<PAGE>
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 June 30, 2000
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________ to _________
Commission File Number 0-14292
GTS DURATEK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2476180
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10100 Old Columbia Road, Columbia, Maryland 21046
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 312-5100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
---
Number of shares outstanding of each of the issuer's classes of common stock as
of August 11, 2000:
Common Stock, par value $0.01 per share 13,424,880 shares
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C>
Part I Financial Information
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 2000 and December 31, 1999.................................................. 2
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2000 and 1999.................................................... 3
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 2000.............................................. 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999.................................................... 5
Notes to Condensed Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................. 11
Item 3. Quantitative and Qualitative Information About
Market Risk................................................................................ 14
Part II Other Information
-------
Item 1. Legal Proceedings................................................................................ 15
Item 4. Submission of Matters to a Vote of Securities Holders............................................ 15
Item 5. Other Information................................................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................................................. 17
Signatures....................................................................................... 18
</TABLE>
1
<PAGE>
Part I Financial Information
------
Item 1. Financial Statements
GTS DURATEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------------- ---------------------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 7,006,051 $ 59,525
Receivables, net............................................................. 48,883,056 33,309,141
Other accounts receivable.................................................... 7,596,828 6,292,606
Costs and estimated earnings in excess of billings on uncompleted contracts.. 29,747,783 15,924,413
Prepaid expenses and other current assets.................................... 9,377,884 3,160,064
Net assets held for sale..................................................... - 6,618,836
--------------------- ---------------------
Total current assets........................................................ 102,611,602 65,364,585
Property, plant and equipment, net............................................. 84,291,234 63,417,307
Investments in and advances to joint ventures, net............................. 759,887 4,183,773
Goodwill and other intangible assets, net...................................... 74,127,509 23,391,192
Other assets................................................................... 21,023,685 1,231,506
--------------------- ---------------------
$282,813,917 $157,588,363
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................................................ $ 11,000,000 $ 9,000,000
Current portion of long-term debt............................................ 10,400,000 4,000,000
Accounts payable ............................................................ 31,103,686 15,529,048
Accrued expenses and other current liabilities............................... 20,378,910 5,269,875
Unearned revenues............................................................ 10,581,137 6,672,699
Waste processing and disposal liabilities.................................... 1,888,668 3,910,155
--------------------- ---------------------
Total current liabilities................................................... 85,352,401 44,381,777
Long-term debt................................................................. 77,000,000 13,200,000
Convertible debenture.......................................................... 12,690,811 12,334,813
Facility and equipment decontamination and decommissioning liabilities........ 24,713,015 8,507,164
Other noncurrent liabilities................................................... 1,405,804 2,259,984
--------------------- ---------------------
Total liabilities.......................................................... 201,162,031 80,684,215
Redeemable preferred stock
(Liquidation value $16,320,000).............................................. 15,625,821 15,509,438
Stockholders' equity:
Common stock.................................................................. 148,238 148,238
Capital in excess of par value................................................ 75,207,177 75,207,177
Deficit....................................................................... (141,624) (4,772,979)
Treasury stock, at cost....................................................... (9,187,726) (9,187,726)
--------------------- ---------------------
Total stockholders' equity................................................ 66,026,065 61,394,710
--------------------- ---------------------
$282,813,917 $157,588,363
===================== =====================
</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1999 has been
derived from the Company's audited Consolidated Balance Sheet as of that date.
See notes to condensed consolidated financial statements.
2
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------- -------------------------------------
2000 1999 2000 1999
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues........................................ $52,771,893 $41,692,417 $93,874,344 $80,577,671
Cost of revenues................................ 37,649,903 30,069,905 69,122,091 59,145,744
---------------- --------------- --------------- ----------------
Gross profit.................................... 15,121,990 11,622,512 24,752,253 21,431,927
Selling, general and
administrative expenses....................... 8,237,083 6,733,545 14,921,899 13,243,570
---------------- --------------- --------------- ----------------
Income from operations.......................... 6,884,907 4,888,967 9,830,354 8,188,357
Gain on sale of DuraTherm, Inc.................. - - 1,166,000 -
Interest expense, net........................... (1,278,552) (298,790) (2,020,033) (583,612)
---------------- --------------- --------------- ----------------
Income before income taxes and proportionate
share of loss of joint venture................ 5,606,355 4,590,177 8,976,321 7,604,745
Income taxes.................................... 2,224,583 1,836,073 3,538,583 2,996,682
---------------- --------------- --------------- ----------------
Income before proportionate share of loss of
joint venture................................. 3,381,772 2,754,104 5,437,738 4,608,063
Proportionate share of loss of joint venture.... (25,000) (50,000) (50,000) (100,000)
---------------- --------------- --------------- ----------------
Net income...................................... 3,356,772 2,704,104 5,387,738 4,508,063
Preferred stock dividends and
charges for accretion.......................... 378,300 377,435 756,383 754,655
---------------- --------------- --------------- ----------------
Net income attributable to
common shareholders............................ $ 2,978,472 $ 2,326,669 $ 4,631,355 $ 3,753,408
================ =============== =============== ================
Basic net income per share...................... $ 0 .23 $ 0.17 $ 0.35 $ 0.28
================ =============== =============== ================
Diluted net income per share.................... $ 0 .17 $ 0.14 $ 0.28 $ 0.23
================ =============== =============== ================
Basic weighted average common stock
outstanding................................... 13,301,892 13,454,926 13,301,892 13,582,581
================ =============== =============== ================
Diluted weighted average common stock and
dilutive securities outstanding.............. 20,146,570 20,499,357 20,093,011 20,636,387
================ =============== =============== ================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Capital
---------------------------- in Excess of Treasury Total Stockholders'
Shares Amount Par Value Deficit Stock Equity
--------------- ------------ ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 14,823,850 $148,238 $75,207,177 $(4,772,979) $(9,187,726) $61,394,710
Net income - - - 5,387,738 - 5,387,738
Preferred dividends - - - (640,000) - (640,000)
Accretion of redeemable
preferred stock - - - (116,383) - (116,383)
--------------- ------------ ----------------- ---------------- ----------------- -------------------
Balance, June 30, 2000 14,823,850 $148,238 $75,207,177 $ (141,624) $(9,187,726) $66,026,065
=============== ============ ================= ================ ================= ===================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 5,387,738 $ 4,508,063
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................. 3,257,660 2,393,189
Accrued interest on convertible debenture..................................... 355,998 279,003
Proportionate share of loss of joint venture.................................. 50,000 100,000
Gain on sale of DuraTherm, Inc................................................ (1,166,000) -
Changes in operating assets and liabilities, net of effects from businesses
acquired and disposed of in 2000:
Receivables, net........................................................ (100,502) 2,037,090
Cost in excess of billings.............................................. (5,378,361) (5,816,740)
Prepaid expenses and other current assets............................... (4,156,435) 77,303
Net assets held for sale................................................ (174,515) -
Accounts payables, accrued expenses and other current liabilities....... 9,291,580 5,712,077
Unearned revenues....................................................... (252,624) (3,080,490)
Waste processing and disposal liabilities............................... (2,021,487) (3,511,690)
Facility and equipment decontamination and
decommissioning liabilities........................................... 382,044 360,147
Other................................................................... 368,476 -
---------------- ----------------
Net cash provided by operations................................................. 5,843,572 3,057,952
---------------- ----------------
Cash flows from investing activities:
Additions to property, plant and equipment, net................................... (7,056,606) (3,398,600)
Proceeds from sale of DuraTherm, Inc., net of transaction costs................... 7,623,664 -
Advances to joint ventures........................................................ - (40,002)
Acquisition of Waste Management Nuclear Services, net of cash acquired ........... (66,988,658) -
Acquisition of Frank W. Hake Associates, LLC...................................... - (13,156,698)
Other............................................................................. (1,022,376) (289,922)
---------------- ----------------
Net cash used in investing activities........................................... (67,443,976) (16,885,222)
---------------- ----------------
Cash flows from financing activities:
Short-term borrowings, net........................................................ 2,000,000 (6,088,132)
Proceeds from borrowings under long-term debt..................................... 73,800,000 19,768,757
Repayments of long-term debt...................................................... (3,600,000) -
Preferred stock dividends......................................................... (640,000) (640,000)
Proceeds from issuance of common stock............................................ - 7,000
Repurchase of treasury shares..................................................... - (2,640,128)
Deferred financing costs.......................................................... (3,013,070) (885,569)
---------------- ----------------
Net cash provided by financing activities....................................... 68,546,930 9,521,928
---------------- ----------------
Net change in cash and cash equivalents.............................................. 6,946,526 (4,305,342)
Cash and cash equivalents at beginning of period..................................... 59,525 5,944,274
---------------- ----------------
Cash and cash equivalents at end of period........................................... $ 7,006,051 $ 1,638,932
================ ================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. Principles of consolidation and basis of presentation
The accompanying unaudited condensed consolidated financial statements of
GTS Duratek, Inc. and its wholly-owned subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information. All significant intercompany balances and transactions
have been eliminated in consolidation. Investments in subsidiaries and joint
ventures in which the Company does not have control or majority ownership are
accounted for under the equity method.
All adjustments (consisting of normal recurring accruals) that, in the
opinion of management, are necessary for the fair presentation of this interim
financial information have been included. Results of interim periods are not
necessarily indicative of results to be expected for the year as a whole. The
effect of seasonal business fluctuations and the occurrence of many costs and
expenses in annual cycles require certain estimations in the determination of
interim results. The information contained in the interim financial statements
should be read in conjunction with the Company's latest Annual Report on Form
10-K filed with the Securities and Exchange Commission. Certain
reclassifications have been made to prior period financial statements in order
to conform to the presentation used in the 2000 interim financial statements.
2. 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 13,301,892 and 13,454,926 for the three months ended
June 30, 2000 and 1999, respectively and 13,301,892 and 13,582,581 for the six
months ended June 30,2000 and 1999, 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 20,146,570 and
20,499,357 for the three months ended June 30, 2000 and 1999, respectively and
20,093,011 and 20,636,387 for the six months ended June 30,2000 and 1999,
respectively. The difference between basic and diluted weighted average shares
relates to the dilutive effect of stock options and warrants where the exercise
price is less than the average market value of the Company's common stock for
the year of calculation.
3. Acquisitions
On June 8, 2000, the Company acquired the nuclear services business of
Waste Management, Inc. ("WMI"). The acquisition was effected as the purchase of
all of the outstanding capital stock of Waste Management Federal Services, Inc.
("WMFS") from Rust International, Inc. ("Rust") and all of the outstanding
membership interests of Chem-Nuclear Systems, LLC ("Chem-Nuclear") from Chemical
Waste Management, Inc. ("CWM") and CNS Holdings, Inc. ("CNS"). Each of Rust,
CWM, and CNS are indirect subsidiaries of WMI. The purchase price was $67
million in cash, consisting of $65 million in cash, and $2 million of
transaction costs. The purchase price is also subject to certain post closing
adjustments. The acquired companies are referred to as Waste Management Nuclear
Services ("WMNS"). WMNS is a leader in providing low-level radioactive waste
management services for the commercial industry and the federal government. WMNS
consists primarily of three operating segments: (i) the Federal Services
Division which provides radioactive waste handling, transportation, treatment
packaging, storage, disposal, site cleanup, and project management services
primarily for the United States Department of Energy ("DOE") and other federal
agencies; (ii) the Commercial Services Division which provides radioactive waste
handling, transportation, licensing, packing, disposal, and decontamination and
decommissioning services primarily to nuclear utilities; and (iii) the
Commercial Disposal Division which operates a commercial low-level radioactive
waste disposal facility at Barnwell, South Carolina. The acquisition has been
accounted for under the purchase method of accounting. The aggregate purchase
price in excess of the estimated fair value of tangible assets and indentifiable
intangible assets will be allocated to goodwill and amortized over 30 years.
Results of WMNS for the period June 8, 2000 to June 30, 2000 are included in the
Company's consolidated results for the three and six months ended June 30, 2000.
6
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The aggregate purchase price for WMNS is as follows:
Cash paid to Waste Management $ 65,000,000
Liabilities assumed 38,969,000
Transaction costs 2,000,000
---------------
Aggregate purchase price $105,969,000
===============
The aggregate purchase is expected to be allocated to the acquired assets
based upon their estimated fair values as follows:
Accounts receivable $ 16,778,000
Unbilled revenues 8,445,000
Inventory 1,558,000
Property and equipment 13,116,000
Decommissioning trust fund 16,687,000
Other tangible assets 700,000
Goodwill and other intangible assets 48,685,000
------------
$105,969,000
============
The above information is based upon management's best estimate of the fair
value of the assets acquired. The Company is in the process of completing
appraisals of the assets acquired and liabilities assumed. Upon completion of
this process the Company will adjust the amounts recorded to the final
appraisals. Such adjustments could be material.
The acquisition was financed with borrowings under the Company's amended
and restated bank credit facility. Under the facility the Company has available
borrowings of up to $135 million. The facility consists of a five year $45
million revolving line of credit, including $15 million for standby letters of
credit, a five year $50 million term loan and a six and one-half year $40
million term loan. Borrowings under the credit facility bear interest at LIBOR
plus an applicable margin, or at the Company's option, the prime rate plus an
applicable margin. The applicable margin is determined based upon the Company's
performance and was set at 3.25% for LIBOR based borrowings, and 2.25% for prime
based borrowings during the first six months following the acquisition.
Borrowings under the $40 million term loan bear an additional 0.5% interest. The
term loans require aggregate quarterly principal payments of $7.8 million in
2000, $10.4 million in 2001, $10.4 million in 2002, $10.4 million in 2003, $15.1
million in 2004, $21.6 million in 2005, and $14.3 million in 2006. In addition,
the Company is also required to prepay the term loans in an amount equal to 50%
of excess cash flows, as defined. The bank credit facility requires the Company
to maintain certain financial ratios and restricts the payment of dividends on
the Company's common stock. At the time of the acquisition, the Company had
borrowings of $90 million under the term loan and $6 million under the revolving
line of credit. At June 30, 2000, the Company had $11.0 and $6.0 million under
the revolving line of credit and $77.0 million outstanding under the term loans.
At June 30, 2000, $36.7 million of additional borrowings were available under
the revolving credit portion of the bank credit facility.
7
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
4. Sale of DuraTherm, Inc.
In February 2000, the Company completed the sale of its 80% interest in
DuraTherm, Inc. to DuraTherm Group, Inc. for $8.0 million in cash and a
subordinated note for $336,000. Proceeds to the Company of $8.0 million were
used by the Company to pay down borrowings under its bank credit facility. The
note receivable bears interest at 14%, payable semi-annually during the first
year following the sale, and 18% during the second year following the sale with
the principal due in February 2002. The Company recognized a pre-tax gain of
$1.2 million on the sale.
5. Pro forma Results
The Company is completing the pro forma information with respect to the
acquisition of WMNS and sale of DuraTherm, Inc. for the three and six month
periods ending June 30, 1999 and 2000 and will file such information on form
8-K/A on or about August 22, 2000.
6. Segment reporting
The Company has three primary segments (i) commercial waste processing,
(ii) government waste processing, and (iii) technical services. Following the
acquisition of WMNS, the Company intends to reorganize its reporting segments.
Until such time, WMNS will be shown as a separate segment. Below is a brief
description of each of the segments including WMNS:
1. Commercial Waste Processing (CWP) - The Company conducts its commercial
waste processing operations principally at its Bear Creek Operations
Facility located in Oak Ridge, Tennessee. The Company's waste treatment
technologies include: incineration; compaction; metal decontamination and
recycling; vitrification; steam reforming; and thermal desorption.
Commercial waste processing customers primarily include commercial nuclear
utilities and petrochemical companies.
8
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
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.
3. Technical Services (TS) - The Company's technical support services
encompass approximately 600 engineers, consultants and technicians, some of
whom are full-time employees and the balance of whom are contract
employees, who support and complement the Company's commercial and
government waste processing operations and also provide highly specialized
technical support services for the Company's customers.
4. Waste Management Nuclear Services (WMNS) - The Company acquired the nuclear
services business of Waste Management, Inc. on June 8, 2000. This business
provides low-level radioactive waste management services for the commercial
industry and the federal government.
The Company's segment information is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 2000
-----------------------------------------------------------------------------------------------------
Unallocated
CWP GWP TS WMNS Items Consolidated
----------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $ 23,092,360 $ 10,276,496 $ 12,517,222 $ 6,885,815 $ - $ 52,771,893
Income from operations 3,469,034 1,639,554 75,889 1,700,430 - 6,884,907
Interest expense - - - - (1,278,552) (1,278,552)
Depreciation and
amortization
expense 1,249,651 23,050 144,279 154,812 143,124 1,714,916
Proportionate share
of losses of joint
ventures - - - - (25,000) (25,000)
Income tax expense - - - - 2,224,583 2,224,583
Capital expenditure
for additions to
long-lived assets 3,826,266 - 35,349 23,473 121,565 4,006,653
</TABLE>
9
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 1999
---------------------------------------------------------------------------
Unallocated
CWP GWP TS Items Consolidated
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $19,699,951 $ 8,581,489 $13,410,977 $ - $ 41,692,417
Income from operations 2,836,823 1,848,599 203,545 - 4,888,967
Interest expense - - - (298,790) (298,790)
Depreciation and
amortization 1,552,700
expense 1,402,400 50,095 100,205 -
Proportionate share
of losses of joint
ventures - - - (50,000) (50,000)
Income tax expense - - - 1,836,073 1,836,073
Capital expenditure
for additions to
long-lived assets 1,977,608 (25,484) (4,605) 497,721 2,445,240
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 2000
-------------------------------------------------------------------------------------------
Unallocated
CWP GWP TS WMNS Items Consolidated
------------ ----------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $ 43,298,611 $18,939,113 $24,750,805 $ 6,885,815 $ - $ 93,874,344
Income from operations 5,407,605 2,414,206 308,113 1,700,430 - 9,830,354
Gain on Sale of
DuraTherm, Inc. - - - - 1,166,000 1,166,000
Interest expense - - - - (2,020,033) (2,020,033)
Depreciation and
amortization
expense 2,464,267 94,908 257,425 154,812 286,248 3,257,660
Proportionate share
of losses of joint
ventures - - - - (50,000) (50,000)
Income tax expense - - - - 3,538,583 3,538,583
Capital expenditure
for additions to
long-lived assets 6,554,863 - 60,197 23,473 418,073 7,056,606
Total assets 114,222,038 18,121,197 16,703,455 115,089,241 18,677,986 282,813,917
</TABLE>
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
As of and for the Six Months Ended June 30, 1999
-------------------------------------------------------------------------------------
Unallocated
CWP GWP TS Items Consolidated
--------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 37,268,346 $ 18,058,178 $ 25,251,147 $ - $ 80,577,671
Income from operations 4,864,383 2,736,001 587,973 - 8,188,357
Interest expense - - - (583,612) (583,612)
Depreciation and
amortization
expense 2,092,589 100,190 200,410 - 2,393,189
Proportionate share
of losses of joint
ventures - - - (100,000) (100,000)
Income tax expense - - - 2,996,682 2,996,682
Investments in and
advances to joint
ventures - - - 4,071,404 4,071,404
Capital expenditure
for additions to
long-lived assets 2,785,076 10,380 30,782 572,362 3,398,600
Total assets 87,586,962 19,623,670 21,283,071 19,533,534 148,027,237
</TABLE>
11
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
GTS Duratek, Inc. (the "Company") derives substantially all of its revenues
from commercial and government waste processing operations and from technical
support services to electric utilities, industrial facilities, commercial
businesses and government agencies. Commercial waste processing operations are
provided primarily at the Company's Bear Creek low-level radioactive waste
processing facility located in Oak Ridge, Tennessee. The Company also provides
on-site waste processing services on large government projects for the United
States Department of Energy ("DOE"). Technical support services are generally
provided pursuant to multi-year time and materials contracts. Revenues are
recognized as costs are incurred according to predetermined rates. The contract
costs primarily include direct labor, materials and the indirect costs related
to contract performance.
The Company's future operating results will be affected by, among other
things, the duration of commercial waste processing contracts and amount of
waste to be processed by the Company's commercial waste processing operations
pursuant to these contracts; the timing and scope of DOE waste treatment
projects, including the Hanford and Idaho Falls DOE projects.
On June 8, 2000, the Company acquired the nuclear services business of
Waste Management, Inc. ("WMI"). The acquisition was effected as the purchase of
all of the outstanding capital stock of Waste Management Federal Services, Inc.
("WMFS") from Rust International, Inc. ("Rust") and all of the outstanding
membership interests of Chem-Nuclear Systems, LLC ("Chem-Nuclear") from Chemical
Waste Management, Inc. ("CWM") and CNS Holdings, Inc. ("CNS"). Each of Rust,
CWM, and CNS are indirect subsidiaries of WMI. The purchase price was $67
million in cash, consisting of $55 million in cash at closing, $10 million in
additional cash consideration held in escrow until upon the satisfaction of
certain post closing conditions, and $2 million of transaction costs. The
purchase price is also subject to certain post closing adjustments. The acquired
companies are referred to as Waste Management Nuclear Services ("WMNS"). WMNS is
a leader in providing low-level radioactive waste management services for the
commercial industry and the federal government.
In February 2000, the Company completed the sale of its 80% interest in
DuraTherm, Inc. to DuraTherm Group, Inc. for $8.0 million in cash and a
subordinated note for $336,000. Proceeds to the Company of $8.0 million were
used by the Company to pay down borrowings under its bank credit facility. The
note receivable bears interest at 14%, payable semi-annually during the first
year following the sale, and 18% during the second year following the sale with
the principal due in February 2002. The Company recognized a pre-tax gain of
$1.2 million on the sale.
Results of Operations
Three Months Ended June 30, 1999 as compared to Three Months Ended June 30, 2000
Revenues increased by $11.1 million, or 26.6%, from $41.7 million in 1999
as compared to $52.8 million in 2000. The increase was primarily attributable to
$6.9 million in revenues generated by WMNS for the period from June 8, 2000, the
date of acquisition, a $6.7 million
12
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GTS DURATEK, INC. AND SUBSIDIARIES
increase in revenues in commercial waste processing at the Company's low-level
radioactive waste processing facilities located in Tennessee, and a $1.7 million
revenue increase in government waste processing services. The increase was
partially offset by a $3.3 million decrease in the Company's DuraTherm business,
which was sold in February 3, 2000, and a $894,000 decrease in technical support
services revenues. The increase in revenues from commercial waste processing was
the result of higher processing volumes at the Bear Creek facility and the full
period effect of the acquisition of Frank W. Hake Associates LLC ("Hake") in
June, 1999. The increased revenues in government waste processing services was
primarily the result of work performed on the Hanford River Protection contract.
The decline in revenues from DuraTherm resulted from the sale of this business
in February, 2000. The decrease in technical support services revenues was due
to outages occurring earlier in 1999 compared to 2000 and restricted
availability of qualified personnel to support field operations.
Gross profit increased $3.5 million, or 30.2%, from $11.6 million in 1999
to $15.1 million in 2000. WMNS, the Tennessee facilities, and technical support
services accounted for increases in gross profit of $2.6 million, $1.3 million,
and $500,000 respectively. The increase was partially offset by a decrease in
gross profit from the DuraTherm facility of $900,000. The increase in gross
profit at the Tennessee facilities was the result of higher processing volume
and changes in waste mix at the Bear Creek facility and the full period effect
of the Hake acquisition. The increase in gross profit from technical support
services was due to improved volumes and margins in the Hittman Trucking
operation. The decrease in gross profit for the DuraTherm facility was due to
the sale of that business in February, 2000. As a percentage of revenues, gross
profit increased from 27.9% in 1999 to 28.7% in 2000.
Selling, general, and administrative expenses increased by $1.5 million, or
22.3%, from $6.7 million in 1999 to $8.2 million in 2000 primarily due to the
acquistion of WMNS and activities supporting higher revenues. As a percentage of
revenues, selling, general, and administrative expenses decreased from 16.2% in
1999 to 15.6% in 2000.
Interest expense, net increased by $980,000 from 1999 to 2000. The increase
was the result of increased borrowings required to fund working capital needs
and the acquisitions of WMNS in June, 2000 and Hake in June, 1999, as well as
higher borrowing costs.
Income taxes expense increased $389,000 from $1.8 million in 1999 to $2.2
million in 2000. The Company is accruing income taxes at full statutory rates.
Six Months Ended June 30, 1999 as compared to Six Months Ended June 30, 2000
Revenues increased by $13.3 million, or 16.5%, from $80.6 million in 1999
to $93.9 million in 2000. The increase was primarily attributable to a $11.9
million increase in revenues from commercial waste processing at the Company's
low-level radioactive waste processing facilities located in Tennessee, $6.9
million generated by WMNS for the period from June 8, 2000, and a $900,000
increase in government waste processing services. The increase was partially
offset by a $5.9 million decrease in revenues from the Company's DuraTherm
facility and the $500,000 decrease in technical support services. The increase
in revenues from the Tennessee commercial low-level radioactive waste processing
facilities was the result of higher processing volumes at the Bear Creek
facility located in Oak Ridge, Tennessee and the full period effect of the
acquisition of Hake in June, 1999. The increase in government waste processing
services was primarily the result of work performed on the Hanford River
Protection Contract. The decrease in revenues from DuraTherm resulted from the
sale of this business in February, 2000. The decrease in technical support
services revenues was due to the restricted availability of qualified personnel
to support field operations.
13
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GTS DURATEK, INC. AND SUBSIDIARIES
Gross profit increased $3.3 million, or 15.4%, from $21.4 million in 1999
to $24.7 million in 2000. The Tennessee low-level commercial waste facilities
and WMNS accounted for increases in gross profit of $3.0 million and $2.7
million, respectively. The increase in gross profit was partially offset by
decreases in the Company's DuraTherm facility, government waste processing and
technical support services of $1.9 million, $360,000, and $100,000,
respectively. The increase in gross profit of the Tennessee low-level commercial
waste facilities was due to higher processing volumes, changes in waste mix, and
the full period effect of the Hake acquisition made in June, 1999. The decrease
in gross profit from DuraTherm resulted from the sale of this business in
February, 2000. The government waste processing gross profit was lower primarily
due to the completion in late 1999 of a high gross margin contract. The
technical services gross profit decreased due to lower volume caused by
restricted availability of qualified information system personnel. As a
percentage of revenues, gross profit decreased from 26.6% in 1999 to 26.4% in
2000.
Selling, general, and administrative expenses increased by $1.7 million, or
12.8%, from $13.2 million in 1999 to $14.9 million in 2000 primarily due to
higher volume and the acquisition of WMNS. As a percentage of revenues, selling,
general, and administrative expenses decreased from 16.4% in 1999 to 15.9% in
2000.
Interest expense, net increased by $1.4 million from 1999 to 2000. The
increase was the result of increased borrowings required to fund working capital
needs and the acquisitions of WMNS in June, 2000 and Hake in June, 1999, as well
as higher borrowing costs.
Income taxes increased by $542,000 from 1999 to 2000. The Company's
effective tax rate was 39.4% in both 1999 and in 2000.
Liquidity and capital resources
The Company has available an amended and restated bank credit facility
which provides for borrowings of up to $135 million. The facility consists of a
five year $45 million revolving line of credit, including $15 million for
standby letters of credit, a five year $50 million term loan and a six and one-
half year $40 million term loan. Borrowings under the credit facility bear
interest at LIBOR plus an applicable margin, or at the Company's option, the
prime rate plus an applicable margin.
The acquisition of WMNS was financed with borrowings under the bank credit
facility. The applicable margin is determined based upon the Company's
performance and was set at 3.25% for LIBOR based borrowings, and 2.25% for prime
based borrowings during the first six months following the acquisition.
Borrowings under the $40 million term loan bear an additional 0.5% interest. The
term loans require aggregate quarterly principal payments of $7.8 million in
2000, $10.4 million in 2001, $10.4 million in 2002, $10.4 million in 2003, $15.1
million in 2004, $21.6 million in 2005, and $14.3 million in 2006. In addition,
the Company is also required to prepay the term loans in an amount equal to 50%
of excess cash flows, as defined. The bank credit facility requires the Company
to maintain certain financial ratios and restricts the payment of dividends on
the Company's common stock. At the time of the acquisition, the Company had
borrowings of $90 million under the term loan and $6 million under the revolving
line of credit. At June 30, 2000, the Company had $11.0 and $6.0 million under
the revolving line of credit and $77.0 million outstanding under the term loans.
At June 30, 2000, $36.7 million of additional borrowings were available under
the revolving credit portion of the bank credit facility.
The Company believes cash flows from operations and, if necessary,
borrowings available under its credit facility will be sufficient to meet its
operating needs, including the quarterly preferred dividend requirement of
$320,000 for at least the next
14
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GTS DURATEK, INC. AND SUBSIDIARIES
twelve months.
Item 3. Quantitative and Qualitative Information about Market Risk
The Company's major market risk relates to changing interest rates. At June
30, 2000, the Company had floating rate long-term debt of $87.4 million and
floating short-term rate debt of $11.0 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.
15
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Part II Other Information
-------
Item 1. Legal Proceedings
Refer to the Company's annual report on Form 10-K for the year ended
December 31, 1999 for a discussion of legal proceedings.
Item 4. Submission of Matters to a Vote of Securities Holders
At the Company's Annual Meeting of Stockholders held on May 16, 2000 the
following matters were voted upon:
a. Daniel A. D'Aniello, Earle C. Williams, and Dr. Francis J. Harvey were
elected to serve as directors of the Company by the convertible preferred
stockholders for a one-year term. Admiral James D. Watkins, George V. McGowan
and Robert E. Prince were elected to serve as directors for a one-year term by
the common stockholders and convertible preferred stockholders, voting together
as a single class.
For the directors elected by the preferred and common, voting together as a
single class, the votes are shown below:
For Against
--- -------
Admiral James D. Watkins 16,615,165 --
George V. McGowan 16,616,590 --
Robert E. Prince 16,630,745 --
b. The proposal to approve the GTS Duratek, Inc. 1999 Stock Option and
Incentive Plan was approved by the common stockholders and convertible
preferred stockholders, voting together as a single class, by a vote of
12,381,204 for and 968,917 against.
c. The proposal to reappoint KPMG LLP as the Company's independent
auditors for the year ending December 31, 2000 was approved by the common
stockholders and convertible preferred stockholders, voting together as a single
class, by a vote of 17,015,444 for and 38,578 against this proposal.
Item 5. Other Information
In response to the "safe harbor" provisions contained in the Private
Securities Litigation Reform Act of 1995, the Company is including in this
Quarterly Report on Form 10-Q the following cautionary statements which are
intended to identify certain important factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by or on behalf of the Company. Many of these
factors have been discussed in prior filings with the Securities and Exchange
Commission.
The Company's future operating results are largely dependent upon the
Company's ability to manage its commercial waste processing operations,
including obtaining commercial waste processing contracts and processing waste
under such contracts in a timely and cost effective manner. In addition, the
Company's future operating results are dependent upon the timing and awarding of
contracts by the DOE for the cleanup of other waste sites administered by it.
The timing and award of such contracts by the DOE is directly related to the
response of governmental authorities to public concerns over the treatment and
disposal of radioactive, hazardous, mixed, and other wastes. The lessening of
public concern in this area or other changes in the political environment could
adversely affect the availability and timing of government funding for the
cleanup of DOE and other sites containing radioactive and mixed wastes.
Additionally, revenues from technical support services have in the past and
continue to account for a substantial portion of the Company's revenues and the
loss of one or more technical support service contracts could adversely affect
the Company's future operating results.
16
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
The Company's future operating results may fluctuate due to factors such
as: the timing of new commercial waste processing contracts and duration of and
amount of waste to be processed pursuant to those contracts; the Company's
ability to integrate acquired businesses, including the Company's most recent
acquisition of WMNS; the acceptance and implementation of its waste treatment
technologies in the government and commercial sectors; the evaluation by the DOE
and other customers of the Company's technologies versus other competing
technologies as well as conventional storage and disposal alternatives; the
timing of new waste treatment projects, including those pursued jointly with
BNFL, and the duration of such projects; and the timing of outage support
projects and other large technical support services projects at its customers'
facilities.
17
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
See accompanying Index to Exhibits.
b. Reports
-------
Current Report on Form 8-K filed on June 22, 2000.
c. Financial Data Schedule
-----------------------
Filed herewith.
18
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
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: August 14, 2000 BY: /s/ Robert F. Shawver
------------------------------
Robert F. Shawver
Executive Vice President and
Chief Financial Officer
Dated: August 14, 2000 BY: /s/ Charles L. Standley
------------------------------
Charles L. Standley
Controller
19
<PAGE>
EXHIBITS INDEX
Exhibit
No.
---
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 Form 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 Registration Statement on Form S-1 (File 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 Registrant's Current Report on 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 Registrant's
Current Report on 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
Registrant's Current Report on 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
Registrant's Current Report on 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., 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. Incorporation
herein by reference to Exhibit 10.9 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990 (File No. 0-14292).
<PAGE>
10.2 License Agreement dated as of August 17, 1992 between GTS Duratek,
Inc. and Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo.
Incorporated herein by reference to Exhibit 10.9 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992. (File
No. 0-14292).
10.3 Stockholders' Agreement dated December 28, 1993 between GTS Duratek,
Inc. and Vitritek Holdings, L.L.C. Incorporated herein by reference to
Exhibit 3 of the Registrant's Current Report on Form 8-K dated
December 22, 1993. (File No. 0-14292).
10.4 Agreement dated January 14, 1994 between GTS Duratek, Inc. and
Westinghouse Savannah River Company. Incorporated herein by reference
to Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993. (File No. 0-14292).
10.5 Teaming Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995. (File No. 0-14292).
10.6 Sublicense Agreement by and between GTS Duratek, Inc. and BNFL Inc.
dated November 7, 1995. Incorporated herein by reference to Exhibit
10.21 of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995. (File No. 0-14292).
10.7 GTS Duratek, Inc. Executive Compensation Plan. Incorporated herein by
reference to Exhibit 10.19 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997. (File No.
0-14292).
10.8 Stock Purchase Agreement between HakeTenn, Inc., George T. Hamilton
and Richard Wilson and GTS Duratek, Inc. dated as of June 30, 1999.
Incorporated herein by reference to Exhibit (c)(2) of the Registrant's
Current Report on Form 8-K filed on July 13, 1999. (File No. 0-14292).
10.9 Stock Purchase Agreement between DuraTherm Group, Inc. and GTSD Sub
III, Inc. dated February 7, 2000. Incorporated herein by reference to
Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on
February 22, 2000. (File No. 0-14292).
<PAGE>
10.10 Amended and Restated Credit Agreement dated as of June 8, 2000 by and
among GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek
Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument
Services, Incorporated, General Technical Services, Inc., GTSD Sub
III, Inc., GTSD Sub IV, Inc., Frank W. Hake Associates LLC, Chem-
Nuclear Systems L.L.C., Waste Management Federal Services, Inc., Waste
Management Federal Services of Idaho, Inc., Waste Management Federal
Services of Hanford, Inc., Waste Management Technical Services, Inc.,
Waste Management Geotech, Inc., the Lenders party thereto, First Union
National Bank, as Administrative Agent, Credit Lyonnais New York
Branch, as Documentation Agent, Fleet National Bank, as Syndication
Agent, and First Union Securities, Inc., as Lead Arranger and Book
Manager (File No. 0-14292).
10.11 Second Amended and Restated Security Agreement dated as of June 8,
2000 made by GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS
Duratek Colorado, Inc., Hittman Transport Services, Inc., GTS
Instrument Services, Incorporated, General Technical Services, Inc.,
GTSD Sub III, Inc., GTSD Sub IV, Inc., Frank W. Hake Associates,
L.L.C., Chem-Nuclear Systems, L.L.C., Waste Management Federal
Services Inc., Waste Management Federal Services of Idaho, Inc., Waste
Management Federal Services of Hanford, Inc., Waste Management
Technical Services, Inc., Waste Management Geotech, Inc., and First
Union National Bank, as Collateral Agent (File No. 0-14292).
10.12 Purchase Agreement by and among Chemical Waste Management Inc., Rust
International, Inc., CNS Holdings, Inc. and GTS Duratek, Inc. dated
March 29, 2000 (File No. 0-14292).
10.13 Amendment No. 1 to Purchase Agreement and Disclosure Letter by and
among Chemical Waste Management Inc., Rust International, Inc., CNS
Holdings, Inc. and GTS Duratek, Inc. dated June 8, 2000 (File No.
0-14292).
27.1 Financial Data Schedule (Filed herewith)
