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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, 1998
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 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 September 30, 1998
Common Stock, par value $0.01 per share 14,083,992 shares
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GTS DURATEK, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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<TABLE>
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PAGE
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<S> <C> <C>
Part I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets
as of September 30, 1998 and December 31, 1997............... 1
Consolidated Condensed Statements of Operations for the Three
and Nine Months Ended September 30, 1998 and 1997............ 2
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Nine Months Ended September 30, 1998.......... 3
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 30, 1998 and 1997........ 4
Notes to Consolidated Financial Statements..................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 6
Qualification Relating to Financial Information................ 10
Part II OTHER INFORMATION
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Item 1. Legal Proceedings.............................................. 11
Item 5. Other Information.............................................. 11
Item 6. Exhibits and Reports on Form 8-K............................... 12
Signatures..................................................... 13
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Part I Financial Information
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Item 1. Financial Statements
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited) *
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 5,882,512 $ 7,026,249
Receivables, net.................................. 28,357,734 28,912,271
Other accounts receivable......................... 1,592,753 1,373,704
Costs and estimated earnings in excess of
billings on uncompleted contracts................ 6,977,307 9,072,828
Prepaid expenses and other current assets......... 3,978,668 3,193,224
------------ ------------
Total current assets............................ 46,788,974 49,578,276
Property, plant and equipment, net.................. 63,425,478 60,356,784
Investments in and advances to joint ventures, net.. 6,250,502 6,362,526
Intangibles, net.................................... 13,732,891 13,877,802
Deferred charges and other assets................... 1,339,365 2,122,793
------------ ------------
$131,537,210 $132,298,181
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 8,167,863 $ 12,235,006
Short term borrowings............................. 4,963,384 -
Accrued expenses and other current liabilities.... 15,594,072 12,042,413
Unearned revenues................................. 1,996,473 8,256,541
Waste processing and disposal liabilities......... 2,322,040 8,681,102
------------ ------------
Total current liabilities....................... 33,043,832 41,215,062
Convertible debenture............................... 11,837,641 11,348,925
Facility and equipment decontamination
and decommissioning liabilities.................... 7,696,598 7,270,681
Other non current liabilities....................... 1,125,888 981,824
------------ ------------
Total liabilities............................... 53,703,959 60,816,492
------------ ------------
Redeemable preferred stock
(Liquidation value $16,320,000)................... 15,222,078 15,052,355
------------ ------------
Stockholders' equity:
Common stock...................................... 141,721 128,790
Capital in excess of par value.................... 72,083,543 67,278,739
Deficit........................................... (9,123,555) (10,806,418)
Treasury stock, at cost........................... (490,536) (171,777)
------------ ------------
Total stockholders' equity....................... 62,611,173 56,429,334
------------ ------------
$131,537,210 $132,298,181
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</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1997 has been
derived from the Company's audited Consolidated Balance Sheet as of that date.
1
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GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues.............................. $39,390,989 $36,355,384 $115,432,142 $86,316,446
Cost of revenues...................... 29,610,260 30,501,464 91,108,701 79,273,311
----------- ----------- ------------ -----------
Gross profit.......................... 9,780,729 5,853,920 24,323,441 7,043,135
Selling, general and
administrative expenses............. 6,394,003 4,428,846 19,030,115 10,479,443
----------- ----------- ------------ -----------
Income (loss) from operations......... 3,386,726 1,425,074 5,293,326 (3,436,308)
Interest income (expense), net........ (207,840) 51,779 (463,240) 586,869
----------- ----------- ------------ -----------
Income (loss) before income taxes
(benefit) and proportionate share
of loss of joint venture............ 3,178,886 1,476,853 4,830,086 (2,849,439)
Income taxes (benefit)................ 1,240,044 - 1,867,500 (750,000)
----------- ----------- ------------ -----------
Income (loss) before proportionate
share of loss of joint venture...... 1,938,842 1,476,853 2,962,586 (2,099,439)
Proportionate share of loss of joint
venture............................. (50,000) (45,000) (150,000) (135,000)
----------- ----------- ------------ -----------
Net income (loss)..................... 1,888,842 1,431,853 2,812,586 (2,234,439)
Preferred stock dividends and
charges for accretion................ 376,770 375,951 1,129,723 1,127,232
----------- ----------- ------------ -----------
Net income (loss) attributable to
common shareholders.................. $ 1,512,072 $ 1,055,902 $ 1,682,863 $(3,361,671)
=========== =========== ============ ===========
Basic net income (loss) per share..... $0.11 $.08 $.13 $(0.27)
=========== =========== ============ ===========
Diluted net income (loss) per share... $0.10 $.07 $.12 $(0.27)
=========== =========== ============ ===========
Weighted average
common stock outstanding............. 13,223,594 12,662,474 12,995,053 12,553,551
=========== =========== ============ ===========
Weighted average common stock and
dilutive securities outstanding...... 20,838,002 19,644,644 14,234,122 12,553,551
=========== =========== ============ ===========
</TABLE>
2
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GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(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, 1997 12,879,057 $128,790 $67,278,739 $(10,806,418) $(171,777) $56,429,334
Net income 2,812,586 2,812,586
Exercise of options and
warrants 1,292,993 12,931 4,804,804 4,817,735
Purchase of treasury stock (318,759) (318,759)
Preferred dividends (960,000) (960,000)
Accretion of redeemable
preferred stock (169,723) (169,723)
---------- -------- ----------- ------------ --------- -----------
Balance, September 30, 1998 14,172,050 $141,721 $72,083,543 $ (9,123,555) $(490,536) $62,611,173
========== ======== =========== ============ ========= ===========
</TABLE>
3
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GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operations:
Net income (loss)..................................... $ 2,812,586 $ (2,234,439)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization..................... 3,412,660 2,790,190
Accrued interest on convertible debenture...... 488,716 497,724
Proportionate share of loss of joint venture...... 150,000 135,000
Changes in operating items:
Receivables..................................... 335,488 (8,198,074)
Cost in excess of billings...................... 2,095,521 463,113
Prepaid expenses and other current assets....... (785,444) 806,273
Accounts payables, accrued expenses and
other current liabilities.................... (69,515) (2,151,564)
Unearned revenues............................... (6,260,068) -
Waste processing and disposal liabilities....... (6,359,062) -
Facility and equipment decontamination and
decommissioning liabilities.................. 425,917 1,091,348
----------- ------------
Net cash used in operating activities................. (3,753,201) (6,800,429)
----------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment ......... (6,131,511) (7,148,928)
Advances to joint ventures.......................... (37,976) (1,195,626)
Acquisition of The Scientific Ecology Group, Inc.,
net of cash acquired.............................. - (23,042,377)
Other............................................... 379,452 2,417,647
----------- ------------
Net cash used in investing activities................. (5,790,035) (28,969,284)
----------- ------------
Cash flows from financing activities:
Short term borrowings............................... 4,963,384 -
Reduction of long term debt and
capital lease obligations......................... (102,861) (35,548)
Proceeds from issuance of common stock.............. 4,817,735 527,278
Purchase of treasury shares......................... (318,759) -
Payment of preferred stock dividends................ (960,000) (960,000)
----------- ------------
Net cash provided by (used in) financing activities... 8,399,499 (468,270)
----------- ------------
Net decrease in cash and cash equivalents............. (1,143,737) (36,237,983)
Cash and cash equivalents at beginning of period...... 7,026,249 46,336,126
----------- ------------
Cash and cash equivalents at end of period............ $ 5,882,512 $ 10,098,143
=========== ============
</TABLE>
4
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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>
SEPTEMBER 30 December 31,
1998 1997
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<S> <C> <C>
Raw materials............................... $ 203,160 $324,843
Finished goods.............................. 807,956 307,214
---------- --------
$1,011,116 $632,057
========== ========
</TABLE>
Such amounts are included in other current assets.
3. NET INCOME PER SHARE
Basic earnings per share (EPS) excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Weighted average shares used in
computing basic EPS were 13,223,594 and 12,662,474 for the three months ended
September 30, 1998 and 1997, respectively, and 12,995,053 and 12,553,551 for the
nine months ended September 30, 1998 and 1997, respectively. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Weighted average shares used in computing diluted EPS were 20,838,002
and 19,644,644 for the three months ended September 30, 1998 and 1997,
respectively, and 14,234,122 and 12,553,551 for the nine months ended September
30, 1998 and 1997, respectively. The difference between basic and diluted
weighted average shares relates to the dilutive effect of stock options and
warrants where the exercise price is less than the average market value of the
Company's common stock for the period of calculation.
5
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
GTS DURATEK, INC. AND SUBSIDIARIES
OVERVIEW
GTS Duratek, Inc. (the "Company") derives substantially all of its revenues
from commercial and government waste processing operations, and from technical
support services to government agencies, electric utilities, industrial
facilities and commercial businesses. Commercial waste processing operations
are provided primarily at the Company's Bear Creek low-level radioactive waste
processing facility located in Oak Ridge, Tennessee which was the business
formerly conducted as The Scientific Ecology Group, Inc. ("SEG"). The Company
also provides on-site waste processing services on large government projects for
the United States Department of Energy ("DOE"). Technical support services are
generally provided pursuant to multi-year time and materials contracts.
Revenues are recognized as costs are incurred according to predetermined rates.
The contract costs primarily include direct labor, materials and the indirect
costs related to contract performance.
On April 18, 1997, the Company acquired 100% of the outstanding capital
stock of SEG from Westinghouse Electric Corporation for approximately $22.4
million in cash including transaction costs and 156,986 shares of the Company's
Common Stock. The Company paid the cash portion of the purchase price out of
available cash. The acquisition of SEG was effective April 1, 1997 and,
accordingly, the Company's results of operations for the year ended December 31,
1997 reflect the operating results of SEG from April 1, 1997. The Company has
accounted for the transaction under the purchase method of accounting. The
aggregate purchase price of $72.5 million, which includes liabilities assumed
and transaction costs, exceeded the estimated fair value of SEG's tangible
assets by approximately $13.8 million. Such amount has been allocated to
intangible assets, principally goodwill, and is being amortized over 30 years.
SEG provided over 50% of the Company's revenue for the three and nine month
periods ended September 30, 1998 and had a significant impact on the results of
operations in the period to period comparison.
Prior to the acquisition of SEG, the Company's waste treatment revenues
historically had been generated from government waste processing operations
pursuant to fixed-price and cost-plus-fixed-fee contracts with the United States
Department of Energy ("DOE"). Waste treatment revenues from the DOE were not
significant in 1997 and 1998.
In March 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
as a result of observations, by operations personnel, indicating that excessive
wear could be occurring on certain internal components of the melter. 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. As a result of the necessary repairs
and the delay in completing the waste processing required by the contract, the
Company recorded a loss of $5.9 million on the M-Area contract in the first
quarter of 1997 which included the estimated costs of repairs to the melter and
for estimated losses to complete the fixed price contract. In December 1997,
the Company recommenced radioactive operations and recorded an additional charge
of $1.3 million on the M-Area contract in the fourth quarter of 1997 for the
estimated increased costs to complete the contract as a result of it taking
longer than original estimates to bring the system to full processing throughput
levels. As of September 30, 1998, substantially all the waste processing has
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been completed and work has begun on clean closure of the tanks. The Company is
currently negotiating an extension of the contract. However, in the event the
Company is not able to obtain a contract extension, the Company could incur
additional losses which could be material.
The Company's future operating results will be affected by, among other
things, the duration of commercial waste processing contracts and amount of
waste to be processed by the Company's commercial waste processing operations
pursuant to these contracts; the timing of new DOE waste treatment projects,
including those pursued jointly with BNFL, Inc.; the duration of the Hanford and
Idaho Falls DOE projects; and the amount of new waste streams, if any, awarded
to the Company for processing at the M-Area facility in Savannah River.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998.
Revenues increased by $3.0 million or 8.3% from $36.4 million in 1997 to
$39.4 million in 1998. The increase was primarily attributable to a $6.1
million increase in government waste processing services and an increase in
waste processing revenues of $100,000 at the Company's DuraTherm hazardous waste
treatment facility located in San Leon, Texas. The increase was partially
offset by a $2.5 million decrease in commercial waste processing services at the
Company's Bear Creek low-level radioactive waste processing facility located in
Oak Ridge, Tennessee and a decrease in technical support services revenues of
$700,000. The increase in revenues in government waste processing services was
primarily the result of work performed on the Hanford Tank Waste Remediation
System contract awarded by BNFL to build and operate a pilot melter at the
Company's Columbia, Maryland headquarters and performance on a project at Idaho
Falls, Idaho. Revenues at the DuraTherm facility were $2.6 million for the
three months ended September 30, 1998 as compared to $2.5 million for the same
period in 1997. The decline in revenues at the Bear Creek facility was
primarily due to a change in product mix and to a lesser extent, a price
reduction for incineration and compaction processing services. The decline in
revenues in technical support services was the result of the completion of
several large projects in 1997.
Gross profit increased by $3.9 million from $5.9 million in 1997 to $9.8
million in 1998. The Bear Creek facility and government waste processing
services accounted for increases in gross profit of $2.0 million and $1.5
million, respectively. Additionally, the DuraTherm facility and technical
support services accounted for increases in gross profit of $250,000 and
$200,000 respectively. The increase in gross profit at the Bear Creek facility
was the result of measures taken in the third quarter to reduce fixed and
variable operating costs. The increase in gross profit in government waste
processing was the result of increased revenues previously mentioned at
comparable gross margins. The increase in gross profit at the DuraTherm facility
is attributable to performance on higher margin contracts as compared to the
same period in 1997. The gross margin for technical support services was
comparable to the same period in 1997. As a percentage of revenues, gross
profit increased from 16.1% in 1997 to 24.8% in 1998 for the reasons previously
mentioned.
Selling, general and administrative expenses increased by $2.0 million or
44.4% from $4.4 million in 1997 to $6.4 million in 1998. As a percentage of
revenues, selling general and administrative expenses increased from 12.2% in
1997 to 16.2% in 1998. The increase was primarily attributable to higher
operating costs for government waste processing services as a result of business
growth in this area.
Interest income (expense), net changed from income of $52,000 in 1997 to
expense of $208,000 in 1998. The change was the result of the decrease in cash
due to the
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purchase of SEG in April of 1997 and interest on short term borrowings required
to fund working capital needs.
Income taxes increased to $1,240,000 in 1998. As of December 31, 1997 the
Company has recognized the benefit of its available net operating loss
carryforward. Accordingly, for 1998 the Company is accruing income taxes at full
statutory rates.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998.
Revenues increased by $29.1 million or 33.7% from $86.3 million in 1997 to
$115.4 million in 1998. The increase was attributable to $24.1 million in
revenues from the operations of SEG which was acquired by the Company effective
April 1, 1997, an increase in government waste processing revenues of $10.5
million, and an increase of $1.0 million at the Company's DuraTherm commercial
waste treatment facility. The increase in revenues was partially offset by a
decrease in revenues at the Bear Creek facility and technical support services
of $5.5 million and $1.0 million, respectively. The increase in revenues from
government waste processing was primarily the result of performance on the
Hanford Tank Waste Remediation System contract awarded by BNFL to build and
operate a pilot melter at the Company's Columbia, Maryland headquarters and
performance on a project at Idaho Falls, Idaho. Revenues at the DuraTherm
facility were $7.1 million for the nine months ended September 30, 1998 as
compared to $6.1 million for the same period in 1997. The decline in revenues
at the Bear Creek facility was primarily the result of lower metal melt
processing, a change in product mix and to a lesser extent, a price reduction in
the incineration and compaction processes. The decline in revenues from
technical support services was the result of less power plant outages as
compared to the same period in 1997 partially offset by an increase in revenues
from higher margin consulting services.
Gross profit increased by $17.3 million from $7.0 million in 1997 to $24.3
million in 1998. SEG, government waste processing, and DuraTherm accounted for
increases in gross profit of $5.0 million, $7.7 million, $500,000, respectively.
In addition the Bear Creek facility and technical support services accounted for
increases in gross profit of $1.7 million and $2.4 million, respectively. The
increase in gross profit from government waste processing principally relates to
a $5.9 million dollar loss recorded on the M-Area project in the first quarter
of 1997. The increase in gross profit at the Bear Creek facility was the result
of measures taken in the third quarter to reduce fixed and variable operating
costs. The increase in gross profit from technical support services was the
result of performance on higher margin consulting contracts for the nine months
ended September 30, 1998 as compared to the same period in 1997.
Selling, general and administrative expenses increased by $8.5 million or
81.6% from $10.5 million in 1997 to $19.0 million in 1998. As a percentage of
revenues, selling, general and administrative expenses increased from 12.1% in
1997 to 16.5% in 1998. The increase in selling, general and administrative
expenses was primarily attributable to: (i) the operations of SEG, which was
acquired by the Company effective April 1, 1997, (ii) higher than expected costs
incurred on proposals for two major commercial nuclear power plant
decommissioning projects of $600,000, (iii) severance charges associated with
the re-engineering of the processing methods at the Bear Creek facility of
$800,000, and (iv) higher operating costs for government waste processing
services as a result of business growth in this area.
Interest income (expense), net changed from income of $587,000 in 1997 to
expense of $463,000 in 1998. The change was the result of the decrease in cash
due to the purchase of SEG in April of 1997 and interest on short term
borrowings required to fund working capital needs.
Income taxes (benefit) increased from a benefit of $750,000 in 1997 to
expenses
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of $1,868,000 in 1998. As of December 31, 1997 the Company has recognized the
benefit of its available net operating loss carryforward. Accordingly, for 1998
the Company is accruing income taxes at full statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a revolving line of credit agreement with a bank providing
for borrowings up to $12.0 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%. At September 30, 1998,
the Company had $4.9 million outstanding under the line of credit. Under this
credit facility, the Company's bank has also issued letters of credit in the
aggregate amount of $15.3 million to the State of Tennessee to provide security
for SEG's obligation to clean and remediate the Company's Bear Creek facility
upon its closure.
The Company believes cash flows from operations and, if necessary,
borrowings available under the bank line of credit will be sufficient to meet
its operating needs, including the quarterly preferred dividend requirement of
$320,000 for at least the next twelve months.
INFORMATION SYSTEMS AND THE IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year. The
inability of computer programs to recognize a year that begins with "20" could
result in system failures, miscalculations or errors causing disruptions of
operations or other business activities.
GTS Duratek has undertaken a program to address the Year 2000 issue with
respect to (i) the Company's information systems, (ii) the Company's non-
information systems, and (iii) certain systems for the Company's major customers
and suppliers. As described below, the Company's Year 2000 program includes (i)
assessment of the problem, (ii) development of remedies, (iii) testing of such
remedies and (iv) the preparation of contingency plans to deal with the worst
case scenarios.
INFORMATION SYSTEMS - The Company maintains information systems at each of
its operating divisions. Information systems at all of these locations have been
assessed. Information systems in Columbia, MD and Oak Ridge, TN have been
certified by the hardware and software manufacturers as Year 2000 compliant. The
Company is in the process of remediating information systems in San Leon, TX and
Pittsburgh, PA. The Company expects to have these systems remediated and tested
by June 1999.
NON-INFORMATION SYSTEMS - The Company has not completed its assessment of
the Year 2000 issue with respect to critical non-information systems. However,
management believes that such issues, if any, would be limited to its telephone
systems. The Company expects to complete this assessment by December 1998.
Remediation required, if any, will be completed by June 1999.
CUSTOMER AND SUPPLIER SYSTEMS - The Company has begun informal discussions
with major customers and suppliers with respect to the Year 2000 issue. The
Company currently has limited electronic interfaces with customers and vendors
and, accordingly, is focused on its customer's and vendor's ability to operate
following January 1, 2000. The Company intends to make formal inquiries of its
key customers and suppliers during 1999 to complete this assessment and
establish contingency plans as necessary.
COSTS RELATED TO THE YEAR 2000 ISSUE - To date the Company has incurred
less
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than $25,000 to remediate its Year 2000 information systems issues and expects
to incur an additional $150,000 to complete the remediation and testing of the
information systems. Costs, if any, to remediate the non-information systems are
not expected to be material.
RISK RELATED TO THE YEAR 2000 ISSUE - Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's operations, the actual effects of the issue cannot be known until
the Year 2000. Failure of the Company and its major customers and suppliers to
appropriately remediate the Year 2000 issue could have a material adverse effect
on the Company's financial condition and results of operations.
NEW ACCOUNTING PRONOUNCEMENT
During 2000, the Company will adopt the provisions of Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities". The Company does not expect the new pronouncement will
have a material effect on the Company's financial condition or results of
operations.
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 1998 interim periods are not necessarily
indicative of results to be expected for the entire year.
10
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PART II OTHER INFORMATION
- -------
Item 1. Legal Proceedings
See the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 for a discussion of legal proceedings.
Item 5. Other Information
In response to the "safe harbor" provisions contained in the Private
Securities Litigation Reform Act of 1995, the Company is including in this
Quarterly Report on Form 10-Q the following cautionary statements which are
intended to identify certain important factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by or on behalf of the Company. Many of these
factors have been discussed in prior filings with the Securities and Exchange
Commission.
The Company experienced significant growth in revenues during 1997 and
the first nine months of 1998, primarily as a result of the acquisition of SEG
in April 1997. The Company's future operating results are largely dependent upon
the Company's ability to manage its commercial waste processing operations,
which are formerly the operations of SEG, including obtaining commercial waste
processing contracts and processing waste under such contracts in a timely and
cost effective manner. The Company's future operating results are also largely
dependent upon the Company's ability to extend the existing contract with the
DOE for the Savannah River M-Area Site, 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. 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.
The Company's future operating results may fluctuate due to factors
such as: the timing of new commercial waste processing contracts and duration of
and amount of waste to be processed pursuant to those contracts: the acceptance
and implementation of its waste treatment technologies in the government and
commercial sectors, the evaluation by the DOE and other customers of the
Company's technologies versus other competing technologies as well as
conventional storage and disposal alternatives; the timing of new waste
treatment projects, including those pursued jointly with BNFL, the duration of
such projects; and the timing of outage support projects and other large
technical support services projects at its customers' facilities.
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
See accompanying Index to Exhibits
b. Reports
-------
None.
12
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
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 13, 1998 BY: /s/ Robert F. Shawver
----------------------------
Robert F. Shawver
Executive Vice President and
Chief Financial Officer
Dated: November 13, 1998 BY: /s/ Craig T. Bartlett
-----------------------------
Craig T. Bartlett
Treasurer and Controller
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)
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
E-1
<PAGE>
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
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).
E-2
<PAGE>
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).
10.19 GTS Duratek, Inc. Executive Compensation Plan. Incorporated herein by
reference to Exhibit 10.19 of Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (File No. 0-14292).
27 Financial Data Schedule. (filed herewith)
E-3
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<ALLOWANCES> (600,985)
<INVENTORY> 1,011,116
<CURRENT-ASSETS> 46,788,974
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<DEPRECIATION> (10,567,713)
<TOTAL-ASSETS> 131,537,210
<CURRENT-LIABILITIES> 33,043,832
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15,222,078
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<COMMON> 141,721
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<TOTAL-LIABILITY-AND-EQUITY> 131,537,210
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