<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 September 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number 0-14292
GTS DURATEK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2476180
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10100 Old Columbia Road, Columbia, Maryland 21046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410)312-5100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Number of shares outstanding of each of the issuer's classes of common stock as
of November 7, 2000:
Class of stock Number of shares
-------------- ----------------
Common Stock, par value $0.01 per share 13,425,369
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I Financial Information
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999................................................... 2
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000 and 1999............ 3
Condensed Consolidated Statement of Changes in
Stockholders' Equity for the Nine Months Ended September 30, 2000.... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999................................... 5
Notes to Condensed Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 11
Item 3. Quantitative and Qualitative Information About Market Risk............ 13
Part II Other Information
-------
Item 1. Legal Proceedings..................................................... 14
Item 4. Submission of Matters to a Vote of Securities Holders................. 14
Item 5. Other Information..................................................... 14
Item 6. Exhibits and Reports on Form 8-K...................................... 15
Signatures............................................................ 16
</TABLE>
1
<PAGE>
Part I Financial Information
------
Item 1. Financial Statements
GTS DURATEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS (unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 454,790 $ 59,525
Receivables, net............................................................ 52,715,797 33,309,141
Other accounts receivable................................................... 8,599,140 6,292,606
Costs and estimated earnings in excess of billings on
uncompleted contracts...................................................... 31,271,058 15,924,413
Prepaid expenses and other current assets................................... 11,013,553 3,160,064
Net assets held for sale.................................................... - 6,618,836
------------ ------------
Total current assets....................................................... 104,054,338 65,364,585
Property, plant and equipment, net........................................... 84,628,090 63,417,307
Investments in and advances to joint ventures, net........................... 742,402 4,183,773
Goodwill and other intangible assets, net.................................... 75,026,883 23,391,192
Other assets................................................................. 21,594,612 1,231,506
------------ ------------
$286,046,325 $157,588,363
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings....................................................... $ 26,000,000 $ 9,000,000
Current portion of long-term debt........................................... 10,400,000 4,000,000
Accounts payable............................................................ 15,315,853 15,529,048
Accrued expenses and other current liabilities.............................. 30,509,289 5,269,875
Unearned revenues........................................................... 3,945,873 6,672,699
Waste processing and disposal liabilities................................... 660,000 3,910,155
------------ ------------
Total current liabilities.................................................. 86,831,015 44,381,777
Long-term debt............................................................... 74,400,000 13,200,000
Convertible debenture........................................................ 12,889,810 12,334,813
Facility and equipment decontamination and decommissioning liabilities....... 25,298,942 8,507,641
Other noncurrent liabilities................................................. 1,905,023 2,259,984
------------ ------------
Total liabilities........................................................... 201,324,790 80,684,215
Redeemable preferred stock
(Liquidation value $16,320,000)............................................ 15,684,339 15,509,438
Stockholders' equity:
Common stock................................................................ 148,238 148,238
Capital in excess of par value.............................................. 75,207,177 75,207,177
Retained earnings (deficit)................................................. 2,869,507 (4,772,979)
Treasury stock, at cost..................................................... (9,187,726) (9,187,726)
------------ ------------
Total stockholders' equity................................................. 69,037,196 61,394,710
------------ ------------
$286,046,325 $157,588,363
============ ============
</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 Nine months
ended September 30, ended September 30,
--------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues................................... $73,855,773 $44,777,734 $167,730,117 $125,355,405
Cost of revenues........................... 53,922,677 31,840,713 123,044,768 90,986,457
----------- ----------- ------------ ------------
Gross profit............................... 19,933,096 12,937,021 44,685,349 34,368,948
Selling, general and
administrative expenses.................. 11,159,591 7,052,540 26,081,490 20,296,110
----------- ----------- ------------ ------------
Income from operations..................... 8,773,505 5,884,481 18,603,859 14,072,838
Gain on sale of DuraTherm, Inc............. - - 1,166,000 -
Interest expense, net...................... (3,019,924) (948,674) (5,039,957) (1,532,286)
----------- ----------- ------------ ------------
Income before income taxes and
proportionate share of loss of joint
venture................................... 5,753,581 4,935,807 14,729,902 12,540,552
Income taxes............................... 2,301,432 1,974,323 5,840,015 4,971,005
----------- ----------- ------------ ------------
Income before proportionate share of loss
of joint venture.......................... 3,452,149 2,961,484 8,889,887 7,569,547
Proportionate share of loss of joint
venture................................... (62,500) (50,000) (112,500) (150,000)
----------- ----------- ------------ ------------
Net income................................. 3,389,649 2,911,484 8,777,387 7,419,547
Preferred stock dividends and
charges for accretion..................... 378,518 377,651 1,134,901 1,132,306
----------- ----------- ------------ ------------
Net income attributable to
common shareholders....................... $ 3,011,131 $ 2,533,833 $ 7,642,486 $ 6,287,241
=========== =========== ============ ============
Basic net income per share................. $ 0.23 $ 0.19 $ 0.57 $ 0.47
=========== =========== ============ ============
Diluted net income per share............... $ 0.17 $ 0.15 $ 0.45 $ 0.37
=========== =========== ============ ============
Basic weighted average common stock
outstanding............................... 13,301,892 13,183,653 13,301,892 13,449,605
=========== =========== ============ ============
Diluted weighted average common stock and
dilutive securities outstanding........... 20,144,661 20,208,566 20,110,227 20,493,780
=========== =========== ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Capital Retained Total
---------------------- in Excess of earnings Treasury Stockholders'
Share 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 - - - 8,777,387 - 8,777,387
Preferred dividends - - - (960,000) - (960,000)
Accretion of redeemable
preferred stock - - - (174,901) - (174,901)
---------- -------- ----------- ----------- ----------- -----------
Balance, September 30, 2000 14,823,850 $148,238 $75,207,177 $ 2,869,507 $(9,187,726) $69,037,196
========== ======== =========== =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended September 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................ $ 8,777,387 $ 7,419,547
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization....................................................... 6,318,560 4,094,681
Accrued interest on convertible debenture........................................... 554,997 439,754
Proportionate share of loss of joint venture........................................ 112,500 150,000
Gain on sale of DuraTherm, Inc...................................................... (1,166,000) -
Changes in operating assets and liabilities, net of effects from businesses
acquired and disposed of:
Receivables, net................................................................ (4,748,587) (1,547,574)
Cost in excess of billings...................................................... (6,901,636) (4,875,841)
Prepaid expenses and other current assets....................................... (5,792,104) (2,142,355)
Net assets held for sale........................................................ 161,172 -
Accounts payables, accrued expenses and other current liabilities............... 3,634,126 2,948,926
Unearned revenues............................................................... (4,473,844) (1,869,362)
Waste processing and disposal liabilities....................................... (3,250,155) (2,315,659)
Facility and equipment decontamination and decommissioning liabilities......... 967,971 486,426
------------ -------------
Net cash provided by (used in) operations............................................ (5,805,613) 2,788,543
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net....................................... (10,616,311) (5,033,207)
Proceeds from sale of DuraTherm, Inc., net of transaction costs....................... 7,623,664 -
Acquisition of Waste Management Nuclear Services, net of cash acquired................ (66,988,658) -
Acquisition of Frank W. Hake Associates, LLC.......................................... - (13,156,698)
Advances to joint ventures............................................................ - (39,998)
Other................................................................................. (3,809,198) (7,607)
------------ ------------
Net cash used in investing activities................................................ (73,790,503) (18,237,510)
------------ ------------
Cash flows from financing activities:
Short-term borrowings, net............................................................ 17,000,000 (1,747,148)
Proceeds from borrowings under long-term debt......................................... 90,000,000 20,000,000
Repayments of long-term debt.......................................................... (22,400,000) (1,060,280)
Preferred stock dividends............................................................. (960,000) (960,000)
Deferred financing costs.............................................................. (3,165,419) (1,062,630)
Repayments of capital lease obligations............................................... (483,200) -
Repurchase of treasury shares......................................................... - (4,140,773)
Proceeds from issuance of common stock................................................ - 330,400
------------ ------------
Net cash provided by financing activities............................................ 79,991,381 11,359,569
------------ ------------
Net change in cash and cash equivalents................................................ 395,265 (4,089,398)
Cash and cash equivalents at beginning of period....................................... 59,525 5,944,274
------------ ------------
Cash and cash equivalents at end of period............................................. $ 454,790 $ 1,854,876
============ ============
</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. Acquisitions
On June 8, 2000, the Company acquired the nuclear services business of
Waste Management, Inc. ("WMI"). The acquisition was effected as the purchase of
all of the outstanding capital stock of Waste Management Federal Services, Inc.
("WMFS") from Rust International, Inc. ("Rust") and all of the outstanding
membership interests of Chem-Nuclear Systems, LLC ("Chem-Nuclear") from Chemical
Waste Management, Inc. ("CWM") and CNS Holdings, Inc. ("CNS"). Each of Rust,
CWM, and CNS are indirect subsidiaries of WMI. The purchase price was $67
million in cash, consisting of $65 million in cash and $2 million of transaction
costs. The purchase price is also subject to certain post closing adjustments.
The acquired companies are referred to as Waste Management Nuclear Services
("WMNS"). WMNS is a leader in providing low-level radioactive waste management
services for the commercial industry and the federal government. WMNS consists
primarily of three operating segments: (i) the Federal Services Division which
provides radioactive waste handling, transportation, treatment packaging,
storage, disposal, site cleanup, and project management services primarily for
the United States Department of Energy ("DOE") and other federal agencies; (ii)
the Commercial Services Division which provides radioactive waste handling,
transportation, licensing, packing, disposal, and decontamination and
decommissioning services primarily to nuclear utilities; and (iii) the
Commercial Processing and Disposal Division which operates a commercial low-
level radioactive waste disposal facility at Barnwell, South Carolina. The
acquisition has been accounted for under the purchase method of accounting. The
aggregate purchase price in excess of the estimated fair value of tangible
assets and identifiable intangible assets will be allocated to goodwill and
amortized over 30 years. Results of WMNS for the period June 8, 2000 to
September 30, 2000 are included in the Company's consolidated results for the
three and nine months ended September 30, 2000.
The aggregate purchase price for WMNS is as follows:
Cash paid to Waste Management $ 65,000,000
Liabilities assumed 38,969,000
Transaction costs 2,000,000
------------
Aggregate purchase price $105,969,000
============
6
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The aggregate purchase price was allocated to the acquired assets based
upon their estimated fair values as follows:
Accounts receivable $ 16,778,000
Unbilled revenues 8,445,000
Inventory 1,558,000
Property and equipment 13,116,000
Decommissioning trust fund 16,687,000
Other tangible assets 700,000
Goodwill and other intangible assets 48,685,000
-------------
$105,969,000
=============
The above information is based upon management's best estimate of the fair
value of the assets acquired. The Company is in the process of completing
appraisals of the assets acquired and liabilities assumed. Upon completion of
this process the Company will adjust the amounts recorded to the final
appraisals. Such adjustments could be material.
The acquisition was financed with borrowings under the Company's amended
and restated bank credit facility. Under the facility the Company has available
borrowings of up to $135 million. The facility consists of a five year $45
million revolving line of credit, including $15 million for standby letters of
credit, a five year $50 million term loan and a six and one-half year $40
million term loan. Borrowings under the credit facility bear interest at LIBOR
plus an applicable margin, or at the Company's option, the prime rate plus an
applicable margin. The applicable margin is determined based upon the Company's
performance and was set at 3.25% for LIBOR based borrowings, and 2.25% for prime
based borrowings during the first six months following the acquisition.
Borrowings under the $40 million term loan bear an additional 0.5% interest. The
term loans require aggregate quarterly principal payments of $7.8 million in
2000, $10.4 million in 2001, $10.4 million in 2002, $10.4 million in 2003, $15.1
million in 2004, $21.6 million in 2005, and $14.3 million in 2006. In addition,
the Company is also required to prepay the term loans in an amount equal to 50%
of excess cash flows, as defined. The bank credit facility requires the Company
to maintain certain financial ratios and restricts the payment of dividends on
the Company's common stock. At the time of the acquisition, the Company had
borrowings of $90 million under the term loan and $6 million under the revolving
line of credit. At September 30, 2000, the Company had $26.0 million under the
revolving line of credit and $84.8 million outstanding under the term loans. At
September 30, 2000, $20.4 million of additional borrowings were available under
the revolving credit portion of the bank credit facility.
3. Sale of DuraTherm, Inc.
In February 2000, the Company completed the sale of its 80% interest in
DuraTherm, Inc. ("DTI") to DuraTherm Group, Inc. for $8.0 million in cash and a
subordinated note for $336,000. Proceeds to the Company of $8.0 million were
used by the Company to pay down borrowings under its bank credit facility. The
note receivable bears interest at 14%, payable semi-annually during the first
year following the sale, and 18% during the second year following the sale with
the principal due in February 2002. The subordinated note has been paid in full.
The Company recognized a pre-tax gain of $1.2 million on the sale.
4. Pro Forma Results
The pro forma condensed consolidated statements of operations presented
below give effect to the disposition of the assets of DTI and the acquisition of
WMNS as if such transactions had occurred on January 1, 1999. The results
presented are not necessarily indicative of results expected for the full year,
and are not necessarily indicative of results expected for the remainder of 2000
or future years.
7
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Pro forma revenues, net income, and diluted net income per share for the
three and nine month periods ended September 30, 1999 and 2000, as if the
transactions to dispose of DTI and acquire WMNS were consummated on January 1,
1999, are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- --------------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $73,855,773 $96,342,338 $217,333,961 $268,185,566
Net income $ 3,389,649 $ 3,816,146 $ 11,587,587 $ 14,875,159
Diluted net income per share $ 0.17 $ 0.19 $ 0.58 $ 0.74
</TABLE>
5. Earnings per share
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of stock options, convertible
redeemable preferred stock, and convertible debentures that could share in the
earnings of the Company. The reconciliation of amounts used in the computation
of basic and diluted earnings per share for the three and nine months ended
September 30, 2000 and 1999 consist of the following:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income attributable to common shareholders........ $ 3,011,131 $ 2,533,833 $ 7,642,486 $ 6,287,241
Plus: Income impact of assumed conversions
Preferred stock dividends and charges foraccretion.. 378,518 377,651 1,134,901 1,132,306
Interest on convertible debenture, net of tax....... 115,799 96,451 331,993 263,853
----------- ----------- ----------- -----------
494,317 474,102 1,466,894 1,396,159
----------- ----------- ----------- -----------
Net income attributable to common shareholders
assuming conversion.................................. $ 3,505,448 $ 3,007,935 $ 9,109,380 $ 7,683,400
=========== =========== =========== ===========
Denominator:
Weighted-average shares outstanding................... 13,301,892 13,183,653 13,301,892 13,449,605
Effect of dilutive securities:
Incremental shares from assumed conversion of:
Employee stock options............................ 149,938 313,007 147,528 332,269
Restricted stock awards........................... 58,689 - 26,665 -
Convertible redeemable preferred stock............ 5,252,567 5,330,331 5,252,567 5,330,331
Convertible debentures............................ 1,381,575 1,381,575 1,381,575 1,381,575
----------- ----------- ----------- -----------
6,842,769 7,024,913 6,808,335 7,044,175
----------- ----------- ----------- -----------
Adjusted weighted average shares outstanding
and assumed conversions............................. 20,144,661 20,208,566 20,110,227 20,493,780
=========== =========== =========== ===========
Basic earnings per share.............................. $ 0.23 $ 0.19 $ 0.57 $ 0.47
=========== =========== =========== ===========
Diluted earning per share............................. $ 0.17 $ 0.15 $ 0.45 $ 0.37
=========== =========== =========== ===========
</TABLE>
8
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Options to purchase common stock of the Company at September 30, 2000 and
1999 that were not included in the computation of diluted earnings per share
because the effect would have been anti-dilutive are as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Options to purchase common stock 778,300 328,300 778,300 328,300
</TABLE>
6. Segment reporting
The Company has three primary segments (i) commercial processing and
disposal, (ii) federal services, and (iii) commercial services. Following the
acquisition of WMNS, the Company has reorganized its reporting segments. Below
is a brief description of each of the segments including WMNS:
1. Commercial Processing and Disposal (CPD) - The Company conducts its
commercial processing and disposal operations principally at its Bear Creek
Operations Facility located in Oak Ridge, Tennessee and Memphis, Tennessee
and disposal site operated in Barnwell, South Carolina. The Company's waste
treatment technologies include: incineration; compaction; metal
decontamination and recycling; vitrification; steam reforming; and thermal
desorption (prior to February, 2000). Commercial waste processing customers
primarily include commercial nuclear utilities, governmental entites and
petrochemical companies. Material is received and disposed of at the
Barnwell facility primarily from commercial nuclear utilities.
2. Federal Services (FS) - The Company provides on-site waste processing
services on large government projects for the DOE. The on-site waste
processing services provided by the Company on DOE projects include program
development, project management, waste characterization, on-site waste
treatment, facility operation, packaging and shipping of residual waste,
profiling and manifesting the processed waste, selected technical support
services, and site clean up.
3. Commercial Services (CS) - The Company's technical support services
encompass engineers, consultants and technicians, some of whom are
full-time employees and the balance of whom are contract employees, who
support and complement the Company's commercial and government waste
processing operations and also provide highly specialized technical support
services for the Company's customers.
<TABLE>
<CAPTION>
For the three months ended September 30, 2000
-----------------------------------------------------------------------------
Unallocated
CPD FS CS Items Consolidated
----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $24,998,995 $28,983,525 $19,873,253 $ - $73,855,773
Income from operations 3,712,867 4,427,876 632,762 - 8,773,505
Interest expense - - - (3,019,924) (3,019,924)
Proportionate share
of losses of joint
ventures - - - (62,500) (62,500)
Income tax expense - - - 2,301,432 2,301,432
</TABLE>
9
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The Company's segment information is as follows:
<TABLE>
<CAPTION>
For the three months ended September 30, 1999
-----------------------------------------------------------------------------
Unallocated
CPD FS CS Items Consolidated
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $21,825,738 $9,633,984 $13,318,012 $ - $44,777,734
Income from operations 4,313,320 855,359 715,802 - 5,884,481
Interest expense - - - (948,674) (948,674)
Proportionate share
of losses of joint
ventures - - - (50,000) (50,000)
Income tax expense - - - 1,974,323 1,974,323
</TABLE>
<TABLE>
<CAPTION>
As of and for the nine months ended September 30, 2000
------------------------------------------------------------------------------
Unallocated
CPD FS CS Items Consolidated
------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 68,669,349 $51,593,457 $47,467,311 $ - $167,730,117
Income from operations 10,338,792 7,056,213 1,208,854 - 18,603,859
Gain on sale of DuraTherm - - - 1,166,000 1,166,000
Interest expense - - - (5,039,957) (5,039,957)
Depreciation and
amortization
expense 4,393,004 535,870 678,091 711,595 6,318,560
Proportionate share
of losses of joint
ventures - - - (112,500) (112,500)
Income tax expense - - - 5,840,015 5,840,015
Capital expenditure
for additions to
long-lived assets 8,436,246 (15,460) 1,036,956 1,158,569 10,616,311
Total assets 161,489,612 67,375,913 42,350,822 14,829,978 286,046,325
</TABLE>
<TABLE>
<CAPTION>
As of and for the nine months ended September 30, 1999
------------------------------------------------------------------------------
Unallocated
CPD FS CS Items Consolidated
------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $59,094,083 $27,692,161 $38,569,161 $ - $125,355,405
Income from operations 9,186,746 3,582,315 1,303,777 - 14,072,838
Interest expense - - - (1,532,286) (1,532,286)
Depreciation and
amortization
expense 3,231,413 153,212 582,628 127,428 4,094,681
Proportionate share
of losses of joint
ventures - - - (150,000) (150,000)
Income tax expense - - - 4,971,005 4,971,005
Capital expenditure
for additions to
long-lived assets 4,125,142 63,500 254,554 590,011 5,033,207
Total assets 92,715,853 23,047,118 20,691,310 16,928,475 153,382,756
</TABLE>
10
<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 and the disposal site in
Barnwell, South Carolina. The Company also provides on-site waste processing
services on large government projects for the United States Department of Energy
("DOE"). Technical support services are generally provided pursuant to multi-
year time and materials contracts. Revenues are recognized as costs are incurred
according to predetermined rates. The contract costs primarily include direct
labor, materials and the indirect costs related to contract performance.
The Company's future operating results will be affected by, among other
things, the duration of commercial waste processing contracts and amount of
waste to be processed by the Company's commercial waste processing operations
pursuant to these contracts; the timing and scope of DOE waste treatment
projects, including the Hanford and Idaho Falls DOE projects; and the Company's
waste receipts at its waste processing facility in South Carolina.
On June 8, 2000, the Company acquired the nuclear services business of
Waste Management, Inc. ("WMI"). The acquisition was effected as the purchase of
all of the outstanding capital stock of Waste Management Federal Services, Inc.
("WMFS") from Rust International, Inc. ("Rust") and all of the outstanding
membership interests of Chem-Nuclear Systems, LLC ("Chem-Nuclear") from Chemical
Waste Management, Inc. ("CWM") and CNS Holdings, Inc. ("CNS"). Each of Rust,
CWM, and CNS are indirect subsidiaries of WMI. The purchase price was $67
million in cash, consisting of $55 million in cash at closing, $10 million in
additional cash consideration held in escrow until upon the satisfaction of
certain post closing conditions, and $2 million of transaction costs. The
purchase price is also subject to certain post closing adjustments. The acquired
companies are referred to as Waste Management Nuclear Services ("WMNS"). WMNS is
a leader in providing low-level radioactive waste management services for the
commercial industry and the federal government.
In February 2000, the Company completed the sale of its 80% interest in
DuraTherm, Inc. to DuraTherm Group, Inc. for $8.0 million in cash and a
subordinated note for $336,000. Proceeds to the Company of $8.0 million were
used by the Company to pay down borrowings under its bank credit facility. The
note receivable bears interest at 14%, payable semi-annually during the first
year following the sale, and 18% during the second year following the sale with
the principal due in February 2002. The subordinated note has been paid in full.
The Company recognized a pre-tax gain of $1.2 million on the sale.
Results of Operations
Three Months Ended September 30, 1999 As Compared To Three Months Ended
September 30, 2000
Revenues increased by $29.1 million, or 65.0%, from $44.8 million in 1999
to $73.9 million in 2000. The increase is comprised of revenue increases of
$19.3 million in Federal Services, $3.2 million in Commercial Processing and
Disposal, and $6.6 million in Commercial Services. The increase in revenues from
Federal Services is primarily the result of $17.3 million in revenues from the
federal services business of WMNS, which was acquired in June, 2000, and $2.0
million increase in other government waste processing and technical services
revenues, which was primarily due to additional contract fees generated
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GTS DURATEK, INC. AND SUBSIDIARIES
by the Hanford River Protection Project. The increase in revenues from
Commercial Processing and Disposal was primarily related to $4.1 million in
revenues from the Barnwell South Carolina disposal site which was acquired as
part of WMNS, and a $2.9 million increase at the Company's low level radioactive
waste processing facilities located in Tennessee due to higher processing
volume, partially offset by the decrease of $3.8 million in the Company's
DuraTherm business that was sold in February, 2000. The increase in Commercial
Services is primarily due to the commercial operation of WMNS purchased in June,
2000.
Gross profit increased $7.0 million, or 54.3%, from $12.9 million in 1999
to $19.9 million in 2000. The increase is comprised of $5.2 million in Federal
Services and $2.2 million in Commercial Services, partially offset by a $420,000
decrease in Commercial Processing and Disposal. The increase in gross profit
from Federal Services is primarily the result of a $3.4 million increase
attributable to the acquisition of WMNS and a $1.8 million increase in other
government waste processing and technical service fees generated by the Hanford
River Protection Project. The increase in Commercial Services is primarily due
to the commercial operations of WMNS acquired in June, 2000. The decrease in
Commercial Processing and Disposal is due to a $1.0 million decrease in gross
profit related to the sale of the Company's DuraTherm business in February, 2000
and a $1.6 million decrease in gross profit from the Tennessee facilities as a
result of changes in waste mix processed, offset by a $2.2 million increase in
gross profit resulting from commercial operation of WMNS purchased in June,
2000. As a percentage of revenues, gross profit decreased from 28.9% in 1999 to
27.0% in 2000.
Selling, general, and administrative expenses increased by $4.1 million, or
57.7%, from $7.1 million in 1999 to $11.2 million in 2000 primarily due to the
acquisition of WMNS and activities supporting higher revenues. As a percentage
of revenues, selling, general, and administrative expenses decreased from 15.8%
in 1999 to 15.1% in 2000.
Interest expense, net increased by $2.1 million from 1999 to 2000. The
increase was the result of increased borrowings required to fund working capital
needs and the acquisitions of WMNS in June, 2000 and Frank W. Hake Associates
LLC ("Hake") in June, 1999, as well as higher borrowing costs.
Income taxes expense increased $327,000 from $2.0 million in 1999 to $2.3
million in 2000. The Company is accruing income taxes at full statutory rates.
Nine Months Ended September 30, 1999 As Compared To Nine Months Ended September
30, 2000
Revenues increased by $42.3 million, or 33.7%, from $125.4 million in 1999
to $167.7 million in 2000. The increase is comprised of revenue increase of
$23.9 million in Federal Services, $9.5 million in Commercial Processing and
Disposal, and $8.9 million in Commercial Services. The increase in revenues from
Federal Services is primarily the result of $21.1 million in revenues from the
federal services business of WMNS acquired in June, 2000 and a $2.8 million
increase in other government waste processing and technical services revenues,
which was primarily due to additional contract fees generated by the Hanford
River Protection Project. The increase in revenues from Commercial Processing
and Disposal was primarily related to $4.3 million in revenues from the Barnwell
South Carolina disposal site acquired as part of WMNS in June, 2000 and a $14.8
million increase at the Company's low level radioactive waste processing
facilities located in Tennessee due to higher processing volume and change in
waste mix, partially offset by the decrease of $9.7 million in the Company's
DuraTherm business that was sold in February, 2000. The increase in Commercial
Services is primarily due to the commercial operation of WMNS purchased in June,
2000.
Gross profit increased $10.3 million, or 29.9%, from $34.4 million in 1999
to $44.7 million in 2000. The increase is comprised of $5.5 million in Federal
Services, $2.9 million in Commercial Processing and Disposal, and $1.9 million
in Commercial Services. The increase in gross profit from Federal Services is
the result of a $4.1 million increase attributable of the acquisition of WMNS
and a $1.4 million increase in other government waste processing and technical
services from higher processing volume. The
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GTS DURATEK, INC. AND SUBSIDIARIES
increase in Commercial Processing and Disposal is due to $3.4 million from the
Barnwell South Carolina disposal site acquired as part of WMNS in June, 2000 and
$1.4 million increase in the Tennessee facilities resulting from higher
processing volume, partially offset by a $2.9 million decrease from, the
Company's DuraThem business that was sold in February, 2000.
Selling, general, and administrative expenses increased by $5.8 million, or
28.6%, from $20.3 million in 1999 to $26.1 million in 2000 primarily due to the
acquisition of WMNS and activities supporting higher revenues. As a percentage
of revenues, selling, general, and administrative expenses decreased from 16.2%
in 1999 to 15.5% in 2000.
Interest expense, net increased by $3.5 million from 1999 to 2000. The
increase was the result of increased borrowings required to fund working capital
needs and the acquisitions of WMNS in June, 2000 and Hake in June, 1999, as well
as higher borrowing costs.
Income taxes increased by $869,000 from 1999 to 2000. The Company's
effective tax rate was 39.6% in both 1999 and in 2000.
Liquidity and Capital Resources
The Company has available an amended and restated bank credit facility
which provides for borrowings of up to $135 million. The facility consists of a
five year $45 million revolving line of credit, including $15 million for
standby letters of credit, a five year $50 million term loan and a six and one-
half year $40 million term loan. Borrowings under the credit facility bear
interest at LIBOR plus an applicable margin, or at the Company's option, the
prime rate plus an applicable margin.
The acquisition of WMNS was financed with borrowings under the bank credit
facility. The applicable margin is determined based upon the Company's
performance and was set at 3.25% for LIBOR based borrowings, and 2.25% for prime
based borrowings during the first six months following the acquisition.
Borrowings under the $40 million term loan bear an additional 0.5% interest. The
term loans require aggregate quarterly principal payments of $7.8 million in
2000, $10.4 million in 2001, $10.4 million in 2002, $10.4 million in 2003, $15.1
million in 2004, $21.6 million in 2005, and $14.3 million in 2006. In addition,
the Company is also required to prepay the term loans in an amount equal to 50%
of excess cash flows, as defined. The bank credit facility requires the Company
to maintain certain financial ratios and restricts the payment of dividends on
the Company's common stock. At the time of the acquisition, the Company had
borrowings of $90 million under the term loan and $6 million under the revolving
line of credit. At September 30, 2000, the Company had $26.0 million under the
revolving line of credit and $84.8 million outstanding under the term loans. At
September 30, 2000, $20.4 million of additional borrowings were available under
the revolving credit portion of the bank credit facility.
The Company believes cash flows from operations and, if necessary,
borrowings available under its credit facility will be sufficient to meet its
operating needs, including the quarterly preferred dividend requirement of
$320,000 for at least the next twelve months.
Item 3. Quantitative and Qualitative Information about Market Risk
The Company's major market risk relates to changing interest rates. At
September 30, 2000, the Company had floating rate long-term debt of $84.8
million and floating short-term rate debt of $26.0 million. The long-term debt
bears interest at LIBOR plus 2.25%. The short-term debt bears interest at the
bank's base rate, as defined.
The Company has not purchased any interest rate derivative instruments but
may do so in the future. In addition, the Company does not have any foreign
currency or commodity risk.
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GTS DURATEK, INC. AND SUBSIDIARIES
Part II Other Information
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Item 1. Legal Proceedings
Refer to the Company's annual report on Form 10-K for the year ended
December 31, 1999 for a discussion of legal proceedings.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
In response to the "safe harbor" provisions contained in the Private
Securities Litigation Reform Act of 1995, the Company is including in this
Quarterly Report on Form 10-Q the following cautionary statements which are
intended to identify certain important factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by or on behalf of the Company. Many of these
factors have been discussed in prior filings with the Securities and Exchange
Commission.
The Company's future operating results are largely dependent upon the
Company's ability to manage its commercial waste processing operations,
including obtaining commercial waste processing contracts and processing waste
under such contracts in a timely and cost effective manner. In addition, the
Company's future operating results are dependent upon the timing and awarding of
contracts by the DOE for the cleanup of other waste sites administered by it.
The timing and award of such contracts by the DOE is directly related to the
response of governmental authorities to public concerns over the treatment and
disposal of radioactive, hazardous, mixed, and other wastes. The lessening of
public concern in this area or other changes in the political environment could
adversely affect the availability and timing of government funding for the
cleanup of DOE and other sites containing radioactive and mixed wastes.
Additionally, revenues from technical support services have in the past and
continue to account for a substantial portion of the Company's revenues and the
loss of one or more technical support service contracts could adversely affect
the Company's future operating results.
The Company's future operating results may fluctuate due to factors such
as: the timing of new commercial waste processing contracts and duration of and
amount of waste to be processed pursuant to those contracts; the Company's
ability to integrate acquired businesses, including the Company's most recent
acquisition of WMNS; the acceptance and implementation of its waste treatment
technologies in the government and commercial sectors; the evaluation by the DOE
and other customers of the Company's technologies versus other competing
technologies as well as conventional storage and disposal alternatives; the
timing of new waste treatment projects and the duration of such projects; and
the timing of outage support projects and other large technical support services
projects at its customers' facilities.
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GTS DURATEK, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
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See accompanying Index to Exhibits.
b. Reports
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Current Report on Form 8-K/A filed on August 22, 2000.
c. Financial Data Schedule
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Filed herewith.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GTS DURATEK, INC.
Dated: November 14, 2000 By: /s/ Robert F Shawver
--------------------------------
Robert F Shawver
Executive Vice President and
Chief Financial Officer
Dated: November 14, 2000 By: /s/ Charles L. Standley
--------------------------------
Charles L. Standley
Controller
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Exhibit Index
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
Incorporated herein by reference to Exhibit 3.1 of the Registrant's
Quarterly Report on From 10-Q for the quarter ended march 31, 1996. (File
No. 0-14292)
3.2 By-Laws of the Registrant. Incorporated herein by reference to Exhibit 3.3
of the Registrant's Form S-1 Registration Statement No. 33-2062.
4.1 Certificate of Designations of the 8% Cumulative Convertible Redeemable
Preferred Stock dated January 23, 1995. Incorporated herein by reference
to Exhibit 4.1 of the Registrants Form 8-K filed on February 1, 1995.
(File No. 0-14292)
4.2 Stock Purchase Agreement among Carlyle Partners II, L.P., Carlyle
International Partners II, L.P., Carlyle International Partners III, L.P.,
C/S International Partners, Carlyle-GTSD Partners, L.P. Carlyle-GTSD
Partners II, L.P. and GTS Duratek, Inc. and National Patent Development
Corporation dated as of January 24, 1995. Incorporated herein by reference
to Exhibit 4.2 of the Registrants Form 8-K filed on February 1, 1995.
(File No. 0-14292)
4.3 Stockholders Agreement by and among GTS Duratek, Inc., Carlyle Partners
II, L.P., Carlyle International Partners II, L.P., Carlyle International
Partners III, L.P., C/S International Partners, Carlyle-GTSD Partners,
L.P., Carlyle-GTSD Partners II, L.P. and GTS Duratek, Inc. and National
Patent Development Corporation dated as of January 24, 1995. Incorporated
herein by reference to Exhibit 4.3 of the Registrants Form 8-K filed on
February 1, 1995. (File No. 0-14292)
4.4 Registration Rights Agreement by and among GTS Duratek, Inc., Carlyle
Partners II, L.P., Carlyle International Partners II, L.P. Carlyle
International Partners III, L.P., C/S International Partners, Carlyle-GTSD
Partners, L.P., Carlyle-GTSD Partners II, L.P. and GTS Duratek, Inc. and
National Patent Development Corporation dated as of January 24, 1995.
Incorporated herein by reference to Exhibit 4.4 of the Registrants
Form 8-K filed on February 1, 1995. (File No. 0-14292)
4.5 Convertible Debenture issued by GTS Duratek, Inc., General Technical
Services, Inc. and GTS Instrument Services Incorporated to BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995. (File No. 0-14292)
10.1 1984 Duratek Corporation Stock Option Plan, as Amended. Incorporated
herein by reference to Exhibit 10.9 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990.
10.2 License Agreement dated as of August 17, 1992 between GTS Duratek, Inc.
and Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo.
Incorporated herein by reference to Exhibit 10.9 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992. (File No.
0-14292)
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10.3 Stockholders' Agreement dated December 28, 1993 between GTS Duratek, Inc.
and Vitritek Holdings, L.L.C. Incorporated by reference to Exhibit 3 of
the Registrant's Form 8-K Current Report dated December 22, 1993. (File
No. 0-14292)
10.4 Agreement dated January 14, 1994 between GTS Duratek, Inc. and
Westinghouse Savannah River Company. Incorporated by reference to Exhibit
10.17 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993. (File No. 0-14292)
10.5 Teaming Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of
the Registrant's Quarterly report on Form 10-Q for the quarter ended
September 30, 1995. (File No. 0-14292)
10.6 Sublicense Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
November 7, 1995. Incorporated herein by reference to exhibit 10.20 of
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995. (File No. 0-14292)
10.7 GTS Duratek, Inc. Executive Compensation Plan. Incorporated herein by
reference to Exhibit 10.19 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997. (File No. 0-14292)
10.8 Stock Purchase Agreement between HakeTenn, Inc., George T. Hamilton and
Richard Wilson and GTS Duratek, Inc. dated as of June 30, 1999.
Incorporated herein by reference to Exhibit (c)(2) of the Registrant's
Current Report on Form 8-K filed on July 13, 1999. (File No. 0-14292)
10.9 Stock Purchase Agreement between DuraTherm Group, Inc. and GTSD Sub III,
Inc. dated February 7, 2000. Incorporated herein by reference to
Exhibit 99.2 of the Registrant's Current Report on Form 8-K filed on
February 22, 2000. (File No. 0-14292)
10.10 Amended and Restated Credit Agreement dated as of June 8, 2000 by and
among GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek
Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument
Services, Incorporated, General Technical Services, Inc., GTSD Sub III,
Inc., GTSD Sub IV, Inc., Frank W. Hake Associates LLC, Chem-Nuclear
Systems L.L.C., Waste Management Federal Services, Inc., Waste Management
Federal Services of Idaho, Inc., Waste Management Federal Services of
Hanford, Inc., Waste Management Technical Services, Inc., Waste
Management Geotech, Inc., the Lenders party thereto, First Union National
Bank, as Administrative Agent, Credit Lyonnais New York Branch, as
Documentation Agent, Fleet National Bank, as Syndication Agent, and First
Union Securities, Inc., as Lead Arranger and Book Manager. (File No. 0-
14292)
10.11 Second Amended and Restated Security Agreement dated as of June 8, 2000
made by GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek
Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument
Services, Incorporated, General Technical Services, Inc., GTSD Sub III,
Inc., GTSD Sub IV, Inc., Frank W. Hake Associates, L.L.C., Chem-Nuclear
Systems, L.L.C., Waste Management Federal Services, Inc., Waste
Management Federal Services of Idaho, Inc., Waste Management Federal
Services of Hanford, Inc., Waste Management Technical Services, Inc.,
Waste Management Geotech, Inc., and First Union National Bank, as
Collateral Agent. (File No. 0-14292)
10.12 Purchase Agreement by and among Chemical Waste Management Inc., Rust
International, Inc., CNS Holdings, Inc. and GTS Duratek, Inc. dated March
29, 2000. (File No. 0-14292)
10.13 Amendment No. 1 to Purchase Agreement and Disclosure Letter by and among
Chemical Waste Management Inc., Rust International, Inc., CNS
Holdings, Inc. and GTS Duratek, Inc. dated June 8, 2000. (File No. 0-
14292)
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27.1 Financial Data Schedule. (filed herewith)
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