc.
and Vitritek Holdings, L.L.C. Incorporated by reference to Exhibit 3 of
the Registrant's Form 8-K Current Report dated December 22, 1993. (File
No. 0-14292)
10.10 Agreement dated January 14, 1994 between GTS Duratek, Inc. and
Westinghouse Savannah River Company. Incorporated by reference to Exhibit
10.17 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993. (File No. 0-14292)
10.11 Agreement dated February 24, 1994 between GTS Duratek, Inc. and the
University of Chicago (Operator of Argonne National Laboratory).
Incorporated by reference to Exhibit 10.18 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993. (File No. 0-
14292)
10.12 Agreement dated September 15, 1994 between DuraChem Limited Partnership a
Maryland Limited Partnership, by and among CNSI Sub, Inc. and GTSD Sub,
Inc. as the General Partners, and Chemical Waste Management, Inc. and GTS
Duratek, Inc. as the Limited Partners. Incorporated herein by reference
E - 2
<PAGE>
to Exhibit 10-19 of the Registrants Annual Report on 10-K for the year
ended December 31, 1994 (File No. 0-14292)
10.13 Teaming Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995 (File No. 0-14292).
10.14 Sublicense Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995 (File No. 0-14292).
10.15 Stock Purchase Agreement by and among Bird Environmental Gulf Coast,
Inc., Bird Environmental Technologies, Inc., Bird Corporation, GTS
Duratek, Inc. and GTSD Sub II, Inc. dated as of November 29, 1995.
Incorporated herein by reference to Exhibit (c)(2) of Registrant's Current
Report on Form 8-K filed on December 11, 1995 (File No. 0-14292).
10.16 Stockholders' Agreement by and among Bird Environmental Gulf Coast, Inc.
GTS Duratek, Inc., GTSD Sub II, Inc., Jim S. Hogan, Mark B. Hogan, Barry
K. Hogan and Sam J. Lucas III dated November 29, 1995. Incorporated
herein by reference to Exhibit (c)(3) of the Registrant's Current Report
on Form 8-K filed on December 11, 1995 (File No. 0-14292).
10.17 Technology License Agreement by and among GTS Duratek, Inc., Bird
Environmental Gulf Coast, Inc. and Jim S. Hogan dated November 29, 1995.
Incorporated herein by reference to Exhibit (c)(4) of the Registrant's
Current Report on Form 8-K filed on December 11, 1995. (File No. 0-14292).
10.18 Stock Purchase Agreement by and between Westinghouse Electric Corporation
and GTS Duratek, Inc. dated as of April 8, 1997. Incorporated herein by
reference to Exhibit (c)(2) of Registrant's Current Report on Form 8-K
filed on April 18, 1997. (File No. 0-14292).
11.1 GTS Duratek Inc., and Subsidiaries, Computation of Earnings Per Share for
the three months ended March 31, 1997. (filed herewith)
27 Financial Data Schedule. (filed herewith)
E - 3
<PAGE>
Exhibit 11.1
GTS DURATEK, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
----------- ------------
<S> <C> <C>
Primary:
Earnings (loss) applicable to common stock $(4,702,180) $ 500,449
Accrued dividend on preferred stock (320,000) (320,000)
Accretion of redeemable preferred stock (55,535) (54,712)
----------- -----------
Net earnings (loss) applicable to common stock $(5,077,715) $ 125,737
=========== ===========
Average common shares outstanding 12,383,987 9,521,811
Dilutive effect of stock
options and warrants - 2,494,966
----------- -----------
Weighted average common share outstanding 12,383,987 12,016,077
=========== ===========
Earnings (loss) per common share $ (.41) $ .01
=========== ===========
Fully Diluted:
Earnings (loss) applicable to common stock (4,702,180) 500,449
Accrued dividend on preferred stock (320,000) (320,000)
Accretion of redeemable preferred stock (55,535) (54,712)
----------- -----------
Net earnings (loss) applicable
to common stock $(5,077,715) $ 125,737
=========== ===========
Average common shares outstanding 12,383,987 9,521,811
Dilutive effect of stock
options and warrants - 2,527,140
----------- -----------
Weighted average of common
shares outstanding 12,383,987 12,048,951
=========== ===========
Earnings (loss) per common share $ (.41) $ 0.01
=========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AS OF MARCH 31, 1997 (UNAUDITED) AND THE
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1997 (UNAUDITED), OF GTS DURATEK, INC. AND SUBSIDIARIES, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 41,858,469
<SECURITIES> 0
<RECEIVABLES> 20,177,459
<ALLOWANCES> (119,964)
<INVENTORY> 632,057
<CURRENT-ASSETS> 64,157,537
<PP&E> 15,970,002
<DEPRECIATION> (4,681,545)
<TOTAL-ASSETS> 84,946,480
<CURRENT-LIABILITIES> 8,357,836
<BONDS> 11,032,313
14,884,500
0
<COMMON> 125,065
<OTHER-SE> 50,247,464
<TOTAL-LIABILITY-AND-EQUITY> 84,946,480
<SALES> 0
<TOTAL-REVENUES> 11,950,645
<CGS> 0
<TOTAL-COSTS> 15,959,821
<OTHER-EXPENSES> 1,820,040
<LOSS-PROVISION> 12,000
<INTEREST-EXPENSE> 155,804
<INCOME-PRETAX> (5,407,180)
<INCOME-TAX> (750,000)
<INCOME-CONTINUING> (4,702,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,702,180)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
