<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
Form 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 8, 2000
GTS DURATEK, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-14292 22-2476180
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
10100 Old Columbia Road, Columbia, Maryland 21046
------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 312-5100
--------------
</TABLE>
________________________________________________________________________________
(Former name or former address, if changed since last report)
<PAGE>
GTS DURATEK, INC.
Item 2. Acquisition or Disposition of Assets.
On June 8, 2000, GTS Duratek, Inc. ("GTS Duratek") 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 $65 million in cash, consisting of $55 million in
cash at closing and $10 million additional cash consideration upon the
satisfaction of certain post closing conditions. The purchase price is also
subject to certain post closing adjustments.
The acquired business, known as Waste Management Nuclear Services ("WMNS"),
provides 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 U.S. 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. GTS Duratek generally intends to continue the business of WMNS and to
use the assets and facilities of WMNS for essentially the same purposes as they
were used prior to the acquisition.
GTS Duratek financed the purchase price principally from borrowings under
its credit facility, which it amended and restated in connection with the
acquisition of WMNS. The amended and restated credit facility is a $135 million
facility and includes a $45 million revolving line of credit, based on the
amount of eligible accounts receivable, to refinance existing indebtedness and
to fund working capital requirements, and two term loans totaling $90 million to
refinance existing indebtedness and to finance the acquisition of WMNS.
Borrowings under the credit facility bear interest at a floating rate based on
either LIBOR or a "base rate", plus margins which are subject to adjustment
after six months based upon GTS Duratek's leverage ratio at the time.
Substantially all of GTS Duratek's assets, excluding real property and
inventory, are pledged as collateral under the credit facility. The credit
facility has a five-year term, except that one of the term loans matures in six
and a half years.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired:
(i) Combined balance sheets of Waste Management Nuclear Services as
of December 31, 1999 and 1998 and the related combined statements
of operations and cash flows for each of the years in the three-
year period ended December 31, 1999.
(ii) Combined statements of operations and cash flows for the six
months ended June 30, 2000 (unaudited).
(b) Pro Forma Financial Information:
(i) Pro Forma consolidated statement of operations for the year ended
December 31, 1999 and related notes.
2
<PAGE>
GTS DURATEK, INC.
(ii) Pro Forma consolidated statement of operations for the six
months ended June 30, 2000 and related notes.
The pro forma balance sheet for June 30, 2000 is not included herein
as the consolidated June 30, 2000 balance sheet for GTS Duratek, Inc.
and subsidiaries is included in the June 30, 2000 quarterly report to
the Securities and Exchange Commission filed on Form 10-Q.
(c) Exhibits
23.1 Consent of KPMG LLP.
99.1 GTS Duratek, Inc. Press Release dated June 9, 2000 which was
filed with the Securities and Exchange Commission on June
22, 2000.
99.2 Purchase Agreement by and among Chemical Waste Management
Inc., Rust International, Inc., CNS Holdings, Inc. and GTS
Duratek, Inc. dated March 29, 2000 which was filed with the
Securities and Exchange Commission on June 22, 2000.
99.3 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 which was filed with the Securities
and Exchange Commission on June 22, 2000.
99.4 Second 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 which was filed with the
Securities and Exchange Commission on June 22, 2000.
99.5 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 which was filed with the Securities and Exchange
Commission on June 22, 2000.
3
<PAGE>
GTS DURATEK, INC.
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 hereunto duly authorized.
GTS DURATEK, INC.
Date: August 22, 2000 By: /s/ Robert F. Shawver
---------------------
Robert F. Shawver
Executive Vice President and
Chief Financial Officer
4
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 6
Combined Balance Sheets as of December 31, 1999 and 1998 7
Combined Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 8
Combined Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997 9
Notes to Combined Financial Statements 10
</TABLE>
5
<PAGE>
Independent Auditors' Report
The Board of Directors
GTS Duratek, Inc.:
We have audited the combined balance sheets of the entities included in Waste
Management Nuclear Services (the Company) (see note 2) for the years ended
December 31, 1999 and 1998 and the related combined statements of operations and
cash flows for each of the years in the three-year period ended December 31,
1999. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the entities
included in Waste Management Nuclear Services for the years ended December 31,
1999 and 1998 and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Baltimore, Maryland
July 14, 2000
6
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Combined Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- ------------
Assets
<S> <C> <C>
Current assets:
Cash $ 5,100 3,800
Receivables, less allowance for doubtful accounts of
$291,887 in 1999 and $15,000 in 1998 16,936,707 23,284,397
Cost and estimated earnings in excess of billings on
uncompleted contracts 5,634,880 8,372,029
Inventories 1,481,082 1,484,383
Prepaid expenses and other current assets 763,966 90,541
---------- ----------
Total current assets 24,821,735 33,235,150
Property, plant and equipment, net 13,823,910 15,519,514
Goodwill, less accumulated amortization of $6,600,793
in 1999 and $29,314,201 in 1998 19,290,842 69,056,081
Decontamination and decommissioning trust fund 16,411,310 15,094,226
Other assets 512,196 1,481,749
------------- -------------
$ 74,859,993 134,386,720
============= =============
Liabilities and Net Equity
Current liabilities:
Accounts payable $ 3,583,024 5,010,312
Accrued expenses and other current liabilities 29,113,248 24,329,729
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,031,679 3,006,952
------------- -------------
Total current liabilities 33,727,951 32,346,993
Facility and equipment decontamination and
decommissioning liabilities 14,979,959 13,319,135
Deferred income taxes -- 661,566
------------- -------------
Total liabilities 48,707,910 46,327,694
Net equity 26,152,083 88,059,026
------------- -------------
$ 74,859,993 134,386,720
============= =============
</TABLE>
See accompanying notes to combined financial statements.
7
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Combined Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues $ 200,130,119 234,640,898 247,648,858
Cost of revenues 169,304,892 208,593,277 223,666,357
---------------- ---------------- ----------------
Gross profit 30,825,227 26,047,621 23,982,501
Selling, general and administrative expenses 4,806,465 5,874,689 3,433,958
Charge for goodwill impairment 47,277,000 -- --
---------------- ---------------- ----------------
Income (loss) from operations (21,258,238) 20,172,932 20,548,543
Other income (expense), net 138,774 157,864 549,626
---------------- ---------------- ----------------
Income (loss) before provision for
income taxes (21,119,464) 20,330,796 21,098,169
Provision for income taxes 2,895,047 809,898 3,029,968
---------------- ---------------- ----------------
Net income (loss) $ (24,014,511) 19,520,898 18,068,201
================ ================ ================
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Combined Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (24,014,511) 19,520,898 18,068,201
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 5,563,185 4,934,259 4,722,655
Charge for goodwill impairment 47,277,000 -- --
Gain on disposal of assets (4,523) (86,440) (10,788)
Deferred income taxes (720,783) 106,856 (401,392)
Changes in operating items:
Receivables 6,347,690 1,006,650 13,631,649
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,737,149 (2,278,673) (724,558)
Prepaid expenses, inventories and other
current assets (610,907) 798,550 342,226
Decontamination and decommissioning
trust fund (1,317,084) (778,361) 529,047
Other assets 969,553 1,435,692 1,801,545
Accounts payable, accrued expenses
and other current liabilities 3,356,231 (5,959,521) (6,563,797)
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,975,273) 1,345,603 (225,893)
Facility and equipment decontamination
and decommissioning liabilities 1,660,824 1,438,669 (426,484)
------------- ---------- ----------
Net cash provided by operating activities 39,268,551 21,484,182 30,742,411
------------- ---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,379,342) (1,101,224) (2,093,932)
Other 4,523 86,440 10,788
------------- ---------- ----------
Net cash used in investing activities (1,374,819) (1,014,784) (2,083,144)
------------- ---------- ----------
Net cash flows from financing activities--
net cash advanced to Waste Management, Inc. (37,892,432) (20,469,698) (28,659,067)
------------- ---------- ----------
Net increase (decrease) in cash 1,300 (300) 200
Cash, beginning of year 3,800 4,100 3,900
------------- ---------- ----------
Cash, end of year
$ 5,100 3,800 4,100
============= ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
9
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(1) Description of Business
Waste Management Nuclear Services ("WMNS" or the "Company") 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 in Barnwell, South Carolina.
(2) Summary of Significant Accounting Policies and Practices
(a) Principles of Consolidation
The combined financial statements of the Company include the accounts
of: (i) Waste Management Federal Services, Inc. and its wholly owned
subsidiaries Waste Management Technical Services, Inc.; Waste
Management Geotech, Inc.; Waste Management Federal Services of Idaho,
Inc.; and Waste Management Federal Services of Hanford, Inc. and (ii)
Chem-Nuclear Systems, L.L.C. and its wholly owned subsidiary Chem-
Nuclear of Canada, Inc. Waste Management Federal Services, Inc. and
Chem-Nuclear Systems, L.L.C. are indirect wholly owned subsidiaries of
Waste Management, Inc. (Waste Management) a leading provider of
integrated waste management services.
All significant intercompany balances and transactions have been
eliminated in combination.
(b) Property, Plant and Equipment
Property, plant and equipment are carried at cost. Replacements,
maintenance and repairs which do not extend the lives of the assets
are expensed as incurred. The Company provides for depreciation of
property, plant and equipment when such assets become operational,
primarily on a straight-line basis over useful lives of three to ten
years. Leasehold improvements are amortized over the shorter of the
asset life or the term of the lease.
(c) Inventories
Inventories consist principally of parts and supplies used in the
Company's waste treatment processes. Inventories are valued at cost
using the first-in, first-out method.
(Continued)
10
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(d) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of assets exceed
the estimated fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(e) Goodwill and Other Intangible Assets
Goodwill is being amortized on a straight-line basis over a forty-year
period. The Company assesses the recoverability of goodwill by
determining whether amortization of the goodwill balance over its
remaining life can be recovered through undiscounted cash flows of the
acquired entities. The amount of impairment, if any, is measured based
on projected discounted cash flows using a discount rate reflecting
the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
(f) Facility and Equipment Decontamination and Decommissioning
The Company accrues decontamination and decommissioning costs for
facilities and equipment ratably over the period to the estimated date
of closure.
(g) Revenue Recognition
Revenues are earned generally pursuant to long-term, fixed price and
time and material type contracts. Revenues from the fixed price
contracts are recognized on the percentage-of completion method as
costs are incurred and include estimated fees at predetermined rates
as measured by the costs-to-costs method. Contract costs include all
direct costs, labor, materials and the indirect costs related to
contract performance. Differences between recorded costs and estimated
earnings and final billings are recognized in the period in which they
become determinable. Costs and estimated earnings in excess of
billings on uncompleted contracts are recorded as assets. Billings in
excess of costs and estimated earnings on uncompleted contracts are
recorded as liabilities. Revenues on time and material contracts are
recognized as services are performed.
Disposal site revenues are earned when customer waste is received
and buried at the facility.
(Continued)
11
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities of Waste Management
Federal Services, Inc. and subsidiaries based on enacted tax rates in
effect when such amounts are expected to be realized based on
consideration of available evidence, including tax planning strategies
and other factors. The effects of changes in tax laws or rates on
deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and judgments that affect the reported amounts of assets and
liabilities and disclosures of contingencies at the date of the
financial statements and revenues and expenses recognized during the
reporting period. Actual results could differ significantly from those
estimates.
Significant estimates and judgments made by management include, among
other things, the cost to decommission and decontaminate the
commercial waste processing facilities and equipment (see note 5).
(j) Reclassifications
Certain amounts for 1998 have been reclassified to conform to the
presentation for 1999.
(3) Property, Plant and Equipment
Property, plant and equipment for years ended December 31 consist of the
following:
1999 1998
----------- ----------
Land and land improvements $14,434,866 14,384,710
Buildings 9,895,640 12,401,078
Machinery and equipment 25,374,506 26,101,763
Vehicles 1,543,211 1,394,305
Leasehold improvements and furniture and fixtures 4,077,966 2,562,421
Construction in progress 171,265 147,235
----------- ----------
55,497,454 56,991,512
Less accumulated depreciation and amortization 41,673,544 41,471,998
----------- ----------
$13,823,910 15,519,514
=========== ==========
(Continued)
12
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(4) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities for the years ended December 31
consist of the following:
1999 1998
----------- ----------
Salaries and wages $ 5,504,359 5,526,936
Contract costs 7,009,393 5,205,637
South Carolina disposal taxes 15,460,791 11,185,613
Other accrued expenses 1,138,705 2,411,543
----------- ----------
$29,113,248 24,329,729
=========== ==========
(5) Facility and Equipment Decontamination and Decommissioning
(a) Barnwell Disposal Facility
The Company operates a 235-acre low-level radioactive waste disposal
site located in Barnwell, South Carolina, pursuant to a 99-year lease
with the State of South Carolina, which commenced in 1971. The Company
has estimated the current cost to close the Barnwell site to be
approximately $18.3 million, including post-closure monitoring costs
for the two-year period following the site's closure. The Company is
required to monitor the site for a period subsequent to the closure of
the site. Once an agreement is reached with the State of South
Carolina that the site is closed, the obligation to monitor and
maintain the site will be transferred to the State. Based on the
Company's most recent estimates, the expected post-closure period,
including monitoring, will not exceed two years. For the years ended
December 31, 1999 and 1998, the Company has accrued $13.8 million and
$12.8 million, respectively, of such costs and will accrue the balance
over the remaining useful life of the site. In order to fund the site
closure obligation, the State of South Carolina has required that the
Company establish a trust fund and a $3 million surety bond to cover
such costs. For the years ended December 31, 1999 and 1998, the trust
fund held cash and securities of $16.4 million and $15.1 million,
respectively. Based on its agreement with the State of South Carolina,
the Company is required to make contributions to the trust fund of
$4.20 for each cubic foot of waste disposed at the site through the
date of closure.
Effective July 1, 2000, the State of South Carolina General Assembly
passed legislation enabling South Carolina to join the Atlantic
Compact. The legislation also establishes annual volume limits on
waste that can be accepted at the site for disposal. The maximum
annual volume declines from 160,000 cubic feet to 35,000 cubic feet
over an eight-year period. At the end of the eight-year period, the
site will remain open for receipt of waste from only the three
Atlantic Compact states (New Jersey, Connecticut and South Carolina).
The legislation also places the site under rate control administered
by the State of South Carolina. Under the rate-controlled plan, the
Company will be reimbursed for allowable costs incurred plus a fixed
operating margin of 29%. The Company operates the site under a license
granted by the State of South Carolina.
(Continued)
13
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(b) Other Buildings and Equipment
The Company owns several buildings located at the Barnwell site and
certain waste treatment equipment located at various commercial
nuclear utilities throughout the U.S. that will require remediation at
the end of their useful lives. The Company estimates the current cost
to remediate the buildings and equipment to be approximately $3.3
million. For the years ended December 31, 1999 and 1998, the Company
had accrued $1.2 million and $0.5 million, respectively, of such costs
and will accrue the balance over the assets' remaining useful lives.
The State of South Carolina has required the Company to post a letter
of credit and a surety bond with respect to the estimated remediation
costs of $2.8 million for the buildings.
Management updates its closure and remediation cost estimates on an annual
basis. These estimates are based on current technology and burial rates.
Management is unable to reasonably estimate the impact changes in technology,
burial rates and the timing of closure will have on the ultimate costs. Changes
in these factors could have a material impact on these estimates.
(6) Net Equity
Changes in the Company's net equity for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
Due from
Invested Accumulated Waste
capital earnings Management Total
--------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Balance December 31, 1996 $ 128,483,872 205,891,874 (234,777,054) 99,598,692
Net income -- 18,068,201 -- 18,068,201
Net cash advanced to Waste
Management -- -- (28,659,067) (28,659,067)
--------------- ------------ ------------- -----------
Balance December 31, 1997 128,483,872 223,960,075 (263,436,121) 89,007,826
Net income -- 19,520,898 -- 19,520,898
Net cash advanced to Waste
Management -- -- (20,469,698) (20,469,698)
--------------- ------------ ------------- -----------
Balance December 31, 1998 128,483,872 243,480,973 (283,905,819) 88,059,026
Net loss -- (24,014,511) -- (24,014,511)
Net cash advanced to Waste
Management -- -- (37,892,432) (37,892,432)
--------------- ------------ ------------- -----------
Balance December 31, 1999 $ 128,483,872 219,466,462 (321,798,251) 26,152,083
=============== ============ ============= ===========
</TABLE>
(Continued)
14
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(7) Related Party Transactions
The Company relies on Waste Management for various general and administrative
services including certain treasury, human resource, risk management and tax
compliance functions. Results of operations for the years ended December 31,
1999, 1998 and 1997, do not include any charges for these services. Management
estimates that a cost of approximately $250,000 for each of the years ended
December 31, 1999, 1998 and 1997, would have been incurred if these services
were performed by third parties.
The Company uses Waste Management cash management systems for processing all
cash receipts and disbursements. The result of these transactions together with
other charges result in amounts due from Waste Management. Such amounts are non-
interest bearing and do not have any repayment terms and, accordingly, have been
presented with the Company's net equity in the accompanying combined financial
statements.
(8) Impairment of Goodwill
Waste Management acquired the operating rights to the Barnwell disposal facility
(see note 5) in 1982 in an acquisition accounted for as a purchase and, since
that date, has been amortizing the goodwill acquired over a 40-year period.
During 1999, Waste Management adopted a plan to dispose of WMNS including the
rights to operate the Barnwell disposal facility. At the time of formulating the
plan, management was uncertain what price, if any, it could obtain for the
operating rights to the Barnwell facility, due to the uncertainties regarding
the facility, including the Governor's statement of his intention to close the
site. In addition, Waste Management believed its ability to sell the operating
rights would be inhibited by the potentially significant closure liabilities and
the limited financial rewards for operating the site through the current
licensing period. The restrictions imposed by the State on burial volumes and
the State disposal tax (see note 12) on each cubic foot of waste, impact the
site's competitiveness with other disposal sites around the country.
Accordingly, WMNS recorded a goodwill impairment charge of $47,277,000 during
1999. The charge was based upon the Company's best estimate of the proceeds they
might receive from a willing buyer for the net assets of the Barnwell facility
and the related operating rights.
(Continued)
15
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(9) Income Taxes
The Company's taxable income is included in a consolidated federal tax return
filed by Waste Management. Waste Management Federal Services, Inc. and its
subsidiaries are C-Corporations. Chem-Nuclear Systems, L.L.C. is a limited
liability company, taxed as a partnership. The provision for income taxes in the
accompanying combined statement of operations includes the Federal and state
income taxes related to the taxable income of Waste Management Federal Services,
Inc. and its subsidiaries as if it filed separate Federal and state income tax
returns. No taxes are included in the accompanying combined statement of
operations for Chem-Nuclear Systems, L.L.C. If the combined statement of
operations for the years ended December 31, 1999, 1998 and 1997 included the
Federal and state income taxes related to the taxable income of Chem-Nuclear
Systems, L.L.C., the income tax provision would have increased by approximately
$8.1 million, $7.9 million and $6.0 million, respectively.
The provision for income taxes for the years ended December 31 consists of the
following:
1999 1998 1997
----------- ------- ---------
Current:
State $ 472,658 91,901 448,544
Federal 3,143,172 611,141 2,982,816
----------- ------- ---------
3,615,830 703,042 3,431,360
----------- ------- ---------
Deferred:
State (94,220) 13,968 (52,470)
Federal (626,563) 92,888 (348,922)
----------- ------- ---------
(720,783) 106,856 (401,392)
----------- ------- ---------
$ 2,895,047 809,898 3,029,968
=========== ======= =========
The provision for income taxes for the years ended December 31 are reconciled to
the amount computed by applying the statutory Federal income tax rate of 35% to
loss before provision for income taxes as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Federal income tax (benefit) at statutory rate $ (7,391,812) 7,115,779 7,384,359
State income taxes, net of Federal tax benefit 245,985 68,814 257,448
Impact of non-deductible goodwill amortization
and impairment charge 17,418,043 872,823 870,879
Federal income taxes on taxable income of
of Chem-Nuclear Systems, L.L.C
not recognized herein (7,402,337) (6,908,267) (5,232,556)
Other 25,168 (339,251) (250,162)
------------ ---------- ----------
$ 2,895,047 809,898 3,029,968
============ ========== ==========
</TABLE>
(Continued)
16
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities for the years ended December 31
consist of the following:
1999 1998
--------- ---------
Allowance for doubtful accounts $ 93,780 --
Accelerated depreciation (233,747) (337,095)
Other 199,184 (324,471)
--------- ---------
Net deferred tax asset (liability) $ 59,217 (661,566)
========= =========
In assessing the realizability of deferred tax assets, management considered
whether it was more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable income during periods in which
temporary differences become deductible. Management considered income taxes paid
during the previous three years and projected future taxable income in making
this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the temporary
differences are deductible, management has deemed no valuation allowances are
necessary for the years ended December 31, 1999 and 1998.
(10) Concentrations of Credit Risk
Waste Management Federal Services, Inc. generates substantially all of its
revenues through subcontracts with DOE contractors and subcontractors. For the
years ended December 31, 1999, 1998 and 1997, revenues for Waste Management
Federal Services, Inc. represented approximately 62%, 69% and 70%, respectively,
of the combined revenues of the Company.
Accounts receivable, net and costs and estimated earnings in excess of billings
on uncompleted contracts relating to DOE contractors and subcontractors amounted
to approximately $1,892,000 and $3,257,000, $4,943,000 and $4,644,000, and
$3,258,000 and $2,723,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company estimates an allowance for doubtful accounts based on
the credit worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimate of its bad debts.
Effective October 1, 1999, a contract with a significant DOE contractor was
amended such that certain compensation costs will be incurred by such contractor
rather than the Company. Had this contract amendment occurred on January 1,
1999, revenues and cost of revenues would have been lower by approximately $92.5
million.
(Continued)
17
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(11) Employee Benefit Plans
The Company participates in a number of employee benefit plans sponsored by
Waste Management, including a defined contribution plan established under
Section 401(k) of the Internal Revenue Code. The Company matches employee
contributions up to 3% of their eligible compensation and matches 50% of
employee contributions in excess of 3% but less than 6% of eligible
compensation. Both employee and Company contributions vest immediately. The
Company's matching contributions for the years ended December 31, 1999, 1998 and
1997 were $705,605, $815,438 and $391,520, respectively.
The Company does not sponsor any defined benefit or post retirement benefit
plans nor do its employees participate in any similar plans sponsored by Waste
Management.
(12) Commitments and Contingencies
(a) Leases
The Company has several noncancellable leases which cover real
property, machinery and equipment. Such leases expire at various
dates with, in some cases, options to extend their terms. Rent
expense was approximately $1,538,000, $1,026,000 and $1,028,000
for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following is a schedule of future minimum annual lease
payments for all long-term operating leases in effect for years
ending after December 31, 1999:
2000 $ 1,559,000
2001 1,080,000
2002 451,000
2003 365,000
2004 274,000
Thereafter 278,000
-----------
$ 4,007,000
===========
(Continued)
18
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(b) Legal Proceedings
Predecessor companies of Chem-Nuclear Systems, L.L.C. and Waste
Management Federal Services, Inc. are defendants with respect to a
case brought against them and other former contractors at the DOE's
Idaho National Environmental Engineering Laboratory by the U.S.
Government under provisions of the False Claims Act. Lockheed Martin
Idaho Technologies Co. (LIMITCO) is also a defendant in the
litigation. Waste Management Federal Services, Inc. has a 19%
contribution obligation in the contract managed by LIMITCO. The case
is currently in the pleading motion stage and the Court has directed
the plaintiffs to replead their claims against the Company's
defendants with more specificity or face dismissal. The allegations
against LIMITCO are much broader than those brought against the
Company's defendants. The amount of potential damages in the cases
against LIMITCO cannot presently be estimated, but could be material.
The Company is not privy to the details of the case against LIMITCO or
details of LIMITCO's defense. During March 2000, the Company's
defendants reached a tentative agreement to settle with the plaintiffs
for an insignificant sum in exchange for a full release from all
claims. This settlement does not apply to the claims brought against
LIMITCO.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
(c) Disposal Tax Obligation
In connection with the Company's license to operate the Barnwell,
South Carolina low-level radioactive disposal site, the Company
collects from its customers and remits to the State of South Carolina
a $235 per cubic foot disposal tax of which $67 is designated as
educational support. Pursuant to its license with the State of South
Carolina, the Company is required to pay the State at least $24
million in disposal taxes per year (July 1 -June 30) designated for
the educational support in South Carolina. For the years ended
December 31, 1999, 1998 and 1997, $14.3 million, $6.4 million and $5.3
million was funded by the Company and charged to cost of revenues for
the excess of the State minimum over amounts collected from customers.
The State minimum was not established until July 1, 1997. As part of
the legislation passed by the State of South Carolina on July 1, 2000
(see note 5), the disposal tax will no longer be assessed on
customers, from October 1, 2000 forward, nor will the Company be
required to fund to the State the minimum previously imposed.
(Continued)
19
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Notes to Combined Financial Statements
December 31, 1999 and 1998
(13) Subsequent Event
On March 29, 2000, Waste Management, through certain of its indirect
subsidiaries, entered into an agreement to sell the common stock of Waste
Management Federal Services, Inc. and membership interests of Chem-Nuclear
Systems, L.L.C. to GTS Duratek, Inc. In connection with the transactions, Waste
Management agreed to indemnify GTS Duratek, Inc. for certain contingent
liabilities outstanding at the date of closing. The transaction closed on June
8, 2000.
20
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Combined Statements of Operations
Six Months Ended June 30, 2000
(Unaudited)
Revenues $ 63,441,068
Cost of revenues 43,626,119
--------------
Gross profit 19,814,949
Selling, general and administrative expenses 7,351,869
--------------
Income from operations 12,463,080
Other expense, net (23,415)
--------------
Income before provision for income taxes 12,439,665
Provision for income taxes 1,645,857
--------------
Net income $ 10,793,808
==============
See accompanying note to combined financial statements.
21
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Combined Statements of Cash Flows
Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 10,793,808
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,068,171
Changes in operating items:
Receivables (3,098,535)
Costs and estimated earnings in excess of billings on uncompleted contracts (3,133,729)
Prepaid expenses, inventories and other current assets (965,993)
Decontamination and decommissioning trust fund (276,167)
Other assets 457,300
Accounts payable, accrued expenses and other current liabilities (3,614,732)
Billings in excess of costs and estimated earnings on uncompleted contracts 305,499
Facility and equipment decontamination and decommissioning liabilities 818,279
-------------
Net cash provided by operating activities 2,353,901
-------------
Cash flows from investing activities:
Additions to property, plant and equipment (813,181)
-------------
Net cash used in investing activities (813,181)
-------------
Net cash flows from financing activities:
Net cash advanced from Waste Management, Inc. 3,062,542
-------------
Net increase in cash 4,603,262
Cash, beginning of period
5,100
-------------
Cash, end of period $ 4,608,362
=============
</TABLE>
See accompanying note to combined financial statements.
22
<PAGE>
WASTE MANAGEMENT NUCLEAR SERVICES
Note to Financial Statements
June 30, 2000
(Unaudited)
(1) Basis of Presentation
Waste Management Nuclear Services ("WMNS" or the "Company") 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 in
Barnwell, South Carolina.
Effective June 8, 2000, Waste Management, Inc. ("WMI"), through its
indirect subsidiaries, sold all of the outstanding capital stock of Waste
Management Federal Services, Inc. ("WMFS") and all of the outstanding
membership interests of Chem-Nuclear Systems, L.L.C. ("Chem-Nuclear") to
GTS Duratek, Inc.
The Company's financial statements as of and for the six months ended
June 30, 2000 are unaudited and do not include all disclosures required
under generally accepted accounting principles. Such financial statements
reflect all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position, results of operations and
cash flows for the interim period presented. The results of the 2000
interim period are not necessarily indicative of results to be expected
for the entire year.
23
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(Unaudited)
The pro forma financial information should be read in conjunction with the
consolidated financial statements and related notes of GTS Duratek, Inc. and
subsidiaries (the "Company"), not included elsewhere herein.
On February 7, 2000, the Company completed the sale of substantially all the
assets, properties and rights of DuraTherm, Inc., an 80% owned subsidiary
("DTI"), to DuraTherm Group, Inc. (the "Buyer") for $8.0 million in cash and a
subordinated note for $355,000. Proceeds to the Company of $8.0 million net of
transaction and related costs were used by the Company to pay down borrowings
under its bank credit facilities. 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 on February 7, 2002.
The Company recognized a gain of approximately $1.2 million upon completion of
the sale.
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").
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. The Company incurred approximately $3 million of debt financing
costs to complete the amendment. Such amount, together with the unamortized
deferred financing costs related to the existing arrangement, will be amortized
over the life of the ammended agreement using the interest method.
24
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(Unaudited)
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
Barnwell operating rights 5,500,000
Goodwill and other intangible assets 43,185,000
------------
Total assets acquired $ 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. In addition, no estimate is currently available
with respect to the post closing adjustment. The amount payable to or receivable
from Waste Management with respect to this adjustment will increase or decrease
goodwill, respectively.
Pro Forma Consolidated Balance Sheet -- The pro forma balance sheet for June 30,
2000 is not included herein as the consolidated June 30, 2000 balance sheet for
GTS Duratek, Inc. and subsidiaries is included in the June 30, 2000 quarterly
report to the Securities and Exchange Commission filed on Form 10-Q. The June
30, 2000 consolidated balance sheet for GTS Duratek, Inc. excludes the accounts
of DTI and includes the accounts of WMNS.
Pro Forma Consolidated Statements of Operations -- The pro forma condensed
consolidated statements of operations for the six months ended June 30, 2000 and
year ended December 31, 1999 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. Results for the six months ended June 30, 2000 are not necessarily
indicative of results expected for the full year. Pro forma results are not
necessarily indicative of results expected for the remainder of 2000 or future
years.
25
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(Unaudited)
In addition to the pro forma adjustments reflected in the pro forma condensed
consolidated statements of operations, the operating results for WMNS will be
significantly different for periods following the acquisition as compared to
periods prior to the acquisition, due to, among other things, (i) the operation
of a major contract with a United States Department of Energy ("DOE") contractor
and (ii) the operations of the Barnwell waste disposal facility. A summary of
the estimated impact of these matters, which are not reflected in the pro forma
condensed consolidated statements of operations, follows:
(i) Effective October 1, 1999, a contract WMNS has with a significant
DOE contractor was amended such that certain compensation costs will
be incurred by the contractor rather than WMNS. Had the contract
amendment occurred on January 1, 1999, pro forma revenues and costs
of revenues would have been lower by approximately $92.5 million.
(ii) WMNS operates a 235-acre low-level radioactive waste disposal site
located in Barnwell, South Carolina, pursuant to a 99-year lease.
During the year ended December 31, 1999 and the six months ended
June 30, 2000, WMNS paid the State of South Carolina a fee based on
waste receipts subject to an annual minimum of $24 million. In
exchange, WMNS set pricing and had all the risk and rewards of
ownership. Effective July 1, 2000, the State of South Carolina
General Assembly passed legislation which places the site under a
rate control plan administered by the State of South Carolina. Under
the rate control plan, the Company will be reimbursed for allowable
costs incurred plus a fixed operating margin of 29%. The legislation
also establishes annual volume limits on waste that can be accepted
at the site for disposal. The maximum annual volume declines from
160,000 cubic feet to 35,000 cubic feet over an eight-year period.
At the end of the eight-year period, the site will remain open for
receipt of waste from only the three Atlantic Compact states (New
Jersey, Connecticut and South Carolina).
Management estimates that the change in the arrangement for
operations of the Barnwell waste disposal facility will reduce
revenues and net income from amounts achieved during the year ended
December 31, 1999 by $15.3 million and $4.8 million, respectively,
and during the six months ended June 30, 2000 by $4.9 million and
$749,000, respectively, before the impact of purchase accounting
adjustments. This would effectively reduce net income per share on a
diluted basis by $0.24 per share and $0.05 per share for the year
ended December 31, 1999 and the six months ended June 30, 2000,
respectively.
The pro forma adjustments include the following for each of the periods
presented:
(1) The elimination of the operating results of DTI and the inclusion of
the operating results of WMNS.
(2) Elimination of sales between WMNS and the Company.
(3) The adjustment of depreciation and amortization to reflect the
allocation of the purchase price to assets acquired from WMNS.
(4) The adjustment of selling, general and administrative expenses to
reflect the estimated costs to replace certain services previously
provided by Waste Management, Inc. to WMNS.
26
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(Unaudited)
(5) The adjustment of interest expense to reflect (i) the pay down of
borrowings under the Company's bank credit facilities with proceeds
of the sale of DTI and (ii) additions to borrowings to fund the
acquisition of WMNS.
(6) The adjustment of income tax expense as the result of (i) the
reduction in the Company's income from the elimination of DTI's
operating results and the loss incurred by WMNS during 1999 and (ii)
higher interest expense.
27
<PAGE>
GTS Duratek, Inc.
Pro Forma Condensed Consolidated Statement of Operations
Year ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------
Sale of
Actual DuraTherm Subtotal
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $177,195,546 (14,745,285) (1) 162,450,261
Cost of revenues 128,719,021 (10,549,844) (1) 118,169,177
------------ ------------ ------------
Gross profit 48,476,525 (4,195,441) 44,281,084
Selling, general and administrative expenses 27,722,569 (2,250,546) (1) 25,472,023
Charge for goodwill impairment -- -- --
------------ ------------ ------------
Income (loss) from operations 20,753,956 (1,944,895) 18,809,061
Interest income (expense), net (2,297,105) 675,000 (2) (1,622,105)
Other income, net -- -- --
------------ ------------ ------------
Income (loss) before income taxes and
proportionate share of losses of joint ventures 18,456,851 (1,269,895) 17,186,956
Income taxes 6,854,500 (495,259) (3) 6,359,241
------------ ------------ ------------
Income (loss) before proportionate share of
losses of joint ventures 11,602,351 (774,636) 10,827,715
Proportionate share of losses of joint ventures (122,633) -- (122,633)
------------ ------------ ------------
Net income (loss) and comprehensive income (loss) 11,479,718 (774,636) 10,705,082
Preferred stock dividends and charges for accretion (1,510,173) -- (1,510,173)
------------ ------------ ------------
Net income (loss) attributable to common
stockholders $ 9,969,545 (774,636) 9,194,909
============ ============ ============
Net income (loss) per share:
Basic $ 0.75
============
Diluted $ 0.58
============
Weighted average shares outstanding:
Basic 13,351,000
===========
Diluted 20,323,000
===========
<CAPTION>
Pro Forma Adjustments
------------------------------
Results of
WMNS Adjustments Proforma
----------- ------------ ------------
<C> <C> <C>
Revenues 200,130,119 (12,045,000) (4) 350,535,380
Cost of revenues 169,304,892 (12,045,000) (4) 275,429,069
----------- ----------- ------------
Gross profit 30,825,227 -- 75,106,311
Selling, general and administrative expenses 4,806,465 500,000 (5) 28,860,775
(1,533,042) (6)
(384,671)
Charge for goodwill impairment 47,277,000 (47,277,000) (8) --
----------- ----------- ------------
Income (loss) from operations (21,258,238) 48,694,713 46,245,536
Interest income (expense), net -- (8,315,527) (9) (9,937,632)
Other income, net 138,774 -- 138,774
----------- ----------- ------------
Income (loss) before income taxes and
proportionate share of losses of joint ventures (21,119,464) 40,379,186 36,446,678
Income taxes 2,895,047 4,920,541 (10) 14,174,829
----------- ----------- ------------
Income (loss) before proportionate share of
losses of joint ventures (24,014,511) 35,458,645 22,271,849
Proportionate share of losses of joint ventures -- -- (122,633)
----------- ----------- ------------
Net income (loss) and comprehensive income (loss) (24,014,511) 35,458,645 22,149,216
Preferred stock dividends and charges for accretion -- -- (1,510,173)
----------- ----------- ------------
Net income (loss) attributable to common
stockholders (24,014,511) 35,458,645 20,639,043
=========== =========== ============
Net income (loss) per share:
Basic 1.55
============
Diluted 1.11
============
Weighted average shares outstanding:
Basic 13,351,000
============
Diluted 20,323,000
============
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
28
<PAGE>
GTS Duratek, Inc.
Pro Forma Condensed Consolidated Statement of Operations
Six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------------------------------
Sale of Results of
Actual DuraTherm Subtotal WMNS (a) Adjustments Proforma
------------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 93,874,344 (1,195,150) (1) 92,679,194 55,090,994 (4,292,000) (4) 143,478,188
Cost of revenues 69,122,091 (1,039,169) (1) 68,082,922 37,943,670 (4,292,000) (4) 101,734,592
------------- ---------- ------------ ------------ ---------- -----------
Gross profit 24,752,253 (155,981) 24,596,272 17,147,324 -- 41,743,596
Selling, general and
administrative expenses 14,921,899 (275,771) (1) 14,646,128 6,384,674 250,000 (6) 21,703,829
(285,048) (7)
-- -- -- 708,075 (8)
------------- ---------- ------------ ------------ ---------- -----------
Income (loss) from operations 9,830,354 119,790 9,950,144 10,762,650 (673,027) 20,039,767
Gain on sale of DuraThem, Inc. 1,166,000 (1,166,000) -- -- -- --
Interest income (expense), net (2,020,033) -- (2) (2,020,033) 29,571 (4,196,700) (9) (6,187,162)
Other income (expense), net -- -- -- (26,027) -- (26,027)
------------- ---------- ------------ ------------ ---------- -----------
Income (loss) before income
taxes and proportionate share
of losses of joint ventures 8,976,321 (1,046,210) 7,930,111 10,766,194 (4,869,727) 13,826,578
Income taxes 3,538,583 (408,022) (3) 3,130,561 1,645,857 801,951 (10) 5,578,369
------------- ---------- ------------ ------------ ---------- -----------
Income (loss) before
proportionate share of losses
of joint ventures 5,437,738 (638,188) 4,799,550 9,120,337 (5,671,678) 8,248,209
Proportionate share of losses of
joint ventures (50,000) -- (50,000) -- -- (50,000)
------------- ---------- ------------ ------------ ---------- -----------
Net income (loss) and
comprehensive income (loss) 5,387,738 (638,188) 4,749,550 9,120,337 (5,671,678) 8,198,209
Preferred stock dividends and
charges for accretion (756,383) -- (756,383) -- -- (756,383)
------------- ---------- ------------ ------------ ---------- -----------
Net income (loss) attributable
to common stockholders $ 4,631,355 (638,188) 3,993,167 9,120,337 (5,671,678) 7,441,826
============= ========== ============ ============ ========== ============
Net income per share:
Basic $ 0.35 0.56
============= ============
Diluted $ 0.28 0.42
============= ============
Weighted average shares
outstanding:
Basic 13,301,892 13,301,892
============= ============
Diluted 20,093,011 20,093,011
============= ============
</TABLE>
(a) Represents results for the period January 1, 2000 to June 8, 2000
See accompanying notes to pro forma consolidated financial statements.
29
<PAGE>
GTS DURATEK, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
Notes to Pro Forma Condensed Consolidated Statements of Operations
For the six months then ended June 30, 2000 and the year ended
December 31, 1999
(Unaudited)
This is a description of each of the pro forma adjustments reflected in the Pro
Forma Condensed Consolidated Statements of Operations for the six months ended
June 30, 2000 and the year ended December 31,1999:
1. Elimination of the operating results of DuraTherm, Inc. ("DTI").
2. Adjustment of interest expense to reflect the use of the $8 million
proceeds from the sale of DTI to reduce bank borrowings.
3. Adjustment of income tax expense resulting from the elimination of the
operating results of DTI and the reduction of interest expense.
4. Elimination of sales between Waste Management Nuclear Services, Inc
("WMNS") and GTS Duratek. Inc. (the "Company").
5. Adjustment of general and administrative expenses to reflect the
additional costs to be incurred to replace certain services previously
provided by Waste Management, Inc. to WMNS. Management of GTS Duratek,
Inc. estimates that it will incur approximately $500,000 of
incremental administrative costs to replace certain insurance coverage
and treasury and legal support previously provided by Waste Management
to WMNS.
6. Adjustment of depreciation and amortization to reflect estimated fair
value of property and equipment.
7. Adjustment of amortization expense to reflect amortization of the
value assigned to the Barnwell operating rights ($5.5 million) and
goodwill ($43.2 million) in the acquisition balance sheet.
8. Elimination of the goodwill impairment charge as a result of the
adjustment of the fair value of acquired assets as of the beginning of
the periods presented.
9. Adjustment of interest expense to reflect (i) additions to borrowings
to fund the acquisition of WMNS; (ii) amortization of additional
deferred financing costs; and (iii) higher borrowing costs in
connection with the amendment of Company's bank credit facility.
10. Adjustment of income tax expense to include income taxes related to
(i) the earnings of Chem-Nuclear Systems L.L.C. and (ii) the pro forma
adjustment related to the acquisition of WMNS outlined above.
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GTS DURATEK, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
Notes to Pro Forma Condensed Consolidated Statements of Operations
For the six months then ended June 30, 2000 and the year ended
December 31, 1999
(Unaudited)
In addition to the pro forma adjustments reflected in the pro forma condensed
consolidated statements of operations, the operating results for WMNS will also
be significantly different for periods following the acquisition as compared to
periods prior to the acquisition, due to, among other things, (i) the operation
of a major contract with a United States Department of Energy ("DOE") contractor
and (ii) the operations of the Barnwell waste disposal facility. A summary of
the estimated impact of these matters, which are not reflected in the pro forma
condensed consolidated statements of operations, follows:
(i) Effective October 1, 1999, a contract WMNS has with a significant
DOE contractor was amended such that certain compensation costs will
be incurred by the contractor rather than WMNS. Had the contract
amendment occurred on January 1, 1999, pro forma revenues and costs
of revenues would have been lower by approximately $92.5 million.
(ii) WMNS operates a 235-acre low-level radioactive waste disposal site
located in Barnwell, South Carolina, pursuant to a 99-year lease.
During the year ended December 31, 1999 and the six months ended
June 30, 2000, WMNS paid the State of South Carolina a fee based on
waste receipts subject to an annual minimum of $24 million. In
exchange, WMNS set pricing and had all the risk and rewards of
ownership. Effective July 1, 2000, the State of South Carolina
General Assembly passed legislation which places the site under a
rate control plan administered by the State of South Carolina. Under
the rate control plan, the Company will be reimbursed for
allowable costs incurred plus a fixed operating margin of 29%. The
legislation also establishes annual volume limits on waste that can
be accepted at the site for disposal. The maximum annual volume
declines from 160,000 cubic feet to 35,000 cubic feet over an eight-
year period. At the end of the eight-year period, the site will
remain open for receipt of waste from only the three Atlantic
Compact states (New Jersey, Connecticut and South Carolina).
Management estimates that the change in the arrangement for
operations of the Barnwell waste disposal facility will reduce
revenues and net income from amounts achieved during the year ended
December 31, 1999 by $15.3 million and $4.8 million, respectively,
and during the six months ended June 30, 2000 by $4.9 million and
$749,000, respectively, before the impact of purchase accounting
adjustments. This would effectively reduce net income per share on a
diluted basis by $0.24 per share and $0.05 per share for the year
ended December 31, 1999 and the six months ended June 30, 2000,
respectively.
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GTS DURATEK, INC.
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
23.1 Consent of KPMG LLP.
99.1 GTS Duratek, Inc. Press Release dated June 9, 2000 which was
filed with the Securities and Exchange Commission on June 22,
2000.
99.2 Purchase Agreement by and among Chemical Waste Management Inc.,
Rust International, Inc., CNS Holdings, Inc. and GTS Duratek,
Inc. dated March 29, 2000 which was filed with the Securities and
Exchange Commission on June 22, 2000.
99.3 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
which was filed with the Securities and Exchange Commission on
June 22, 2000.
99.4 Second 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 which was filed with the Securities and
Exchange Commission on June 22, 2000.
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99.5 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 which was filed with the Securities and Exchange
Commission on June 22, 2000.
33
