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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the fiscal year ended December 31, 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
DURATEK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2476180
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer 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
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 Per Share
Indicate by check mark X 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__
Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of April 10, 2001, the aggregate market value of the outstanding shares of
the Registrant's Common Stock, par value $0.01 per share, held by non-affiliates
was approximately $32,864,141 based on the average closing price of the Common
Stock as reported by the NASDAQ National Market on April 10, 2001. Determination
of affiliate status for this purpose is not a determination of affiliate status
for any other purpose.
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the most recent practicable date.
Class Outstanding at April 10, 2001
Common stock, par value $0.01 per share 13,430,684 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
Form 10-K Cross-Reference Sheet
Page
PART I
Item 1. Business........................................................................................1
Item 2. Properties.....................................................................................17
Item 3. Legal Proceedings..............................................................................17
Item 4. Submission of Matters to a Vote of Security Holders............................................18
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.................................................................19
Item 6. Selected Financial Data........................................................................20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................................21
Item 7A. Quantitative and Qualitative Information About Market Risk.....................................27
Item 8. Financial Statements and Supplementary Data....................................................28
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................................................61
PART III
Item 10. Directors and Executive Officers of the Registrant*............................................62
Item 11. Executive Compensation*........................................................................63
Item 12. Security Ownership of Certain Beneficial Owners
and Management*.............................................................................63
Item 13. Certain Relationships and Related Transactions*................................................63
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................................................64
Signatures.......................................................................................................65
* Incorporated by reference from registrant's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held June 8, 2001 which Proxy
Statement will be filed not later than 120 days after the end of the fiscal
year covered by this Annual Report on Form 10-K.
Part I
Item 1. Business
Overview
Duratek, Inc. and its wholly owned subsidiaries (the "Company"),
formerly GTS Duratek, Inc., provide waste treatment solutions for radioactive,
hazardous, mixed (i.e., intermingled radioactive and hazardous), and other
wastes. The Company combines proprietary technologies for treating various waste
streams with a staff of highly skilled personnel with significant environmental
experience to offer its customers a comprehensive approach to their waste
treatment needs. The Company's proprietary technologies include vitrification,
incineration, compaction, metal decontamination, and recycling and ion exchange
used independently or in tandem to process its customer's waste for long-term
storage and disposal. The Company has a staff of engineers, consultants and
technicians who implement the Company's waste treatment technologies and provide
highly specialized technical support services for its customers. The Company's
strategy is to: (i) provide the low cost solution to process contaminated waste
streams, (ii) combine its proprietary technologies and technical support
services to provide full-service waste treatment, and (iii) team, where
appropriate, with other companies with complementary expertise to advance
Duratek's treatment solutions within its target markets and into new markets.
The Company's operations are organized into three primary segments: (i)
commercial processing and disposal, (ii) federal services and (iii) commercial
services. The Company conducts its commercial processing and disposal operations
primarily at its Bear Creek Operations Facility in Oak Ridge, Tennessee, its
waste processing facility in Memphis, Tennessee and at its disposal facilities
in Barnwell, South Carolina. The Bear Creek Operations Facility is the largest
commercial waste processing facility for low-level radioactive waste in the
United States and has the capacity to handle over 60 million pounds of
radioactive waste per year. Generators of low-level radioactive waste send their
waste to this facility where the Company characterizes the waste and utilizes a
combination of treatment technologies, including incineration, compaction and
metal decontamination and recycling, to process the waste to achieve significant
volume and mass reduction before sending it to disposal. Other technologies used
by the Company in its commercial processing and disposal operations include
vitrification and steam reforming. The Company believes that its customers
benefit from significant cost savings as compared to other commercially
available alternatives by first confirming the presence of radioactive material
and then minimizing the volume and mass of the waste thereby reducing the
disposal costs. The Company's Barnwell, South Carolina disposal operation, which
was acquired as part of the Company's acquisition of Waste Management Nuclear
Services, includes a commercial low-level radioactive waste disposal landfill
that is one of the few facilities in the United States permitted to accept
commercially generated low-level radioactive waste. Revenues derived from the
commercial processing and disposal operations are from the processing, and
treatment of customer waste streams. Customers of the Company's commercial
processing and disposal services include electric utilities, government
agencies, industrial facilities, laboratories, hospitals and others.
The Company's federal services operations provides on-site waste
processing services on large government projects for the United States
Department of Energy ("DOE") and other governmental entities. The on-site
waste processing services 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 services and site clean up.
The Company's commercial services operations provides value-added waste
treatment services to a diverse group of commercial clients, including nuclear
power utilities. The waste treatment services include water processing, nuclear
waste handling, transportation, licensing, packaging, heavy hauling, disposal
and decontamination and decommissioning. The Company also provides technical
support services to its clients including radiological engineering services,
staff augmentation and health physics support (principally to assist nuclear
power plants during regular maintenance shutdowns), environmental consulting and
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environmental safety and health training. These services are provided by over
600 engineers, consultants and technicians, some of whom are full-time employees
and the balance of whom are contract employees. The technical support services
provide a consistent source of revenue and the complementary expertise for the
Company to expand and diversify its waste treatment operations. Having these
technical resources available has enabled the Company to move its technologies
from bench-scale laboratory testing to field operations and commercial
application more rapidly and to handle larger scope waste cleanup projects.
Recent Acquisitions and Dispositions
On June 8, 2000, the Company acquired the nuclear services business of
Waste Management, Inc. ("WMI") for $68.7 million in cash including transaction
costs. 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 acquired companies are referred to as Waste Management
Nuclear Services ("WMNS"). WMNS consisted of three operating segments: (i) the
Federal Services Division which provided radioactive waste handling,
transportation, treatment packaging, storage, disposal, site cleanup, and
project management services primarily for the DOE and other federal agencies,
(ii) the Commercial Services Division which provided radioactive waste handling
and treatment, transportation, licensing, packaging, disposition, and
decontamination and decommissioning services primarily to nuclear utilities, and
(iii) the Commercial Disposal Division which operated the commercial low-level
radioactive waste disposal facility in Barnwell, South Carolina.
On February 7, 2000, the Company completed the sale of its 80% interest
in DuraTherm, Inc. to DuraTherm Group, Inc. for $8.3 million in cash; proceeds
of which were used by the Company to pay down borrowings under its bank credit
facility.
On June 30, 1999, the Company acquired 100% of the outstanding
membership interests of Frank W. Hake Associates, LLC ("Hake") (now known as
Duratek Memphis Group, LLC) from HakeTenn, Inc., a Delaware corporation and an
affiliate of the Hake Group of Philadelphia, Pennsylvania, and two individuals
for $10.9 million in cash and the assumption of certain liabilities. Hake
specialized in storage, transportation, handling and processing of radioactive
waste emanating from nuclear power generation plants throughout the United
States. Hake also stored and serviced power generation equipment at its licensed
facility in Memphis, Tennessee.
Financial Information About Segments
Financial information about the Company's operating segments is in Part
II, Item 8, Notes to Consolidated Financial Statements, in note 18, Segment
Reporting.
Commercial Processing and Disposal
The Company conducts its commercial processing and disposal operations
at its Bear Creek Operations Facility in Oak Ridge, Tennessee, at the Company's
facility in Memphis, Tennessee which was acquired in the Hake transaction and at
the Chem-Nuclear Consolidation Facility ("CNCF") in Barnwell, South Carolina
which was acquired in the WMNS transaction. The Bear Creek Operations Facility
is the largest commercial waste processing facility for low-level radioactive
waste in the United States and has the capability to handle over 60 million
pounds of radioactive waste per year. Generators of low-level radioactive waste
send their waste to this facility, where the Company characterizes the waste and
utilizes a combination
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of treatment technologies to process the waste to achieve significant volume and
mass reduction, before sending it to disposal. Accordingly, the Company believes
its customers benefit from significant cost savings as compared to other
commercially available alternatives by first confirming the presence of
radioactive material and then minimizing the volume and mass of waste thereby
reducing disposal costs. The Company's waste treatment technologies utilized at
the Bear Creek Operations Facility include incineration, compaction, and metal
decontamination and recycling. Other technologies used by the Company in its
commercial processing and disposal operations include vitrification and steam
reforming. The Memphis, Tennessee facility is equipped to receive, handle,
decontaminate and cut large nuclear power plant components, which are then sent
to the Bear Creek Operations Facility for volume reduction. The CNCF provides
the Company and customers with a facility to develop and test new waste
treatment technologies. The Company's technologies can be used independently or
in tandem to process its customers' waste for long-term storage and disposal.
The Company's ability to integrate its waste treatment technologies enables it
to handle a diversity of waste streams in a cost-effective manner.
In the WMNS transaction, the Company also acquired the operating rights
to a commercial low-level radioactive waste disposal landfill site in Barnwell,
South Carolina. This waste disposal landfill site is one of the few facilities
in the United States permitted to accept commercially generated low-level
radioactive waste. The site is owned by the State of South Carolina, and leased
to the Company for 99-years. The Company operates the site under a license
granted by the State of South Carolina. The Barnwell facility pursues the
disposal market for large nuclear components not suitable for volume reduction
and ion exchange resins and wastes which are generated by nuclear power plants,
hospitals, research laboratories, and industrial facilities. Effective July 1,
2000, the South Carolina General Assembly passed the Atlantic Interstate Low-
Level Radioactive Waste Compact Implementation Act enabling South Carolina to
join Connecticut and New Jersey in 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, after which the site will remain open for
receipt of waste from the three Atlantic Compact states (New Jersey,
Connecticut, and South Carolina. The Public Service Commission ("PSC") of the
State of South Carolina regulates the economics of operating this site. The PSC
dictates a rate control plan, under which the Company is reimbursed for
allowable costs incurred plus a fixed operating margin of 29%. The results of
operating the Barnwell disposal facility are included in the Company's results
from the date of acquisition. The results from July 1, 2000 through December 31,
2000 are based upon the rate control plan.
Revenues derived from the commercial processing and disposal operations
are from the processing and treatment of customer waste streams. Customers of
the Company's commercial processing and disposal operations include electric
utilities, government agencies, industrial facilities, laboratories, hospitals
and others. Revenues derived from the Company's commercial processing and
disposal operations represented approximately 45.6%, 49.4%, and 38.1%, of the
Company's total revenues in 1998, 1999, and 2000, respectively.
The Company has developed or acquired several waste treatment
technologies for use on a variety of radioactive, hazardous, mixed and other
waste streams. The following is a brief summary of the waste treatment
technologies that are being utilized by the Company.
Vitrification. The Company's vitrification technology converts waste to
environmentally stable, leach-resistant glass through a patented
high-temperature melter system known as a DuraMelter(TM). The Company's
vitrification technology involves combining radioactive, hazardous, mixed and
other waste with glass-forming additives in a DuraMelter(TM) that reaches
temperatures of 1150(degree)C to 1450(degree)C (or 2100(degree)F to
2640(degree)F). The high temperatures of the DuraMelter(TM) cause the waste and
any additives to form a molten liquid that becomes solid glass as it cools. As
the molten liquid cools, the radioactive or hazardous atoms become chemically
bonded in the molecular structure of the glass for long-term storage or
disposal, thereby virtually
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eliminating contamination of the environment. For certain waste streams, the
Company's vitrification technology can achieve volume reductions of up to 97%.
The glass produced by the DuraMelter(TM) passes the United States Environmental
Protection Agency's Toxicity Characteristic Leachate Procedure ("TCLP"), one of
the most commonly used criteria for waste acceptance, particularly hazardous and
mixed waste, at land disposal facilities.
The DuraMelter(TM) is a proprietary melter system within a
refractory-lined cavity incorporating submerged electrodes which heat up the
materials within the cavity. Contaminated waste materials are deposited onto a
melt surface in either a liquid (slurry) or a solid form. Glass forming
additives are also introduced into the system and the amount of such additives
is dependent upon the characteristics of the waste stream. As the electrodes in
the DuraMelter(TM) raise the temperature above 600(degree)C, the waste and
additive mixture becomes electrically conductive. Resistance to the passage of
electricity through the mixture causes further heating and maintains the waste
and additive mixture in a molten state. This process is known as "joule heating"
and typically requires temperatures of about 1150(degree)C. Within the
DuraMelter(TM), water evaporates and organic substances are oxidized forming
simple gases which are channeled into the patented off-gas treatment system. The
inorganic radioactive or hazardous substances in the waste are dissolved into
the molten glass mixture. The molten glass exits through a side opening near the
floor of the melting cavity and, depending upon the characteristics of the waste
stream, is either discharged in bulk or directed into the proprietary Duratek
gem machine where it forms into beads, 1 to 2 centimeters in diameter, for
long-term storage. As the beads of molten mixture cool, the inorganic
radioactive or hazardous substances become chemically bonded or "locked" into
the molecular structure of the glass.
DuraMelters(TM) range in size from small bench-scale units, used for
testing and characterization of waste streams, to commercial sized melters,
designed for large waste treatment and remediation projects. Currently, the
Company's largest commercial operating DuraMelters(TM) can process up to
approximately 400 cubic feet of waste per day. The design of the DuraMelter(TM)
can be modified depending upon the characteristics of the waste stream to be
processed. To process waste streams that have a higher content of soil or sand,
the Company has designed a DuraMelter(TM) with higher temperature capability (up
to 1450(degree)C or 2640(degree)F). To process waste streams that include a high
content of corrosive elements such as sulfates, phosphates, lead and nitrates,
the Company has designed a DuraMelter(TM) with multiple waste chambers to
protect the electrodes from the corrosiveness of the waste stream.
Incineration. Incineration is the most cost-effective treatment for
most dry active waste and is the preferred waste treatment technology of many of
the Company's customers for non-hazardous waste oils and other waste liquids.
The Company's two incinerators at its Bear Creek Operations Facility are the
only two licensed commercial low-level radioactive waste incinerators in the
United States. Each of the Company's incinerators is capable of processing solid
waste at up to 1,600 pounds per hour and up to 30 gallons of radioactive, non-
hazardous waste oils simultaneously. The proprietary ash transport system of the
Company's incinerators mixes ash with air, resulting in complete burning of all
combustible material without excessive particulate carry-over common to most
incinerators. In addition, the secondary chamber utilizes two burners at up to
2200(degree)F to ensure complete combustion of all volatile materials.
Incinerator ash and fly ash are compacted in the Company's UltraCompactor(TM) to
form a high-density, non-dispersible solid which is packaged and shipped for
disposal. The incinerators are also equipped with a combination of emission
control equipment and technology to maximize environmental and employee safety,
including a heat recovery boiler for off-gas temperature control, a baghouse
filter for particulate control, a dual HEPA bank for contamination control, a
wet scrubber for acid gas removal, an evaporator to concentrate and solidify
suspended and dissolved solids in the liquid from the scrubbers and a recycling
system so that water can be recycled for reuse or processed in the incinerator
which eliminates all liquid effluents.
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Compaction. Achieving maximum density is critical to cost-effective
radioactive waste disposal at most burial sites. The Company's
UltraCompactor(TM) at its Bear Creek Operations Facility is the world's largest
compactor available for low-level radioactive waste, capable of compacting both
drums and boxes (up to 38 cubic feet) with the force of 10 million pounds. The
UltraCompactor(TM) has a capacity of 70,000 cubic feet per month. Average volume
reduction using the Company's compaction technology is approximately six times
for dry active waste and eight times for asbestos. Typically, the waste
processed utilizing this technology is dry active waste and includes paper,
plastic, asbestos, metals, woods, and filters. Other items that have been
successfully volume reduced using the UltraCompactor(TM) include soils, motors,
pumps, pipes, valves, and conduits. The Company also has a mobile compactor
which can be operated at the customer's site. The mobile compactor utilizes
2,200 tons of compaction force, achieves volume reduction rates of 60% to 80%
and is suited for smaller-scale jobs on concrete, rubble, steel structures,
valve bodies, and other hard-to-compact material near theoretical density.
Metal Decontamination and Recycling. The Company's metals processing
program at its Bear Creek Operations Facility provides a cost-effective solution
for radioactively contaminated metals utilizing its full-service capabilities of
surveying, decontaminating, and melting. Upon arrival at the Company's Bear
Creek Operations Facility, the Company examines the metal and sorts it for
processing based on the contamination level of the metal to achieve the most
cost-effective process for recycling metal. If it is more cost-effective to
dispose of it rather than to recycle it, the Company will volume reduce the
metal using its UltraCompactor(TM) and send it to an appropriate burial site.
The Company's specialized decontamination equipment allows multiple shapes and
metal types to be successfully treated for commercial recycling. For those
metals that cannot be economically decontaminated, the Company will utilize its
metal melting technology. The Company's 20 ton, 7,200 kW electric induction
furnace, the largest available in the United States, operates exclusively for
melting and recycling radioactively contaminated metal. This furnace is capable
of processing various types of ferrous metals over a broad alloy spectrum and
copper and lead. All of the metal processed through the metal melt furnace is
recycled into shield blocks and provided to various high-energy physics projects
throughout the United States and Canada. The decontamination and/or recycling of
radioactively contaminated metal has two principal benefits, it eliminates the
liability for the original waste generator and it eliminates the cost of burial.
Steam Reforming. The Company's steam reforming technology is designed
for processing the toughest wastes including mixed waste, waste requiring
segregation, and waste exhibiting high activity levels. In particular, the
Company has successfully utilized this technology to process radiologically
contaminated medical and biological wastes. The system's compact size,
containment integrity, in-drum processing option, and steam-based chemistry
offer significant safety and regulatory advantages over most incinerator or
other thermal destruction systems. The Company holds exclusive rights to this
proprietary technology, which first vaporizes organics in the waste, either in
liquid or solid forms, and then converts those gases to a dry, non-hazardous,
mineral-like solid residue with greater than 99.99% efficiency. Using its steam
reforming technology, the Company is able to achieve volume reductions of up to
100 times, depending on the type of waste.
The steam reforming process is conducted in a steam-laden,
oxygen-deficient environment that converts organic and biochemical compounds to
carbon monoxide, hydrogen, carbon dioxide, and water. The two-step process first
employs an evaporation phase (between 700(degree)F and 900(degree)F) which
breaks down and vaporizes most organic compounds and water from the waste. The
waste solids are not exposed to higher temperatures, which would tend to
volatize metals and other radionuclides from the residue. The volatized gases
exit the evaporator and are passed through a filter which removes any fine
entrained particles from the gases. Particulate-free gases exiting the filter
are then co-mixed with additional superheated steam and passed through a
high-temperature reformer. The gases, some of which are organic fractions of the
original waste material, are fully decomposed in the reformer at high
destruction efficiencies. The resulting products are simple gases and inert
mineral-like residue.
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Because the Company's steam reforming technology does not use
combustion, and because the secondary pollutants are not formed by the steam
reforming process, it is not classified as an incinerator by the United State
Environmental Protection Agency ("EPA") and is therefore easily permitted for
on-site operations. Accordingly, the Company can provide a compact mobile unit
for on-site processing at the customer's facility. For example, the Company
successfully processed high-level radioactive wastes at Portland General
Electric's Trojan Nuclear Plant. The project included sorting and packaging
spent fuel pool wastes submerged in 20 feet of water, removing wastes from the
fuel pool, destructing hydrogen bearing materials in the mobile steam reformer,
and sealing the processed wastes in dry-storage capsules for long-term storage.
Ion Exchange. The Company has developed a family of selective ion
exchange media, called DURASIL(R), which selectively targets and removes
specific radioactive, toxic, or hazardous ions from wastewater while passing
benign ions. DURASIL(R) is formulated to separate specific contaminants from
liquid waste streams, thereby allowing radioactive and hazardous ions to be
removed and separated into their respective species. Since radioactive and
hazardous materials are regulated by two different government agencies, this
ability to separate mixed waste greatly simplifies its disposal. DURASIL(R) also
has physical characteristics that enable it to endure extreme wastewater
processing conditions. It is mechanically stable and nonflammable, does not
shrink or swell, is virtually immune to radiation damage, and has no effect on
the pH of the waste stream. The Company has developed different DURASIL(R) ion
exchange media depending on the characteristics of the liquid waste stream. The
Company manufactures and supplies highly specialized wastewater purification
systems and the patented DURASIL(R) for commercial nuclear power plants, DOE
facilities, and industrial clients.
Thermex(TM). The Company acquired the patented, proprietary, wastewater
processing system, THERMEX(TM), as part of the WMNS acquisition. This system
minimizes and reduces radioactive waste volumes by a factor of four over other
available radioactive waste processing technologies. THERMEX(TM) uses reverse
osmosis, chemical injection, phase separation, and ultra-filtration to produce
significant volume reduction. This technology improves the water chemistry and
lowers operating costs. In addition, it significantly reduces the creation of
additional radioactive waste, produces reactor grade make-up water, and provides
complete recovery of all in-house water. The concentrated wastes are shipped to
the THERMEX(TM) Central Treatment Facility for thermal treatment, resulting in
significant volume reduction.
Advanced Liquid Processing System. The Company also acquired the
Advanced Liquid Processing System, called ALPS(TM). This system uses sluicable
pressure vessels designed to enhance deep bed flow characteristics, flow
distribution, and particulate flow dynamics to optimize liquid waste processing
with ion exchange and filtration media. The result is enhanced colloidal and
particulate filtration and ion exchange media utilization, and higher sustained
decontamination factors. The pressure vessel design allows 99.9% media removal.
This process, along with system shielding, provides reduction in radiation
exposure.
Federal Services
The Company provides on-site waste processing services on large
government projects for the DOE and other governmental entities. The on-site
waste processing services 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 services and site cleanup. The Company has over 17 years of
experience in designing, constructing, and operating low-level radioactive waste
systems and facilities for the DOE and other governmental entities.
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In the WMNS transaction, the Company acquired the Federal Services
Division which provided radioactive waste handling, transportation, treatment,
packaging, storage, disposal, site cleanup, and project management services
primarily for the DOE and other federal agencies. The results of these
operations are included in the Company's results from the date of acquisition.
The Company derives revenues in its federal services operations
principally through subcontracts with a combination of DOE contractors and
subcontractors. Revenues derived from DOE-related contracts and subcontracts
represented approximately 19.7%, 21.0%, and 32.6% of the Company's total
revenues during 1998, 1999, and 2000, respectively.
In November 1995, the Company and BNFL, Inc. ("BNFL"), the U.S.
subsidiary of British Nuclear Fuels plc, formed a five-year strategic alliance,
agreeing to team on five major DOE environmental remediation projects. During
the term of the strategic alliance, the Company and BNFL agreed to jointly
pursue three major DOE waste projects and were awarded contracts from the DOE on
two of such projects, the Hanford River Protection Project and the Idaho
Advanced Mixed Waste Treatment Project. In November 2000, the strategic alliance
with BNFL expired without extension. As part of the strategic alliance, BNFL
invested $10.0 million in the Company in the form of a convertible debenture.
BNFL did not elect to convert the convertible debenture into the Company's
Common Stock and, accordingly, the convertible debenture will be repaid in
accordance with its terms. Although the strategic alliance with BNFL has
expired, the Company is in discussions with BNFL to work cooperatively on other
commercial and government projects.
The following is a summary of the status of the Company's major waste
treatment projects with the DOE.
Hanford River Protection Project. The DOE's Hanford Washington River
Protection Project underwent significant changes in the year 2000. In April
2000, BNFL submitted its fixed price proposal to DOE to design, procure,
construct and operate the Hanford River Protection Waste Treatment Plant. The
price of the project increased from a previous estimate of $6.9 billion to over
$15 billion. Due to the significant price increase, the DOE terminated BNFL's
prime contract in June 2000. During the second half of the year, DOE
subcontracted the management of the Hanford River Protection Project to the
CH2MHill Hanford Group during a transition period. The Company continued to
provide design and research support to the project during this transition.
During this period, DOE generated a Request for Proposal to select a new
engineering, procurement and construction contractor to take over the management
of the Waste Treatment Plant. In the first quarter of 2001, Bechtel National
Incorporated ("BNI") was awarded the contract for the design, procurement,
construction and commissioning of the Waste Treatment Plant. An operations
company will be selected by BNI to operate the Waste Treatment Plant following
successful startup testing by BNI. The Company has bid as part of a team to be
the operations company. No selection has yet been made by the BNI.
The Company currently remains involved in the Hanford River Protection
Project. BNI has contracted with the Company to provide the vitrification
technology required to the project through engineering design and technology
development contracts. As part of the engineering contract, the Company is
developing the designs of both the High Level Waste ("HLW") and Low Active Waste
("LAW") melters as well as preparing to purchase and construct these units. The
integration of these activities into the contractor's overall schedule is
presently underway. The Company is also working with BNI to advance the design
as well as provide the staffing to meet the demanding engineering schedule that
is expected from BNI over the next several years.
Under the technology development contract with BNI, a key element is
the continued use of the pilot DuraMelter(TM) in Columbia, Maryland. BNFL is
currently in negotiations with the DOE to sell the pilot melter, which was
designed, constructed and operated by the Company for BNFL in the Company's
Columbia, Maryland facility. Operations of this vitrification demonstration unit
commenced in December 1998 and
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completed its initial phase of testing in September 1999. The pilot melter
processed non-hazardous, non-radioactive test materials using the Company's
proven vitrification technology for fusing contaminants in durable, ecologically
safe glass. The pilot melter, a 3.3 ton-per-day vitrification system, is a
one-third-scale version of one of the 10 ton-per-day LAW melters to be built at
the Hanford River Protection Project facility. Under the contract with BNI, the
pilot melter will continue to be used in the LAW development program. If
purchased by the DOE, the pilot melter will continue to be operated by the
Company for additional development activities associated with the Hanford River
Protection Project.
Another key element of the Hanford River Protection Project research
demonstration program is the successful completion and commissioning of the
Company's DuraMelter(TM) 1200 located at the Catholic University of America's
Vitreous State Laboratory. This large-scale melter and offgas system will be the
centerpiece of further glass chemistry and development activities related to the
HLW portion of the contract. This system will allow for long term testing of
glass formulations and production rate verification. This melter came online in
January 2001.
Idaho Advanced Mixed Waste Treatment Project. In December 1996, the
team led by BNFL, of which the Company is a member, was awarded the sole
contract by the DOE for the Idaho Advanced Mixed Waste Treatment Project
("AMWTP") in Idaho Falls, Idaho. Under the contract, the team will finance,
construct and operate a treatment facility for mixed radioactive and toxic
wastes at the DOE's Idaho National Engineering and Environmental Laboratory
("INEEL"). The AMWTP facility will treat and package for disposal approximately
65,000 cubic meters of mixed and transuranic waste now stored or buried at
INEEL. The contract also provides an option for the team to treat an additional
120,000 cubic meters of mixed waste generated by future cleanup operations at
INEEL or other DOE sites. In the spring of 2000, a decision was made by BNFL,
the prime contractor, to eliminate all thermal treatment systems from the
overall plant process. This modification to the plant process capability was
made in part due to changes in the waste acceptance criteria of the Waste
Isolation Pilot Project ("WIPP") at INEEL. BNFL's removal of the thermal
treatment capability resulted in a reduction of the Company's role on the AMWTP
project to providing only limited technical support.
Commercial Services
The Company's commercial services operations provides value-added waste
treatment services to a diverse group of commercial clients, including nuclear
power utilities. The waste treatment services include water processing, nuclear
waste handling, transportation, licensing, packaging, heavy hauling, disposal,
and nuclear reactor decontamination and decommissioning ("D&D"). The Company
operates treatment systems in 25 nuclear power plants, owns and operates various
types of waste treatment equipment, and provides waste-handling services'
facilities. The Company also provides technical support services to its clients
including radiological engineering services, staff augmentation and health
physics support (principally to assist nuclear power plants during regular
maintenance shutdowns), environmental consulting, and environmental safety and
health training. These services are provided by over 600 engineers, consultants,
and technicians, some of whom are full-time employees and the balance of whom
are contract employees. The technical support services provide a consistent
source of revenue and the complementary expertise for the Company to expand and
diversify its waste treatment operations. Having these technical resources
available has enabled the Company to move its technologies from bench-scale
laboratory testing to field operations and commercial application more rapidly
and to handle larger scope waste cleanup projects. In addition, the Company
maintains an extensive fleet of tractors, trailers, casks, and shipping
containers for transporting radioactive wastes from customers' sites for
processing and disposal. Revenues derived from commercial services operations
represented approximately 34.7%, 29.6%, and 29.3% of the Company's total
revenues during 1998, 1999, and 2000, respectively.
8
Site Decontamination and Decommissioning. The Company has performed
decontamination and decommissioning services at over 60 facilities worldwide,
including work at two nuclear power plants which have been completely
decommissioned to United States Nuclear Regulatory Commission ("NRC")
requirements. The Company has performed decontamination and decommissioning
services at the following commercial nuclear power plants: Fort St. Vrain
Nuclear Generating Station, Humboldt Bay Power Plant Unit 3, Shoreham Nuclear
Power Station, Rancho Seco Nuclear Station, and Trojan Nuclear Power Plant. The
Company is currently performing D&D services under contracts for Connecticut
Yankee's Haddam Nuclear Power Station, Consumers Energy Big Rock Point Nuclear
Power Plant, Maine Yankee Atomic Power Company, and Yankee Rowe Nuclear Power
Plant. In addition, D&D services are being provided for two university research
reactors. Decontamination and decommissioning services provided by the Company
include site radiological surveys, waste characterization, decommissioning
planning, remediation, health physics support, radwaste services, and final
surveys. The Company has the technical personnel who have developed project
techniques accepted by the NRC, programs, procedures, equipment, and
instrumentation to handle projects involving small hot cells to large nuclear
power stations. In addition, through its transportation and commercial waste
processing operations, the Company offers its customers a comprehensive solution
to their site decontamination and decommissioning problems.
Radiological Engineering Services. The Company's technical personnel
provide commercial and government customers with a variety of radiological
engineering services, including development of health physics and emergency
preparedness programs, MORT analysis, licensing, procurement, instrumentation,
and radiological training. Most of the Company's senior technical personnel that
provide radiological engineering services are fully certified and have had
extensive experience at operating nuclear power plants regulated by the NRC.
Staff Augmentation and Health Physics Support Services. The Company
provides trained personnel to assist nuclear power plants undergoing periodic
refueling, maintenance outages, construction, or decommissioning. There are 119
nuclear power generating units in the United States, of which 108 are
operational. To control costs, utilities maintain their permanent staffs at the
level needed for steady-state power operations. They supplement their full-time
staffs during refueling and maintenance outages with skilled contract personnel.
Every 12 to 24 months, nuclear power plants are shut down for scheduled
maintenance which typically takes 30 to 90 days. The cost to shutdown and
maintain a nuclear power facility averages $1 million every day it is closed.
Accordingly, there is a strong economic incentive for the nuclear power
facilities to hire trained and experienced personnel for these maintenance
operations in order to complete the servicing as quickly and efficiently as
possible. The Company's trained technicians and personnel are experienced in
outage support procedures and are effective at helping to minimize the cost of a
power facility's down time.
Environmental Consulting Services. The Company provides environmental
consulting services to clients in the areas of environmental remediation,
facility decommissioning, Occupational Safety and Health Act ("OSHA") and EPA
compliance audits, site characterization, licensing and permitting, and air
quality and emission studies. The Company either supplies professionals and
technical personnel to supplement client staffs or assumes responsibility for
entire projects. Included among the Company's available personnel for such
environmental consulting projects are chemical, civil and environmental
engineers, certified health physicists, chemists, toxicologists, safety and
health experts, regulatory compliance specialists, remediation experts,
radiological control technicians, hazardous material technicians and
decontamination experts.
9
Environmental Safety and Health Training. The Company provides
radiation protection and hazardous waste training services nationwide. The
Company's training specialists prepare candidates consisting of health physics
technicians and professionals from nuclear power plants, universities, and
laboratories nationwide for the National Registry of Radiation Protection
Technologists and American Board of Health Physics certification examinations.
The Company's training programs enable customers to realize cost savings through
increased worker competence and productivity, enhanced workplace safety, and
improved compliance with regulatory requirements.
Thermex and liquid waste processing services. The Company provides
on-site liquid waste processing services to nuclear power generators throughout
the United States. Over 70 million gallons of water is successfully processed
each year at approximately 25 nuclear reactor plants. By virtue of these facts,
the Company is the largest provider of contracted liquid waste processing
services to the commercial nuclear utility industry. A number of patented
technologies, including unique and technically advanced membrane systems, are
utilized to provide this service. These services are environmentally responsible
in that they minimize radioactive waste generation, minimize or eliminate liquid
releases to the environment and allow recycling of wastewater.
Transportation Services. As part of its commercial services operations,
the Company provides certain complementary services to its customers including
transportation services. Through a wholly owned subsidiary, Hittman Transport
Services, Inc. ("Hittman"), the Company maintains a fleet of tractors, trailers,
and shipping containers for transporting radioactive waste and radioactively
contaminated equipment for processing and disposal. All of Hittman's vehicles
are constantly monitored via satellite to optimize waste pickup and delivery
scheduling. Hittman maintains terminal locations around the country that are
conveniently located to 90% of the commercial nuclear power plants in the United
States. Hittman's services are complemented by a fleet of 60 casks, which is the
largest fleet of casks in the United States. The casks are highly engineered
shipping containers that allow safe transport of both liquid and solid
radioactive waste. Ten of these casks are heavily shielded and NRC licensed type
"B" shipping casks. These casks provide a unique capability to handle virtually
any type of radioactive material. The cask fleet is unique in that it contains
the largest type "B" shipping cask, the 10-160B, which has recently been
licensed by the NRC to transport transuranic waste for the DOE.
Sales and Marketing Strategy
The Company's product and service offerings, including those of
acquired subsidiaries, provide cost-effective waste management solutions for
commercial and DOE low-level radioactive waste generators. After the acquisition
of WMNS, the Company's internal sales force was reorganized and downsized to
keep sales costs as low as possible while maintaining the most qualified sales
individuals from the combined companies. These changes have strengthened the
Company's competitive position when pursuing commercial and DOE waste
remediation projects. The Company will seek to strengthen its relationships with
the recently formed large multi-plant utilities such as Exelon, Entergy and
Southern Company. These new organizations are looking for the best available
waste management service providers as they establish themselves in the very
competitive and ever changing energy supply marketplace. The Company will also
use the technical expertise, marketing resources and commercial experience of
experts outside of the Company to develop additional business in its primary
markets, and particularly in the international market.
10
Environmental Matters
Environmental Laws and Regulations Creating a Demand for the Company's
Waste Treatment Technologies
Various environmental protection laws have been enacted and amended
during recent decades in response to public concern over the environment. The
operations of the Company's customers are subject to these evolving laws and the
implementing regulations. The Company believes that the obligations to comply
with the requirements of the following laws contribute to the demand for its
services.
The Atomic Energy Act of 1954 ("AEA") and the Energy Reorganization Act
of 1974 (the "ERA") authorize the Nuclear Regulatory Commission ("NRC") to
regulate the receipt, possession, use, and transfer of radioactive materials,
including "source material," "special nuclear material," and "byproduct
material." Pursuant to its authority under the AEA, the NRC has adopted
regulations that address the management, treatment and disposal of low-level
radioactive waste, and that require the licensing of low-level radioactive waste
disposal sites by NRC or NRC Agreement States.
The processing, storage, and disposal of high-level nuclear waste are
subject to the requirements of the Nuclear Waste Policy Act, as amended by the
Nuclear Waste Policy Act Amendments. These statutes regulate the disposal of
high-level nuclear waste by establishing procedures and schedules for siting
geologic repositories for such waste. The statutes also direct the EPA to
promulgate environmental standards for the disposal of high-level nuclear waste,
and require the NRC to promulgate standards covering the licensing of waste
repositories. The NRC has issued regulations that address the storage and
disposal of high-level nuclear waste.
The Uranium Mill Tailings Radiation Control Act ("UMTRCA") and the
Uranium Mill Tailings Remedial Action Amendments Act are intended to protect
public health and the environment from hazards associated with uranium ore
milling wastes at active and inactive uranium mills. UMTRCA designates specific
inactive mill sites for remedial action, and gives the DOE the responsibility
for carrying out remedial actions at these sites.
The Low-Level Radioactive Waste Policy Act of 1980 ("LLRWPA") and the
Low-Level Radioactive Waste Policy Amendments Act of 1985 ("LLRWPA Amendments")
address the siting of new low-level radioactive waste disposal facilities. Each
state is responsible for providing capacity for commercial low-level radioactive
waste generated within its borders. The LLRWPA also encourages groups of states
to enter into compacts providing for the development and operation of low-level
radioactive waste disposal facilities. At the present time, no new radioactive
waste disposal facilities have been opened by state compacts and none are
expected to open in the near future.
The Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended
by the Hazardous and Solid Waste Amendments of 1984 ("HSWA"), provides a
comprehensive framework for the regulation of the generation, transportation,
treatment, storage, and disposal of hazardous waste. The intent of RCRA is to
control hazardous wastes from the time they are generated until they are
properly recycled or treated and disposed. RCRA prohibits improper hazardous
waste disposal and imposes criminal and civil liability for failure to comply
with its requirements. RCRA requires that hazardous waste generators,
transporters, and operators of hazardous waste treatment, storage and disposal
facilities meet strict standards set by government agencies. In certain
circumstances, RCRA also requires operators of treatment, storage, and disposal
facilities to obtain and comply with RCRA permits. The Land Disposal
Restrictions developed under the HSWA prohibit land disposal of specified wastes
unless these wastes meet or are treated to meet Best Demonstrated Available
Technology ("BDAT") treatment standards, unless certain exemptions apply.
11
The Toxic Substances Control Act ("TSCA") provides the EPA with the
authority to regulate over 60,000 commercially produced chemical substances. The
EPA may impose requirements involving manufacturing, record keeping, reporting,
importing, and exporting. The TSCA also established a comprehensive regulatory
program for PCBs, which is analogous to the RCRA program for hazardous waste.
The Clean Water Act, as amended, establishes standards, permits, and
procedures for controlling the discharge of pollutants from wastewater sources.
The Clean Air Act of 1970, as amended (the "Clean Air Act"), empowers
the EPA and the states to establish and enforce ambient air quality standards
and limits of emissions of pollutants from facilities. This has resulted in
tight control over emissions from technologies like incineration.
The Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA" or "Superfund"), and subsequent amendments under the
Superfund Amendments and Reauthorization Act ("SARA"), as implemented by the
National Contingency Plan, provide for the investigation and remediation of
sites containing hazardous substances. The Superfund program's regulations
require that any remediation of hazardous substances meet applicable and
relevant and/or appropriate regulatory requirements. Superfund also establishes
strict and retroactive liability for parties who generated or transported
hazardous substances, or owned and/or operated the sites containing them. This
creates a strong incentive for proper management and disposal of hazardous
waste.
The Emergency Planning and Community Right to Know Act ("EPCRA") of
1986 requires companies to submit emergency and hazardous inventory forms to
state and local agencies for all materials requiring a material safety data
sheet under OSHA. EPCRA requires full disclosure of environmental releases to
the public and contributes to public awareness and activism regarding corporate
environmental management issues. To the extent a generator's waste can be
reported as being recycled, public pressure may be eliminated or significantly
reduced.
The Pollution Prevention Act of 1990 establishes pollution prevention
as a national objective, naming it a primary goal wherever feasible. The act
states that if pollution cannot be prevented, materials should be recycled in an
environmentally safe manner.
Under the mandate of the Federal Facility Compliance Act ("FFCA"), the
DOE is currently engaged in a program to treat and dispose of the mixed waste
currently stored at its facilities. The FFCA required DOE to develop and comply
with treatment and disposal plans for each of its facilities and charges DOE
with developing treatment and disposal capacity for these wastes where it does
not currently exist. The plans must also address the need to treat and dispose
of mixed wastes generated from the remediation of contaminated DOE sites.
Environmental Laws and Regulations Affecting the Use of the Company's
Waste Treatment Technologies
To the extent that the Company is engaged in the storage, processing or
disposal of mixed waste, the radioactive components are subject to the NRC
regulations promulgated under the AEA, while the hazardous components of the
waste are regulated by the EPA under RCRA. To the extent that these regulations
have been delegated to the states, the state may also regulate mixed waste.
12
Pursuant to the mandate of the AEA, NRC regulations and guidance
address the classification and management of low-level radioactive waste. The
NRC regulations also govern the technical, monitoring, and safety-related
aspects of developing and operating low-level radioactive waste disposal
facilities. Pursuant to its authority under the AEA, the NRC also has
established licensing requirements and operating procedures for such facilities.
The NRC requirements address siting criteria, site stability, the development
and implementation of institutional controls for the facility (e.g., access
restrictions, environmental monitoring and site maintenance), facility
operation, financial assurance, closure, and site stabilization. The Company's
facilities implement NRC requirements through agreement states' regulations and
facility radioactive material licenses. The NRC has delegated this licensing
authority to numerous state agencies, including agencies in those states in
which the Company's facilities and operations are located.
Under RCRA, wastes are classified as hazardous either because they are
specifically listed as such or because they display certain hazardous
characteristics. Under current regulations, waste residues derived from listed
hazardous wastes are considered hazardous wastes unless they are delisted
through a formal rulemaking process that may last a few months to several years.
For this reason, waste residue that is generated by the treatment of listed
hazardous wastes such as waste treated with the Company's vitrification
technologies may be considered a hazardous waste without regard to the fact that
this waste residue may be environmentally benign. Subsequent management of such
waste residue would be subject to full RCRA regulation, including the
prohibition against land disposal without treatment in compliance with BDAT. In
some cases, there is no current technology to treat mixed wastes, although EPA
policy places these wastes on a low enforcement priority. The RCRA regulation
classifying such waste residue as hazardous has been overturned by the U.S.
Court of Appeals for the District of Columbia Circuit, but has been temporarily
reinstated until 2001 when the EPA is under court order to develop a revised
regulatory approach which would allow listed wastes to leave the hazardous waste
regulatory system if they met specified concentration limits. The Company's
ownership and operation of treatment facilities also exposes the Company to
potential liability for cleanup of releases of hazardous wastes under RCRA.
Operators of hazardous waste treatment, storage, and disposal
facilities are required to obtain RCRA Part-B permits from the EPA or from
states authorized to implement the RCRA program. Obtaining such permits is a
lengthy and costly process that requires regulatory inspection and approval of,
among other things, the facility design, equipment, and operating plans and
procedures. In addition, applicants for a RCRA permit for a treatment, storage,
or disposal facility must submit detailed information regarding all past waste
management practices at that facility and may be required to undertake
corrective action for past contamination of the site. The Company's facility in
Oak Ridge, Tennessee is a RCRA Part-B permitted facility. The Company has
developed procedures to ensure compliance with RCRA permit provisions at the
Bear Creek Operations Facility, including procedures for ensuring appropriate
waste acceptance and scheduling, waste tracking, manifesting and reporting, and
employee training.
If the Company engages in the transportation of hazardous materials,
such as radioactive materials, it will be subject to the requirements of the
Hazardous Materials Transportation Act, as amended by the Hazardous Materials
Transportation Uniform Safety Act. Pursuant to these statutes, the United States
Department of Transportation regulates the transportation of hazardous materials
in commerce. Shippers and carriers of radioactive materials must comply with
both the general requirements for hazardous materials transportation and with
specific requirements for the transportation of radioactive materials. If the
Company engages in the storage and disposal of high-level nuclear waste it may
be subject to the Nuclear Waste Policy Act, as amended by the Nuclear Waste
Policy Act Amendments.
CERCLA effectively imposes strict, joint, and several retroactive
liability upon owners or operators of facilities where a release of hazardous
substances has occurred on parties who generated hazardous substances that were
released at such facilities and on parties who arranged for the transportation
of hazardous substances to such facilities. The Company's ownership and
operation of vitrification, storage, and incineration facilities on-site expose
the Company to potential liability under CERCLA for releases of
13
hazardous substances into the environment at those sites. In the event that
off-site storage or disposal facilities utilized by the Company for final
disposition of the glass and other residues from the Company's vitrification,
incineration, and other treatment processes are targeted for investigation and
cleanup under CERCLA, the Company could incur liability as a generator of such
materials or by virtue of having arranged for their transportation and disposal.
The Company designs its DuraMelters(TM) and other processes to minimize the
potential for release of hazardous substances into the environment. In addition,
the Company has developed plans to manage and minimize the risk of CERCLA or
RCRA liability, including the training of operators, use of operational
controls, and structuring of its relationships with the entities responsible for
the handling of waste materials and by-products.
The Company's facilities may have to obtain permits under the Clean
Water Act, the Clean Air Act, and corresponding state statutes. The necessity to
obtain such permits depends upon the facility's location and the expected
emissions from the facility. Additional state licenses or approvals may also be
required. Further, many of the federal regulatory authorities described in
this section have been delegated to state agencies; accordingly, the Company
holds licenses, permits and other approvals from numerous states.
The Clean Air Act imposes strict requirements upon owners and operators
of facilities which emit pollutants into the air. Although the Company believes
that its treatment systems effectively trap particulates and prevent hazardous
emissions from being released into the air, the release of which would violate
the Clean Air Act, the Clean Air Act may require permits prior to the
construction and operation of the Company's facilities, and may require
additional emission controls and restrictions on materials stored, used, and
incinerated at existing or proposed facilities.
The Clean Water Act establishes standards, permits, and procedures for
controlling the discharge of pollutants from wastewater sources. The Company
believes that DuraMelters(TM) generally will not be subject to the water
pollution control requirements of the Clean Water Act because DuraMelters(TM)
are designed to have no residual wastewater discharge. However, the Clean Water
Act's standard permits and procedures are potentially applicable to all other
water discharged from, or reused at, facilities owned or operated by the
Company.
OSHA provides for the establishment of standards governing workplace
safety and health requirements, including setting permissible exposure levels
for hazardous chemicals which may be present in mixed wastes. The Company is
required to follow OSHA standards, including the preparation of material safety
data sheets, hazardous response training, and process safety management. The NRC
has set regulatory standards for worker protection and public exposure to
radioactive materials or wastes.
Competition
The market for the Company's waste treatment services is characterized
as the treatment and stabilization of certain radioactive, hazardous, mixed, and
other wastes. The Company is aware of competition from several large companies
and numerous small companies. Any of such companies may possess or develop
technologies superior to those of the Company. While the Company is aware of
competition from companies with similar waste treatment technologies, the
primary competition comes from companies which provide waste treatment and
disposal services. The predominant waste treatment and disposal methods include
landfilling, deep-well injection, on-site containment and incineration, or other
thermal treatment methods. Competition is based primarily on cost, regulatory
and permit restrictions, technical performance, dependability, and environmental
integrity. The Company believes that it will be able to compete favorably on the
basis of these factors. The Company also believes that it has several
competitive advantages over its competitors including its proprietary waste
treatment technologies, its comprehensive
14
approach to waste treatment, demonstrated commercial success of its technologies
and reputation for providing quality service to its customers. Many of the
Company's competitors have substantially greater financial and technical
resources than the Company and there can be no assurance that one or more of the
Company's competitors do not possess or will not develop waste treatment
technologies that are superior to those of the Company.
In its commercial services operations, the Company's competitors range
from major national and regional environmental service and consulting firms
which have large environmental remediation staffs to small local firms. Many of
the major national and regional environmental service and consulting firms have
greater financial, management, and marketing resources than the Company. The
availability of skilled technical personnel, quality of performance, safety,
diversity of services, and price are the key competitive factors.
Research and Development Activities
The Company's research and development activities are conducted
primarily by The Vitreous State Laboratory of The Catholic University of America
in Washington, D.C. ("VSL") for the enhancement of the Company's existing
vitrification and ion exchange technologies or the introduction of new
vitrification technologies. The Company has established a research and
development relationship with the VSL, one of the leading research centers in
the world for glass technology, including vitrification. The VSL, with a staff
of 90 researchers, provides ongoing research and development capabilities and
technical services in support of the Company's waste treatment projects,
particularly its federal services operations. In this complementary
relationship, the VSL provides the necessary technology and research and
development support while the Company advances the technology to commercial
application.
The laboratories at the VSL are equipped with highly sophisticated
analytical tools which enable the researchers to perform a comprehensive array
of analyses. The VSL's research and development capabilities include waste
characterization, testing of radioactive waste-loaded glasses to evaluate glass
durability, processability and leachability, glass dissolution computer
modeling, batch melting, and the study of ion exchange media for removing
specific contaminants from liquid waste streams. Various DuraMelter(TM) models
have been designed and constructed at the VSL for use by the staff of the VSL in
its research and analytical work. In addition, the facility is fully licensed
for radioactive and hazardous materials research. The VSL is led by Pedro B.
Macedo, Ph.D. and Theodore A. Litovitz, Ph.D. who are the inventors and owners
of the technology licensed exclusively to the Company for ion exchange and the
vitrification of radioactive, hazardous, mixed, and other wastes. See "Business
- - Patents and Other Intellectual Property Rights."
In addition to being the source of the vitrification technologies used
by the Company, the VSL provides ongoing services to the Company in support of
its waste treatment projects, particularly its federal services operations. The
VSL conducts expert waste composition and glass treatability studies before any
project is commenced, assists in the initial test melt phase of each project and
works with the Company's engineers in the design adaptation of the
DuraMelter(TM) technology to fit the waste characteristics of each new cleanup
project. In addition, the VSL conducts ongoing research and development into
improvements in the existing vitrification technologies and into entirely new
vitrification techniques, serving in effect as the research and development arm
of the Company. The primary advantage to the Company from its relationship with
the VSL is the access to leading vitrification technologies and ongoing
vitrification research without having to incur the ongoing overhead and
administrative expenses if such capabilities were in house.
15
For Company waste cleanup projects in which the VSL's technical
services are utilized by the Company, the Company pays the VSL on a time and
expense basis and includes the estimated cost for such services in its formal
bid proposal. The VSL is a not-for-profit institution so it does not include
extra fees or percentage profits in its cost estimates. In connection with
various Company contracts or subcontracts, the VSL conducts research and
development under fixed-price and cost-plus-fixed fee contracts. Under these
contracts, the research is supervised by Drs. Macedo and Litovitz and all
inventions and discoveries are owned by them and licensed to the Company under
the exclusive license agreement.
Patents and Other Intellectual Property Rights
The Company licenses all of the patent and other intellectual property
rights to its proprietary vitrification and other waste treatment technologies
from the inventors of such technologies. Drs. Macedo and Litovitz, the inventors
of the Company's vitrification and ion exchange technologies, license the
patents and proprietary rights to such technologies to the Company under an
exclusive license agreement. The exclusive license agreement with Drs. Macedo
and Litovitz expires upon the expiration of the last patent covered by the
license agreement which is currently in the year 2012. The exclusive license
agreement, which currently encompasses 17 U.S. patents and one U.S. patent
application, also includes any process patents or technology rights related to
the licensed field which is subsequently developed by the VSL or Drs. Macedo and
Litovitz. Drs. Macedo and Litovitz own all of the vitrification and ion exchange
patents relating to the research and development work conducted by them at the
VSL. The Catholic University of America has agreed that all patents and
technologies developed at the VSL belong to Drs. Macedo and Litovitz and not to
the University. In turn, Drs. Macedo and Litovitz exclusively license the
vitrification technology rights and process patents developed by them at the VSL
to the Company.
The Company has all patents and related trademarks and copyright
pertaining to the detection, storage, decontamination, processing and handling
of radioactive and hazardous waste materials that are necessary in its business.
Specifically, the issued and active patents held by the Company relate to the
steam reforming, incineration, ultracompaction and vitrification technologies
used in its commercial waste processing operations. As a result of various
acquisitions, the Company acquired rights in 48 U.S. patents, 11 pending
U.S. patent applications, 118 foreign patents, and 35 pending foreign patent
applications. Pursuant to an agreement with Westinghouse Electric Corporation
(now CBS Corporation), the Company has granted Westinghouse a non-exclusive
royalty-free license to practice the technologies covered by certain of the
patents acquired by the Company. From time to time, the Company acquires or
licenses technologies from third parties that complement its existing waste
processing technologies. In November 1997, the Company acquired a joint interest
in several patents pertaining to the gasification and vitrification of organic
materials from Proler Environmental Services, Inc. ("Proler"). The Company now
owns Proler's interest in these patents jointly with Hylsa SA, a company located
and doing business in Mexico.
The Company requires each of its employees to enter into standard
agreements pursuant to which the employee agrees to keep confidential all
proprietary information of the Company and to assign to the Company all rights
in any proprietary information or technology developed by the employee during
his or her employment or made thereafter as a result of any inventions conceived
or work done during such employment. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the company's
technology without authorization or to develop similar technology independently.
In addition, effective patent and trade secret protection may be unavailable or
limited in certain foreign countries.
16
DURASIL(R) and DURATEK(R) are registered trademarks held by the Company
and DuraMelter(TM) and DuraGem(TM) are common law trademarks.
Employees
As of December 31, 2000, the Company employed approximately 1,670
employees, of which approximately 300 are temporary field-assigned employees
performing services for clients. The Company contracts with most of the
field-assigned personnel on an as-needed basis and such personnel are not
full-time employees of the Company. Due to the seasonality of the technical
support services business of the Company, the number of temporary field-assigned
employees fluctuates throughout the calendar year based on client's needs. To
date, the Company has been successful in attracting and retaining qualified
technical personnel and believes that its relations with its employees are good.
Financial Information About Geographic Areas
The Company's revenues are substantially derived from domestic
operations. Results of international operations are not significant.
Item 2. Properties
The Company leases approximately 35,000 square feet of office space in
Columbia, Maryland which it uses as its administration and general corporate
offices. The initial lease term expires December 31, 2006. In addition, the
Company leases approximately 15,000 square feet of office space in Lakewood,
Colorado and approximately 23,000 square feet of office space in Columbia, South
Carolina. Both of these lease terms expire December 31, 2005.
The Company owns real property assets, including approximately 50 acres
of land in Oak Ridge, Tennessee, upon which the primary waste processing
operations are located, an additional 50-acre parcel in Oak Ridge, Tennessee, at
which additional waste processing operations are conducted and a 13.5 acre site
in Memphis, Tennessee where large component processing is conducted.
In June 2000, as part of the acquisition of WMNS, the Company acquired
the operating rights to the Barnwell disposal operation in Barnwell, South
Carolina. This facility operates a commercial low-level radioactive waste
disposal landfill site that is owned by the State of South Carolina, and leased
to the Company for 99 years. The lease term expires on April 5, 2075.
Item 3. Legal Proceedings
On February 3, 1998, the Company's wholly owned subsidiary, Scientific
Ecology Group, Inc. ("SEG") (now named Duratek Radwaste Processing, Inc.) was
sued in federal district court in Boston, Massachusetts. The suit alleges that
statements made in press releases by Molten Metals Technology, Inc. ("MMT") were
fraudulent and misleading under federal securities laws and state common law
fraud theories. These statements concerned a joint venture between SEG and MMT
and some of these statements were made in press releases which MMT issued
jointly with SEG. The complaint seeks to hold SEG liable for all of these
statements. The defendant moved to dismiss the complaint, the plaintiffs chose
to amend their pleading, and the defendant moved to dismiss the amended
complaint. At the present time the Company is unable to express a view on the
probable ultimate outcome of the litigation. In addition, the Company may have
rights of indemnity against CBS Corporation ("CBS"), the successor to
Westinghouse Electric Corporation
17
("Westinghouse") which was the parent of SEG at the time the allegedly
misleading statements were made, if, among other things, certain representations
and warranties made by CBS in the definitive purchase agreement pursuant to
which the Company purchased SEG were breached. CBS has agreed to assume all
litigation costs associated with the defense of the case, but has reserved the
right to challenge the Company's claim for indemnification for any settlement or
judgment that may arise from the case.
On December 2, 1999, the Company's wholly owned subsidiary, SEG, was
named as a defendant in an adversary proceeding in the United States Bankruptcy
court for the District of Massachusetts. The Chapter 11 Trustee, on behalf of
the debtor MMT and its creditors, filed an adversary "Complaint to Avoid
Fraudulent Transfer" naming as defendants CBS and SEG. The complaint alleges
that the sale of CBS's interest in a joint venture to MMT resulted in a
fraudulent conveyance. The primary allegations against SEG are that MMT's
release of SEG from obligations to pay $8 million to equalize capital
expenditures and additional amounts for MMT's share of profits, and MMT's
assumption of at least $1.5 million of SEG's liabilities, are avoidable because
MMT did not receive reasonably equivalent value for the transfers. The Company
intends to vigorously contest MMT's allegations on the basis that MMT did in
fact receive reasonably equivalent value for its transfers. In addition, the
Company may have a right of indemnification from CBS pursuant to the relevant
purchase agreement. It is too early in the litigation to provide an accurate
assessment of the Company's liability, if any. CBS has agreed to assume all
litigation costs associated with the defense of the case, but has reserved the
right to challenge the Company's claim for indemnification for any settlement or
judgment that may arise from the case.
In addition, from time to time, the Company is a party to litigation or
administrative proceedings relating to claims arising from its operations in the
normal course of business. Management of the Company, on the advice of counsel,
believes that the ultimate resolution of such litigation or administrative
proceedings currently pending against the Company is unlikely, either
individually or in the aggregate, to have a material adverse effect on the
Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
The company did not submit any matters to a stockholder vote during the
last quarter of the fiscal year ended December 31, 2000.
18
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is quoted on the NASDAQ National Market
under the symbol "DRTK". The following table sets forth, for the periods
indicated, the high and low sale prices of the common stock. The last reported
sale price of the common stock on the NASDAQ National Market on April 10, 2001
was $3.22.
Price Range
of Common Stock
-------------------------
High Low
----------- -----------
Year ended December 31, 1998:
1st quarter 14 13-3/8
2nd quarter 12-3/4 10
3rd quarter 12-3/8 5-3/8
4th quarter 8-1/8 3-7/8
Year ended December 31, 1999:
1st quarter 7-1/2 5-1/8
2nd quarter 6-5/8 4-1/2
3rd quarter 7-3/4 6-1/8
4th quarter 8-7/16 7-7/8
Year ended December 31, 2000:
1st quarter 11-1/8 7
2nd quarter 10-3/8 7-13/16
3rd quarter 9 6-7/8
4th quarter 8-1/8 5-3/4
As of April 10, 2001, there were 1,140 holders of record of the Common
Stock and the Company estimates that there were approximately 4,800 beneficial
holders.
The Company has never declared or paid a cash dividend on its Common
Stock and is currently prohibited from paying dividends under its bank credit
facility. To the extent allowed under the Company's bank credit facility, the
Company will pay dividends on the 8% Cumulative Convertible Redeemable Preferred
Stock (the "Convertible Preferred Stock") out of funds legally available
therefore in accordance with the terms of the Convertible Preferred Stock which
require the payment of quarterly dividends of $320,000 or $2.00 per share. The
Company may not pay dividends on any of the Common Stock unless the Company has
paid all accumulated dividends on all of the outstanding shares of Convertible
Preferred Stock. To date, the Company has paid all dividends on all of the
outstanding shares of the Convertible Preferred Stock. During 2001, the Company
does not expect to pay any cash dividends on its Convertible Preferred Stock. In
addition, the Company currently intends to retain earnings primarily for working
capital and development of waste treatment technologies and therefore does not
anticipate paying any cash dividends in the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
19
Item 6. Selected Financial Data (in thousands, except per share amounts)
Years Ended December 31,
-----------------------------------------------------------------------
1996 1997 1998 1999 (a) 2000
------------ ------------- ------------ ------------ -------------
Statement of Operations Data:
Revenues $ 44,285 $ 136,553 $ 160,313 $ 176,408 $ 229,830
Cost of revenues 35,198 120,814 123,839 128,719 187,940
----------- ------------- ------------ ------------ -------------
Gross profit 9,087 15,739 36,474 47,689 41,890
Selling, general and administrative expenses 7,455 15,725 26,613 27,992 46,780
Charge for asset impairment - - 9,224 - -
----------- ------------- ------------ ------------ -------------
Income (loss) from operations 1,632 14 637 19,697 (4,890)
Interest income (expense), net 1,239 571 (545) (2,297) (8,867)
Other expense, net - - - - (290)
----------- ------------- ------------ ------------ -------------
Income (loss) before income taxes
(benefit) and proportionate share
of losses of joint ventures 2,871 585 92 17,400 (14,047)
Income taxes (benefit) 649 716 627 6,464 (5,083)
----------- ------------- ------------ ------------ -------------
Income (loss) before proportionate
share of losses of joint ventures 2,222 (131) (535) 10,936 (8,964)
Proportionate share of losses of
joint ventures (165) (150) (1,474) (122) (148)
----------- ------------- ------------ ------------ -------------
Net income (loss) before cumulative
effect of change in accounting
principle 2,057 (281) (2,009) 10,814 (9,112)
Cumulative effect of change in accounting
principle - - (420) - -
----------- ------------- ------------ ------------ -------------
Net income (loss) and comprehensive
income (loss) 2,057 (281) (2,429) 10,814 (9,112)
Preferred stock dividends and charges
for accretion (1,500) (1,503) (1,507) (1,510) (1,443)
----------- ------------- ------------ ------------ -------------
Net income (loss) attributable to
common stockholders $ 557 $ (1,784) $ (3,936) $ 9,304 $ (10,555)
=========== ============= ============ ============ =============
Net income (loss) per share before cumulative
effect of change in accounting principle:
Basic $ 0.05 $ (0.14) $ (0.27) $ 0.70 $ (0.79)
=========== ============= ============ ============ =============
Diluted $ 0.04 $ (0.14) $ (0.27) $ 0.55 $ (0.79)
=========== ============= ============ ============ =============
Net income (loss) per share:
Basic $ 0.05 $ (0.14) $ (0.30) $ 0.70 $ (0.79)
=========== ============= ============ ============ =============
Diluted $ 0.04 $ (0.14) $ (0.30) $ 0.55 $ (0.79)
=========== ============= ============ ============ =============
Basic weighted average common stock
outstanding 11,460 12,619 13,137 13,351 13,432
=========== ============= ============ ============ =============
Diluted weighted average common stock
and dilutive securities outstanding 13,404 12,619 13,137 20,323 13,432
=========== ============= ============ ============ =============
As of December 31,
-----------------------------------------------------------------------
1996 1997 1998 1999 (a) 2000
------------ ------------- ------------ ------------ -------------
Balance Sheet Data:
Working capital $ 62,161 $ 8,363 $ 15,359 $ 20,587 $ 4,245
Total assets 85,199 132,298 134,245 157,320 298,700
Long-term debt and capital lease
obligation 10,939 11,557 13,102 39,492 115,592
Redeemable convertible preferred stock 14,829 15,052 15,279 15,509 15,499
Stockholders' equity 55,147 56,429 55,022 60,729 51,085
(a) Amounts have been restated (see Note 21 on Notes to Consolidated Financial
Statements).
20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
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. The Company's operations are organized into
three primary segments: (i) Commercial Processing and Disposal; (ii) Federal
Services; and (iii) Commercial Services. Commercial waste processing operations
are provided primarily at the Company's Bear Creek low-level radioactive waste
processing facility located in Oak Ridge, Tennessee ("Bear Creek facility"). The
Company also provides on-site waste processing services on large government
projects for the United States Department of Energy ("DOE"). Government waste
processing and certain commercial waste projects are performed pursuant to long-
term fixed unit rate and fixed fee contracts which are accounted for using the
percentage-of-completion method of accounting. Technical support services are
generally provided pursuant to multi-year cost plus fixed fee or time and
materials contracts which are accounted for using the percentage-of-completion
method of accounting. Revenues are recognized as costs are incurred according to
predetermined rates except for waste processing operations. The contract costs
primarily include direct labor, materials and the indirect costs related to
contract performance. Revenue under commercial waste processing agreements is
recognized as waste is processed.
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 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 were indirect subsidiaries of WMI. The purchase price was $68.7
million in cash including transaction costs. The acquisition was financed with
borrowings under the Company's amended and restated bank credit facility. The
acquired companies are referred to as Waste Management Nuclear Services
("WMNS"). WMNS is a leading provider of low-level radioactive waste management
services for the commercial industry and the federal government. WMNS consisted
primarily of three operating businesses: (i) the Federal Services Division which
provides radioactive waste handling, transportation, treatment packaging,
storage, disposal, site cleanup, and project management services primarily for
the DOE and other federal agencies; (ii) the Commercial Services Division which
provides radioactive waste handling, transportation, licensing, packaging,
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 in 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 has been allocated
to goodwill and is being amortized over 30 years. Results of WMNS for the period
June 8, 2000 to December 31, 2000 are included in the Company's consolidated
results for the year ended December 31, 2000.
On June 30, 1999, the Company acquired 100% of the outstanding
membership interests of Frank W. Hake Associates, LLC ("Hake") for approximately
$10.9 million in cash and the assumption of certain liabilities. Hake was
engaged in the storage, transportation, handling and processing of radioactive
waste emanating from nuclear power generation plants throughout the United
States at its Memphis, Tennessee facility ("Memphis facility").
21
The Company incurred a substantial operating loss in 2000 principally
as the result of operating problems experienced at the Company's Bear Creek and
Memphis facilities during the fourth quarter. During 2000, the Company initiated
several new waste processing strategies in order to respond to changing market
conditions. These new strategies included the processing of steam generators
from nuclear power plants, a new contaminated metals handling process and an
enhanced radioactive assay process. Delays in the start-up of these new waste
processing strategies, originally scheduled to begin early in the second half of
the year, led to a build-up of waste on-site in the fourth quarter. As a result,
the Company incurred high labor costs and ultimately a costly shipping and
burial campaign in an effort to reduce the amount of on-site waste and to safely
handle more than twice the waste ever processed in a calendar quarter using
these new processes. The Company's systems did not reveal the operational issues
associated with the new waste processing strategies in a timely manner.
The operational problems at the Company's Bear Creek and Memphis facilities
are also expected to adversely affect the Company's results for the first
quarter of 2001. The Company's management has been working to address the
operational issues that resulted in the operating performance of the Company's
commercial waste processing operations in the fourth quarter of 2000 by, among
other things, strengthening management resources and reporting, implementing
personnel changes, modifying waste processing, storage, transportation and
burial methods and improving cost accounting systems utilized at its commercial
waste processing locations. While management believes that these procedures will
prevent reoccurrence of the events that led to losses in its commercial waste
processing operations subsequent to the first quarter of 2001, no assurance can
be given that some or all of the factors that led to these losses might not have
a material adverse effect on future results of operations.
As a result of the operating loss as well as certain waste processing
delays at the Bear Creek and Memphis facilities, the Company was not in
compliance with certain financial and technical covenants included in its bank
credit facility. The Company has negotiated waivers of such non-compliance as
well as amendments to certain financial covenants from its banks. If management
is unable to improve the Company's results during 2001, the Company may need to
obtain further modifications to the credit agreement and/or from its bank
additional sources of funding. There can be no assurance that such modifications
and/or funding, if needed, will be available.
The following sets forth certain consolidated statement of operations
information as a percentage of revenues for the years ended December 31:
1998 1999 2000
------- ------- -------
Revenues 100.0% 100.0% 100.0%
Loss on M-Area contract (1.1) -- --
Other costs of revenues (76.1) (73.0) (81.8)
------- ------- -------
Gross profit 22.8 27.0 18.2
Selling, general and administrative expenses (16.6) (15.9) (20.4)
Charge for asset impairment (5.8) -- --
------- ------- -------
Income (loss) from operations 0.4% 11.1% (2.2)%
======= ======= =======
Restatement of Financial Results.
The operational issues that resulted in the operating loss for 2000
caused the Company to undertake further review and analysis of its commercial
waste processing operations. One element of determining the Company's revenue
recognition and the related burial costs is the reconciliation of quarterly
inventories of unprocessed waste to deferred revenue and burial accrual amounts
at each quarter end. The Company determined, in the course of its review, that
full reconciliations of quarterly inventories of unprocessed waste were not
performed at each quarter end in 2000. The appropriate recording of revenues was
complicated by the high volumes of wastes and newly-implemented waste processing
strategies. As a result, the Company is restating its previously reported
results for the first three quarters of 2000 to reflect these and certain other
adjustments. The Company has also restated its consolidated financial results
for 1999 to reflect three individually minor items that the Company determined,
in the course of preparing the Company's financial statements for 2000, had not
been properly reported. See Note 21 of Notes to Consolidated Financial
Statements for further information on the Company's quarterly results of
operations.
22
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 2000.
Revenues increased by $53.4 million, or 30.3%, from $176.4 million in
1999 to $229.8 million in 2000. Revenues generated by WMNS following the
acquisition were $65.2 million. The increase in revenues is comprised of revenue
increases of $37.4 million in Federal Services, $14.7 million in Commercial
Services and $1.3 million in Commercial Processing and Disposal. The increase in
revenues from Federal Services is primarily the result of $36.6 million in
revenues from the federal services business of WMNS, which was acquired in June
2000. The increase in revenues from Commercial Services is primarily the result
of $19.8 million in revenues from the commercial services business of WMNS and
an increase in revenues of $4.6 million from environmental consulting, and
decontamination and decommissioning services, partially offset by a $6.3 million
decrease in revenues from staff augmentation and transportation services and a
$3.4 million decrease in revenues from computer consulting services. The
computer consulting services business, which had revenues of $3.4 million in
2000, was sold in November 2000. The increase in revenues from Commercial
Processing and Disposal is primarily the result of an $8.8 million increase in
revenues from the Barnwell low-level radioactive waste disposal facility, which
the Company acquired the operating rights to as part of the WMNS acquisition,
and a $5.9 million increase in revenues from commercial processing services at
the Company's processing facilities located in Tennessee (which includes the
Bear Creek and Memphis facilities). This increase was partially offset by a
$13.4 million decrease in revenues from the Company's DuraTherm business which
was sold in February 2000.
During 1999 and 2000, the Company generated revenues of approximately
$17 million and $22 million, respectively, from subcontracts with BNFL related
to the DOE's Hanford River Protection Project. During 2000, the DOE's contract
with BNFL was terminated. The Company currently remains involved in this project
and has contracted with Bechtel National Incorporated to provide the
vitrification technology required for the project through certain engineering
design and technology development contracts. The amount of revenue for 2001 from
this project cannot currently be estimated.
Gross profit decreased by $5.8 million, or 12.2%, from $47.7 million in
1999 to $41.9 million in 2000. Gross profit generated from revenues of WMNS
following the acquisition was $20.3 million. As a percentage of revenues, gross
profit decreased from 27.0% in 1999 to 18.2% in 2000. The decline in gross
profit percentage was caused by the operational problems at the Company's Bear
Creek and Memphis facilities together with the higher percentage of revenue
derived from Federal Services contracts which tend to have lower gross margins.
The decrease in the amount of gross profit is comprised of a decrease of $19.0
million in Commercial Processing and Disposal, partially offset by a $8.7
million increase in gross profit in Federal Services and a $4.5 million increase
in gross profit in Commercial Services.
The decrease in gross profit from Commercial Processing and Disposal is
primarily related to a $21.3 million decrease in gross profit from the Bear
Creek and Memphis facilities. The decrease in gross profit at the Tennessee
processing facilities was due to a series of operational issues, including
delays in implementing new waste processing strategies and increased labor,
transportation and burial costs at the two commercial processing facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview." Management estimates that the operating problems cost
the Company approximately $14 million in additional overtime, transportation and
burial costs during the fourth quarter, which could not be recovered from
customers. In addition, gross profit at the Bear Creek and Memphis facilities
decreased by $7.3 million primarily due to higher costs of new processes and a
change in the mix of waste processed during 2000 resulting in a higher
percentage of lower priced waste. The decrease in gross profit in Commercial
Processing and Disposal was also due to a $3.9 million decrease in gross profit
from the Company's DuraTherm business which was sold in February 2000. The
decrease in gross profit was partially offset by a $6.2 million increase in
gross profit from the operations of the Barnwell facility.
The increase in gross profit from Federal Services is primarily the
result of a $8.1 million increase in gross profit from the federal services
business acquired from WMNS and a $600,000 increase in gross profit from other
government waste processing and technical services contracts.
The increase in gross profit from Commercial Services is primarily
related to a $5.9 million increase in the gross profit from the WMNS business
acquired and an increase in gross profit of $500,000 from environmental
consulting, and decontamination and decommissioning services, partially offset
by a $1.1 million decrease in gross profit from staff augmentation and
transportation services and a $800,000 decrease in gross profit from computer
consulting services.
23
Selling, general and administrative expenses increased by $18.8
million, or 69.7%, from $28.0 million in 1999 to $46.8 million in 2000. As a
percentage of revenues, selling, general and administrative expenses increased
from 15.9% in 1999 to 20.4% in 2000. Selling, general and administrative
expenses incurred by WMNS following the acquisition were approximately $14.1
million. Included in selling general and administrative expenses for 2000 are
bad debt expenses of approximately $5.1 million and litigation expenses of
approximately $900,000 related to the successful defense of a contract.
Management believes the circumstance related to charges will not recur in 2001.
In addition, 2000 results include a stock compensation charge of $721,000
related to issuance of stock options and restricted stock units to certain
members of senior management. The remaining increase in selling, general and
administrative expenses is primarily due to activities supporting higher
revenues.
Interest expense, net increased by $6.6 million from 1999 to 2000. The
increase was the result of increased borrowings to fund working capital needs
and the acquisition of WMNS together with higher borrowing rates.
During 2000, the Company recognized as other expense, net a $300,000
loss, which consisted of a $1.2 million gain on the disposition of assets from
the sale of DuraTherm, Inc. ("DuraTherm") and a $1.5 million loss on the
abandonment of certain waste processing equipment previously held by its
DuraChem joint venture with Waste Management, Inc.
During 2000, the Company recognized an income tax benefit of $5.1
million as a result of the Company's operating loss. Such amount was carried
back to the extent possible to recover income taxes paid in prior years. As of
December 31, 2000, the Company has a net operating loss carryforward of
approximately $9.5 million. The Company's effective tax rate for 2000 was 36.2%
compared with 37.2% in 1999.
Proportionate share of losses of joint ventures increased from $122,000
in 1999 to $148,000 in 2000 and relates to the Company's proportionate share in
the loss of its 50% owned joint venture, Vitritek Environmental, Inc. The
Company expects Vitritek to have limited operations in 2001.
As a result of these factors, the Company had net income of $10.8
million in 1999 compared with a net loss of $9.1 million in 2000.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1999.
Revenues increased by $16.1 million, or 10.0%, from $160.3 million in
1998 to $176.4 million in 1999. The increase is comprised of $13.7 million in
Commercial Processing and Disposal and $5.6 million in Federal Services, offset
by a $3.2 million decline in Commercial Services. The increase in Commercial
Processing and Disposal was primarily attributable to a $8.7 million increase at
the Company's Bear Creek and Memphis facilities and a $5.0 million increase in
waste processing revenues at the Company's DuraTherm hazardous waste treatment
facility located in San Leon, Texas. The increase in revenues at the Bear Creek
and Memphis facilities was primarily the result of increased waste processing
during 1999 as compared to 1998, and to a lesser extent to the acquisition of
Hake which generated revenue of $3.4 million during the second half of 1999.
Revenues from DuraTherm increased as a result of increased waste processing
during 1999 as compared to the prior year. The $5.6 million increase in Federal
Services was primarily the result of more work performed on the DOE Hanford
River Protection and Idaho Advanced Mixed Waste Treatment Projects during 1999
as compared to 1998. The decrease in Commercial Services was primarily
attributable to a decrease in consulting services in 1999 as compared to the
prior year.
Gross profit increased by $11.2 million, or 30.7%, from $36.5 million
in 1998 to $47.7 million in 1999. As a percentage of revenues, gross profit
increased from 22.8% in 1998 to 27.0% in 1999. The increase in the amount of
gross profit is comprised of an increase of $6.4 million in Commercial
Processing and Disposal and an increase of $5.0 million in Federal Services,
partially offset by a $200,000 decrease in Commercial Services. The increase in
gross profit from Commercial Processing and Disposal was primarily the result of
increased waste processing over the prior year as well as the continued efforts
to reduce fixed and variable operating costs. The increase in gross profit from
Federal Services was the result of the increase in revenues from the DOE's
Hanford River Protection and Idaho Advanced Mixed Waste Treatment Projects. In
addition, the loss recorded on the M-Area project at the DOE's Savannah River
site of $1.8 million in 1998 also contributed to this increase. The M-Area
project was completed in 1999. The decrease in gross profit from Commercial
Services was the result of the decrease in consulting service revenues described
above.
24
Selling, general and administrative expenses increased by $1.4 million,
or 5.2%, from $26.6 million in 1998 to $28.0 million in 1999. As a percentage of
revenues, selling, general and administrative expenses decreased from 16.6% in
1998 to 15.9% in 1999. The increase in selling, general and administrative
expenses was primarily attributable to higher operating costs at the Bear Creek
facility and Federal Services as a result of business growth in these areas. In
addition, the acquisition of Hake in June 1999 contributed to this increase.
Interest expense, net increased by $1.8 million from 1998 to 1999. The
increase was the result of increased borrowings to fund working capital needs
and the acquisition of Hake.
Income taxes increased by $5.8 million from 1998 to 1999 as a result of
the significant increase in income before income taxes. The Company's effective
tax rate for 1999 was 37.2%. During 1999, the Company reversed $256,000 of
valuation allowances previously established for certain state net operating
losses and other deductible temporary differences.
The Company's proportionate share of losses of joint ventures decreased
from $1.5 million in 1998 to $122,000 in 1999. The decrease in the loss related
principally to the 1998 charge, net of tax benefits, taken by the Company for
the proportionate share of its 45% owned joint venture, DuraChem, which adopted
Statement of Position 98-5 Reporting on Costs of Start-up Activities (SOP 98-5),
which requires start-up costs to be expensed as incurred. The Company's
proportionate share in the loss of its 50% owned joint venture, Vitritek,
decreased from $200,000 in 1998 to $122,000 in 1999.
In the fourth quarter of 1998, the Company also adopted the provisions
of SOP 98-5. The cumulative, after tax effect of adoption was $420,000. The
adoption of SOP 98-5 by DuraChem and the Company reduced the Company's loss
before proportionate share of losses of joint ventures by approximately $78,000,
increased the net loss before cumulative effect of a change in accounting
principle by approximately $1.2 million, increased the net loss by approximately
$1.6 million, increased the per share net loss attributable to common
stockholders before cumulative effect of a change in accounting principle by
$0.09 per share and increased the per share net loss attributable to common
stockholders by $0.12 per share.
The Company's net income increased by $13.2 million from a loss of $2.4
million in 1998 to income of $10.8 million in 1999. Results for 1998 were
adversely impacted by the after-tax losses on the M-Area contract and related
asset impairment charge of approximately $6.6 million and the adoption of SOP
98-5 of approximately $1.6 million. Excluding the impact of the M-Area charges
and the adoption of SOP 98-5 on the Company's 1998 results, the Company's 1999
net income increased by approximately $5.0 million, or 87%, over the prior year.
Liquidity and Capital Resources
During 2000, the Company generated $8.0 million in cash flows from
operating activities. The cash flow from operating activities was generated
primarily from cash flow generated from operations of the Barnwell low-level
radioactive waste disposal facility in South Carolina. Under South Carolina law,
the Company is required to bill customers based on the amounts agreed to with
the State. On an annual basis, following the State's year end of June 30, the
Company will remit amounts billed to customers of the waste disposal site less
its fee for operating the site during such fiscal year (see Note 2 of Notes to
Consolidated Financial Statements). As of December 31, 2000, the Company had
collected approximately $9.5 million from customers of the waste disposal
facility that will be remitted to the State in July 2001. During 2000, the
Company had a loss before income taxes of $14.0 million. Such amount included
non-cash charges of approximately $10.5 million.
During 1999, the Company generated $9.7 million in cash flows from
operating activities. The Company's cash flow from operating activities during
1999 was generated by income from operations before depreciation and
amortization of $25.4 million less cash interest expenses of $1.7 million, cash
payments for income taxes of $4.1 million and the increased investment in
working capital of $10.6 million.
During 1998, the Company used $6.2 million in cash flows for operating
activities. Increases in amounts due from customers of $2.2 million and declines
in accounts payables, accrued liabilities and unearned revenues of $15.4 million
more than offset the Company's income before non-cash charges of approximately
$12.1 million.
During 2000, the Company used approximately $76.1 million in cash flows
for investing activities, including approximately $68.7 million in the
acquisition of WMNS and approximately $14.9 million for purchases of property
and equipment. Such amounts were offset by net proceeds received from the sale
of DuraTherm of $7.6 million in February 2000.
During 1999, the Company used approximately $23.9 million in cash flows
for investing activities, including approximately $13.1 million used for the
acquisition of Hake and $8.8 million used for purchases of plant and equipment.
25
During 1998, the Company used approximately $6.4 million in cash flows
for investing activities of which approximately $6.1 million was used for
purchases of plant and equipment. The investments in plant and equipment
primarily consisted of $3.2 million for improvements to the Bear Creek facility
in Oak Ridge, Tennessee and $1.6 million for improvements supporting the
technical services group.
Cash flows from investing activities during 2000 were funded with $8.0
million in cash flows provided by operating activities and $68.5 million of cash
flows provided from financing activities. Cash flows from financing activities
during 2000 were provided principally from borrowings under the Company's bank
credit facility.
Cash flows from investing activities during 1999 were funded with $9.7
million in cash flows provided by operating activities, $8.3 million of cash
flows provided from financing activities and $5.9 million of cash. Cash flows
from financing activities during 1999 included $17.2 million of long-term
borrowings, net of repayments, and $1.8 million from the exercise of common
stock options. During 1999, the Company also purchased 1,036,700 shares of its
common stock for $6.3 million.
Cash flows used in operating and investing activities during 1998 were
funded by $11.5 million in cash from financing activities and $1.1 million of
existing cash resources. Cash flows from financing activities during 1998
included $10.9 million of short-term borrowings and $5.0 million in proceeds
from the exercise of stock options. During 1998, the Company also purchased
414,800 shares of treasury stock for $2.7 million.
As a result of the WMNS acquisition (see note 3 of Notes to
Consolidated Financial Statements), the Company amended and restated its bank
credit facility (the credit facility). Under the credit facility, the Company
has available borrowings of up to $135.0 million. The credit facility consists
of a five-year $45.0 million revolving line of credit, including $15.0 million
for standby letters of credit, a five-year $50.0 million term loan and a six and
one-half year $40.0 million term loan. The term loans must be prepaid in an
amount equal to 50% of excess cash flow, as defined in the credit agreement.
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 was set at 3.25% for LIBOR based borrowings and 2.25% for
prime based borrowings during the first six months following the acquisition.
Subsequent to the six-month period, the applicable margin is determined based
upon the Company's performance and can range from 2.5% to 3.5% for LIBOR based
borrowings and from 1.5% to 2.5% for prime based borrowings. Borrowings under
the $40.0 million term loan bear an additional 0.5% interest. As of December 31,
2000, outstanding borrowings of $61.0 million were bearing interest at LIBOR
plus 3.25% (9.91%) and outstanding borrowings of $39.7 million were bearing
interest at LIBOR plus 3.75% (10.41%). The credit facility requires the Company
to maintain certain financial ratios and restricts the payment of dividends on
the Company's common stock. At December 31, 2000, the Company had $18.5 million
outstanding under the revolving line of credit, $82.2 million outstanding under
the term loans and $1.6 million in outstanding letters of credit. At December
31, 2000, $24.9 million of additional borrowings were available under the
revolving credit portion of the credit facility.
As of December 31, 2000, the Company was not in compliance with certain
financial and technical covenants included in the credit agreement. On April 16,
2001, the credit agreement was amended to waive all existing non-compliance as
well as to adjust certain covenants either permanently or for 2001. The
amendment also required an amendment fee of approximately $600,000, and certain
other fees and expenses. Under the amendment, until such time as the Company is
in compliance with the original covenants in the credit agreement, there will be
a 0.5% increase in the applicable margin on all borrowings, a reduction in the
amount available under the revolving line of credit portion of the credit
facility to $35.0 million through December 31, 2001 and $27.5 million and
thereafter and prohibitions against acquisitions and payments of preferred stock
dividends. At March 31, 2001, after effect of the amendment, $10.7 million of
additional borrowings were available under the revolving credit portion of the
credit facility.
The Company believes cash flows from operations and, if necessary,
borrowings available under the credit facility will be sufficient to meet its
operating needs, for at least the next twelve months.
New Accounting Pronouncements
During 2001, the Company will adopt the provisions of Statements of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities. The Company does not expect that the new pronouncement will
have a material effect on the Company's financial condition or results of
operations.
Forward Looking Information
In response to the "safe harbor" provisions contained in the Private
Securities Litigation Reform Act of 1995, the Company is including in this
Annual Report on Form 10-K 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.
26
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 the
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 loss of one or more technical support service contracts could
adversely affect the Company's future operating results.
The Company's future operating results may fluctuate due to factors
such as: the timing of new commercial waste processing contracts and duration of
and amount of waste to be processed pursuant to those contracts; the acceptance
and implementation of the Company's waste treatment technologies in the
government and commercial sectors; the evaluation by the DOE and commercial
customers of the Company's technologies versus other competing technologies as
well as conventional storage and disposal alternatives; the timing of new
government waste processing projects, including those pursued jointly with
others, the duration of such projects; and the timing of outage support projects
and other large technical support services projects at its customers'
facilities.
A primary element of the Company's growth strategy is to continue to
pursue strategic acquisitions that expand and complement the Company's business,
technologies and service offerings. As a result, the Company' future operating
results may be affected by the costs and timing of completion and integration of
such acquisitions.
Item 7A. Quantitative and Qualitative Information about Market Risk
The Company's major market risk is to changing interest rates. As of
December 31, 2000, the Company had floating rate debt outstanding under its bank
credit facility of $61.0 million bearing interest at LIBOR plus 3.25% (9.91%)
and $39.7 million bearing interest at LIBOR plus 3.75% (10.41%) together with a
debenture of $13.0 million bearing interest at LIBOR (6.0%). Average outstanding
borrowings under the bank credit facility following the WMNS acquisition in June
2000 were $16.9 million. The Company currently has not entered into any
derivative instruments to hedge its exposure to changing interest rates but may
do so in the future. In addition, the Company does not have any foreign currency
or commodity market risk.
27
Item 8. Financial Statements and Supplementary Data
DURATEK, INC. AND SUBSIDIARIES
Table of Contents
Page
Independent Auditors' Report 29
Consolidated Balance Sheets at December 31, 1999 and 2000 30
Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000 32
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1999 and 2000 33
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000 34
Notes to Consolidated Financial Statements 36
28
Independent Auditors' Report
The Board of Directors and Stockholders
Duratek, Inc.:
We have audited the consolidated financial statements of Duratek, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited the consolidated
financial statement schedule listed under Item 14(a)(2). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Duratek, Inc. and
subsidiaries as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in note 22 of the notes to the consolidated financial statements,
the Company restated certain amounts previously reported for the year ended
December 31, 1999.
/s/ KPMG LLP
Baltimore, Maryland
April 16, 2001
29
DURATEK, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 2000
(in thousands of dollars, except per share amounts)
1999 2000
Assets
Current assets:
Cash $ 60 $ 431
Receivables, less allowance for doubtful accounts of $571 in 1999 and
$1,517 in 2000 33,309 57,365
Other accounts receivable 6,293 5,043
Income taxes recoverable - 6,516
Cost and estimated earnings in excess of billings on uncompleted contracts 15,925 24,436
Prepaid expenses and other current assets 2,801 7,687
Net assets held for sale 6,619 -
Deferred income taxes 359 736
------------ ------------
Total current assets 65,366 102,214
Property, plant and equipment, net 63,417 82,598
Goodwill and other intangible assets, net 23,122 83,139
Decontamination and decommissioning trust fund - 18,037
Other assets 5,415 8,855
Deferred income taxes - 3,857
------------ ------------
$ 157,320 $ 298,700
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 13,000 $ 11,400
Accounts payable 15,529 23,915
Accrued expenses and other current liabilities 4,879 41,115
Unearned revenues 7,461 12,742
Waste processing and disposal liabilities 3,910 8,797
------------ ------------
Total current liabilities 44,779 97,969
Long-term debt 25,535 102,265
Facility and equipment decontamination and decommissioning liabilities 8,508 29,294
Other liabilities 1,958 2,588
Deferred income taxes 302 -
------------ ------------
Total liabilities 81,082 232,116
------------ ------------
8% Cumulative Convertible Redeemable Preferred Stock, $.01 par value;
160,000 shares authorized, 157,525 shares issued and outstanding
(liquidation value $15,726) 15,509 15,499
------------ ------------
(Continued)
30
DURATEK, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 2000
(in thousands of dollars, except per share amounts)
1999 2000
----------- ------------
Stockholders' equity:
Preferred stock - $.01 par value; authorized 4,840,000 shares; none issued $ - $ -
Common stock - $.01 par value; authorized 35,000,000 shares; issued 14,899,019
shares in 1999 and 14,991,905 shares in 2000 149 150
Capital in excess of par value 75,206 77,134
Accumulated deficit (5,438) (15,993)
Treasury stock at cost, 1,551,858 shares in 1999 and 1,562,158 shares in 2000 (9,188) (9,251)
Deferred stock compensation - (955)
----------- ------------
Total stockholders' equity 60,729 51,085
----------- ------------
Commitments and contingencies
----------- ------------
$ 157,320 $ 298,700
=========== ============
See accompanying notes to consolidated financial statements.
31
DURATEK, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
1998 1999 2000
------------ ------------- ------------
Revenues $ 160,313 $ 176,408 $ 229,830
Cost of revenues 123,839 128,719 187,940
------------ ------------- ------------
Gross profit 36,474 47,689 41,890
Selling, general and administrative expenses 26,613 27,992 46,780
Charge for asset impairment 9,224 - -
------------ ------------- ------------
Income (loss) from operations 637 19,697 (4,890)
Interest income (expense), net (545) (2,297) (8,867)
Other expense, net - - (290)
------------ ------------- ------------
Income (loss) before income taxes (benefit) and
proportionate share of losses of joint ventures 92 17,400 (14,047)
Income taxes (benefit) 627 6,464 (5,083)
------------ ------------- ------------
Income (loss) before proportionate share of losses of
joint ventures (535) 10,936 (8,964)
Proportionate share of losses of joint ventures (1,474) (122) (148)
------------ ------------- ------------
Net income (loss) before cumulative effect of change in
accounting principle (2,009) 10,814 (9,112)
Cumulative effect of change in accounting principle (420) - -
------------ ------------- ------------
Net income (loss) and comprehensive income (loss) (2,429) 10,814 (9,112)
Preferred stock dividends and charges for accretion (1,507) (1,510) (1,443)
------------ ------------- ------------
Net income (loss) attributable to common stockholders $ (3,936) $ 9,304 $ (10,555)
============ ============= ============
Net income (loss) per share before cumulative effect
of change in accounting principle:
Basic $ (0.27) $ 0.70 $ (0.79)
============ ============= ============
Diluted $ (0.27) $ 0.55 $ (0.79)
============ ============= ============
Net income (loss) per share:
Basic $ (0.30) $ 0.70 $ (0.79)
============ ============= ============
Diluted $ (0.30) $ 0.55 $ (0.79)
============ ============= ============
See accompanying notes to consolidated financial statements.
32
DURATEK, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1999 and 2000
(in thousands of dollars)
Deferred
Common stock Capital in stock Total stock-
--------------------- excess of Accumulated Treasury compen- holders'
Shares Amount par value deficit stock sation equity
------------ -------- ----------- ------------- ----------- ----------- -------------
Balance, December 31, 1997 12,954,226 $ 130 $ 67,278 $ (10,806) $ (172) $ - $ 56,430
Net loss - - - (2,429) - - (2,429)
Exercise of options and warrants 1,346,693 13 4,994 - - - 5,007
Income tax benefit from exercise
of non-qualified stock options - - 240 - - - 240
Treasury stock purchases - - - - (2,719) - (2,719)
Preferred stock dividend and
charges for accretion - - - (1,507) - - (1,507)
------------ ------- ---------- ------------ ---------- ---------- ------------
Balance, December 31, 1998 14,300,919 143 72,512 (14,742) (2,891) - 55,022
Net income - - - 10,814 - - 10,814
Exercise of options and warrants 598,100 6 1,832 - - - 1,838
Income tax benefit from exercise
of non-qualified stock options - - 862 - - - 862
Treasury stock purchases - - - - (6,297) - (6,297)
Preferred stock dividend and
charges for accretion - - - (1,510) - - (1,510)
------------ ------- ---------- ------------ ---------- ---------- ------------
Balance, December 31, 1999 14,899,019 149 75,206 (5,438) (9,188) - 60,729
Net loss - - - (9,112) - - (9,112)
Deferred stock compensation - - 1,592 - - (1,592) -
Amortization of stock
compensation expense - - - - - 637 637
Exercise of options and
warrants 875 - 5 - - - 5
Conversion of preferred stock 82,500 1 247 - - - 248
Other issuances of common stock 10,311 - 84 - - - 84
Treasury stock purchases - - - - (63) - (63)
Preferred stock dividend and
charges for accretion - - - (1,443) - - (1,443)
------------ ------- ---------- ------------ ---------- ---------- ------------
Balance, December 31, 2000 14,992,705 $ 150 $ 77,134 $ (15,993) $ (9,251) $ (955) $ 51,085
============ ======= ========== ============ ========== ========== ============
See accompanying notes to consolidated financial statements.
33
DURATEK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1999 and 2000
(in thousands of dollars)
1998 1999 2000
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ (2,429) $ 10,814 $ (9,112)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,799 5,664 9,152
Accrued interest on convertible debenture 473 513 630
Proportionate share of losses of joint ventures 2,289 122 148
Charge for asset impairment 9,224 - -
Stock compensation expense - - 721
Loss on disposal of assets, net - - 290
Cumulative effect of change in accounting principle 689 - -
Allowance for doubtful accounts 483 149 5,100
Deferred income taxes (3,041) 4,035 (4,195)
Income tax benefit from exercise of non-qualified stock options 240 862 -
Changes in operating items, net of effects from businesses
acquired in 1999 and 2000:
Receivables (7,479) (12) (11,895)
Income taxes recoverable - - (6,516)
Costs and estimated earnings in excess of billings on
uncompleted contracts 4,818 (5,960) (166)
Prepaid expenses and other current assets (2,009) (1,007) (2,972)
Accounts payable, accrued expenses and other current
liabilities (6,002) (1,833) 16,304
Unearned revenues (4,876) (1,483) 3,534
Waste processing and disposal liabilities (4,479) (2,927) 4,887
Facility and equipment decontamination and
decommissioning liabilities 554 746 1,617
Other 592 10 448
------------ ------------ ------------
Net cash provided by (used in) operating activities (6,154) 9,693 7,975
------------ ------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (6,137) (8,758) (14,904)
Acquisitions of businesses, net of cash acquired - (13,144) (68,710)
Proceeds from sale of DuraTherm, Inc, net of trasactions costs - - 7,624
Advances to employees, net (419) (1,356) (105)
Other 133 (601) 10
------------ ------------ ------------
Net cash used in investing activities (6,423) (23,859) (76,085)
------------ ------------ ------------
(Continued)
34
DURATEK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1999 and 2000
(in thousands of dollars)
1998 1999 2000
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from (repayments of) borrowings under revolving
credit facility $ 10,947 $ (1,947) $ 9,500
Proceeds from long-term debt - 20,000 90,000
Repayments of long-term debt - (2,800) (25,000)
Repayments of capital lease obligations (135) (229) (1,464)
Preferred stock dividends paid (1,280) (1,280) (1,206)
Proceeds from issuance of common stock 5,007 1,838 5
Treasury stock purchases (2,719) (6,297) (63)
Deferred financing costs (325) (1,003) (3,291)
------------ ------------ ------------
Net cash provided by financing activities 11,495 8,282 68,481
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,082) (5,884) 371
Cash and cash equivalents, beginning of year 7,026 5,944 60
------------ ------------ ------------
Cash and cash equivalents, end of year $ 5,944 $ 60 $ 431
============ ============ ============
See accompanying notes to consolidated financial statements.
35
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(1) Description of Business and Liquidity
Duratek, Inc. and its wholly owned subsidiaries ("Duratek" or the
"Company"), formerly GTS Duratek, Inc., provide waste treatment solutions
for radioactive, hazardous, mixed (i.e., intermingled radioactive and
hazardous) and other wastes. The Company combines proprietary
technologies for treating various waste streams with a staff of highly
skilled personnel with significant environmental experience to offer its
customers a comprehensive approach to their waste treatment needs. The
Company's proprietary technologies include vitrification, incineration,
compaction, metal decontamination and recycling and ion exchange used
independently or in tandem to process its customer's waste for long-term
storage and disposal. The Company has a staff of engineers, consultants
and technicians who implement the Company's waste treatment technologies
and provide highly specialized technical support services for its
customers. The technical support services provided by the Company include
site decontamination and decommissioning, radiological engineering
services, staff augmentation and outage support to assist nuclear power
plants during maintenance shutdowns and environmental safety and health
training.
During the fourth quarter of 2000, the Company incurred significant
operating losses as the result of operational problems at its waste
processing facilities in Tennessee. Management expects these problems to
also adversely impact results for the first quarter of 2001. As a result
of these losses, the Company was not in compliance with certain financial
and technical covenants included in the credit agreement with respect to
its bank credit facility. The Company has obtained waivers of such non-
compliance as well as amendments to certain financial and technical
covenant requirements for 2001. If management is unable to improve the
Company's results during 2001, the Company may need to obtain further
modifications of the credit agreement and/or additional sources of
funding. There can be no assurance that the Company's lenders will agree
to such modifications or that such funding, if needed, will be available.
(2) Summary of Significant Accounting Policies and Practices
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. The
Company's consolidated financial statements included the results
of its 80% owned subsidiary DuraTherm, Inc. prior to its sale in
February 2000 (see note 19(a)). Investments in joint ventures in
which the Company does not have control or majority ownership are
accounted for under the equity method. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(Continued)
36
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with initial
maturities of three months or less to be cash equivalents.
(c) 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 thirty years. Leasehold improvements are
amortized over the shorter of the asset life or the term of the
lease.
(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 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 attributable to several acquisitions made by the
Company. Goodwill is being amortized on a straight-line basis over
a 30-year period. Other intangibles consist principally of amounts
assigned to operating rights related to the Barnwell, South
Carolina low-level radioactive waste disposal facility acquired as
part of the Waste Management Nuclear Services transaction,
covenants not-to-compete and costs incurred to obtain patents. The
Barnwell operating rights are being amortized based upon estimated
cubic foot burial amounts over the remaining eight-year life of
the facility. Covenant and patent amounts are being amortized over
10 and 17 years, respectively, on a straight-line basis.
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.
(Continued)
37
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(f) Facility and Equipment Decontamination and Decommissioning
The Company accrues decontamination and decommissioning (D&D)
costs for facilities and equipment ratably over the period to the
estimated date of site closure (see note 11).
(g) Revenue Recognition
Commercial Waste Processing
Revenue from the Company's commercial waste processing facilities
is recognized as waste is processed. The Company processes
substantially all customer waste under fixed-unit-price contracts
which allow for additional billings for burial price increases,
occurring within a set period of time following the Company's
receipt of the waste, or if the waste processed differs from
contract specifications. Upon completion of processing, the
Company accrues for burial and secondary waste processing costs.
Unearned revenues relate principally to progress billings for
customer waste received and not yet processed.
Long-term Contracts
Revenues under long-term contracts are recognized using the
percentage of completion method of accounting. Differences between
recorded costs, 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 and are included in unearned revenues. The Company
recognizes revenues and costs under waste treatment and disposal
contracts and technical support and operations contracts as
follows:
Contracts for Waste Treatment and Disposal Projects -
Revenues from long-term waste treatment and disposal projects
are primarily generated under fixed-price and cost-plus fixed
fee contracts. Measurement of the percent of completion is
done by using the contract milestone method. Revenues are
recognized based upon the percentage complete multiplied by
the contracted revenues. Cost of revenues are recognized
based upon the percentage complete multiplied by the total
estimated contract costs. Contract costs includes all direct
labor, material costs and the indirect costs related to
contract performance.
Contracts for Technical Support and Operation Services -
Revenues from technical support and operation services are
primarily generated under cost-plus fixed fee and
time-and-materials contracts. Measurement of the percent of
completion is done by the cost-to-cost method. Contract
revenue includes the basic contract price, change orders and
award fees which the Company believes they will likely
achieve. Contract costs includes all direct labor, material
costs and the indirect costs related to contract performance.
(Continued)
38
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
Disposal Services
Effective July 1, 2000, under the Atlantic Interstate Low-Level
Radioactive Waste Compact Implementation Act (the Act) passed into
law by the State of South Carolina on July 6, 2000, the Company is
entitled to recover allowable costs, as defined, plus 29%. The Act
requires that the Company bill customers of the facility based on
amounts agreed to with the State. The difference between the
amounts billed to its customers and the amount earned by the
Company as revenue under the Act is remitted to the State. The
primary remittance to the State is only made once a year following
the State's fiscal year end of June 30, except for certain
surcharges which are remitted on a periodic basis based on the
amount of waste accepted at the site.
(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
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) Stock Option Plan
The Company accounts for stock options using the intrinsic value
method prescribed by Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations, with pro forma disclosures of net income (loss)
and net income (loss) per share as if the fair value based method
prescribed by Statements of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, had
been used.
(j) Start-Up Costs
Prior to 1998, the Company's 45% owned subsidiary at the time,
DuraChem, capitalized certain costs of starting-up its processing
facility in Barnwell, South Carolina. In addition, the Company
capitalized certain costs in developing employee records and
documenting credentials for personnel in its technical services
segment. In April 1998, the AICPA issued Statement of Position
98-5 Reporting on Costs of Start-up Activities (SOP 98-5), which
requires such costs be expensed as incurred. During 1998, the
Company and DuraChem adopted the provisions of SOP 98-5. The
Company's proportionate share of the cumulative, after tax effect
of DuraChem's adoption of SOP 98-5 of $1,300 was recognized in the
1998 consolidated statement of operations as a proportionate share
of losses of joint ventures. The Company's cumulative, after tax
effect of adoption of SOP 98-5 was $420. The adoption of SOP 98-5
reduced the Company's loss before
(Continued)
39
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
proportionate share of losses of joint ventures by approximately
$78, increased the net loss before cumulative effect of a change
in accounting principle by approximately $1,200, increased the net
loss by approximately $1,600, increased the per share net loss
attributable to common stockholders before cumulative effect of a
change in accounting principle by $0.09 per share and increased
the per share net loss attributable to common stockholders by
$0.12 per share.
(k) Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net
income by the weighted average number of common shares outstanding
for the period. Diluted net income (loss) per share reflects the
potential dilution of stock options, convertible redeemable
preferred stock, and convertible debenture that could share in
the earnings of the Company. The reconciliation of amounts used in
the computation of basic and diluted net income (loss) per share
for the years ended December 31, 1998, 1999 and 2000 consist of
the following:
1998 1999 2000
----------- ----------- -----------
Numerator:
Net income (loss) attributable to common
shareholders $ (3,936) $ 9,304 $ (10,555)
----------- ----------- -----------
Plus:
Income impact of assumed conversions, preferred
stock dividends and charges for accretion - 1,510 -
Interest on convertible debenture, net of tax - 308 -
----------- ----------- -----------
- 1,818 -
----------- ----------- -----------
Net income (loss) attributable to common
shareholders assuming conversion $ (3,936) $ 11,122 $ (10,555)
=========== =========== ===========
Denominator:
Weighted-average shares outstanding 13,137 13,351 13,432
----------- ----------- -----------
Effect of dilutive securities:
Incremental shares from assumed conversion of: - 260 -
Employee stock options
Convertible debenture - 1,382 -
Convertible redeemable preferred stock - 5,330 -
----------- ----------- -----------
- 6,972 -
----------- ----------- -----------
Adjusted weighted average shares outstanding
and assumed conversions 13,137 20,323 13,432
=========== =========== ===========
Basic net income (loss) per share $ (0.30) $ 0.70 $ (0.79)
=========== =========== ===========
Diluted net income (loss) per share $ (0.30) $ 0.55 $ (0.79)
=========== =========== ===========
(Continued)
40
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
Options to purchase common stock and other potentially dilutive
securities of the Company that were not included in the
computation of diluted net income (loss) per share at December 31,
1998, 1999 and 2000 because the effect would have been
anti-dilutive were 8,202,000, 556,000 and 6,711,000, respectively.
(l) Fair Value of Financial Instruments
The estimated fair value of financial instruments, including
accounts receivable, accounts payable and long-term debt,
approximate carrying values.
(m) New Accounting Pronouncements
Statements of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activity (as
amended by SFAS No. 138 with respect to certain interpretations)
will be effective for the Company in January 2001. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires an entity to
recognize all derivatives as either an asset or a liability in the
balance sheet and measure those instruments at fair value. These
fair value adjustments are to be included either in the
determination of net income or as a component of other
comprehensive income, depending on the nature of the transaction.
The Company estimates that the initial adoption of SFAS No. 133,
as amended, will not have a material impact on the Company's
consolidated financial statements.
(n) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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:
(i) the amount of waste processing and disposal liabilities (see
note 10), (ii) the cost to decommission and decontaminate the
commercial waste processing facilities and equipment (see note
11), (iii) percentage of completion on long-term fixed price
contracts and (iv) recovery of long-lived assets including
goodwill.
(o) Reclassifications
Certain amounts for 1998 and 1999 have been reclassified to
conform to the presentation for 2000.
(Continued)
41
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(3) Acquisitions
(a) Acquisition of Waste Management Nuclear Services
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 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 $68,710 in cash including
$1,960 of transaction costs. The acquisition was financed with
borrowings under the Company's amended and restated bank credit
facility (see note 8). 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 businesses: (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 in 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 has been
allocated to goodwill and is being amortized over 30 years.
Results of WMNS for the period June 8, 2000 to December 31, 2000
are included in the Company's consolidated results for the year
ended December 31, 2000.
The aggregate purchase price for WMNS is as follows:
Cash paid to Waste Management $ 66,750
Liabilities assumed 29,784
Transaction costs 1,960
------------
Aggregate purchase price $ 98,494
============
(Continued)
42
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
The aggregate purchase price was allocated to the acquired assets
based upon their estimated fair values as follows:
Cash $ 5
Accounts receivable 16,622
Unbilled revenues 8,445
Prepaid expenses 1,977
Property and equipment 10,626
Other tangible assets 1,625
Barnwell operating rights 7,340
Goodwill and other intangible assets 51,854
-------------
$ 98,494
=============
(b) Frank W. Hake Associates, L.L.C. ("Hake")
On June 30, 1999, the Company acquired 100% of the outstanding
membership interests of Hake from HakeTenn, Inc., a Delaware
corporation and an affiliate of the Hake Group of Philadelphia,
Pennsylvania, and two individuals for approximately $10,900 in
cash and the assumption of certain liabilities. The Company funded
the purchase price with borrowings under its bank credit facility.
Hake is engaged in the storage, transportation, handling and
processing of radioactive waste emanating from nuclear power
generation plants throughout the United States. Hake also stores
and services power generation equipment at its licensed facility
in Memphis, Tennessee.
The acquisition was effective as of June 30, 1999. The Company has
accounted for the transaction under the purchase method of
accounting. The aggregate purchase price of approximately $22,500,
which includes liabilities assumed and transaction costs, exceeded
the fair value of Hake's tangible assets by approximately $11,900.
Such amount has been allocated to intangible assets, principally
goodwill, and is being amortized over 30 years.
At the date of the acquisition, a $3,000 escrow account was
established to secure indemnities made by the sellers in the
acquisition agreement. The Company has filed a claim against the
escrow related to certain alleged breaches in the representations
made by the sellers. Recovery of the amount, if any, will be
recorded in the period in which the recovery is assured.
Pro forma revenues, net income (loss) and diluted net income (loss) per
share for the years ended December 31, 1999 and 2000, as if the
transactions to: (i) acquire WMNS and (ii) acquire Hake were consummated
on January 1, 1999, are as follows. The results presented are not
necessarily indicative of results expected for future years.
1999 2000
------------ ------------
Revenues $ 372,893 $ 280,629
Net income (loss) 21,493 (5,663)
Diluted net income (loss) per share 1.15 (0.53)
(Continued)
43
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(4) Other Accounts Receivable
Other accounts receivable, at December 31, 1999 and 2000, includes loans
of $775 and $804, respectively, to two of the Company's executive
officers. The loans bear interest at market rates and are due by December
31, 2001.
(5) Property, Plant and Equipment
Property, plant and equipment at December 31 consist of the following:
1999 2000
---------- ------------
Land and land improvements $ 560 $ 2,757
Buildings 24,225 40,159
Machinery and equipment 42,748 49,399
Leasehold improvements, furniture and fixtures 6,444 7,599
Construction in progress 4,279 3,489
---------- ------------
78,256 103,403
Less accumulated depreciation and amortization 14,839 20,805
---------- ------------
$ 63,417 $ 82,598
========== ============
(6) Goodwill and Other Intangible Assets
Goodwill and other intangible assets at December 31 consist of the
following:
1999 2000
----------- ----------
Goodwill $ 23,736 $ 77,152
Other intangible assets 2,011 10,548
----------- ----------
25,747 87,700
Less accumulated amortization 2,625 4,561
----------- ----------
$ 23,122 $ 83,139
=========== ==========
During the year ended December 31, 2000, the Company added approximately
$1,900 to goodwill related to the Hake acquisition upon the final
determination of the amount of loss related to certain contingencies
which existed at the acquisition date.
(Continued)
44
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(7) DOE Savannah River M-Area Project
In November 1993, the Company received a contract to process 90,000 cubic
feet of low-level mixed waste sludge stored at the DOE's Savannah River
site in Aiken, South Carolina. To meet its obligations under the
contract, the Company constructed a glass melter at the site and began
processing waste in October 1996. In 1997, the Company decided to
temporarily suspend processing of radioactive waste and make extensive
repairs and modification of the facility, including melter box
replacement, before resumption of radioactive waste processing. As a
result of the necessary repairs and the delay in completing the waste
processing required by the contract, the Company recorded losses of
$7,200 on the M-Area contract in 1997 which included the estimated costs
of repairs to the melter and for the estimated losses to complete the
fixed price contract. During 1998, the Company recorded a $1,800 charge
for additional costs to be incurred to complete and close out the
contract and an asset impairment charge of $9,224 related to the carrying
value of the glass melter which was abandoned.
(8) Long-Term Debt
Long-term debt at December 31 consist of the following:
1999 2000
----------- ------------
Bank Credit Facility:
Borrowings under revolving line of credit $ 9,000 $ 18,500
Term loans 17,200 82,200
Debenture 12,335 12,965
----------- ------------
38,535 113,665
Current maturities of long-term debt 13,000 11,400
----------- ------------
$ 25,535 $ 102,265
=========== ============
As a result of the WMNS acquisition (see note 3(a)), the Company amended
and restated its bank credit facility (the facility). Under the facility,
the Company has available borrowings of up to $135,000. The facility
consists of a five-year $45,000 revolving line of credit, including
$15,000 for standby letters of credit, a five-year $50,000 term loan and
a six and one-half year $40,000 term loan. The term loan must be prepaid
in an amount equal to 50% of excess cash flows, as defined. 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 was set at 3.25% for LIBOR based borrowings
and 2.25% for prime based borrowings during the first six months
following the acquisition. Subsequent to the six-month period, the
applicable margin is determined based upon the Company's performance and
can range from 2.5% to 3.5% for LIBOR based borrowings and from
(Continued)
45
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
1.5% to 2.5% for prime based borrowings. Borrowings under the $40 million
term loan bear an additional 0.5% interest. As of December 31, 2000,
outstanding borrowings of $61,000 were bearing interest at LIBOR plus
3.25% (9.91%) and outstanding borrowings of $39,700 were bearing interest
at LIBOR plus 3.75% (10.41%). The facility requires the Company to
maintain certain financial ratios and restricts the payment of dividends
on the Company's common stock. At December 31, 2000, the Company had
$18,500 outstanding under the revolving line of credit, $82,200
outstanding under the term loans and $1,555 in outstanding letters of
credit. At December 31, 2000, $24,945 of additional borrowings were
available under the revolving credit portion of the facility.
As of December 31, 2000, the Company was not in compliance with certain
financial and technical covenants included in the credit agreement. On
April 16, 2001, the facility was amended to waive all existing non-
compliance as well as to adjust certain covenants either permanently or
for 2001. The amendment required an amendment fee of approximately $600
and certain other fees and expenses. Under the amendment, until such time
as the Company is in compliance with the original covenants in the credit
agreement there will be a 0.5% increase in the applicable margin on all
borrowings, a reduction in the amount available under the revolving line
of credit portion of the facility to $35,000 through December 31, 2001
and $27,500 thereafter and prohibitions against acquisitions and the
payment of preferred stock dividends.
At December 31, 1999, the Company had borrowing outstanding under the
revolving credit facility of $9,000 and term loan of $17,200.
In November 1995, in connection with the formation of a strategic
alliance, the Company received proceeds of $9,830, net of debt issue
costs, from the issuance of a $10,000 convertible debenture to BNFL, Inc.
(BNFL). The debenture accrues interest at the one-year LIBOR. Prior to
November 2000, BNFL had a right to convert the debenture and accrued
interest into common stock of the Company. BNFL elected not to convert
the debenture into the Company's common stock. The debenture is to be
repaid in annual installments of not less than $1,000 through November
2004 with the final payment due in November 2005. At December 31, 1999
and 2000, the balance due BNFL of $12,335 and $12,965 included accrued
interest of $2,335 and $2,965, respectively. The estimated fair value of
the debenture at December 31, 2000 approximated its carrying value.
Aggregate maturities of long-term debt as of December 31, 2000 are as
follows:
2001 $ 11,400
2002 11,400
2003 11,400
2004 16,100
2005 49,065
Thereafter 14,300
-----------
$ 113,665
===========
The Company paid interest of $444, $1,784 and $6,945 during the years
ended December 31, 1998, 1999 and 2000, respectively.
(Continued)
46
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(9) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities at December 31 consist of
the following:
1999 2000
----------- -----------
Salaries and related expenses $ 2,366 $ 8,015
Amount due the State of South Carolina - 19,826
Contract costs - subcontractors - 7,326
Preferred stock dividend payable 320 315
Other accrued expenses 2,193 5,633
----------- -----------
$ 4,879 $ 41,115
=========== ===========
The amount due to the State of South Carolina is payable by July 30, 2001
pursuant to the provisions of the Act (see note 2(g)).
(10) Waste Processing and Disposal Liabilities
During customer waste processing at the Company's Oak Ridge, Tennessee
facility, the Company creates waste by-products (secondary waste) which
become the Company's responsibility to process and send to burial.
Management evaluates the content of this waste and accrues the estimated
costs of processing and disposal based on anticipated processing methods
and current disposal sites and rates. The ultimate cost of processing and
disposal, however, will depend on the actual contamination of the waste,
the amount of processing, volume reduction and disposal density. At
December 31, 1999 and 2000, the Company has accrued $2,743 and $987
related to such waste, respectively.
In addition, the Company has accrued $1,167 and $7,810 for processed
customer waste awaiting burial at December 31, 1999 and 2000,
respectively. The Company ships a significant portion of waste to a
single burial site, at a cost lower than waste shipped to other available
alternatives. The accompanying consolidated financial statements reflect
various accruals and estimates assuming the single burial site continues
to be a viable disposal site at rates presently in effect. If the site's
licenses are not renewed or at some future date if the site's rate
structure were to change significantly, the Company's costs to dispose of
waste would likely increase. Management has not determined the impact, if
any, either of these scenarios would have on the Company's liabilities or
future operating costs.
(Continued)
47
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(11) Facility and Equipment Decontamination and Decommissioning (D&D)
(a) Tennessee Facilities
The Company has estimated the cost to decontaminate and
decommission (D&D) its commercial waste processing facilities and
equipment in Tennessee to be approximately $28,466. Based on the
current market and projections for the demand for future waste
processing, the Company estimates it will operate at its Tennessee
facilities for at least the next 27 years. Accordingly, the
Company is accruing the expected D&D costs plus an amount for
inflation over such period. During the years ended December 31,
1998, 1999 and 2000, the Company accrued D&D costs of $473, $746
and $826, respectively.
The Company has purchased insurance to fund the Company's
obligation to clean and remediate its Tennessee facilities upon
closure. The Company is accounting for these insurance policies
using a deposit accounting methodology whereby a portion of the
premiums paid are viewed as a funding mechanism to cover the
Company's obligation. The amount of the premiums that is
considered a funding mechanism is capitalized as a deposit asset
with the difference being charged to earnings in the period in
which the premiums are paid. As of December 31, 1999 and 2000, the
deposit asset was $417 and $634, respectively, and is included in
other assets in the consolidated balance sheets. Insurance expense
for the years ended December 31, 1999 and 2000 was $170 and $386,
respectively.
(b) Barnwell Low-Level Radioactive Waste Disposal Facility
Effective July 6, 2000, the State of South Carolina passed into
law a new Act (see note 2(g)) that, in addition to the new
rate-controlled structure, 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 Company operates the site under a license
granted by the State of South Carolina. The Company has estimated
the cost to close the Barnwell site to be $21,144 and has accrued
$18,037 at December 31, 2000. The difference will be accrued over
the remaining life of the site. In order to fund the site closure
obligation, the State of South Carolina has required the Company
to establish a trust fund to cover such costs. At December 31,
2000, the trust fund held cash and securities of $18,037.
(c) 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 United States 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 $3,600. As of December 31, 2000, the
Company had accrued $1,923 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 surety bond with respect to the estimated remediation costs of
$2,800 for the buildings.
(Continued)
48
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
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.
(12) 8% Cumulative Convertible Redeemable Preferred Stock
In January 1995, the Company issued 160,000 shares of 8% Cumulative
Convertible Redeemable Preferred Stock, par value $.01 per share (the
"Convertible Preferred Stock") and an option (the "Carlyle Option") to
purchase up to an additional 1,250,000 shares of the Company's common
stock, at any time prior to January 24, 1999 for $3.75 per share to
investment partnerships sponsored and controlled by The Carlyle Group
("Carlyle") for $16,000. During 1998, Carlyle exercised its option to
purchase 1,206,809 shares for $4,526. The Convertible Preferred Stock is
initially convertible into the Company's common stock at a conversion
price of three dollars per share and, if not previously converted, the
Company is required to redeem the outstanding Convertible Preferred Stock
on February 5, 2004 for one hundred dollars per share plus accrued and
unpaid dividends. Subject to restrictions in the bank credit facility,
the Company is required to pay quarterly dividends on the Convertible
Preferred Stock (see note 8). During 2000, holders converted 2,475 shares
of preferred stock into 82,500 shares of common stock.
The proceeds, net of offering expenses of $1,310, from the issuance of
the Convertible Preferred Stock and Carlyle Option were $14,690, of which
$14,410, was allocated to the Convertible Preferred Stock and $280 was
allocated to the fair value of the Carlyle Option. The difference between
the carrying value of the Convertible Preferred Stock and the redemption
value is being accreted through charges to stockholders' equity.
The estimated fair value of the Convertible Preferred Stock at December
31, 2000 approximated its carrying value.
(13) Stockholders' Equity
During the years ended December 31, 1998 and 1999, the Company received
compensation deductions, for income tax purposes, upon exercise of
non-qualified stock options by employees. The benefits of such
deductions, which are included in stockholders' equity, were $240 and
$862 for the years ended December 31, 1998 and 1999, respectively.
During 1999 and 2000, the Company repurchased 1,036,700 and 10,300 shares
of its common stock, respectively. The repurchased shares are reflected
as treasury stock in the consolidated balance sheets.
(Continued)
49
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(14) Stock Compensation
(a) Stock Option Plan
In May 2000, the Company's stockholders approved the 1999 Stock
Option and Incentive Plan (the "Plan") which authorizes a
committee of the Board of Directors to grant various types of
incentive awards (including incentive stock options, non-qualified
options, stock appreciation rights, restricted shares and
performance units on shares) to directors, officers and employees
of the Company for issuance of up to 5,000,000 shares of common
stock in the aggregate. At December 31, 2000, there were 4,289,970
additional shares available for grant under the Plan. The Company
granted options in 1999 and prior year pursuant to the 1984 Stock
Option Plan. No further grants will be made under this plan. At
December 31, 2000, the Company has reserved 11,001,383 shares for
issuance of options and securities convertible into the Company's
common stock.
The per share weighted-average fair value of stock options granted
during 1998, 1999 and 2000 were $5.22, $5.64 and $6.57,
respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average
assumptions: expected dividend yield 0%, risk-free interest rate
of 6.6%, expected volatility of 63% (64% in 1999 and 73% in 1998),
and an expected life of four years.
The Company applies APB No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized
for its stock options in the consolidated financial statements.
Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123,
the Company's net income (loss) attributable to common
stockholders and net income (loss) per share on a diluted basis,
would have been ($4,208) and ($0.32), $8,926 and $0.53 and
($11,371) and ($0.85) for the years ended December 31, 1998, 1999
and 2000, respectively.
Pro forma results reflect only options granted since January 1995.
Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma
net income (loss) amounts for 1998 and 1999 presented above
because compensation cost is reflected over the options' vesting
period of five years and compensation cost for options granted
prior to January 1, 1995 is not considered.
(Continued)
50
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
Changes in options outstanding are as follows:
Weighted
average
exercise Number of
price shares
---------- ---------------
December 31, 1997 $ 4.15 2,669,200
Granted 8.78 167,000
Exercised 3.72 (1,346,693)
---------- ---------------
December 31, 1998 5.06 1,489,507
Granted 5.78 428,500
Exercised 3.07 (597,950)
Terminated and expired 3.41 (503,257)
---------- ---------------
December 31, 1999 7.91 816,800
Granted 7.94 552,600
Exercised 5.88 (875)
Terminated and expired 9.76 (65,875)
---------- ---------------
December 31, 2000 $ 7.82 1,302,650
========== ===============
Certain options issued in 2000, granted to executive officers of
the Company, have exercise prices that were less than the fair
value of the Company's common stock on the date of grant. The
difference of $269 has been recorded as deferred compensation and
is being recognized over the vesting period. During the year end
December 31, 2000, the Company recognized compensation expense of
$108. The following table summarizes information about outstanding
and exercisable options at December 31, 2000:
Outstanding Exercisable
- ----------------------------------------------------------------------- ---------------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise Number contractual exercise Number exercise
price outstanding life price exercisable price
----- ----------- ---- ----- ----------- -----
$5.50 - $5.88 579,350 4.6 years $5.75 162,775 $5.73
$8.13 - $8.75 449,500 9.4 years $8.44 - -
$10.13 - $10.62 196,800 1.8 years $10.52 161,725 $10.52
$12.75 - $13.75 77,000 .1 year $12.91 77,000 $12.91
---------------- ----------------
1,302,650 401,500
================ ================
(Continued)
51
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(b) Restricted Stock Units
Upon approval of the Plan by the stockholders in May 2000, two of
the Company's senior executives were granted 157,930 restricted
stock units. The units vest over a four-year period. Upon vesting,
the grantee has the right to receive common stock in exchange for
such units. The Company has accounted for this plan as a
compensatory fixed plan under APB 25, which resulted in a
compensation charge of approximately $1,323 of which $529 was
recognized during the year ended December 31, 2000.
(15) Income Taxes
The provision (benefit) for income taxes for the years ended December 31
consist of the following:
1998 1999 2000
----------- --------- -----------
Current:
State $ 742 $ 567 $ 624
Federal 1,842 1,862 (1,512)
----------- --------- -----------
2,584 2,429 (898)
----------- --------- -----------
Deferred:
State (340) 594 (1,444)
Federal (2,701) 3,441 (2,751)
----------- --------- -----------
(3,041) 4,035 (4,195)
----------- --------- -----------
$ (457) $ 6,464 $ (5,083)
=========== ========= ===========
The provision (benefit) for the years ended December 31 is allocated as
follows:
1998 1999 2000
---------- ---------- ----------
Continuing operations $ 627 $ 6,464 $ (5,083)
Proportionate share of losses of joint
ventures (815) - -
Cumulative effect of change in accounting
principle (269) - -
---------- ---------- ----------
$ (457) $ 6,464 $ (5,083)
========== ========== ==========
(Continued)
52
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
The provision (benefit) for income taxes for the years ended December 31,
1998, 1999 and 2000 is reconciled to the amount computed by applying the
statutory Federal income tax rate to income (loss) before income taxes
and proportionate share of losses of joint ventures as follows:
1998 1999 2000
---------- ----------- ----------
Federal income tax provision (benefit) at
statutory rate $ 31 $ 6,090 $ (4,776)
State income taxes, net of Federal tax
benefit 405 756 (541)
Valuation allowance 356 (257) 362
Other (165) (125) (128)
---------- ----------- ----------
$ 627 $ 6,464 $ (5,083)
========== =========== ==========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31
consist of the following:
1999 2000
----------- -----------
Allowance for doubtful accounts $ 247 $ 530
Capitalized inventory costs 58 56
Write-off of start-up costs 261 99
Loss of joint venture 834 1,383
Facility and equipment decontamination and
decommissioning liabilities 1,270 1,605
Net operating loss carryforwards 836 4,760
Alternative minimum tax 1,100 1,328
Accelerated depreciation (4,107) (4,191)
Other (74) (247)
----------- -----------
425 5,323
Less valuation allowance 368 730
----------- -----------
Net deferred tax asset $ 57 $ 4,593
=========== ===========
During the year ended December 31, 2000, the Company utilized net
operating loss carryforwards acquired as part of the Hake acquisition
(see note 3(b)) resulting in an income tax benefit of approximately
$341. Such amount was recorded as a reduction to goodwill.
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
two 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 a valuation allowance of $368 and
$730 as necessary at December 31, 1999 and 2000, respectively.
The Company paid income taxes of $428, $4,087 and $5,052 in the years
ended December 31, 1998, 1999 and 2000, respectively.
(Continued)
53
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
The Company has approximately $9,500 of net operating loss carryforwards
for Federal tax purposes which expire through 2020.
(16) Profit Investment and Deferred Compensation Plans
The Company maintains a Profit Investment Plan for employees who have
completed one year of service with the Company. The Plan permits pre-tax
contributions to the Plan by participants pursuant to Section 401(k) of
the Internal Revenue Code of 1% to 14% of base compensation. The Company
matches 25% of the participants' eligible contributions based on a
formula set forth in the Plan and may make additional matching
contributions. Employer contributions vest at a rate of 20% per year of
service. The Company's matching contributions were $466, $758 and $953
for the years ended December 31, 1998, 1999 and 2000, respectively.
(17) Related Party Transactions
During 1998, 1999 and most of 2000, BNFL was considered a related party
due to the convertible feature of the debenture which expired in November
2000 (see note 8). The Company recognized revenues of approximately
$17,000 and $22,000 during 1999 and 2000, respectively, under
subcontracts with BNFL related to their work performed on the DOE's
Hanford River Protection and Idaho Advanced Mixed Waste Treatment
Projects.
(18) 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:
(a) 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 entities
and petrochemical companies (prior to February 2000). Material is
received and disposed of at the Barnwell facility primarily from
commercial nuclear utilities.
54 (Continued)
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
(b) 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.
(c) 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.
As of and for the Year Ended December 31, 1998
--------------------------------------------------------------------------
Unallocated
CPD FS CS Items Consolidated
------------ ------------ ------------ ---------------- -----------------
Revenues from external
customers $ 73,020 31,644 55,649 - 160,313
Income from operations 8,148 (8,140) 629 - 637
Interest expense, net - - - 545 545
Depreciation and amortization
expense 3,941 286 572 - 4,799
Proportionate share of losses
of joint ventures - - - (1,474) (1,474)
Income tax expense - - - 627 627
Capital expenditure for
additions to long-lived
assets 3,373 487 1,611 666 6,137
Total asssets 76,788 21,732 16,191 19,534 134,245
============ ============ ============ ================ =================
(Continued)
55
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
As of and for the Year Ended December 31, 1999
--------------------------------------------------------------------------
Unallocated
CPD FS CS Items Consolidated
------------ ------------ ------------ ---------------- -----------------
Revenues from external
customers $ 86,771 37,239 52,398 - 176,408
Income from operations 13,106 4,309 2,282 - 19,697
Interest expense, net - - - 2,297 2,297
Depreciation and amortization
expense 4,619 408 637 - 5,664
Proportionate share of losses
of joint ventures - - - (122) (122)
Income tax expense - - - 6,464 6,464
Capital expenditure for
additions to long-lived
assets 6,708 887 67 1,096 8,758
Total asssets 105,124 15,851 24,182 12,163 157,320
============ ============ ============ ================ =================
As of and for the Year Ended December 31, 2000
-------------------------------------------------------------------------
Unallocated
CPD FS CS Items Consolidated
------------ ------------ ------------ --------------- ------------------
Revenues from external
customers $ 88,090 74,625 67,115 - 229,830
Income (loss) from operations (10,988) 5,634 464 - (4,890)
Interest expense, net - - - (8,867) (8,867)
Depreciation and
amortization expense 5,879 1,277 1,286 710 9,152
Proportionate share of
losses of joint ventures - - - (148) (148)
Income tax expense - - - (5,083) (5,083)
Capital expenditure for
additions to long-lived
assets 11,621 879 1,160 1,244 14,904
Total assets 149,852 63,274 54,921 30,653 298,700
============ ============ ============ =============== ==================
(Continued)
56
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
The Company's revenues are derived primarily from utilities and through
subcontracts from a combination of DOE contractors and subcontractors.
During the year ended December 31, 2000, primarily as a result of the
acquisition of WMNS (see note 3(a)), revenues from DOE contractors and
subcontractors represented approximately 44% of consolidated revenues.
No commercial customer represented more than 10% of consolidated revenues
for the year ended December 31, 2000.
Accounts receivable and costs and estimated earnings in excess of billing
on uncompleted contracts relating to DOE contractors and subcontractors
amounted to $9,275 and $2,350 at December 31, 1999 and $7,887 and $4,786
at December 31, 2000, 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.
(19) Gains (Losses) on Disposition of Assets
(a) DuraTherm, Inc. ("DTI")
In February 2000, the Company completed the sale of its 80%
interest in DTI to DuraTherm Group, Inc. for $8,300 in cash which
was used by the Company to pay down borrowings under its bank
credit facility. The Company recognized a pre-tax gain of $1,166
on the sale which is included in other expense in the consolidated
statements of operations.
(b) DuraChem, L.P.. (DuraChem)
During 2000, the Company abandoned certain melter equipment
previously held by its DuraChem joint venture with WMI. DuraChem
became a wholly owned subsidiary of the Company in connection with
the WMNS acquisition (see note 3(a)). A loss of $1,456 was
recorded upon the abandonment of these assets which is included in
other expense in the consolidated statement of operations.
(20) Commitments and Contingencies
(a) Leases
The Company has several noncancellable leases which cover real
property, machinery and equipment and certain manufacturing
facilities. Such leases expire at various dates with, in some
cases, options to extend their terms. Several of the leases
contain provisions for rent escalation based primarily on
increases in real estate taxes and through operating costs
incurred by the lessor. Rent expense approximated $1,978, $1,830
and $5,338 for the years ended December 31, 1998, 1999 and 2000,
respectively.
(Continued)
57
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
The following is a schedule of future minimum annual lease
payments for all operating and capital leases with initial or
remaining lease terms greater than one year at December 31, 2000:
Operating Capital
--------------- --------------
2001 $ 3,122 $ 962
2002 2,518 514
2003 2,294 341
2004 1,995 164
2005 1,603 117
Thereafter 469 84
--------------- --------------
Future minimum lease payments $ 12,001 2,182
===============
Less portion representing interest 255
Less current portion of capital lease obligation 858
--------------
Long-term portion of capital lease obligation $ 1,069
==============
During 1998, 1999 and 2000, the Company entered into several new
capital lease obligations valued at $1,207, $1,006 and $770,
respectively.
(b) Legal Proceedings
On February 3, 1998, the Company's wholly owned subsidiary,
Scientific Ecology Group, Inc. ("SEG") (now named Duratek Radwaste
Processing, Inc.), was sued in federal district court in Boston,
Massachusetts. The suit alleges that statements made in press
releases by Molten Metals Technology, Inc. ("MMT") were fraudulent
and misleading under federal securities laws and state common law
fraud theories. These statements concerned a joint venture between
SEG and MMT and some of these statements were made in press
releases which MMT issued jointly with SEG. The complaint seeks to
hold SEG liable for all of these statements. The defendant moved
to dismiss the complaint, the plaintiffs chose to amend their
pleading, and the defendant moved to dismiss the amended
complaint. At the present time the Company is unable to express a
view on the probable ultimate outcome of the litigation. In
addition, the Company may have rights of indemnity against CBS
Corporation ("CBS"), the successor to Westinghouse Electric
Corporation ("Westinghouse") which was the parent of SEG at the
time the allegedly misleading statements were made, if, among
other things, certain representations and warranties made by CBS
in the definitive purchase agreement pursuant to which the Company
purchased SEG were breached. CBS has agreed to assume all
litigation costs associated with the defense of the case, but has
reserved the right to challenge the Company's claim for
indemnification for any settlement or judgment that may arise from
the case.
(Continued)
58
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
On December 2, 1999, the Company's wholly owned subsidiary, SEG,
was named as a defendant in an adversary proceeding in the United
States Bankruptcy court for the District of Massachusetts. The
Chapter 11 Trustee, on behalf of the debtor MMT and its creditors,
filed an adversary "Complaint to Avoid Fraudulent Transfer" naming
as defendants CBS and SEG. The complaint alleges that the sale of
CBS's interest in a joint venture to MMT resulted in a fraudulent
conveyance. The primary allegations against SEG are that MMT's
release of SEG from obligations to pay $8 million to equalize
capital expenditures and additional amounts for MMT's share of
profits, and MMT's assumption of at least $1.5 million of SEG's
liabilities, if any, are avoidable because MMT did not receive
reasonably equivalent value for the transfers. The Company intends
to vigorously contest MMT's allegations on the basis that MMT did
in fact receive reasonably equivalent value for its transfers. In
addition, the Company may have a right of indemnification from CBS
pursuant to the relevant purchase agreement. It is too early in
the litigation to provide an accurate assessment of the Company's
liability, if any. CBS has agreed to assume all litigation costs
associated with the defense of the case, but has reserved the
right to challenge the Company's claim for indemnification for any
settlement or judgment that may arise from the case.
In addition, from time to time the Company is a party to
litigation or administrative proceedings relating to claims
arising from its operations in the normal course of business.
Management of the Company, on the advice of counsel, believes that
the ultimate resolution of such litigation or administrative
proceedings currently pending against the Company is unlikely,
either individually or in the aggregate, to have a material
adverse effect on the Company's results of operations or financial
condition.
(21) QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
(in thousands, except per share data)
FIRST SECOND THIRD FOURTH
As Previously Reported QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Revenues $ 38,885 $ 41,692 $ 44,778 $ 51,841
Operating income 3,299 4,889 5,884 6,682
Net income 1,803 2,704 2,911 4,062
Income per common share:
Basic $ 0.10 $ 0.17 $ 0.19 $ 0.28
Diluted 0.09 0.14 0.15 0.21
FIRST SECOND THIRD FOURTH
As Restated QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Revenues $ 38,696 $ 41,543 $ 44,704 $ 51,465
Operating income 3,104 4,612 5,765 6,216
Net income 1,683 2,530 2,836 3,765
Income per common share:
Basic $ 0.10 $ 0.16 $ 0.19 $ 0.26
Diluted 0.08 0.13 0.15 0.19
59
DURATEK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1999 and 2000
(in thousands of dollars, except per share amounts)
YEAR ENDED DECEMBER 31, 2000
------------------------------------------------------------
(in thousands, except per share data)
FIRST SECOND THIRD
As Previously Reported QUARTER QUARTER QUARTER
------------ ------------ ------------
Revenues $ 41,102 $ 52,772 $ 73,856
Operating income 2,945 6,885 8,773
Net income 2,031 3,356 3,389
Income per common share:
Basic $ 0.12 $ 0.22 $ 0.22
Diluted 0.11 0.17 0.17
FIRST SECOND THIRD FOURTH
As Restated QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Revenues $ 41,013 $ 50,909 $ 71,008 $ 66,900
Operating income (loss) 2,212 3,482 5,779 (16,363)
Net income (loss) 1,547 1,268 590 (12,517)
Income (loss) per common share:
Basic $ 0.09 $ 0.07 $ 0.02 $ (0.95)
Diluted 0.08 0.07 0.02 (0.95)
The sum of the quarterly amounts may not equal the totals for the year due to
the effects of rounding.
The operational issues that resulted in the operating loss for 2000 caused the
Company to undertake further review and analysis of its commercial waste
processing operation. One element of determining revenue recognition and the
related burial costs is the reconciliation of quarterly inventories of
unprocessed waste to the deferred revenue and burial accrual amounts reported
at each quarter end. The Company determined, in the course of its review, that
full reconciliations of the quarterly inventories of unprocessed waste were not
performed at each quarter end in 2000. The appropriate recording of revenues was
further complicated by the high volumes of wastes and newly-implemented waste
processing strategies. As a result of a review of adjustments made by the
Company to its results in fourth quarter of 2000, the Company is restating its
previously reported results for the first three quarters of 2000 to more
appropriately reflect such adjustments in the period in which they relate. The
adjustments to results for the nine months ended September 30, 2000 resulted in
reducing revenue by $4,800, increasing costs of revenue related to burial
accruals by $1,477, increasing selling, general and administrative expenses by
$1,242 (related to stock compensation expense of $432, legal expense related to
the successful defense of a contract of $467 and certain other costs of $343),
increasing other expense, net related to the loss on abandonment of equipment of
$1,330 and increasing interest expense by $72 related to deferred financing
costs and decreasing income tax expense by $3,550 for the income tax benefit of
the above items.
The Company also adjusted 1999 results by reducing revenue $788, increasing
selling general and administrative expenses by $269 for certain legal expenses
and decreasing income tax expense by $391 for the income tax benefit of the
above items.
(22) Restatement of 1999 Consolidated Financial Results
As described in note 21, the Company has adjusted 1999 consolidated results
of operations.
60
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
61
Part III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the names of the executive officers of
the Company, their positions with the Company and their principal business
experience for the last five years:
Name Age Position Principal Business Experience
Daniel A. D'Aniello 54 Chairman of the Board of Directors Managing Director, The Carlyle Group since
1987. Chairman of the Board of the Company
since January 1995.
Robert E. Prince 53 President, Chief Executive Officer President and Chief Executive Officer of the
and Director Company since November 1990 and director
since 1991; Founder of General Technical
Services, Inc. (GTS) in October 1984;
President and Chief Executive Officer of GTS
from 1987 to 1992.
Robert F. Shawver 44 Executive Vice President and Chief Executive Vice President of the Company since
Financial Officer May 1993; Chief Financial Officer and Chief
Administrative Officer of the Company since 1987;
Vice President of the Company from 1987 to 1993.
Craig T. Bartlett 38 Vice President, Finance and Vice President, Finance of the Company since
Treasurer December 2000; Treasurer of the Company since
February 1996; Controller of the Company since
February 1993; Director, Financial Operations of the
Company from 1991 to 1993; Assistant
Controller of the Company from 1988 to 1991.
Thomas E. Dabrowski 56 Senior Vice President, Senior Vice President, Federal Services Group and
Federal Services President of Duratek Federal Services, Inc. since
June 2000; President of Waste Management Nuclear Services
from 1998 - 2000; President Waste Management Federal
Services 1993 - 1998.
C. Paul Delete 52 Senior Vice President, Commercial Senior Vice President of Technology Services
Field Services and Operations and Support of the Company
since January 1996; President of Analytical
Resources, Inc. (an environmental consulting
firm acquired by the Company in 1996) from
1984 to January 1996.
Carol Fineagan 41 Vice President Information Vice President Information Systems of the
Systems Company since August 2000; Director of Information Systems
of the Company from 1998 - 2000; Director of Information
Systems for an accounting firm from 1994 to 1998.
Diane L. Leviski 40 Vice President, Human Resources Vice President of Human Resources of the
Company since February 1996; Director of
Human Resources from 1988 to 1996; Manager of
Human Resources of the Company from 1985 to
1988.
Regan E. Voit 51 Senior Vice President, Senior Vice President, Sales and Marketing and President
Sales and Marketing Chem-Nuclear Systems, L.L.C. since June 2000; President of
Chem-Nuclear Systems, L.L.C since 1995.
Willis W. Bixby, Jr. 54 Vice President, Environmental Vice President of the Company since October
Health & Quality Assurance 1999. Vice President of Scientech, Inc.from
and Control 1997 to 1999. Mr. Bixby held several senior
management positions with the Department of
Energy from 1978 to 1997.
62
Information regarding the Company's Board of Directors is incorporated
by reference from the text and tables under "Election of Board of Directors" in
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held June 8, 2001 (the "2001 Proxy Statement"), which Proxy Statement
will be filed not later than 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
Item 11. Executive Compensation
The text and tables under "Executive Compensation" in the Company's
2001 Proxy Statement are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Except as indicated in the 2001 Proxy Statement, the Company
knows of no person who on April 10, 2001, owned beneficially
more than 5% of its Common Stock.
(b) The stock ownership information contained in the text and tables
under "Securities Beneficially Owned" in the Company's 2001
Proxy Statement is incorporated herein by reference.
(c) The Company knows of no arrangements the operation of which may
at a subsequent date result in a change of control of the
Company.
Item 13. Certain Relationships and Related Transactions
The text under "Executive Compensation" and "Certain Transactions with
Management and Others" in the Company's 2001 Proxy Statement is incorporated
herein by reference.
63
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) The following consolidated financial statements of Duratek, Inc. and its
subsidiaries are included in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1999 and December
31, 2000
Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000
Notes to Consolidated Financial Statements
(a) (2) The following is a list of all financial statement schedules for the
years ended December 31, 1998, 1999 and 2000 filed as part of this
Report:
Schedule II -- Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted because they are not
required or are not applicable, or the required information has been included in
the Consolidated Financial Statements or the Notes thereto.
(a) (3) See accompanying Index to Exhibits
(b) Reports on Form 8-K.......................................68
No reports on Form 8-K were filed during the last quarter of
2000.
(c) The following is a list of exhibits filed herewith:
Exhibit No. Document
----------- --------
10.14 First Amendment and Waiver to
Credit Agreement dated as of
April 16, 2001 made by Duratek,
Inc., as borrower and as agent
for the Subsidiary Borrowers,
the Lenders party to the Credit
Agreement, and First Union
National Bank, as
Administrative Agent.
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
(d) The following is a list of financial statement schedules
filed herewith:
Schedule II -- Valuation and Qualifying Accounts
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DURATEK, INC.
Dated: April 17, 2001
By: /s/ ROBERT E. PRINCE
----------------------------------------
Robert E. Prince
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacity and on the dates indicated.
Principal Executive Officer:
April 17, 2001
/s/ ROBERT E. PRINCE
----------------------------------------
Robert E. Prince
President and Chief Executive Officer
Principal Financial Officer:
April 17, 2001
/s/ ROBERT F. SHAWVER
----------------------------------------
Robert F. Shawver
Executive Vice President and
Chief Financial Officer
Principal Accounting Officer:
April 17, 2001
/s/ CHARLES L. STANDLEY
----------------------------------------
Charles L. Standley
Controller
The Board of Directors:
April 17, 2001
/s/ DANIEL A. D'ANIELLO
----------------------------------------
Daniel A. D'Aniello
April 17, 2001
/s/ EARLE C. WILLIAMS
----------------------------------------
Earle C. Williams
65
April 17, 2001
/s/ DR. FRANCIS J. HARVEY
-------------------------------------------
Dr. Francis J. Harvey
April 17, 2001
/s/ ADMIRAL JAMES D. WATKINS
-------------------------------------------
Admiral James D. Watkins
April 17, 2001
/s/ GEORGE V. MCGOWAN
-------------------------------------------
George V. McGowan
April 17, 2001
/s/ ROBERT E. PRINCE
-------------------------------------------
Robert E. Prince
66
DURATEK, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Schedule II
(in thousands)
Charges Charges Balance
Balance at to costs to other at end
beginning and accounts - Deductions - of
of period expenses describe (a) describe (b) period
------------ -------------- ------------- ----------------- --------------
Allowance for doubtful accounts:
Year ended December 31, 2000 $ 571 5,100 813 (4,967) 1,517
Year ended December 31, 1999 $ 571 149 (41) (108) 571
Year ended December 31, 1998 $ 488 483 -- (400) 571
============ ============== ============== ================ ==============
(a) Charges to other accounts in 1999 represent the beginning of the year
allowance for doubtful accounts balance related to DuraTherm, Inc. that is
presented in the consolidated balance sheet on the net assets held for sale
line item. Changes to other accounts in 2000 represent the allowance for
doubtful accounts of the Waste Management Nuclear Services businesses at
June 8, 2000, the acquisition date.
(b) Deductions represent write-offs of specifically identified accounts.
67
EXHIBITS INDEX
Exhibit
No.
- ---
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
Incorporated herein by reference to Exhibit 3.1 of the Registrant's
Quarterly Report on 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.
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10.2 License Agreement dated as of August 17, 1992 between GTS Duratek, Inc.
and Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo
Incorporated herein by reference to Exhibit 10.9 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992. (File No.
0-14292)
10.3 Stockholders' Agreement dated December 28, 1993 between GTS Duratek, Inc.
and Vitritek Holdings, L.L.C. Incorporated 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 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)
10.6 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)
10.7 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)
10.8 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)
10.9 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. Incorporated herein by reference to
Exhibit 99.4 to the Registrant's Current Report on Form 8-K filed on
June 22, 2000. (File No. 0-14292)
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10.10 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. Incorporated
herein by reference to Exhibit 99.5 of the Registrant's Current Report of
Form 8-K filed on June 22, 2000. (File No. 0-14292)
10.11 Purchase Agreement by and among Chemical Waste Management Inc., Rust
International, Inc., CNS Holdings, Inc. and GTS Duratek, Inc. dated
March 29, 2000. Incorporated herein by reference to Exhibit 99.3 of the
Registrant's Current Report of Form 8-K filed on June 22, 2000. (File
No. 0-14292)
10.12 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. Incorporated herein by
reference to Exhibit 99.2 of the Registrant's Current Report of Form 8-K
filed on June 22, 2000. (File No. 0- 14292)
10.13 1999 GTS Duratek, Inc. Stock Option and Incentive Plan. Incorporated
herein by reference to Exhibit A of the Registrant's 2000 Proxy Statement.
(File No. 0-14292).
10.14 First Amendment and Waiver to Credit Agreement dated as of April 16, 2001
made by Duratek, Inc., as borrower and as agent for the Subsidiary
Borrowers, the Lenders party to the Credit Agreement, and First Union
National Bank, as Administrative Agent.
21.1 Subsidiaries of the Registrant. (Filed herewith).
23.1 Consent of KPMG LLP. (Filed herewith).
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