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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 March 31, 1999
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number 0-14292
GTS DURATEK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2476180
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10100 Old Columbia Road, Columbia, Maryland 21046
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 312-5100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
---------
Number of shares outstanding of each of the issuer's classes of common stock as
of May 6, 1999:
Common Stock, par value $0.01 per share 13,833,412 shares
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GTS DURATEK, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Part I Financial Information PAGE
- ------ ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
as of March 31, 1999 and December 31, 1998............... 1
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 1999 and 1998............... 2
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Three Months Ended March 31, 1999......... 3
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998............... 4
Notes to Consolidated Financial Statements................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 8
Item 3. Quantitative and Qualitative Information About
Market Risk.............................................. 11
Qualification Relating to Financial Information.............. 11
Part II Other Information
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Item 1. Legal Proceedings............................................ 12
Item 5. Other Information............................................ 12
Item 6. Exhibits and Reports on Form 8-K............................. 12
Signatures................................................... 13
</TABLE>
<PAGE>
Part I Financial Information
- ------
Item 1. Financial Statements
GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 982,237 $ 5,944,274
Receivables, net...................................... 37,675,401 35,350,150
Other accounts receivable............................. 2,531,085 2,351,034
Costs and estimated earnings in excess of
billings on uncompleted contracts................... 5,741,494 4,254,591
Prepaid expenses and other current assets............. 4,558,284 3,676,937
Deferred income taxes................................. 1,006,066 1,006,066
------------ ------------
Total current assets................................ 52,494,567 52,583,052
Property, plant and equipment, net...................... 54,403,293 54,270,744
Investments in and advances to joint ventures, net...... 4,101,405 4,131,406
Goodwill and other intangible assets, net............... 13,651,428 13,658,521
Deferred charges and other assets, net.................. 1,447,244 804,933
Deferred income taxes................................... 3,085,976 3,085,976
------------ ------------
$129,183,913 $128,534,632
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................... $ 2,000,000 $ 10,947,148
Accounts payable........................................ 6,368,254 12,837,623
Accrued expenses and other current liabilities.......... 12,412,787 5,856,300
Unearned revenues....................................... 1,964,450 3,380,477
Waste processing and disposal liabilities............... 5,477,865 4,202,561
------------ ------------
Total current liabilities........................... 28,223,356 37,224,109
Convertible debenture................................... 11,939,834 11,821,582
Long-term debt.......................................... 8,000,000 -
Facility and equipment decontamination
and decommissioning liabilities........................ 8,004,521 7,824,447
Other noncurrent liabilities............................ 1,494,391 1,363,822
------------ ------------
Total liabilities................................... 57,662,102 58,233,960
------------ ------------
Redeemable preferred stock
(Liquidation value $16,320,000)....................... 15,336,329 15,279,085
------------ ------------
Stockholders' equity:
Common stock.......................................... 142,277 142,257
Capital in excess of par value........................ 72,520,004 72,513,024
Deficit............................................... (13,315,785) (14,742,524)
Treasury stock, at cost............................... (3,161,014) (2,891,170)
------------ ------------
Total stockholders' equity.......................... 56,185,482 55,021,587
------------ ------------
$129,183,913 $128,534,632
============ ============
</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1998 has been
derived from the Company's audited Consolidated Balance Sheet as of that date.
See notes to condensed consolidated financial statements.
1
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GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
1999 1998
--------------- ---------------
(Restated)
<S> <C> <C>
Revenues............................................... $ 38,885,254 $ 37,230,952
Cost of revenues....................................... 29,075,839 29,394,613
--------------- ---------------
Gross profit........................................... 9,809,415 7,836,339
Selling, general and administrative expenses........... 6,510,025 5,484,404
--------------- ---------------
Income from operations................................. 3,299,390 2,351,935
Interest expense, net.................................. (284,822) (73,781)
--------------- ---------------
Income before income taxes and
proportionate share of loss of joint venture......... 3,014,568 2,278,154
Income taxes........................................... 1,160,609 853,603
--------------- ---------------
Income before proportionate share of
loss of joint venture................................ 1,853,959 1,424,551
Proportionate share of loss of joint venture........... (50,000) (1,324,000)
--------------- ---------------
Income before cumulative effect
of change in accounting principle.................... 1,803,959 100,551
Cumulative effect of change in accounting principle.... - (420,000)
--------------- ---------------
Net income (loss) and comprehensive income (loss)...... 1,803,959 (319,449)
Preferred stock dividends and charges for accretion.... 377,220 376,371
--------------- ---------------
Net income (loss) attributable to common stockholders.. $ 1,426,739 $ (695,820)
=============== ===============
Basic net income (loss) per share...................... $ 0.10 $ (0.05)
=============== ===============
Diluted net income (loss) per share.................... $ 0.09 $ (0.05)
=============== ===============
Basic weighted average common stock outstanding........ 13,773,860 12,811,495
=============== ===============
Diluted weighed average common stock and
dilutive securities outstanding...................... 20,840,081 12,811,495
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements
2
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GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1999
(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, 1998 14,225,750 $ 142,257 $72,513,024 $(14,742,524) $(2,891,170) $ 55,021,587
Net income 1,803,959 1,803,959
Exercise of options and
warrants 2,000 20 6,980 7,000
Treasury stock purchases (269,844) (269,844)
Preferred dividends (320,000) (320,000)
Accretion of redeemable
preferred stock (57,220) (57,220)
---------- --------- ----------- ------------ ----------- --------------
Balance, March 31, 1999 14,227,750 $ 142,277 $72,520,004 $(13,315,785) $(3,161,014) $ 56,185,482
========== ========= =========== ============ =========== ==============
</TABLE>
See notes to condensed consolidated financial statements
3
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GTS DURATEK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operations:
Net income (loss)........................................ $ 1,803,959 $ (319,449)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization........................ 840,489 1,141,394
Loss on sale of equipment............................ 110,979 -
Accrued interest on convertible debenture.............. 118,252 168,884
Proportionate share of loss of joint venture......... 50,000 1,324,000
Cumulative effect of change in accounting principle.. - 420,000
Changes in operating items:
Receivables........................................ (2,002,312) 725,362
Cost in excess of billings......................... (1,486,903) (2,602,911)
Prepaid expenses and other current assets.......... (881,347) (592,350)
Accounts payables, accrued expenses and
other current liabilities....................... 87,118 (1,462,424)
Unearned revenues.................................. (1,416,027) (5,269,095)
Waste processing and disposal liabilities.......... 1,275,304 1,192,269
Facility and equipment decontamination and
decommissioning liabilities..................... 180,074 229,802
Other................................................ 132,580 -
----------- -----------
Net cash used by operations.............................. (1,187,834) (5,044,518)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment, net ....... (953,360) (620,318)
Advances to joint ventures............................. (19,999) (20,492)
Other.................................................. (626,554) (137,831)
----------- -----------
Net cash used by investing activities.............. (1,599,913) (778,641)
----------- -----------
Cash flows from financing activities:
Short-term borrowings (repayments), net................ (8,947,148) 5,621,000
Borrowings under long-term debt........................ 8,000,000 -
Preferred stock dividends.............................. (320,000) (320,000)
Proceeds from issuance of common stock................. 7,000 23,500
Repurchase of treasury shares.......................... (269,844) -
Deferred financing costs............................... (644,298) -
Other.................................................. - (12,902)
----------- -----------
Net cash provided (used) by financing activities..... (2,174,290) 5,311,598
----------- -----------
Net change in cash and cash equivalents.................. (4,962,037) (511,561)
Cash and cash equivalents at beginning of period......... 5,944,274 7,026,249
----------- -----------
Cash and cash equivalents at end of period............... $ 982,237 $ 6,514,688
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
4
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GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned except for DuraTherm, Inc.
which is 80% owned. All significant intercompany balances and transactions have
been eliminated in consolidation. Investments in subsidiaries and joint
ventures in which the Company does not have control or majority ownership are
accounted for under the equity method.
2. Inventories
Inventories, consisting of material, labor and overhead, are classified as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
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<S> <C> <C>
Raw materials...................... $ 222,453 $ 202,087
Finished goods..................... 2,181,296 1,068,889
---------- ----------
$2,403,749 $1,270,976
========== ==========
</TABLE>
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 13,773,860 and 12,811,495 for the three months ended
March 31, 1999 and 1998. 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 20,840,081 and 12,811,495 for the three months ended
March 31, 1999 and 1998. The difference between basic and diluted weighted
average shares relates to the dilutive effect of stock options and warrants
where the exercise price is less than the average market value of the Company's
common stock for the year of calculation. Conversion of the Company's
convertible debentures and preferred stock is assumed in the calculation of
diluted EPS for the three months ended March 31, 1999.
4. Segment reporting
The Company has three primary segments (i) commercial waste processing,
(ii) government waste processing and (iii) technical services. Below is a brief
description of each of the segments:
1. Commercial Waste Processing (CWP) The Company conducts its commercial
waste processing operations principally at its Bear Creek Operations
Facility located in Oak Ridge, Tennessee. The Company's waste treatment
technologies include: incineration; compaction; metal decontamination and
recycling; vitrification; steam reforming; thermal desorption; and ion
exchange. Commercial waste processing customers primarily include
commercial nuclear utilities and petrochemical companies.
2. Government Waste Processing (GWP) The Company provides on-site waste
processing services on large government projects for the DOE. The on-site
waste processing services provided by the Company on DOE projects include
program development, waste characterization, on-site waste treatment,
facility operation, packaging and shipping of residual waste, profiling and
manifesting the processed waste and selected technical support services.
5
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GTS DURATEK, INC. AND SUBSIDIARIES
3. Technical Services (TS) The Company's technical support services
encompass approximately 500 employees, consultants and technicians, some of
whom are full-time employees and the balance of whom are contract
employees, who support and complement the Company's commercial and
government waste processing operations and also provides highly specialized
technical support services for the Company's customers.
The Company's segment information is as follows:
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------------------
UNALLOCATED
CWP GWP TS ITEMS CONSOLIDATED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from $17,568,395 $ 9,476,689 $11,840,170 $ - $ 38,885,254
external customers
Income (loss) from 2,027,560 887,402 384,428 - 3,299,390
operations
Interest income - -
Interest expense (284,822) (284,822)
Depreciation and 690, 189 50,095 100,205 - 840,489
amortization
expense
Proportionate share (50,000) (50,000)
of losses of joint
ventures
Income tax expense 1,160,609 1,160,609
Investments in and 4,101,405 4,101,405
advances to joint
ventures
Capital expenditure 807,468 35,864 35,387 74,641 953,360
for additions to
long-lived assets
Total assets 60,644,004 31,712,363 20,562,061 16,265,485 129,183,913
</TABLE>
6
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GTS DURATEK, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------------------------------------------------------
UNALLOCATED
CWP GWP TS ITEMS CONSOLIDATED
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from $ 18,890,200 $ 5,801,200 $ 12,539,552 $ - $ 37,230,952
external customers
Income (loss) from 1,381,500 897,435 73,000 - 2,351,935
operations
Interest income 113,300 113,300
Interest expense (187,081) (187,081)
Depreciation and 912,407 123,500 105,487 - 1,141,394
amortization
expense
Proportionate share (1,324,000) (1,324,000)
of losses of joint
ventures
Income tax expense 853,603 853,603
Investments in and 6,333,018 6,333,018
advances to joint
ventures
Capital expenditure 294,285 270,987 35,740 19,306 620,318
for additions to
long-lived assets
Total assets 61,127,669 21,753,774 26,948,724 23,981,502 133,811,669
</TABLE>
5. Start-up costs
In the fourth quarter of 1998, the Company and its 45% owned subsidiary,
DuraChem, Inc. ("DuraChem") adopted the provisions of SOP 98-5 "Reporting on
Start-Up Costs," which requires companies to expense start-up expenses as
incurred. The SOP requires that a company adopt the provisions effective as of
the first day of the year in the year of adoption. Accordingly, the Company has
restated the condensed consolidated statements of operations and cash flows for
the three months ended March 31, 1998. In connection with the adoption, the
Company recognized $1,274,000, its proportionate share of DuraChem's adoption of
the SOP, as proportionate share of loss of joint venture and $420,000 as the
cumulative effect of the Company's change in accounting principle. Each amount
is net of applicable income tax benefit. Such restatement increased income
before proportionate share of loss of joint venture by $32,097, decreased income
before cumulative effect of change in accounting principles by $1,241,903 and
decreased net income (loss) and net income (loss) attributable to common
shareholders by $1,661,903. In addition, net income (loss) per share was reduced
by $0.10 per share.
7
<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") 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 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.
As of February 1999, the Company successfully completed the contract to
vitrify 660,000 gallons of mixed waste sludge at its M-Area processing plant
located at the DOE's Savannah River Site.
The Company's future operating results will be affected by, among other
things, the duration of commercial waste processing contracts and amount of
waste to be processed by the Company's commercial waste processing operations
pursuant to these contracts; the timing of new DOE waste treatment projects,
including those pursued jointly with BNFL and the duration of the Hanford and
Idaho Falls DOE projects.
In the fourth quarter of 1998, the Company and its 45% owned subsidiary,
DuraChem, Inc. ("DuraChem") adopted the provisions of SOP 98-5 "Reporting on
Start-Up Costs," which requires companies to expense start-up expenses as
incurred. The SOP requires that a company adopt the provisions effective as of
the first day of the year in the year of adoption. Accordingly, the Company has
restated the condensed consolidated statements of operations and cash flows for
the three months ended March 31, 1998. In connection with the adoption, the
Company recognized $1,274,000, its proportionate share of DuraChem's adoption of
the SOP, as proportionate share of loss of joint venture and $420,000 as the
cumulative effect of the Company's change in accounting principle. Each amount
is net of applicable income tax benefit. Such restatement increased income
before proportionate share of loss of joint venture by $32,097, decreased income
before cumulative effect of change in accounting principles by $1,241,903 and
decreased net income (loss) and net income (loss) attributable to common
shareholders by $1,661,903. In addition, net income (loss) per share was reduced
by $0.10 per share.
8
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Results of Operations
Revenues increased by $1.7 million or 4.4% from $37.2 million in the first
quarter of 1998 as compared to $38.9 million for the first quarter of 1999. The
increase was primarily attributable to a $3.7 million increase in government
waste processing services and a $1.5 million increase in revenues at the
Company's DuraTherm petrochemical waste treatment facility located in San Leon,
Texas. The increase was partially offset by a $2.8 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 from government waste processing services was primarily the result of
work performed on the Hanford Tank Waste Remediation System contract awarded by
BNFL to build and operate a pilot melter at the Company's Columbia, Maryland
headquarters. The increase in revenues at the DuraTherm facility was the result
of higher processing volumes and higher average prices as compared to the same
period in 1998. The decrease in revenues at the Bear Creek facility was the
result of lower dry activated waste processing volumes attributable to less
power plant outages being scheduled in the first quarter of 1999 as compared to
the same period in 1998. The decline in revenues from technical support
services was the result of work performed on a large decontamination and
decommissioning project during the first quarter of 1998.
Gross profit increased by $2.0 million from $7.8 million in the first
quarter of 1998 to $9.8 million in the first quarter of 1999. The DuraTherm
facility, government waste processing and technical support services accounted
for increases in gross profit of $780,000, $760,000 and $750,000, respectively.
The increase was partially offset by a decrease in gross profit from commercial
waste operations of $290,000 at the Bear Creek facility. The increase in gross
profit at the DuraTherm facility was the result of higher processing volumes and
performance on higher margin contracts. The increase in gross profit in
government waste processing was the result of increased revenues previously
mentioned at comparable gross margins. The increase in gross profit from
technical support services was the result of performance on higher margin
consulting services contracts as compared to the same period in 1998. As a
percentage of revenues, gross profit increased from 21.1% in 1998 to 25.2% in
1999.
Selling, general and administrative expenses increased by $1.0 million or
18.7% from $5.5 million in 1998 to $6.5 million in 1999. As a percentage of
revenues, selling general and administrative expenses increased from 14.7% in
1998 to 16.7% in 1999. The increase is principally related to higher operating
costs for government waste processing services as a result of business growth in
this area.
Interest expense, net increased by $211,000 from 1998 to 1999. The increase
was the result of increased borrowings required to fund working capital needs.
Income taxes increased by $307,000 from 1998 to 1999. The Company's
effective income tax rate is 37.5% in 1998 as compared with 38.5% in 1999.
Liquidity and capital resources
In February 1999, the Company obtained a $60 million bank credit facility
which includes (i) a $35 million revolving line of credit, based on eligible
accounts receivable as defined in the credit agreement, to fund working capital
requirements, (ii) a $20 million line of credit to finance acquisitions or stock
repurchases, and (iii) a $5 million line of credit to finance up to 75% of new
equipment purchases. Borrowings under the old credit facility were repaid from
this credit facility. Borrowings outstanding under the revolving line of credit
bear interest at either the bank's base rate, as defined, or at the LIBOR rate
plus 2.25%. The rate is subject to adjustment after June 30, 1999, depending
upon the Company's ratio of debt to operating income. At March 31,
9
<PAGE>
1999, the Company had $2.0 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 for
security for SEG's obligation to
GTS DURATEK, INC. AND SUBSIDIARIES
clean and remediate the Bear Creek facility upon its closure.
The new credit facility has a five year term. In connection with this new
facility, the Company has agreed to seek stockholder approval at its 1999 annual
meeting of stockholders to extend the mandatory redemption date of the
outstanding Convertible Preferred Stock beyond the maturity date of this new
facility; if this approval is not obtained, the credit facility reverts to a
three year term.
The Company believes cash flows from operations and, if necessary,
borrowings available under this credit facility will be sufficient to meet its
operating needs, including the quarterly preferred dividend requirement of
$320,000 for at least the next twelve months.
Information Systems and the Impact of the Year 2000 Issue
The Year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year. The
inability of computer programs to recognize a year that begins with "20" could
result in system failures, miscalculations or errors causing disruptions of
operations or other business activities.
GTS Duratek has undertaken a program to address the Year 2000 issue with
respect to (i) the Company's information systems, (ii) the Company's non-
information systems, and (iii) certain systems for the Company's major customers
and suppliers. As described below, the Company's Year 2000 program includes (i)
assessment of the problem, (ii) development 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 completed its assessment of the
Year 2000 issue with respect to critical non-information systems. Remediation
will be completed by June 1999. Programmable Logic Controller (PLC) devices
identified throughout the organization have been prioritized. Replacement,
remediation and contingency plans will be in place by October 1999.
Customer and Supplier Systems - The Company has begun informal discussions
with major customers and suppliers with respect to the Year 2000 issue. The
Company currently has limited electronic interfaces with customers and vendors
and, accordingly, is focused on its customer's and vendor's ability to operate
following January 1, 2000. The Company intends to make formal inquiries of its
key customers and suppliers during 1999 to complete this assessment and
establish contingency plans as necessary.
Costs Related to the Year 2000 Issue - To date the Company has incurred
less 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 to remediate the non-information systems are
expected to be approximately $250,000.
Risk Related to the Year 2000 Issue - Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's
10
<PAGE>
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.
GTS DURATEK, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Information about Market Risk
The Company's major market risk is to changing interest rates. As of March
31,1999,the Company had floating rate long-term debt of $8.0 million and
floating rate short-term debt of $2.0 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.
Qualification Relating to Financial Information
The consolidated financial information included herein is unaudited, and
does not include all disclosures required under generally accepted accounting
principles because certain note information included in the Company's Annual
Report, filed on Form 10-K, has been omitted; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented. The results of the 1999 interim period are not necessarily
indicative of results to be expected for the entire year.
11
<PAGE>
Part II Other Information
- -------
GTS DURATEK, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings
See the Company's annual report on Form 10-K for the year ended
December 31, 1998 for a discussion of legal proceedings.
Item 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 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. In
addition, the Company's future operating results are dependent upon the timing
and award of contracts by the DOE for the cleanup of other waste sites
administered by it. The timing and award of such contracts by the DOE is
directly related to the response of governmental authorities to public concerns
over the treatment and disposal of radioactive, hazardous, mixed and other
wastes. The lessening of public concern in this area or other changes in the
political environment could adversely affect the availability and timing of
government funding for the cleanup of DOE and other sites containing radioactive
and mixed wastes. Additionally, revenues from technical support services have
in the past and continue to account for a substantial portion of the Company's
revenues and the loss of one or more technical support service contracts could
adversely affect the Company's future operating results.
The Company's future operating results may fluctuate due to factors
such as: the timing of new commercial waste processing contracts and duration of
and amount of waste to be processed pursuant to those contracts: the acceptance
and implementation of its waste treatment technologies in the government and
commercial sectors, the evaluation by the DOE and other customers of the
Company's technologies versus other competing technologies as well as
conventional storage and disposal alternatives; the timing of new waste
treatment projects, including those pursued jointly with BNFL, the duration of
such projects; and the timing of outage support projects and other large
technical support services projects at its customers' facilities.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
See accompanying Index to Exhibits
b. Reports
-------
None.
12
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
March 31, 1999
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GTS DURATEK, INC.
Dated: May 14, 1999 BY: /s/ Robert F. Shawver
----------------------------
Robert F. Shawver
Executive Vice President and
Chief Financial Officer
Dated: May 14, 1999 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)
10.3 License Agreement dated as of August 17, 1992 between GTS Duratek, Inc.
and Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo.
Incorporated herein by reference to Exhibit 10.9 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992. (File No.
0-14292)
E-1
<PAGE>
10.4 Stockholders' Agreement dated December 28, 1993 between GTS Duratek, Inc.
and Vitritek Holdings, L.L.C. Incorporated by reference to Exhibit 3 of
the Registrant's Form 8-K Current Report dated December 22, 1993. (File
No. 0-14292)
10.5 Agreement dated January 14, 1994 between GTS Duratek, Inc. and
Westinghouse Savannah River Company. Incorporated by reference to Exhibit
10.17 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993. (File No. 0-14292)
10.6 Agreement dated September 15, 1994 between DuraChem Limited Partnership a
Maryland Limited Partnership, by and among CNSI Sub, Inc. and GTSD Sub,
Inc. as the General Partners, and Chemical Waste Management, Inc. and GTS
Duratek, Inc. as the Limited Partners. Incorporated herein by reference
to Exhibit 10-19 of the Registrants Annual Report on 10-K for the year
ended December 31, 1994 (File No. 0-14292)
10.7 Teaming Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995 (File No. 0-14292).
10.8 Sublicense Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995 (File No. 0-14292).
10.9 Stockholders' Agreement by and among Bird Environmental Gulf Coast, Inc.
GTS Duratek, Inc., GTSD Sub II, Inc., Jim S. Hogan, Mark B. Hogan, Barry
K. Hogan and Sam J. Lucas III dated November 29, 1995. Incorporated
herein by reference to Exhibit (c)(3) of the Registrant's Current Report
on Form 8-K filed on December 11, 1995 (File No. 0-14292).
10.10 Technology License Agreement by and among GTS Duratek, Inc., Bird
Environmental Gulf Coast, Inc. and Jim S. Hogan dated November 29, 1995.
Incorporated herein by reference to Exhibit (c)(4) of the Registrant's
Current Report on Form 8-K filed on December 11, 1995. (File No. 0-14292).
10.11 Stock Purchase Agreement by and between Westinghouse Electric Corporation
and GTS Duratek, Inc. dated as of April 8, 1997. Incorporated herein by
reference to Exhibit (c)(2) of Registrant's Current Report on Form 8-K
filed on April 18, 1997. (File No. 0-14292).
10.12 GTS Duratek, Inc. Executive Compensation Plan. Incorporated herein by
reference to Exhibit 10.19 of Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (File No. 0-14292).
10.13 Amended and Restated Credit Agreement as of February 1, 1999 between GTS
Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc.,
Hittman Transport Services, Inc., GTS Instrument Services, Incorporated,
General Technical Services, Inc., Analytical Resources, Inc., GTSD Sub
III, Inc. and First Union National Bank, First Union Commercial
Corporation, Wachovia Bank, N.A. and National Bank of Canada. Incorporated
herein by reference to Exhibit (c)(2) of the Registrant's Current Report
on Form 8-K filed on February 1, 1999. (File No. 0-14292).
E-2
<PAGE>
10.14 Amended and Restated Security Agreement as of February 1, 1999 between GTS
Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc.,
Hittman Transport Services, Inc., GTS Instrument Services, Incorporated,
General Technical Services, Inc., Analytical Resources, Inc., GTSD Sub
III, Inc. and First Union National Bank, First Union Commercial
Corporation, Wachovia Bank, N.A. and National Bank of Canada. Incorporated
herein by reference to Exhibit (c)(2) of the Registrant's Current Report
on Form 8-K filed on February 1, 1999 (Filed No. 0-14292).
27.1 Financial Data Schedule. (filed herewith)
E-3
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1999 (UNAUDITED), OF GTS DURATEK, INC. AND SUBSIDIARIES, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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