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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 [FEE REQUIRED]
For The Fiscal Year Ended February 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from___________ to ___________
Commission File Number: 1-10583
ATC ENVIRONMENTAL INC.
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(Exact name of Registrant as specified in its charter)
Delaware 46-0399408
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 East 25th Street, 10th Floor
New York, New York 10010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 353-8280
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of 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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of May 28, 1996, was approximately $94,688,000
representing approximately 6,060,000 shares of Common Stock at $15.625
per share, the last reported sales price for the Registrant's Common
Stock on such date.
The number of shares outstanding of the Registrant's Common Stock as of
May 28, 1996 was 7,784,269.
The definitive Proxy Statement for the Annual Meeting of Stockholders
to be held in 1996 to be filed with the Commission not later that June
28, 1996 (i.e. 120 days after the close of the Registrant's fiscal
year) has been incorporated by reference in whole or in part for Part
III, Item 11 of the Form 10-K for the Fiscal Year Ended February 29,
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PART I
Item 1. Business.
Overview
ATC Environmental Inc. ("ATC" or the "Company") is a national
environmental consulting and engineering firm that provides specialized
technical and project management products and services to a large,
diverse client base of businesses and federal, state and local
governments. Since entering the environmental consulting and
engineering business in 1982, ATC has completed several acquisitions
and expanded its internal operations, enabling it to increase its
market penetration and the variety of products and services it offers.
The Company currently operates a network of over 35 branch offices
located throughout the United States, supported by in-house testing
laboratories.
The public's concern regarding exposure to contaminants stimulated
the push for environmental regulations in the 1970'a and 1980's.
Today, the public's continuing demand for responsible action regarding
human health and safety and the potential adverse impact of
environmental liabilities drive the market for environmental consulting
and engineering services. Independent industry estimates of the
consulting and engineering services sector of the environmental market
for 1994 ranged from $13 to $15 billion, with annual growth projected
at 5% to 8% through the next three to four years.
ATC has focused on five areas of specialization: (i) industrial
hygiene consulting, including asbestos management, classical industrial
hygiene and indoor air quality; (ii) environmental management,
including environmental audits, site assessments, remedial action
planning and design, and soil and groundwater remediation management;
(iii) lead-based paint risk management; (iv) health and safety
consulting, including health and safety training, hazardous materials
site safety planning and industrial safety consulting; and (v)
management information systems for comprehensive environmental risk
assessment and management. These areas of specialization contributed
approximately 59.1%, 27.2%, 7.9%, 5.7% and less than 1.0%,
respectively, of the Company's revenues in fiscal 1996.
The Company believes that certain sectors of the environmental
consulting and engineering market will experience significant growth
over the next several years with demand for products and services
growing even in the absence of increased governmental regulations.
Independent industry sources project annual growth rates of 10%, 13%,
15% and 20% for lead-based paint management, occupational safety and
industrial hygiene services, indoor air quality consulting and
environmental software, respectively.
The Company has experienced substantial increases in revenues and
net income over the past three fiscal years. ATC's revenues were
$26,664,385, $36,271,557 and $44,964,897 respectively, in its 1994,
1995 and 1996 fiscal years, representing a compounded annual growth
rate of 29.9% over such periods. Furthermore, ATC's net income was
$1,867,048,
$3,256,520 and $3,865,998 , respectively, in such fiscal years,
representing a compounded annual growth rate of 43.9% over such
periods.
ATC attributes these positive operating results to its integrated
strategy which includes: (i) an aggressive, but disciplined,
acquisition program; (ii) the enhancement of operations through the
integration of acquired businesses with the Company's existing
operations; (iii) a focus on certain higher growth sectors of the
environmental consulting and engineering services market, and certain
higher margin services such as policy development and decision support;
(iv) an emphasis on basic business management issues, such as employee
utilization, credit and collections management, and regional profit
center accountability; and (v) the development of a national presence
in a market typified by local and regional firms. The Company intends
to employ this strategy as it seeks to further penetrate the markets
for its core services and expand its range of products and services
through strategic acquisitions and internal growth.
The Environmental Consulting and Engineering Services Industry
During the 1980's the market for environmental consulting and
engineering services grew significantly, due in part to a high level of
federal expenditures and stringent regulations mandating actions to
identify and mitigate asbestos hazards, hazardous waste sites,
industrial emissions and a host of other concerns. The industry's
growth slowed in the early 1990's as the industry was adversely
effected by a downturn in the national economy.
Presently, the industry is viewed as having stabilized, with
declining demand in some sectors being offset by growth in others.
According to two independent market evaluations, one by The
Environmental Business Journal ("EBJ") and the other by the independent
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marketing firm of Richard K. Miller & Associates, Inc. ("RKM&A"), the
size of the environmental consulting and engineering services market
for 1994 was estimated at between $13 and $15 billion, with annual
growth projected at 5% to 8% through the next three to four years.
Although estimated growth rates for the industry over the next few
years are well below the growth rates experienced in the industry in
the 1980's, the Company believes that for the next few years growth in
demand from private sector clients and in certain service areas will
exceed the average growth rate of the overall industry. These service
areas include lead-based paint management and indoor air quality
consulting services, which RKM&A estimates to increase 10% and 15%,
respectively. RKM&A estimates that the occupational safety and
industrial hygiene sectors of the market will grow at an average annual
rate of 13% and that environmental software services will increase 20%
annually. The Company believes risk analysis services will also emerge
in response to a desire for closer matching of limited clean up funds
with the problems that are most serious.
Industry observers believe that the asbestos market will show
little growth and the hazardous waste services market will experience
some decline in the coming years. The current sizes of these markets,
however, are $3 billion and $6 billion, respectively, and the Company
believes that based on the sizes of these markets and current clean up
rates, these markets will remain significant for the next several
years. Furthermore, while governmental expenditures are expected to
evidence slower growth in the coming years as a result of changes in
political priorities, private sector spending on environmental services
is expected to increase, particularly in certain sectors.
Notwithstanding the recent public disclosure concerning regulatory
reform, new regulations have been promulgated which the Company
believes will create new business opportunities in certain sectors of
the environmental consulting and engineering services industry. In
February 1994, the United States Department of Labor promulgated new
asbestos regulations for the construction industry which are more
stringent than the previous regulations. Lead-based paint is another
area of increasing regulatory activity, partially in response to the
provisions of Title X of the Housing and Community Development Act of
1992, and partially as a result of increasing concern arising from
evidence of the severe health effects of childhood lead poisoning.
While the historical growth in environmental consulting and
engineering services has been stimulated by regulatory compliance
concerns, the Company believes that future growth will, in large part,
be driven by private litigation, asset preservation and productivity
considerations. As companies have become increasingly sensitive to the
potential adverse consequences of environmental problems and the
potential impact of environmental liabilities, they have taken an
active approach to managing environmental health and safety risks and
liabilities, whether or not the subject of regulations. This trend is
currently being observed in such areas as steel structure repainting
projects, real estate transactional assessments and indoor air quality
initiatives.
Bridge and tunnel authorities undertaking the removal of lead-
based paint from large steel structures are seeking to establish
monitoring systems to prevent the dispersion of lead dust into the
environment. The Company believes that such actions are motivated in
large part by concerns regarding the potential liabilities associated
with lead contamination. Similarly, concerns over environmental risks
have made environmental assessments an integral component of the due
diligence process for commercial transactions. Financial institutions
frequently require environmental assessments prior to loan originations
and foreclosure activities, while insurance companies increasingly
require environmental assessments before issuing environmental
insurance liability policies. Another industry segment that is
experiencing growth even in the absence of extensive regulation is
indoor air quality. Indoor air quality is viewed as an important
environmental concern which may significantly impact worker
productivity. Published estimates of productivity losses as a result
of poor indoor air quality range from $40 to $50 billion per year in
the United States.
Many governmental agencies and businesses are looking at risk-
based analysis as the new model for decision-making instead of rote
application of rigid rules. This trend presents new service
opportunities for the environmental consulting and engineering services
industry in several areas from which the Company is positioned to
benefit. The absence of adequate funding to immediately address the
full cost of clean ups requires the employment of risk assessment and
planning techniques that direct funding toward the problems presenting
the highest levels of risk. In addition, RKM&A sees a trend toward
"outsourcing" of environmental functions by corporations. Under
outsourcing contracts, environmental consulting firms function as the
environmental departments of large corporations. The Company views
outsourcing as a future growth opportunity.
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Strategy
The Company's integrated strategy focuses on increasing revenues
through acquisitions and internal growth by promoting its core services
and introducing new and innovative services while continuing to achieve
profitability in existing and acquired operations through the
implementation of rigorous financial and operational controls. Through
strategic acquisitions, the Company has been able to increase the
variety of services that it offers and develop a nationwide network of
offices and facilities capable of servicing national accounts.
ATC's acquisition strategy includes identifying target companies
in specific geographical areas in which ATC does not have a strong
presence or target companies with new, transferable technologies or
exploitable areas of expertise. The environmental consulting and
engineering services market is fragmented, with over 3,600
environmental consulting and engineering companies in the United
States, of which only 31 have over $100 million in annual sales. There
are many specific service specialties, many small-sized companies and
thus, many potential acquisitions candidates. Acquisitions can lead to
bi-directional technology transfers with the acquired company's
services offered to ATC's existing client base and ATC's core services
offered to clients of the acquired company. Furthermore, when
acquisitions are located close to existing ATC branches, economic
consolidations are frequently possible.
In recent years, the Company has, through the acquisitions of
Dennison Environmental, Inc. ("Dennison") and Con-Test, Inc. ("Con-
Test"), entered two of the fastest growing sectors of the environmental
consulting and engineering services industry, lead-based paint risk
management and management information systems and services. The
Company believes that in many cases, like Dennison and Con-Test,
opportunities exist to improve the historical operating results of
acquired companies by: (i) reducing general and administrative costs
through consolidating facilities, reducing administrative personnel
costs, improving purchasing power and taking advantage of other
economies of scale; (ii) reducing costs of sales by decreasing reliance
on subcontractors; and (iii) improving financial and operational
control systems.
The Company believes that its positive operating results in recent
years are due, at least in part, to its disciplined approach to the
management of basic business fundamentals. ATC's professional
administrative staff monitors and oversees the financial and
administrative functions of the business. ATC strives to manage profit
center accountability through a combination of goals and incentives and
performance monitoring.
Services and Products
The Company provides a range of specialized environmental
consulting and engineering services, including asbestos management,
classical industrial hygiene, lead-based paint risk management, health
and safety training, environmental audits, remedial action planning,
design and management, and comprehensive environmental risk assessment
and management. The Company's services are offered individually or
together as part of the Company's full service approach to
environmental consulting. During fiscal 1996, ATC provided services to
over 3,900 clients ranging from small site investigations to large
comprehensive assessment and remediation management projects.
Industrial Hygiene
The Company offers a variety of industrial hygiene services which
include asbestos management, classical industrial hygiene
investigations and analyses, indoor air quality services and laboratory
services.
Asbestos Management. ATC provides comprehensive asbestos testing
and consulting services. These services may begin with a survey of
facilities to determine the condition, type, quantity and location of
asbestos. After gathering field samples, the Company utilizes
polarized light microscopy, phase contrast microscopy and transmission
electron microscopy to analyze asbestos fibers. Other services include
risk assessment, remediation design for asbestos abatement, industrial
hygiene services before, during and after the asbestos removal process,
development of operations and maintenance training programs for
facilities personnel, development of operations and maintenance
programs for custodial and maintenance personnel, and providing
asbestos awareness seminars for client personnel.
ATC's services are designed to enable building owners and
operators to comply with federal, state and local regulations for
asbestos control, by providing a comprehensive approach for controlling
or removing asbestos. ATC's technical personnel include registered
architects, professional engineers, certified industrial hygienists,
certified safety professionals and asbestos specialists, with extensive
experience managing hazardous material. Such personnel are licensed
and certified by federal, state and local agencies.
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Classical Industrial Hygiene. ATC evaluates potential health
hazards in occupational settings, including physical hazards and
hazards arising from exposure to chemical or biological substances.
Potential hazards include solvents, corrosive chemicals, gases, toxic
dusts, radiation, lasers, noise, lighting, heat, bacteria and molds.
Evaluations determine the extent of exposure to potentially hazardous
substances and methods to control and minimize associated risks. Field
measurements are evaluated to determine compliance with governmental
regulations and other standards. After corrective measures are
designed and implemented, ATC provides follow-up monitoring designed to
ensure that workplace exposures have been minimized.
Indoor Air Quality. Healthy indoor air quality is recognized as
an essential factor in promoting comfort and welfare. ATC provides
investigations designed to identify: (i) sources of indoor air
pollution; (ii) route of exposure to individuals; (iii) route of entry
into the body; and (iv) possible effects on occupants. The
investigatory process typically includes interviews of occupants and
air monitoring of indoor and outdoor ambient environments to evaluate
exposures, symptoms and concerns. A thorough building system
investigation evaluates mechanical and ventilation systems which may
impact habitable space. An inventory of chemicals, air contaminants,
office equipment, plants, water sources and other potentially harmful
sub-chemicals, air contaminants, office equipment, plants, water
sources and other potentially harmful substances, process equipment and
maintenance practices may also be part of the evaluation. After
completing a facility evaluation, ATC recommends solutions that are
customized to the specific facility and problem.
Laboratory Services. ATC maintains analytical testing
laboratories which provide analyses of a wide spectrum of materials,
including suspected asbestos-containing materials, suspected lead-based
paint substances, industrial and municipal waste water, air and certain
hazardous wastes. These laboratories support ATC's consulting and
remediation management services, and also operate independently. ATC's
operations incorporate chain-of-custody and quality assurance
procedures and professionally recognized laboratory practices.
Environmental Management
ATC's environmental management services range from real property
investigations for environmental contamination, to turn-key
remediation. These services can include soil and ground water
analysis, installation of monitoring wells, recovery system design,
regulatory permitting, contractor selection and remediation oversight.
Financial institutions, as well as certain states, mandate pre-purchase
or pre-loan real property environmental assessments prior to property
transfer, closure or sale. An environmental audit by ATC can help to
detect the presence of pollutants and, in some cases, to determine
costs for clean up.
Groundwater Assessments. At sites where the quality of
groundwater is in question, due to a confirmed or suspected spill or
release of hazardous substances, ATC performs assessments to identify
the depth to static water, define pressure zones or confining
conditions, determine gradient and sample groundwater. Once analytical
results are known and soil and groundwater conditions established,
ATC's hydrologists, geologists and engineers analyze the data through
the use of predictive tools such as groundwater models to determine the
movement and ultimate destination of the contaminants.
Site Assessments and Characterizations. Site assessment and
characterization investigations involve defining the important physical
and chemical parameters of a contaminated site. A site assessment
provides a baseline for understanding subsurface conditions and is
necessary before any clean up can be designed or implemented.
Groundwater and Soil Remediation Management. ATC's services
include the management and oversight of clean up projects through the
use of a variety of diverse traditional and innovative technologies
including bioremediation, land farming, soil venting, air sparging,
pump and treat, and thermal oxidation systems. ATC's management
services can include testing, scheduling, coordination, documentation
and approval of progress payments, and interaction with regulatory
agencies throughout the life of the project.
Lead Risk Management
Lead in paint, drinking water and soil is a major environmental
problem facing the United States. Lead has no known useful function in
the human body and is known to be toxic to virtually all organs in the
body, even at relatively low doses. In children, excessive exposure to
lead can result in brain damage leading to learning disabilities and,
in some cases, retardation. Adult exposures to excessive amounts of
lead can cause reproductive, hematological and nervous system
disorders.
As the first state-accredited lead risk management training
institute in the nation, ATC was one of the first companies to provide
national lead risk management services. Furthermore, ATC co-authored
and edited the first comprehensive textbook on lead risk management.
ATC is a co-founder of the National Lead Abatement Council, the first
trade organization representing contractors, inspectors, vendors,
attorneys and public officials engaged in managing lead risks. ATC
maintains a high degree of visibility and credibility in the lead
services arena through participation in professional and consensus
standard setting organizations and through publishing articles in trade
publications.
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Until recently, lead risk management services were sought
primarily to establish compliance with lead poisoning prevention
regulations. However, the market is now expanding as clients
increasingly seek voluntary risk reduction programs and defend against
a proliferation of lead poisoning lawsuits.
Federal law requires lead paint testing of all federally assisted
public housing authority projects nationwide, and the full lead paint
abatement of these projects. ATC has provided lead paint testing and
abatement project management services to numerous public housing
authorities throughout the United States. As this work proceeds, ATC
is also pursuing opportunities created by two new federally funded
programs. The first program authorized approximately $25 million of
federal grants to public housing authorities to conduct specialized
lead hazard risk assessments and develop property management programs
to maintain "lead-safe" dwellings until such time that lead paint can
be abated. The second program authorized approximately $279 million of
federal grants to state and local regulatory agencies to conduct
innovative lead paint inspection and abatement. ATC has identified and
is aggressively marketing the grantee agencies.
Additional opportunities are presented by federal regulations
under Title X of the Housing and Community Development Act of 1992
which, among other things: (i) established a national requirement for
training and certification of all lead contractor workers and
supervisors, inspectors, risk assessors, project designers and other
individuals involved in lead paint activities; and (ii) established new
disclosure requirements applicable to all property transactions
affecting residential properties built prior to 1978.
ATC's lead management services are broadly categorized as: (i)
corporate lead risk management services; (ii) steel structure and
industrial compliance services; and (iii) residential lead paint
testing and project management services.
Corporate Lead Risk Management Services. ATC provides corporate
lead risk management programs, primarily to insurance companies,
lending institutions, law firms and large real estate managers.
ATC's services enable corporations to effectively address lead-related
liabilities by advising these institutions in their development and
implementation of lead risk management policies and procedures.
Policy development typically entails an examination of a client's
real estate with respect to potential lead liabilities. Working
closely with corporate legal and technical divisions, ATC recommends
policies and procedures to ensure lead-safe management of properties
and compliance with applicable lead poisoning prevention regulations.
ATC also designs and implements special studies or demonstration
programs to provide empirical data for validating the efficacy of
property management guidelines. ATC's policy recommendations include
provisions for clients to anticipate, guard against, and effectively
respond to lead poisoning complaints, regulatory violations and
lawsuits.
The Company's corporate lead risk management services include
designing and implementing compliance training seminars and workshops
tailored to the needs of the different program participants. ATC's
corporate training programs are periodically revised to reflect changes
in accepted work practices.
ATC offers lead paint litigation support services exclusively in
support of property owners, managers, lending institutions and
insurers. These services include case consultation, regulatory
analysis, document and deposition review, expert testimony, as well as
site investigation and testing services.
Steel Structure and Industrial Compliance Services. Nationwide,
hundreds of thousands of petroleum storage tanks, water tanks,
transportation bridges and other major structures are made of steel and
painted with coats of lead-based paints and leaded primers. These
structures require periodic maintenance, including full removal of the
leaded paints and primers followed by re-painting to prevent them from
corroding.
ATC provides comprehensive environmental monitoring of surface
preparation activities that include the removal of lead and associated
coatings from steel structures. ATC employs trained engineers and has
the expertise to prepare abatement specifications and guide agencies,
engineers and contractors through lead removal activities in accordance
with all federal, state and local regulations. ATC prepares and has
submitted numerous environmental monitoring and sampling protocols to
assist in protecting the public community, workers and the environment
from potential contamination resulting from lead removal activities.
Residential Services. ATC provides residential property owners
and managers with services for the analysis of lead in paint, soil, air
and drinking water. Consultation services include surveys to identify
lead problems, to design safe and responsible procedures for the
removal of lead paint and to control lead dust and contaminated debris
while reducing clean up costs. ATC provides the necessary detailed
specifications where exterior and internal surfaces coated with lead
paint must be
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abated. ATC also designs worker health and safety plans for lead
removal activities, and provides construction monitoring of lead
projects to prevent occupant, worker and third-party exposure to lead
dust.
Health and Safety
The Company has established several health and safety training and
advisory programs.
Education and Training. ATC operates training schools under the
name The Environmental Institute, as well as under ATC Environmental
Inc. The Company develops and presents public and private training
courses each year for those involved in environmental, asbestos, lead,
hazardous materials and safety and health issues. "Right-to-Know"
programs in accordance with mandates by the federal Occupational Safety
and Health Administration ("OSHA"), the federal Environmental
Protection Agency ("EPA") and some state regulations are designed to
communicate information regarding the hazards of chemicals to workers
and communities. Instructors present practical, comprehensive courses,
many of which feature "hands-on" training. ATC routinely customizes
courses to meet specific client needs.
Health and Safety Consulting. ATC occupational health and safety
programs enable employers and property owners to meet or exceed the
requirements established by federal, state or local regulations,
particularly OSHA regulations. A review of work practices can result
in the recognition, evaluation and design of proper safe work policies
and procedures to minimize or eliminate work-related injuries and
illnesses.
Site Safety, Health and Emergency Response Plan. ATC offers a
full range of technical support services for site-specific safety and
health programs required for hazardous waste operations. Employers
that are subject to OSHA standards for hazardous waste operations
utilize ATC to provide assistance in many areas.
Management Information Systems and Risk Management
The assessment of environmental liability involves the
identification of the liability, the development of an optimal response
and the qualification of the cost of the response. An environmental
hazard situation usually does not have only one possible response
alternative, but rather a variety of alternatives. ATC offers a
variety of products and services to assist in the performance of these
functions.
Comprehensive Environmental Management System. ATC has developed
various environmental facilities management software modules. These
modules are marketed to current and prospective clients and are also
used in ATC's branch locations. The modules are designed to function
as the prime environmental database for a company's facilities. This
software can be used to keep track of scheduled environmental responses
and to maintain training for personnel whose jobs involve environmental
response or exposure to environmental hazards. The modules can also be
used to establish audit trails of environmental responses to
emergencies for regulatory agencies and ease the burden of
environmental compliance reporting and manage the client's exposure to
liabilities.
There are seven different modules that are currently available:
asbestos, lead paint, storage tanks, hazardous materials, hazardous
waste, training/certification and environmental compliance. Each of
these modules is presently available for MS DOS" operating systems and
several are currently available for use under MS Windows" or MS Windows
95" environments.
Risk Modeling/Risk Assessment. ATC provides decision support by
quantitatively analyzing the risk associated with the outcomes of
differing environmental responses. ATC can also provide computerized
modeling to simulate complex, uncertain decision scenarios by combining
experience in proven risk and economic risk analysis with its core
expertise in a wide range of environmental hazard areas.
Custom System Design and Implementation. ATC offers customized
design and implementation services in conjunction with object based
development tools in a client/server architecture to develop custom
computer systems.
Clients and Marketing
The Company provides its services to Fortune 500 companies, small
companies, real estate property managers and federal, state and local
governments. The Company relies on referrals from existing and former
clients, architects and engineers for a large portion of its contract
leads. The Company's contracts are obtained by its sales force through
a bidding process and other forms of engagement.
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Consistent with trends towards focusing on litigation, liability
and cost control management, there is an increasing tendency for
companies to obtain a greater share of their environmental consulting
and engineering services from a smaller number of larger providers.
This trend is evidenced by findings reported in EBJ that revenues for
the largest environmental consulting firms grew at almost twice the
industry average during 1994. RKM&A attributes this trend to such
issues as the greater insurance protection and indemnity coverage that
larger firms can provide. The Company believes that this trend
presents a significant opportunity for firms, such as ATC, that have
the technical and financial resources to both perform the services and
provide the insurance and indemnity protection demanded by large
corporate and government clients.
To take advantage of this trend, ATC's overall marketing strategy
is a combined national and regional approach. National efforts are
directed by senior professionals of the Company, while regional efforts
are typically directed either by a regional or branch manager, or by a
sales and marketing professional. ATC currently has many individuals
devoted exclusively to sales and marketing activities in its offices
across the United States. The Company's regional sales and marketing
departments generate leads, act as proposal administrators, perform
technical writing and generally support the Company's sales efforts.
ATC presently markets its environmental consulting and engineering
services through its network of branch offices located in twenty-four
states. The Company intends to establish additional offices within the
continental United States. Direct marketing is accomplished by
technical sales representatives, technical and management personnel who
call on prospective clients. ATC also relies on telemarketing, direct
mail solicitation, national trade advertising and submission of
competitive bids for potential governmental projects listed in industry
publications. In addition, ATC markets its services through its
environmental seminars and training courses for existing and potential
clients.
Competition
The environmental consulting and engineering services industry is
subject to intense competition. In addition to the thousands of small
consulting and testing firms operating nationally, ATC competes with
several national environmental engineering and consulting firms such as
Law Engineering, Inc., The Earth Technology Corporation (USA), Dames &
Moore, Inc. and Professional Service Industries, Inc. Many of ATC's
present and future competitors may have greater financial, technical
and personnel resources than ATC. It is not possible to predict the
extent of competition which ATC will encounter in the near future as
the environmental consulting and engineering services industry
continues to mature and consolidate. Historically, competition has
been based primarily on the quality, timeliness and costs of services.
The ability of ATC to compete successfully will depend upon its
marketing efforts, its ability to accurately estimate costs, the
quality of the work it performs, its ability to hire and train
qualified personnel and the availability of insurance.
Environmental Regulation
Most environmental laws and regulations are promulgated by
Congress and departments and agencies of the federal government. Many
of the federal regulations contemplate enforcement by state agencies
and adoption by the states of similar regulations which must meet the
minimum federal requirements. In areas of environmental law where
federal regulation is silent, the states may adopt their own
environmental laws. Local governments such as countries and
municipalities may also enact and enforce environmental laws that
address local concerns.
Additionally, in its operations, ATC and its employees are subject
to various regulatory, certification and licensing requirements.
Those federal agencies whose regulations, guidelines or standards
have the greatest potential impact on ATC are:
The United States Department of Labor - Occupational Safety and
Health Administration, which requires particular work practices, sets
limits for worker exposure on the job, requires employers to provide
employees with personal protective devices such as respirators, and
requires employers to maintain records for periods of up to 30 years;
The United States Environmental Protection Agency, which, through
its National Emissions Standards for Hazardous Air Pollutants, requires
that it be notified of asbestos removal or disturbance during
renovation and demolition projects and requires specific work practices
at such projects, and which through other statutes and regulations
regulates a very broad spectrum of industrial and commercial
activities, including the disposal of hazardous waste;
The United States Department of Housing and Urban Development
("HUD"), which sets the standards for the testing and remediation of
lead-based paint in publicly funded housing, and which provides funding
for housing rehabilitation including lead-based paint remediation; and
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The United States Department of Transportation, which regulates
packaging and transportation of hazardous waste by all who transport or
cause the transport of hazardous waste.
The EPA, OSHA and HUD have each published regulations and
guidelines to safeguard employees and public occupants from certain
environmental exposures. Federal regulations specify work practices
for removal of asbestos and lead containing materials from buildings.
Federal law also presently requires employers to inform workers, and in
some places the general public, of the dangers connected with hazardous
chemicals in the workplace. These "Right-to Know" laws usually require
employers to list all hazardous chemicals in the workplace, to instruct
workers about safe work practices, and to train workers on how to
respond in the case of exposure to or release of the hazardous
chemical. OSHA's Hazardous Communication Standard requires all
employers to provide information and training regarding hazardous
chemicals in the workplace.
Most states and local governments have adopted licensing and
certification requirements for workers engaged in the environmental
industry, which require workers to attend training classes. ATC is
currently accredited by the National Voluntary Laboratory Program and
expects to continue to participate in all future National Institute of
Standards and Technology programs. In addition, ATC maintains various
licenses and certifications pertaining to its laboratories and certain
field testing equipment. ATC has not experienced, and does not
contemplate, any material difficulties in complying with regulatory and
licensing provisions applicable to its business. ATC has received
citations from governmental authorities, none of which have had a
material adverse effect on the Company's business operations.
Insurance
ATC has secured a "claim made" professional liability insurance
policy, including contractor's pollution liability coverage, for claims
with a per claim and aggregate limit of $5,000,000 and a deductible of
$250,000, although increased limits have been obtained on a specific
endorsement basis to meet the needs of particular clients or contracts.
A "claims made" policy only insures against claims filed during the
period in which the policy is in effect. This policy covers both
errors and omissions. ATC also carries general liability insurance in
the amount of $2,000,000, with a $4,000,000 umbrella. ATC's policy has
been renewed in each of the last several years that the policy has been
in effect. The relatively low dollar amount of the policy limit
currently offered, the possible future unavailability or modification
of this insurance or any significant increase in insurance rates could
have a materially adverse effect on ATC's operations. Further, because
customers may require that ATC maintain liability insurance, the
possible future unavailability of such insurance could adversely affect
ATC's ability to compete effectively.
ATC has in the past filed two notices of claims which, in the
aggregate, amounted to $5,540,000 claimed. Although both of these
matters were dismissed in the Company's favor, in each case without the
payment of any damages, no assurances can be given that future claims
will not be filed against the Company or that the Company will continue
to be able to obtain insurance coverage on terms satisfactory to the
Company.
Personnel
As of May 1, 1996, ATC employed 787 employees, including 543 full-
time employees. The Company's employees consist of 598 technical and
professional personnel, 31 sales and marketing persons and 147
administrative employees inclusive of executive officers. The
backgrounds of ATC's technical and professional staff include, among
other disciplines, environmental engineering, industrial hygiene and
hydrogeology, chemistry, biology and geology. ATC from time to time
hires additional personnel on a temporary basis.
ATC believes that it has been able to establish and maintain a
stable work force of experienced personnel by paying competitive wages
and by providing standard benefits. ATC also pays the costs as they
arise to have its workers certified for its asbestos and environmental
requirements, including tuition at a certified training program and
fees for certification, testing and licensing. ATC believes that its
own training school has helped to ensure the availability of a trained
work force.
Facilities
ATC leases office space, laboratory facilities, temporary housing
facilities and storage space under 30 operating lease agreements, which
expire at varying dates. Although ATC's utilization of these leased
facilities is near maximum capacity at all locations, there is no
location at which ATC foresees any material difficulty in leasing
adequate supplementary sites, if necessary, under terms similar to
those enjoyed under current leases.
9<PAGE>
<PAGE>
In its business, ATC utilizes various laboratory, field and
computer equipment which are owned or leased. ATC also rents equipment
on a project-by-project basis.
Item 2. Properties.
ATC leases office space, laboratory facilities, temporary housing
facilities and storage space under operating lease agreements, which
expire at varying dates. Although ATC's utilization of these leased
facilities is near maximum capacity at all locations, there is no
location at which ATC foresees any material difficulty in leasing
adequate supplementary facilities, if necessary, under terms similar to
those enjoyed under current leases. The following described leases
could be considered material leases to ATC. ATC's principal executive,
administrative, operations and laboratory facilities aggregating
approximately 40,000 square feet of space at 104 East 25th Street, New
York, NY 10010 at a base rate of $340,000 per annum with a term ending
on September 30, 2001. On September 30, 1994, in conjunction with its
purchase of the assets of Con-Test, Inc., ATC entered in to a ten-year
lease for office and laboratory premises aggregating 15,100 square feet
at 39 Spruce Street, East Longmeadow, Massachusetts 01028 at a base
rate of approximately $160,000 per annum. ATC and its Hygeia
subsidiary have three separate lease and sublease agreements
(aggregated for the purpose of determining material leases) covering
the premises housing its consulting and laboratory operations at 600
West Cummings Park, Woburn, Massachusetts, comprising approximately
13,400 square feet combined at an annual aggregate base rent of
approximately $140,000. Although each separate lease of this group has
a different term, the terms generally run through the summer of 1997.
The final material lease covers ATC's approximate 9700 square feet of
office space at 50 East Foothill Boulevard, Arcadia, California 91006.
This lease runs through March, 1997, at an annual base rental of
$105,600.
Item 3. Legal Proceedings.
First Fidelity Bank, N.A., et al v. Hill International, Inc. et
al, Superior Court of New Jersey, Law Division, Burlington County,
Docket No. Bur-L-03400-95, filed December 19, 1995. On December 19,
1995, a second amended complaint was filed in the above-entitled action
which joined the Company as a defendant and included a count against
the Company seeking recovery of certain assets purchased from Hill
International, Inc. ("Hill") on the grounds that plaintiff banks hold
security interests in the assets and that Hill is in default under the
security agreement creating such alleged security interests. The
plaintiffs in this action are First Fidelity Bank, N.A. and United
Jersey Bank, N.A. The primary defendants are Hill International, Inc.
and certain of its subsidiaries, and Irvin Richter, David Richter,
Janice Richter and William Doyle. Irvin Richter and David Richter are
officers and stockholders of Hill. The case is in its early stages
with discovery yet to take place, however, in the Company's opinion,
the outcome of this suit will not have a significant effect on the
Company's financial position or future results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
10<PAGE>
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock and Class C Common Stock Purchase
Warrants ("Class C Warrants") are listed on the NASDAQ National Market
under the symbols "ATCE" and "ATCEL," respectively. Prior to August
23, 1995, the Company's Common Stock and Class C Warrants were listed
on the NASDAQ Small Cap Market under the same symbols. The Class C
Warrants are exercisable at $10.00 per share and expire September 30,
1996, subject to the Company's right to call such warrants on 30 day's
prior notice. The following table sets forth, for the quarters
indicated, the high and low bid prices of the Company's Stock on the
NASDAQ Small Cap Market and the high and low sales prices on the NASDAQ
National Market, as applicable.
<TABLE>
<CAPTION>
Common Stock
<S> <C> <C>
Fiscal Year Ended February 28, 1995: HIGH LOW
First Quarter..................................... $12 $ 6-5/8
Second Quarter.................................... 11-1/2 9-1/4
Third Quarter..................................... 17-3/4 9-1/8
Fourth Quarter.................................... 17-5/8 13-1/4
Fiscal Year Ended February 29, 1996:
First Quarter..................................... $18-3/8 $ 8-7/8
Second Quarter (through August 22, 1995).......... 15-3/4 13-1/4
Second Quarter (August 23 through August 31, 1995) 15-1/8 13-3/4
Third Quarter..................................... 17 12
Fourth Quarter.................................... 13-1/2 10-1/2
</TABLE>
<TABLE>
<CAPTION>
Class C Warrants
<S> <C> <C>
Fiscal Year Ended February 28, 1995: HIGH LOW
First Quarter..................................... $ 2-1/8 $ -11/32
Second Quarter.................................... 2-1/4 -7/8
Third Quarter..................................... 7-3/4 1-5/16
Fourth Quarter.................................... 8 5-5/8
Fiscal Year Ended February 29, 1996:
First Quarter..................................... $ 8-1/2 $ 3
Second Quarter.................................... 7-5/8 5-1/2
Third Quarter..................................... 9-1/8 5-1/2
Fourth Quarter.................................... 6-1/8 3
</TABLE>
The quotations in the tables above reflect inter-dealer prices
without retail markups, markdowns or commissions. In addition, for all
periods prior to August 23, 1995, they do not represent actual
transactions.
The Company had 757 record holders as of May 28, 1996 as reported
by its transfer agent (American Stock Transfer & Trust Company)
representing approximately 7,300 beneficial holders of ATC's Common
Stock.
No cash dividends have been paid by ATC on its Common Stock and no
such payment is anticipated in the foreseeable future.
On May 28, 1996, the last reported sales price for the Company's
Common Stock and Class C Warrants on the NASDAQ National Market were
$15.625 and $5.375, respectively.
The Company is in the process of completing a registration
statement to be filed with the Securities and Exchange Commission with
regards to its Class C Warrants. Until such registration statement is
effective, the Class C Warrants cannot be exercised by the holders.
11<PAGE>
<PAGE>
Item 6. Selected Financial Data.
The following table sets forth, for the periods and at the dates
indicated, selected historical consolidated financial data of the
Company. The selected consolidated historical financial data has been
derived from the audited historical consolidated financial statements
of the Company and should be read in conjunction with such financial
statements and the notes thereto included elsewhere in this Annual
Report.
<TABLE>
<CAPTION>
Years Ended February 28 (29),
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
Statement of (1) (2) (2)(3) (4) (5)(6)
Operations Data:
Revenues $10,578,187 $16,539,254 $26,664,385 $36,271,557 $44,964,897
Income (loss)
before income
taxes (375,397) 653,144 3,077,048 5,300,520 5,670,998
Net income (loss) (236,003) 353,144 1,867,048 3,256,520 3,865,998
Earnings (loss) per
common and
dilutive common
equivalent share:
Primary (.05) .07 .35 .57 .54
Fully diluted (.05) .07 .35 .56 .54
Cash dividends per -0- -0- -0- -0- -0-
share
</TABLE>
<TABLE>
February 28 (29),
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
Balance Sheet
Data: (1) (2) (2)(3) (4) (5)(6)(7)
(8)
Working capital $ 3,469,569 $ 3,342,527 $ 6,049,013 $ 8,113,738 $24,977,316
Long-term debt,
less current
aturities 508,606 1,114,489 2,182,119 3,892,766 361,944
Total assets 6,991,403 9,335,227 14,156,887 25,009,222 46,684,600
Stockholders'
equity 5,091,777 5,812,901 7,659,485 13,813,194 39,192,414
</TABLE>
____________
<TABLE>
<S> <C>
(1) ATC acquired certain assets of Dennison Environmental, Inc.
effective July 23, 1991.
(2) ATC entered into an agreement to acquire Bio-West, Inc.,
effective June 10, 1992. This transaction was rescinded
effective May 31, 1993.
(3) ATC acquired certain assets of BSE Management, Inc., effective
April 30, 1993.
(4) ATC acquired certain assets of Con-Test, Inc., effective October 1,
1994.
(5) ATC and its parent, Aurora Environmental Inc., were merged
effective June 29, 1995 with ATC as the surviving corporation.
Net income includes a one-time tax benefit of $350,000 ($0.05
per share) from the utilization of Aurora's net operating loss
carryforward.
(6) ATC acquired certain assets of the environmental subsidiaries of
Hill International Inc., effective November 10, 1995.
(7) ATC acquired certain assets of Applied Geosciences Inc., effective
February 29, 1996.
(8) Working capital and stockholders' equity increased from net
proceeds of the Common Stock Offering of 21,554,461.
</TABLE>
12<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Recent Developments
American Testing and Engineering Corporation - Effective May 24,
1996, ATC purchased certain assets and assumed certain liabilities of
American Testing and Engineering Corporation ("ATEC"), a national
environmental consulting firm. ATEC provides environmental consulting
and engineering services including risk assessments, compliance
audits, environmental remediation consulting, geotechnical, materials
testing, industrial hygiene and analytical services through a large
network of branch and regional offices. For its year ended December
31, 1995, ATEC had revenues of $85,020,000 and a net loss of
($1,820,000). However, the acquisition is expected to be immediately
accretive to earnings due to cost savings and expense reductions
principally resulting from the integration of branches operating in
similar locations and reduced corporate administration costs.
The acquisition will be accounted for as a purchase. The assets
acquired include customer contract rights, customer lists, order
backlog, customer records, and certain tangible assets consisting of
accounts receivable, work in process and customer and certain other
deposits. Additionally, ATC executed an agreement to lease
substantially all of the sellers equipment and executed several
sublease agreements for premises leased by ATEC. ATC also obtained non-
competition agreements with ATEC, a non-acquired subsidiary, and the
majority shareholder of ATEC.
The purchase price consideration consisted of $9,000,000 of cash
paid at closing and property and facility lease payments and non-
compete obligations of $6,000,000 payable during the first year
following the purchase. The Company also assumed liability for ATEC's
bank debt, approximately $11,025,000, its accounts payable, and certain
other recorded liabilities. The Company may offset up to $2,000,000 of
the cash consideration paid at close against future payment obligations
if certain minimum net revenues are not achieved during the first year
following the purchase. The Company is contingently liable to ATEC for
additional purchase consideration up to $10,750,000 if certain net
revenue levels are achieved and certain other conditions are met.
Amounts, if fully earned, would be paid as follows; $3,883,333 in
fiscal 1998, $3,873,333 in fiscal 1999, $1,293,334 in fiscal 2000 and
$1,700,000 in fiscal 2002.
The Company paid ATEC's bank debt and a portion of the cash paid
at closing from proceeds from a $20,000,000 bridge credit facility with
Chemical Bank and Atlantic Bank of New York. Under the terms of the
credit agreement, the Company may borrow up to the amount of the
facility, with interest payable monthly at 1.75% above the adjusted
Eurodollar rate (7.18% at May 24, 1996). Amounts borrowed under this
facility are due September 20, 1996. The Company anticipates entering
into a longer term agreement with the banks prior to the maturity date
of the credit agreement.
3D Information Services, Inc. - Effective May 28, 1996, ATC
purchased certain assets and assumed certain specified liabilities of
3D Information Services, Inc. ("3D"), a New Jersey based information
services company providing technical information system consulting
services in all phases of information system design, development,
maintenance and management in client server and mainframe based
environments. 3D provides analysis and design services and system
programming services to help clients in building new computer systems
and modifying existing computer systems. 3D also provides support to
clients in maintaining computer systems and in areas such as help desk
management and other system support services. Employees of 3D typically
work full-time at a client's work site. Its clients include major
companies in the telecommunications, financial services and
pharmaceutical industries. 3D reported revenues and net income of
approximately $10,360,000 and $135,000, respectively, for its year
ended December 31, 1995.
The acquisition will be accounted for as a purchase. Assets
purchased include customer contract rights, customer lists, order
backlog, customer records, employee contracts and tangible assets
including accounts receivable, unbilled work in process, field and
office supplies, and equipment. Consideration paid consisted of
$3,000,000 of cash at closing and a note payable for $2,500,000 payable
in three annual payments plus interest. In addition, ATC assumed
certain liabilities of approximately $490,000. ATC also entered into a
three year non-compete agreement with the majority stockholder.
As a result of these acquisitions, the Company's revenues and
expenses will increase substantially as the Company believes it will be
able to retain substantially all of ATEC's current customer base
(ATEC's revenues for the four months ended April 30, 1996 were
$24,174,000) and expects 3D to continue its rapid growth trend (3D
revenues increased over 20% from 1994 to 1995), although no assurances
can be given.
13<PAGE>
<PAGE>
Acquisitions
Fiscal 1996
Hill International Inc. Environmental Subsidiaries - On
November 10, 1995, ATC purchased certain assets and assumed certain
liabilities of the subsidiary companies at Hill International, Inc.
that provided environmental consulting and engineering services
(collectively the "Hill Businesses"). These services include asbestos
management, industrial hygiene and indoor air quality consulting,
environmental auditing and permitting, environmental regulatory
compliance, water and wastewater engineering, solid waste and landfill
management, hazardous waste management and analytical laboratory
services. The Hill Businesses operated from facilities located in New
York City, Boston and Willingboro, New Jersey. The Boston and New York
offices have been integrated with ATC's existing operations, and ATC
will benefit from other cost-saving measures taken, including the
elimination of certain employees previously with the Hill Businesses.
Applied Geosciences, Inc. - Effective February 29, 1996, ATC
purchased certain assets and assumed certain liabilities of Applied
Geosciences, Inc. ("AGI"). AGI services included environmental and
hazardous waste site assessments, remediation design, air quality
management, asbestos services, litigation support and engineering
geology through its offices located in San Diego, Tustin, and San Jose,
California.
Fiscal 1995
Con-Test, Inc. - Effective October 1, 1994, ATC purchased
certain assets and assumed certain liabilities of Con-Test, Inc.
("Con-Test") a Massachusetts-based environmental consulting and
engineering company with branch offices in Massachusetts, Connecticut,
Vermont, Rhode Island, New York and Pennsylvania. Con-Test's primary
services included industrial hygiene, environmental and industrial
health and safety, and lead-based paint management. It also maintained
an analytical laboratory and had developed a line of environmental
facilities management software used by several industrial firms and
federal government agencies. Immediately upon acquiring the assets of
Con-Test, the Company instituted several cost-saving measures,
including the elimination of certain employees and facilities, to
improve Con-Test's operations and integrate it with the existing
operations of the Company.
Microbial Environment Services, Inc. - On January 4, 1995, ATC
agreed to assume the service performance obligations under certain
contracts of Microbial Environmental Services, Inc. ("MES"). MES was
engaged in the business of remediation of contaminated soils and water
utilizing enhanced naturally occurring biological processes. The
services provided by MES also included assessment of contaminated
properties, design of bio-remediation systems, management of
bio-remediation projects and monitoring of compliance with clean up
standards.
R.E. Blattert and Associates - On January 13, 1995, ATC acquired
certain assets and assumed certain specified liabilities of
R.E. Blattert and Associates ("R.E. Blattert"). R.E. Blattert's main
area of expertise was in groundwater resource management.
Common Stock Offering
Effective October 1995, the Company sold 1,970,000 shares of common
stock at an offering price of $12.00 per share and received $21,554,461
net of underwriting and other related expenses. The Company used
$5,500,000 to repay bank debt and will use the remainder to expand the
Company's operations through acquisitions and internal growth and for
general working capital purposes.
Merger of Aurora into ATC
Effective June 29, 1995, ATC Environmental Inc. ("ATC") and its
parent, Aurora Environmental Inc. ("Aurora"), were merged pursuant to
an agreement approved by the majority of shareholders of each company,
with ATC as the surviving corporation (the "Aurora Merger"). Prior to
the Aurora Merger, Aurora was a holding company which owned
approximately 57% of ATC's outstanding Common Stock and had
substantially no other assets. Under the terms of the merger, each
outstanding share of Aurora Common stock was exchanged for .545 shares
of ATC Common Stock. ATC issued 3,341,356 shares of ATC Common Stock in
exchange for 6,131,104 shares of Aurora's common stock, and issued
options and warrants entitling the holders thereof to purchase up to
604,950 shares of ATC Common Stock upon exercise in replacement of
previously outstanding options and warrants to purchase Aurora's common
stock. ATC common shares held by Aurora of 3,258,000 were canceled.
Actual common shares outstanding increased by 83,356 shares. As a
result of the Aurora Merger, ATC utilized Aurora's net operating loss
carryforward to reduce its taxable income and accordingly recorded a
one-time reduction in income tax expense of approximately $350,000
($.05 per share) in fiscal 1996.
14<PAGE>
<PAGE>
Results of Operations
Fiscal Year Ended February 29, 1996 Compared with Fiscal Year Ended
February 28, 1995
Revenues in fiscal 1996 increased 24% to $44,964,897 compared with
$36,271,557 in fiscal 1995. This increase was primarily attributable to
the positive effect of acquisitions completed during the second half of
fiscal 1995 and from the acquisition of the Hill Businesses in November
1995. Revenues attributable to operations resulting from these
acquisitions totaled $12,034,346, or 26.8% of revenues, for fiscal
1996. During fiscal 1996, increased revenues from certain existing
operations were offset by lower revenues from a significant customer
due to delays in funding for certain projects and the completion of
certain work for another significant customer. In addition, revenues
of ATC's largest offices located in the Mid-Atlantic and New England
regions were negatively impacted for the three months ended February
29, 1996, due to severe winter weather conditions experienced.
Revenues in these regions, excluding revenues of the acquired Hill
Businesses, declined $1,751,618 or 27.5% in the fourth quarter ended
February 29, 1996 compared to the third quarter period ended November
30, 1995. In fiscal 1995, where normal seasonal changes were
experienced, the decrease for the comparable period was less than 3%.
The Hill Businesses were acquired just prior to the fourth quarter and
were also adversely affected by these weather conditions.
In fiscal 1996, ATC continued to penetrate its existing markets.
Revenues in fiscal 1996 from ATC's branch offices having comparable
operations in fiscal 1995, increased 2.6% to $32,930,551, compared with
$32,095,387 in fiscal 1995. If revenues from certain large projects for
two significant customers discussed below are eliminated in each
period, ATC's revenues from existing branch offices having comparable
operations would have increased 16.2% to $29,069,202 in fiscal 1996,
compared with $25,022,792 in fiscal 1995.
Revenues in fiscal 1996 earned directly from the New York City
School Construction Authority ("NYCSCA") decreased 30.2% to $2,693,169,
compared with $3,859,595 in fiscal 1995. As a percentage of revenues,
revenues from the NYCSCA decreased to 6.0% in fiscal 1996, compared
with 10.6% in fiscal 1995. During the first quarter of fiscal 1996,
delays in the approval of the NYCSCA's program budget and funding
requests for the New York City school construction and maintenance
program resulted in diminished service levels in asbestos management
consulting and testing services and, consequently, lower revenues to
ATC under this program. The NYCSCA's construction and maintenance
program is ongoing and is expected to continue over a period of years.
ATC believes it has established a strong relationship with the NYCSCA
and expects to continue to provide asbestos and other industrial
hygiene services to the NYCSCA over the next several years; however, no
assurance can be made regarding the amount of revenues, if any, that
ATC will receive from the NYCSCA in the future once current projects
are completed. ATC's revenues under programs such as this one are not
predictable and will be dependent upon many factors such as the scope
of work necessary at particular sites, budgeting constraints and the
timing of projects.
Revenues in fiscal 1996 from the Army Corps of Engineers (the
"Corps") decreased 63.6% to $1,168,180, compared with $3,213,000 in
fiscal 1995. As a percentage of revenues, revenues from the Corps
decreased to 2.6% in fiscal 1996, compared with 8.9% in fiscal 1995.
The Company's revenues from the Corps relates to certain asbestos
management services and decreased due to the completion of the larger
phases of the project during fiscal 1995. Revenues from the Corps are
expected to continue through 1999 as part of the federal Base
Realignment and Closure project. However, no assurance can be made as
to the amount of revenues, if any, that ATC will receive from the Corps
in the future once current projects are completed.
Gross profit in fiscal 1996 increased 14.1% to $20,449,723,
compared with $17,916,064 in fiscal 1995. Gross margin decreased to
45.5% in fiscal 1996, compared with 49.4% in fiscal 1995. ATC's gross
margin decreased due to higher subcontract and project costs and gross
profits were adversely impacted by the severe weather conditions
experienced during the three months ended February 29, 1996. Gross
profit as a percentage of revenues for the nine months ended November
30, 1995 was 47.9%. For the fourth quarter ended February 29, 1996,
the gross profit decreased to $4,308,142 on revenues of $11,277,327 or
38.2%. Cost of revenues includes the Company's full-time professional
field staff costs, depreciation of field and laboratory equipment,
contract maintenance costs and other costs which are generally fixed.
These costs did not decrease proportionately with the decrease in
revenues. Additionally, gross margin for fiscal 1995 was higher due to
the profitability level of several high margin projects.
Operating expenses in fiscal 1996 increased 19.2% to $14,654,261
compared with $12,291,465 in fiscal 1995. Operating expenses decreased
as a percentage of revenues to 32.6% in fiscal 1996, compared with
33.9% in fiscal 1995. The decrease in operating expenses as a
percentage of revenue is the result of ATC's ability to service greater
revenue levels without corresponding increases in fixed and
administrative costs. Employee costs increased 18.0% to $7,413,551, or
16.5% of revenues, in fiscal 1996 compared with $6,284,726, or 17.3% of
revenues, in fiscal 1995. These increases in employee costs were due to
15<PAGE>
<PAGE>
employees hired in connection with the expansion of ATC's operations.
Other increases in operating expenses resulted from higher facility
costs, travel and administrative expenses resulting from the growth in
operations and increased employee levels. Additionally, in fiscal 1996,
amortization of goodwill and intangibles increased to $437,254,
compared with $212,320 in fiscal 1995, reflecting the additional
goodwill amortization resulting from acquisitions.
Operating income in fiscal 1996 increased 3.0% to $5,795,462,
compared with $5,624,599 in fiscal 1995. Operating income as a
percentage of revenues was 12.9% in fiscal 1996 and 15.5% in 1995.
Non-operating expenses in fiscal 1996 decreased 61.6% to $124,464
compared with $324,079 in fiscal 1995. The decrease in non-operating
expenses is primarily attributable to higher interest income earned on
the net proceeds of the Common Stock Offering invested in short term
investments.
Income tax expense in fiscal 1996 was $1,805,000, compared with
$2,044,000 in fiscal 1995. The income tax expense reflects a one-time
benefit of $350,000 resulting from the merger of Aurora into ATC which
allowed ATC to utilize Aurora's net operating loss carryforwards as
offsets to its future taxable income. During fiscal 1996, excluding for
the one-time tax benefit, and fiscal 1995, the Company's effective tax
rates were 38.0% and 38.6%, respectively.
As a result of the foregoing, net income in fiscal 1996 increased
18.7% to $3,865,998, or $.54 per share on a fully diluted basis,
compared with $3,256,520 or $.56 per share on a fully diluted basis, in
fiscal 1995. Excluding the impact of the one-time tax benefit of
$350,000, net income and fully diluted earnings per share would have
been $3,515,998 and $.49, respectively, for fiscal 1996. The fully
diluted weighted average number of shares outstanding increased
1,331,183 shares to 7,181,416 shares primarily due to an increase in
shares issued from the Common Stock Offering, additional shares,
options and warrants outstanding as a result of the Aurora Merger
effective June 29, 1995, the exercise of Class B warrants and the
issuance of shares in connection with the acquisition of Con-Test. Net
income as a percentage of revenues was 8.6% in fiscal 1996, compared
with 9.0% in fiscal 1995.
Fiscal Year Ended February 28, 1995 Compared with Fiscal Year Ended
February 28, 1994
Revenues in fiscal 1995 increased 36.0% to $36,271,557, compared
with $26,664,385 in fiscal 1994. This increase was attributable to
increased revenues in ATC's existing branches and the positive effect
of acquisitions.
Revenues in fiscal 1995 from ATC's branch offices having
comparable operations in fiscal 1994 increased 13.2% to $20,340,764,
compared with $17,965,654 in fiscal 1994.
Revenues in fiscal 1995 from operations resulting from the
acquisition of assets of BSE Management, Inc. ("BSE") effective as of
April 30, 1993 increased 42.8% to $11,754,623, compared with $8,230,000
in fiscal 1994. Of these revenue amounts, $3,213,000 and $1,560,000
for fiscal 1995 and fiscal 1994, respectively, were from the Corps for
asbestos management services. The fiscal 1995 data reflects 12 months
of operations from BSE while the fiscal 1994 data reflects only 10
months of such operations.
Revenues from operations resulting from the acquisitions of assets
of Con-Test, MES, and R. E. Blattert, contributed $4,176,170 in fiscal
1995. In fiscal 1994, revenues of $468,731 and a net loss of
($109,846) were contributed by former branch offices of Bio/West, Inc.
("Bio/West"). The Company entered into an agreement to acquire
Bio/West on June 10, 1992; however, the acquisition transaction was
rescinded effective as of May 31, 1993.
During fiscal 1995, ATC's revenues benefited from asbestos
management consulting and testing services provided to the NYCSCA as
part of its New York City school construction and maintenance program.
Revenues in fiscal 1995 from the NYCSCA increased 14.2% to $3,859,595,
compared with $3,379,100 in fiscal 1994. As a percentage of revenues,
revenues from the NYSCA decreased to 10.6% in fiscal 1995, compared
with 12.7% in fiscal 1994.
Gross profit in fiscal 1995 increased 45.7% to $17,916,064,
compared with $12,294,424 in fiscal 1994. Similarly, gross margin
increased to 49.4% in fiscal 1995, compared with 46.1% in fiscal 1994.
During fiscal 1995, ATC's margins improved due to labor force
efficiencies which were due in part to the Con-Test acquisition, the
acquisition of certain assets of BSE and the integration of certain
operations with ATC's existing operations.
Operating expenses in fiscal 1995 increased 35.5% to $12,291,465,
compared with $9,067,881 in fiscal 1994. Operating expenses remained
almost constant as a percentage of revenues at 33.9% and 34.0% during
fiscal 1995 and fiscal 1994, respectively. Employee costs increased
36.6% to $6,284,627, or 17.3% of revenues, in fiscal 1995, compared
with $4,559,951, or 17.3% of revenues, in fiscal 1994. Other increases
in operating expenses resulted from higher depreciation, equipment and
16<PAGE>
<PAGE>
supply costs and travel expenses resulting from the growth in
operations and increased employee levels. Additionally, amortization of
goodwill and intangibles increased to $212,320 in fiscal 1995 from
$37,716 in fiscal 1994, reflecting the additional goodwill amortization
resulting from acquisitions. Facility costs as a percentage of
revenues in fiscal 1995 were 5.0%, compared with 6.0% in fiscal 1994.
Operating income in fiscal 1995 increased 74.3% to $5,624,599,
compared with $3,226,543 in fiscal 1994. Operating income increased as
a percentage of revenues to 15.5% in fiscal 1995, compared with 12.1%
in fiscal 1994.
Non-operating expenses in fiscal 1995 increased 116.8% to
$324,079, compared with $149,495 in fiscal 1994. The increase in non-
operating expenses is primarily attributable to higher interest
expenses due to increased borrowings and expenses of approximately
$83,000 related to the Aurora Merger.
Income tax expense in fiscal 1995 was $2,044,000, compared with
$1,210,000 in fiscal 1994. The Company's effective tax rates in fiscal
1995 and fiscal 1994 were 38.6% and 39.3% respectively.
As a result of the foregoing, net income in fiscal 1995 was
$3,256,520, or $.56 per share on a fully diluted basis, compared with
$1,867,048, or $.35 per share on a fully diluted basis, in fiscal 1994.
The fully diluted weighted average number of shares outstanding
increased 453,860 shares to 5,850,233 shares primarily due to the
exercise of the Class B Warrants. Net income in fiscal 1995 increased
as a percentage of revenues to 9.0% compared with 7.0% in fiscal 1994.
Liquidity and Capital Resources
At February 29, 1996, working capital was $24,977,316 compared to
$8,113,738 at February 28, 1995, an increase of $16,863,578. This
increase in working capital is primarily a result of the net proceeds
of the Common Stock Offering after repayment of outstanding bank debt
and ATC's acquisitions of current assets and operations of the Hill
Businesses and AGI, increases in billed and unbilled receivables, an
increase in prepaid expenses and the reduction of current liabilities
using long-term borrowings under the Company's prior credit facility
with the Atlantic Bank of New York ("Atlantic").
During fiscal 1996, net cash flows used in operating activities
were $842,642, primarily due to income generated from operations offset
by an increase in billed and unbilled receivables. Net cash flows used
in investing activities were $4,586,939, resulting from the
acquisitions of the Hill Businesses, AGI, Con-Test and R.E. Blattert,
additional contingent purchase obligations in connection with the BSE
and R.E. Blattert acquisitions and purchases of property and equipment.
Net cash flows provided by financing activities were $17,521,162,
primarily representing the net offering proceeds of the Common Stock
Offering plus the proceeds from a $2,585,125 increase in debt,
primarily bank debt under the Company's prior credit facilities, less
payments made on long-term debt and notes payable of $6,663,581.
During fiscal 1995, net cash flows provided by operating
activities were $3,030,703. Net cash flows used in investing
activities were $4,099,812, consisting primarily of the purchase of
certain assets of BSE, Con-Test and MES, and property and equipment.
Also during this period, net cash flows provided by financing
activities were $1,052,082, primarily from the exercise of ATC's Class
B Warrants and borrowing under the Company's prior revolving credit
facility with Atlantic. These sources of cash were reduced by
principal debt repayments, including payments of $1,961,000 with
respect to bank debt assumed in connection with the Con-Test and R.E.
Blattert acquisitions.
During fiscal 1994, net cash flows used in operating activities
were $28,653. Net cash flows used in investing activities were
$1,476,300, primarily to purchase certain assets of BSE and property
and equipment. These uses of cash were partially offset by cash
received related to the rescission of the Bio/West purchase agreement.
Net cash flows provided by financing activities were $1,835,002,
resulting from the proceeds of notes payable and long-term debt,
partially offset by the principal payments on long-term debt, including
capital lease obligations of $1,174,756.
In May 1996, the Company entered into a bridge credit facility
with Chemical Bank and Atlantic providing up to $20,000,000 to provide
funds necessary for the ATEC and 3D acquisitions and short-term working
capital requirements. The Company borrowed approximately $14,025,000
in connection with the ATEC and 3D acquisitions. The Company expects
to complete a longer term agreement with the banks prior to the
maturity date of the bridge facility in September 1996. Prior to the
bridge facility, the Company had a revolving credit facility for up
to $5,500,000 with Atlantic which was repaid using proceeds from
the Common Stock Offering. Management of the Company believes the
credit facility and its working capital are adequate to fund current
operations including the recent acquisitions and its payment
obligations thereunder.
17<PAGE>
<PAGE>
The Company may seek to obtain additional public or private
equity financing in the future in order to reduce debt and provide
funds for future acquisitions, however no assurance can be given as
to the Company's ability to obtain funds on acceptable terms and
conditions.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 and an index thereto, appears
on page F-1 of this Annual Report, which follows this page.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not applicable
18<PAGE>
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 29, 1996
<S> <C>
Page
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets
February 28 (29), 1995 and 1996 F-3
Consolidated Statements of Operations
Years Ended February 28 (29), 1994, 1995, and 1996 F-4
Consolidated Statements of Stockholders' Equity
Years Ended February 28 (29), 1994, 1995, and 1996 F-5
Consolidated Statements of Cash Flows
Years Ended February 28 (29), 1994, 1995, and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
All financial statement schedules are omitted because they are not
applicable, not required, or because the required information is
included elsewhere herein.
F-1<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
ATC Environmental Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
ATC Environmental Inc. and subsidiaries as of February 28, 1995 and
February 29, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three
years in the period ended February 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. 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, such consolidated financial statements present
fairly, in all material respects, the financial position of ATC
Environmental Inc. and subsidiaries as of February 28, 1995 and
February 29, 1996 and the results of their operations and their cash
flows for each of the three years in the period ended February 29,
1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 6, 1996
(May 28, 1996, as to Note M)
F-2<PAGE>
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28 (29), 1995 AND 1996
<S> <C> <C>
1995 1996
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents.................. $ 1,377,862 $ 13,469,443
Trade accounts receivable, less allowance
for doubtful accounts ($535,886 in 1995
and $383,220 in 1996) (Note K)........... 11,859,991 14,161,774
Costs in excess of billings on uncompleted.
contracts 447,000 2,333,835
Prepaid expenses and other current assets.. 431,791 906,289
Deferred income taxes (Note H) 132,700 440,600
------------ ------------
Total current assets.............. 14,249,344 31,311,941
PROPERTY AND EQUIPMENT, Net (Note C).......... 3,151,286 3,606,755
GOODWILL, net of accumulated amortization
($137,470 in 1995 and $453,646 in 1996)
(Note B)................................ 7,166,998 11,375,399
COVENANTS NOT TO COMPETE, net of accumulated
amortization ($137,021 in 1995 and $258,099
in 1996) (Note B)........................... 317,979 274,401
OTHER ASSETS................................. 123,615 116,104
------------ ------------
$ 25,009,222 $ 46,684,600
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term debt (Note D)................... $ 88,720 $ 1,122,552
Current maturities of long-term debt (Note D) 840,907 354,858
Accounts payable........................... 1,963,484 2,231,175
Income taxes payable (Note H).............. 128,250 42,500
Due to related company (Note J)............ 39,969 -
Accrued compensation....................... 2,053,797 1,421,330
Other accrued expenses..................... 1,020,479 1,162,210
------------ ------------
Total current liabilities......... 6,135,606 6,334,625
LONG-TERM DEBT, less current maturities (Note D) 3,892,766 361,944
OTHER LIABILITIES (Note E)................... 1,087,056 598,817
DEFERRED INCOME TAXES (Note H)................ 80,600 196,800
------------ ------------
Total liabilities 11,196,028 7,492,186
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes B and E)
STOCKHOLDERS' EQUITY (Notes B, F, and G):
Common stock, par value $.01 per share;
authorized 20,000,000 shares; issued
and outstanding 5,738,018 shares in 1995
and 7,796,577 in 1996.................... 57,380 77,966
Additional paid-in capital................. 7,484,453 29,030,189
Notes receivable - common stock............ (15,000) (45,000)
Retained earnings.......................... 6,286,361 10,129,259
------------ ------------
Total stockholders' equity........ 13,813,194 39,192,414
------------ ------------
$ 25,009,222 $ 46,684,600
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3<PAGE>
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28 (29), 1994, 1995, AND 1996
<S> <C> <C> <C>
1994 1995 1996
REVENUES............................ $ 26,664,385 $ 36,271,557 $ 44,964,897
COST OF REVENUES.................... 14,369,961 18,355,493 24,515,174
------------ ------------ ------------
Gross Profit............ 12,294,424 17,916,064 20,449,723
------------ ------------ ------------
OPERATING EXPENSES:
Selling.......................... 784,795 1,105,937 1,513,222
General and administrative....... 8,140,069 10,996,709 12,850,874
Provision for bad debts.......... 143,017 188,819 290,165
------------ ------------ ------------
9,067,881 12,291,46 14,654,261
Operating Income........... 3,226,543 5,624,599 5,795,462
NON-OPERATING EXPENSE (INCOME):
Interest expense................. 185,494 285,570 376,621
Interest income.................. (45,361) (34,073) (272,463)
Other expense, net............... 9,362 72,582 20,306
------------ ------------ ------------
149,495 324,079 124,464
------------ ------------ ------------
Income before income taxes 3,077,048 5,300,520 5,670,998
INCOME TAX EXPENSE.................. 1,210,000 2,044,000 1,805,000
------------ ------------ ------------
NET INCOME.......................... $ 1,867,048 $ 3,256,520 $ 3,865,998
============ ============ ============
EARNINGS PER COMMON SHARE AND
DILUTIVE COMMON EQUIVALENT SHARE:
Primary........................ $ .35 $ .57 $ .54
============ ============ ============
Fully diluted.................. $ .35 $ .56 $ .54
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Primary........................ 5,376,921 5,753,856 7,181,416
============ ============ ============
Fully diluted.................. 5,396,373 5,850,233 7,181,416
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4<PAGE>
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28 (29), 1994, 1995, AND 1996
<S> <C> <C> <C> <C> <C> <C>
Notes
Additional Receivble
Common Stock Paid in Common Retained
Share Amount Capital Stock Earnigs Total
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, February 28, 1993.... $ 5,292,752 $ 52,928 $ 4,631,430 $ (34,250)$ 1,162,793 $ 5,812,901
Sale of common stock at $1.87
to $4.31 per share, upon
exercise of options....... 5,600 56 16,090 - - 16,146
Issuance of common shares in
connection with the
purchase of BSE Management,
Inc........................ 5,000 50 29,650 - - 29,700
Adjustment to tax benefit
from exercise of common
stock options (Note H)..... - - (40,927) - - (40,927)
Continuing registration costs
applied against additional
paid-in capital............ - - (25,383) - - (25,383)
Net income................... - - - _ 1,867,048 1,867,048
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, February 28, 1994..... 5,303,352 53,034 4,610,860 (34,250) 3,029,841 7,659,485
Sale of common stock at $1.87
to $5.00 per share,upon
exercise of options........ 16,980 170 51,354 - - 51,524
Sale of common stock at $8.00
per share, upon exercise of
Class B common stock
purchase warrants.......... 284,803 2,848 2,275,576 - - 2,278,424
Issuance of common shares in
connection with the
purchase of Con-Test, Inc.. 116,556 1,165 491,740 - - 492,905
Issuance of common shares in
connection with the
purchase of R.E. Blattert
& Associates............... 16,327 163 112,340 - - 112,503
Continuing registration
costs applied against
additional paid-in capital. - - (57,417) - - (57,417)
Reduction of notes receivable - - - 19,250 - 19,250
Net income................... - - - - 3,256,520 3,256,520
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, February 28, 1995..... 5,738,018 57,380 7,484,453 (15,000) 6,286,361 13,813,194
Issuance of common stock in
public offering at $12.00
per share, less expenses... 1,970,000 19,700 21,534,761 - - 21,554,461
Sale of common stock at $1.83
to $10.50 per share, upon
exercise of stock options
and warrants............... 39,613 396 100,223 - - 100,619
Net issuance of common stock
and adjustments in
connection with the merger
of Aurora Environmental
Inc. into ATC (Note B).... 83,356 834 60,283 (30,000) - 31,117
Common stock recovered in
connection with the
Con-Test, Inc.
acquisition (Note B)....... (33,130) (331) (139,682) - - (140,013)
Other capital transactions (1,280) (13) (9,849) - (23,100) (32,962)
Net income.................. - - - - 3,865,998 3,865,998
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, February 29, 1996..... 7,796,577 $ 77,966 $29,030,189 $ (45,000)$10,129,259 $39,192,414
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5<PAGE>
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28 (29), 1994, 1995, AND 1996
<S> <C> <C> <C>
1994 1995 1996
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................ $ 1,867,048 $ 3,256,520 $ 3,865,998
Adjustments to reconcile net
income to net cash from operating
activities:
Depreciation and leasehold
amortization.............. 648,473 707,318 776,917
Amortization of goodwill
and covenants............. 37,716 212,320 437,254
Provision for bad debts... 143,017 188,819 290,165
Deferred income taxes..... (12,000) 23,500 (191,700)
Other..................... - (57,258) (132,700)
Changes in operating
assets and liabilities,
net of amounts acquired
in acquisitions:
Accounts and notes
receivable.......... (4,754,874) (348,459) (4,168,658)
Prepaid expenses and
other assets........ (168,443) (22,269) (434,890)
Accounts payable and
other liabilities... 1,068,171 72,615 (1,199,278)
Income taxes payable.. 1,142,239 (1,002,403) (85,750)
------------ ----------- -----------
Net cash flows
from operating
activities........ (28,653) 3,030,703 (842,642)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Hill Businesses....... - - (2,517,949)
Purchase of Applied Geosciences,Inc - - (589,060)
Purchase of Con-Test, Inc.,
net of cash acquired............ - (2,230,551) (169,038)
Purchase of BSE Management, Inc... (1,030,285) (887,325) (207,990)
Purchase of Microbial Environmental
Services, Inc.................... - (250,000) (45,307)
Purchase of R.E. Blattert &
Associates, net of cash acquired. - (9,541) (134,376)
Rescission of Bio/West, Inc........ 283,722 - -
Purchase of property and equipment. (730,737) (756,444) (946,206)
Proceeds from sale of property
and equipment.................... 1,000 34,049 22,987
------------ ----------- -----------
Net cash flows from
investing activities....... (1,476,300) (4,099,812) (4,586,939)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock, net of expenses........... 16,146 2,329,948 21,655,080
Proceeds from issuance of long-term
debt............................. 3,018,995 1,580,318 2,585,125
Principal payments on long-term
debt, including capital lease
obligations...................... (1,174,756) (2,800,767) (6,663,581)
Other capital transactions......... - - (55,462)
Payments for continuing
registration costs............... (25,383) (57,417) -
------------ ----------- -----------
Net cash flows from financing
activities................. 1,835,002 1,052,082 17,521,162
------------ ----------- -----------
Net change in cash and cash
equivalents................ 330,049 (17,027) 12,091,581
CASH AND CASH EQUIVALENTS,
Beginning of year.................... 1,064,840 1,394,889 1,377,862
------------ ----------- -----------
CASH AND CASH EQUIVALENTS,
End of year....................... $ 1,394,889 $ 1,377,862 $13,469,443
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6<PAGE>
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28 (29), 1994, 1995, AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation - The consolidated financial
statements include the accounts of ATC Environmental Inc. and its
wholly-owned subsidiaries ATC New England Corp., ATC Blattert Inc.,
Hygeia Proscience Laboratories, Inc. and ATC Management, Inc. All
significant inter-company accounts and transactions have been
eliminated.
Nature of Business - ATC Environmental Inc. and its subsidiaries
("ATC" or the "Company") are environmental consulting firms providing
assessment, monitoring, training, analytical and management services
for environmental projects. These services are provided nation-wide
through a network of regional offices. Because the Company conducts
its operations in a single industry, segment information is not
presented.
Revenue Recognition - The Company generally contracts for services
to customers on the basis of a fixed fee per procedure or services
performed. Revenue is recognized as services are performed in
accordance with the terms of the contract.
Costs In Excess of Billings on Uncompleted Contracts - Costs in
excess of billings on uncompleted contracts represent unbilled services
and reimbursable expenses associated with ongoing projects.
Significant Customer - In fiscal 1996, revenues from a single
customer comprised approximately 6.0% of total revenues. In fiscal
1995 and 1994, revenues from this customer comprised approximately
10.6% and 12.7% of total revenues, respectively.
Property and Equipment - Property and equipment are carried at
cost. Depreciation is computed on either the straight-line or
declining balance method over the estimated useful lives of the assets,
as follows:
Office equipment 5 years
Transportation equipment 4-5 years
Laboratory and field equipment 5-7 years
Leasehold improvements life of the lease
Amortization of Intangible Assets - Goodwill associated with
acquisitions is being amortized on a straight-line basis over a 30 year
period. The carrying value of goodwill is periodically evaluated on
the basis of management's estimates of future undiscounted operating
income associated with the acquired business. When the carrying amount
of goodwill is determined not to be recoverable by management, the
associated asset is written off. At February 28, 1996, no such
impairment existed. The covenants not to compete are being amortized
over the terms of the agreements, which are 3 to 5 year periods.
On March 1, 1996, the Company intends to adopt Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. Management anticipates that the adoption of SFAS 121 will
not have a significant effect on the Company's financial statements.
Income Taxes - The liability method is used to measure deferred
tax assets and liabilities in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, based on
temporary differences between financial and taxable income existing at
each balance sheet date using enacted tax rates. ATC and its wholly-
owned subsidiaries file a consolidated income tax return.
Continuing Registration Costs - Costs associated with the
registration and issuance of equity are charged against additional paid-
in capital as incurred. These costs generally include legal and
accounting fees, printing costs and other direct expenses of
registration statement filings.
Credit Risk and Financial Instruments - Financial instruments
which potentially subject the Company to concentrations of credit risk
are primarily temporary investments and accounts receivable. The
Company places its temporary investments in highly rated financial
institutions and investment grade short-term debt instruments.
F-7<PAGE>
<PAGE>
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers, the proportion of
receivables from governmental entities, generally short payment terms
and dispersion across geographic areas.
Earnings Per Common Share and Dilutive Common Equivalent Share -
Earnings per common share and dilutive common equivalent share have
been computed by using the weighted average number of shares
outstanding during the year. Outstanding dilutive stock warrants and
stock options are included in the computation of weighted average
number of shares.
On March 1, 1996, the Company intends to adopt the disclosure
requirements of Statement of Financial Accounting Standards No. 123
("SFAS 123"), Accounting for Stock-Based Compensation. Management
anticipates that adoption of SFAS 123 will not have a material adverse
effect on the Company's financial statements.
Cash and Cash Equivalents - For purposes of reporting cash flows,
the Company considers all commercial paper, money market funds and
certificates of deposit purchased with a maturity of three months or
less at acquisition to be cash equivalents.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications - Certain reclassifications have been made to
the prior years' financial statements to conform to the current year's
presentation.
B. BUSINESS ACQUISITIONS AND MERGER
Business Acquisitions - The following acquisitions have been
accounted for as purchases. The acquired company's assets and
liabilities are included in the accompanying consolidated balance
sheets at fair value at the date of purchase. The acquired company's
operations subsequent to the acquisition are included in the
accompanying consolidated statements of operations.
Fiscal 1996
Hill Businesses - In November 1995, ATC purchased certain assets
and assumed certain liabilities of Kaselaan & D'Angelo Associates,
Inc., Hill Environmental, Inc. (formerly the environmental division of
Gibbs & Hill, Inc.) and Particle Diagnostics, Inc., wholly owned
subsidiaries of Hill International, Inc. (collectively the "Hill
Businesses").
The Hill Businesses provide environmental consulting and
engineering services, including asbestos management, industrial hygiene
and indoor air quality consulting, environmental auditing and
permitting, environmental regulatory compliance, water and wastewater
engineering, solid waste landfill management and analytical laboratory
services. The purchase price was comprised of the following
consideration.
<TABLE>
<S>
Amounts paid to seller: <C>
Cash......................................... $ 2,517,949
Letter of credit, net of imputed interest, due
April 30, 1996 (Note E).................... 700,000
Note payable at 8.75% interest, due
April 30, 1996 (Note E).................... 300,000
Liabilities assumed............................ 414,544
Direct expenses related to acquisition......... 263,475
-----------
$ 4,195,968
===========
</TABLE>
In addition, the Company issued to certain selling shareholders,
50,000 stock options to purchase restricted common stock at $13.875 per
share as consideration for non compete agreements.
The initial purchase price allocation is summarized as follows:
<TABLE>
<S> <C>
Costs in excess of billings on uncompleted contracts,
net of unrealizable amounts........................ $ 620,000
Property and equipment............................... 175,000
Covenants not to compete............................. 37,500
Other assets......................................... 30,572
Goodwill............................................. 3,332,896
-----------
$ 4,195,968
=========== ===========
F-8<PAGE>
<PAGE>
The Company is contingently liable to reimburse up to $150,000 of
certain facility lease costs if incurred by Hill International, Inc.
Applied Geosciences Inc. - Effective February 29, 1996, ATC
purchased certain assets and assumed certain liabilities of Applied
Geosciences, Inc. ("AGI"), a California based environmental consulting
company having offices in San Diego, Tustin and San Jose, California.
The purchase price was comprised of the following consideration:
Cash to
seller...................................................... $147,546
Cash to secured creditors of seller......................... 441,514
Liabilities assumed......................................... 225,538
Direct expenses related to acquisition ..................... 31,246
--------
$845,844
========
In addition, AGI will receive contingent consideration of up to
$190,000 subject to actual collections of the purchased trade
receivables in excess of a minimum amount established under the
agreements.
The initial purchase price allocation is summarized as follows:
Accounts receivable, net................................... $474,973
Property and equipment..................................... 115,060
Covenants not to compete................................... 30,000
Goodwill................................................... 225,811
--------
$845,844
========
Fiscal 1995
Con-Test, Inc. - On October 1, 1994, ATC acquired substantially
all of the assets and liabilities of Con-Test, Inc. ("Con-Test"), a
Massachusetts based environmental consulting company having branch
offices in the New England states, New York and Pennsylvania. The
seller guaranteed the net receivables purchased resulting in the
Company reacquiring 33,130 shares of its restricted common stock in
fiscal 1996 The purchase price, net of adjustments to reflect the
shares reacquired under the guarantee, was comprised of the following
consideration:
Amounts paid to seller:
Cash..................................................... $2,100,000
Note payable............................................. 535,000
ATC restricted common stock.............................. 352,892
Liabilities assumed:
Current Liabilities...................................... 2,077,503
Non-current liabilities.................................. 478,027
Notes payable............................................ 1,981,982
Direct expenses related to acquisition..................... 131,910
----------
$7,657,314
==========
The final purchase price allocation is summarized as follows:
Accounts receivable, net .................................. $2,154,333
Property and equipment..................................... 633,945
Other asset................................................ 13,359
Convenant not to compete................................... 100,000
Goodwill................................................... 4,755,677
----------
$7,657,314
==========
F-9<PAGE>
<PAGE>
R.E. Blattert & Associates - On January 13, 1995, ATC acquired
substantially all of the assets and liabilities of R.E. Blattert &
Associates ("R.E. Blattert"), an environmental consulting firm having
geologic, environmental engineering and water resource expertise with
offices in Indiana and Iowa. In addition, the purchase agreement
provides for the seller to receive additional purchase consideration up
to a maximum of $850,000 over a four-year period based on achieving
agreed upon earnings targets. These contingent payments will be
recorded as goodwill if subsequently earned. At February 29, 1996,
$100,000 of additional purchase consideration had been earned. The
purchase price was comprised of the following consideration:
Amounts paid to seller:
ATC restricted common stock.............................. $ 112,503
Contingent consideration earned to date.................. 100,000
Liabilities assumed:
Current liabilities...................................... 527,861
Notes payable............................................ 384,870
Direct expenses related to acquisition..................... 23,209
----------
$1,148,443
==========
The final purchase price allocation is summarized as follows:
Accounts receivable, net................................... $ 378,663
Property and equipment..................................... 99,030
Other assets............................................... 14,269
Covenant not to compete.................................... 80,000
Goodwill................................................... 576,481
----------
$1,148,443
==========
Microbial Environmental Services, Inc. - On January 4, 1995, ATC
acquired certain operations of Microbial Environmental Services, Inc.
("MES"). ATC agreed to assume service performance obligations under
certain contracts and a lease obligation of MES and MES assigned its
accounts receivable to ATC. ATC additionally purchased certain field
and laboratory equipment from MES and paid a finder's fee to an
unrelated party. The purchase price was comprised of the following
consideration:
Note payable to seller..................................... $ 100,000
Liabilities assumed:
Current liabilities...................................... 45,307
Non-current liabilities.................................. 812,208
Cash paid for finder's fee............................... 250,000
Note payable for finder's fee............................ 200,000
----------
$1,407,515
==========
The final purchase price allocation is summarized as follows:
Accounts receivable, net................................... $ 812,208
Property and equipment..................................... 100,000
Goodwill................................................... 495,307
----------
$1,407,515
==========
F-10<PAGE>
<PAGE>
Fiscal 1994
BSE Management, Inc. - On April, 30, 1993, ATC acquired certain
assets and liabilities of BSE Management, Inc. ("BSE"), a California
based environmental consulting holding company and those of its
subsidiaries, Diagnostic Environmental Inc., Hygeia Environmental
Laboratories and The Environmental Institute Inc. The acquisition was
accomplished by purchasing certain BSE assets at a foreclosure sale,
acquiring certain BSE unsecured debt from its holder, entering into
consulting and employment contracts and non-compete agreements with
certain key BSE employees, and assuming specified liabilities of BSE.
The purchase agreement provided for additional purchase consideration
contingent upon future cash receipts of the ongoing business over five
years. These contingent payments totaled $1,355,165 and have been
fully earned and recorded as goodwill. The purchase price was
comprised of the following consideration:
Amounts paid to stockholders and secured parties:
Cash to stockholders..................................... $ 400,000
Cash to secured party.................................... 169,670
Contingent consideration................................. 1,355,165
Issuance of note payable to financial institution.......... 355,840
Issuance of common stock to financial institution.......... 29,700
Liabilities assumed and other cash payments................ 193,335
Direct expenses related to acquisition..................... 142,442
----------
$2,646,152
==========
The final purchase price allocation is summarized as follows:
Property and equipment..................................... $103,670
Other non-current assets................................... 53,000
Covenant not to compete.................................... 150,000
Goodwill................................................... 2,339,482
----------
$2,646,152
==========
Bio/West, Inc. - On June 10, 1992, ATC signed a purchase agreement
for 100% of the issued and outstanding common stock of Bio/West, Inc.
("Bio/West"), a privately held environmental consulting firm. On
October 14, 1993, because of certain disputes which arose subsequent to
the purchase, the Company and the former stockholders of Bio/West
entered into an agreement for restitution following rescission, which
provided for an orderly rescission of the purchase. ATC also entered
into a separate non-compete agreement with Bio/West requiring ATC to
pay a total of $137,000 to Bio/West over three years.
The accompanying consolidated statements of operations reflect the
results of Bio/West's operations through May 31, 1993, the effective
date of the rescission. The results of operations of Bio/West included
in the fiscal 1994 consolidated financial statements were revenues of
$486,731 and a net loss of ($109,846).
Aurora Environmental Inc. Merger - Effective June 29, 1995, ATC
and Aurora merged, with ATC as the surviving corporation. ATC exchanged
.545 of a share of ATC common stock for each share of Aurora stock.
ATC common shares held by Aurora of 3,258,000 were canceled. The
merger has been accounted for in a manner similar to a pooling of
interests. Under this method of accounting, recorded assets and
liabilities of Aurora were combined with ATC and the results of
operations of ATC and Aurora were combined on the date the merger
became effective. As a result of the merger, ATC utilized Aurora's net
operating loss carryforward, which was $970,000 as of the date of the
merger. In addition, ATC's liability to Aurora was canceled at the
merger date.
Pro Forma Financial Information (Unaudited) - The following
unaudited pro forma information sets forth the results of operations of
ATC as though the purchases of the Hill Businesses and Con-Test and the
merger of Aurora had occurred at March 1, 1994, the beginning of fiscal
1995.
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
Year Ended February 28 (29),
<S> <C> <C>
1995 1996
Revenues................................ $52,879,942 $55,026,450
Net income.............................. 3,572,053 4,659,755
Earnings per share (fully diluted)...... $ .56 $ .63
</TABLE>
F-11<PAGE>
<PAGE>
C. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment as of February 28 (29) consists of:
<S> <C> <C>
1995 1996
Office equipment $ 2,086,889 $ 2,645,325
Laboratory and field equipment 3,007,651 3,528,410
Transportation equipment 223,397 267,304
Leasehold improvements 537,698 633,595
------------ ------------
5,855,635 7,074,634
Less accumulated depreciation 2,704,349 3,467,879
------------ ------------
Property and equipment, net $ 3,151,286 $ 3,606,755
============ ============
</TABLE>
Included above are property and equipment under capital leases
with a net book value at February 28, 1995 and February 29, 1996 of
$103,514 and $42,182, respectively.
D. DEBT AND CREDIT AGREEMENTS
Short Term Debt - At February 28 (29), 1995 and 1996, the Company
has short-term notes payable of $88,720 and $1,122,552 respectively,
with interest rates of 6.7% to 8.75%. Included in the February 29,
1996 balance is a 8.75%, $300,000 note payable and a $700,000 letter of
credit, net of imputed interest at 8.75%, issued in connection with the
Company's purchase of the Hill Businesses. The note and letter of
credit are due April 30, 1996.
<TABLE>
<CAPTION>
Long-Term Debt - Long term debt as of February 28 (29) consists of:
<S> <C> <C>
1995 1996
8.5% Note payable issued in connection with
the purchase of Con-Test, payable in three
annual installments commencing September 30,
1995. Interest is payable quarterly........ $ 535,000 $ 356,667
Notes payable issued in connection with the
purchase of MES, with a fixed interest rate
of 8%, payable in monthly and quarterly
installments through February, 1998........ 300,000 147,619
Notes payable, due in three annual
installments through May 1998. Interest
payable at the prime rate, (8.25% at
February 29, 1996)......................... - 123,121
Capitalized lease obligations with implicit
interest rates ranging from 9% to 14% due
in monthly installments at various dates
through July, 1999......................... 129,748 66,947
Vehicle loans with interest rates ranging
from 7.25% to 12.4% due in monthly
installments at various dates through 1999. 76,531 22,448
Borrowing from bank under prior revolving
credit facility, repaid in fiscal 1996..... 3,075,000 -
Note payable to bank, repaid in fiscal 1996.. 233,480 -
Notes payable assumed in connection with
purchase of R.E. Blattert, repaid in
fiscal 1996................................. 204,559 -
7.0% Note payable issued in connection with
the purchase of BSE, repaid in fiscal 1996.. 179,355 -
---------- ---------
4,733,673 716,802
Less current maturities..................... 840,907 354,858
---------- ---------
Long-term debt, less current maturities..... $3,892,766 $361,944
========== =========
</TABLE>
The notes payable are collateralized by the assets acquired in the
associated business acquisitions.
F-12<PAGE>
<PAGE>
Aggregate maturities of long-term debt including capitalized lease
obligations as of February 29, 1996 are as follows:
<TABLE>
<CAPTION>
NET LESS
MINIMUM PORTION PORTION
LEASE REPRESENTING REPRESENTING NOTES TOTAL
PAYMENTS INTEREST PRINCIPAL PAYABLE DEBT
<S> <C> <C> <C> <C> <C>
1997 $ 22,875 $ 5,386 $ 17,489 $ 337,369 $ 354,858
1998 22,875 3,719 19,156 286,340 305,496
1999 22,875 1,892 20,983 26,146 47,129
2000 9,532 213 9,319 - 9,319
2001 - - - - -
----------- ---------- ----------- --------- ---------
$ 78,157 $ 11,210 $ 66,947 $ 649,855 $ 716,802
=========== ========== =========== ========= =========
</TABLE>
Credit Agreement - During fiscal 1996, the Company repaid its
revolving credit facility which provided for borrowings up to
$5,500,000, subject to a percentage of its eligible accounts
receivable, of which $3,075,000 was outstanding at February 28, 1995.
E. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments - The Company leases office space,
laboratory facilities, temporary housing facilities and automobiles
under operating lease agreements which expire at varying dates from
March 1994 through September 2001. The Company also rents equipment on
a job-by-job basis. Minimum annual rental commitments as of February
29, 1996 are as follows: fiscal 1997 - $1,529,173; fiscal 1998 -
$1,393,102; fiscal 1999 - $1,167,462; fiscal 2000 - $821,430; fiscal
2001 - $696,611 and thereafter $710,863 (total $6,318,641).
Rental expense associated with facility and equipment operating
leases for fiscal years 1994, 1995 and 1996 was $1,101,041, $1,355,410
and $1,908,217, respectively.
Other Liabilities - Other liabilities consist of long-term lease
commitments and other long-term contractual obligations assumed in
connection with business acquisitions. Contractual obligations
representing existing liabilities recorded within the financial
statements that are expected to be realized during the next fiscal year
are included within other accrued expenses.
Litigation - In November 1995, First Fidelity Bank, N.A. and
United Jersey Bank, N.A., (the "Seller Banks"), filed a lawsuit against
Hill International Inc. and certain selling shareholders (the
"Sellers"), alleging the sale to the Company constituted a default
under Seller's loan agreement with the Seller Banks and the transfer of
consideration proceeds by Seller following the sale was unlawful. In
December 1995, the Seller Banks named ATC a party to the lawsuit,
asserting that the Seller Banks still hold a security interest in the
assets purchased. The action filed seeks recovery of the assets sold
to ATC. This case is in its early stages with discovery yet to take
place, however, in the Company's opinion, the outcome of this suit will
not have a significant effect on the Company's financial position or
future results of operations.
F-13<PAGE>
<PAGE>
F. STOCK OPTIONS
A stock option plan, established in 1988, (the "1988 Plan")
provides for the granting of 200,000 options to employees for purchase
of common stock at prices which cannot be less than the fair market
value at the time of the grant. Options become exercisable 20% per
year for certain participants and 50% per year for other participants
and expire within five years of the date of grant.
On July 16, 1993, the Board of Directors approved an additional
stock option plan (the"1993 Plan") providing for the granting of
200,000 options to employees for purchase of common stock at prices
which cannot be less than fair market value at the time of the grant.
In December 1995, the 1993 Plan was amended to increase the number of
options to 500,000 shares. Options become exercisable 20% per year and
expire within five years of the date of grant.
In connection with the merger of Aurora into ATC, the Board of
Directors of ATC approved a stock option plan (the "1995 Plan") having
identical provisions to Aurora's 1987 Stock Option Plan. The 1995 Plan
provides for the granting of 81,750 options representing the previously
outstanding Aurora stock options after adjustment by the stock exchange
rate of .545 as provided for under the terms of the merger agreement.
The 81,750 options were granted at an exercise price of $5.32 per share
in June 1995 to an officer of ATC in replacement of previously held
Aurora options. All of the options are exercisable as of February 29,
1996 and expire within ten years of the date of grant.
As of February 29, 1996, under the 1988, 1993 and 1995 Plans,
689,000 options have been granted, 26,380 options exercised, 77,900
options expired and 88,900 options remain available for grant. In
fiscal 1995, the Board of Directors approved the granting of 20,000
options to an unrelated consultant for purchase of common stock at
$9.50 per share (fair market value at date of grant). These options
were terminated in fiscal 1996 due to the consultants non-performance.
There are 307,950 exercisable under all plans and grants.
The changes in the outstanding stock options described above
during fiscal years 1994, 1995 and 1996 are summarized below:
PRICE PER
OPTIONS SHARE RANGE
BALANCE, February 28, 1993............... 132,550 $ 1.88 - 4.31
Granted.................................. 50,750 4.00 - 7.50
Exercised................................ (5,600) 1.88 - 4.31
Expired.................................. (7,000) 1.88 - 4.00
------- ----------------
BALANCE, February 28, 1994............... 170,700 1.88 - 7.50
Granted.................................. 132,350 6.75 - 17.00
Exercised................................ (6,980) 1.88 - 5.00
Expired.................................. (4,650) 10.00 - 10.50
------- ----------------
BALANCE, February 28, 1995............... 291,420 1.88 - 17.00
Granted.................................. 334,500 5.32 - 16.13
Exercised................................ (6,400) 1.88 - 10.50
Expired.................................. (34,800) 1.88 - 14.88
------- ----------------
BALANCE, February 29, 1996............... 584,720 $ 1.88 - 17.00
======= ================
F-14<PAGE>
<PAGE>
G. COMMON STOCK WARRANTS
During the year ended February 28, 1995, 284,803 of 285,817
outstanding Class B warrants were exercised at an exercise price of
$8.00 allowing the holder to receive one share of common stock per
warrant and one Class C warrant. The Class B warrants not exercised
expired as of September 30, 1994.
At February 29, 1996, there are 570,620 Class C warrants
outstanding. Each Class C warrant entitles the holder to purchase one
share of common stock at an exercise price of $10.00. The Company has
reserved common shares equal to the outstanding warrants for issuance
upon the exercise of the Class C warrants. The expiration date of the
Class C warrants is September 30, 1996.
In connection with the merger of Aurora, ATC issued five year
common stock purchase warrants for the purchase of 523,200 shares of
ATC common stock at prices ranging from $1.03 to $2.75 per share in
replacement of previously outstanding Aurora warrants. During fiscal
1996, 32,700 warrants were exercised at approximately $1.83 per share.
The remaining warrants expire from November 30, 2000 to January 10,
2004.
H. INCOME TAXES
Income tax expense (benefit) for the years ended February 28 (29),
consists of the following:
<TABLE>
<S> <C> <C> <C>
STATE &
FEDERAL LOCAL TOTAL
1994:
Current...................... $ 1,009,000 $ 213,000 $ 1,222,000
Deferred..................... (9,000) (3,000) (12,000)
----------- ----------- -----------
Total...................... $ 1,000,000 $ 210,000 $ 1,210,000
=========== =========== ===========
1995:
Current...................... $ 1,725,000 $ 295,500 $ 2,020,500
Deferred..................... 19,000 4,500 23,500
----------- ----------- -----------
Total...................... $ 1,744,000 $ 300,000 $ 2,044,000
=========== =========== ===========
1996:
Current...................... $ 1,700,400 $ 296,300 $ 1,996,700
Deferred..................... (161,700) (30,000) (191,700)
----------- ----------- -----------
Total...................... $ 1,538,700 $ 266,300 $ 1,805,000
=========== =========== ===========
</TABLE>
The Company made income tax payments of approximately $278,000,
$3,023,000 and $2,077,000, in fiscal 1994, 1995 and 1996, respectively.
A reconciliation of the statutory U.S. Federal tax rate and
effective tax rate for the years ended February 28 (29) is as follows:
<TABLE>
<S> <C> <C> <C>
1994 1995 1996
Statutory U.S. Federal rate...................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit....... 4.5 4.1 4.3
Tax benefit of Aurora's net operating loss
carryforward................................... - - (6.2)
Tax exempt interest income....................... - - (2.4)
Non-deductible expenses.......................... 0.8 0.5 2.1
----- ----- -----
39.3% 38.6% 31.8%
===== ===== =====
</TABLE>
F-15<PAGE>
<PAGE>
The tax effects of temporary differences that give rise to a
significant portion of the deferred tax assets and liabilities as of
February 28 (29) consist of the following:
<TABLE>
<S> <C> <C>
1995 1996
Deferred tax assets:
Nondeductible liabilities and reserves... $ 234,300 $ 416,300
Aurora net operating loss carryforward... - 150,000
Other.................................... 31,000 -
------- -------
265,300 566,300
Deferred tax liabilities:
Property and equipment .................. 97,000 108,000
Prepaid expenses......................... 101,600 125,800
Other.................................... 14,600 88,700
-------- --------
213,200 322,500
--------- ---------
Net deferred tax asset ...................... $ 52,100 $ 243,800
========= =========
</TABLE>
During fiscal 1996, ATC utilized a one-time tax benefit of
$350,000 to offset taxable income relating to Aurora's net operating
loss carryforward at the time of the ATC and Aurora merger.
The current portion of net deferred tax assets of $132,700 and
$440,600 at February 28 (29), 1995 and 1996 is classified in the
consolidated balance sheet in current assets. The non-current portion
is classified in non-current liabilities.
I. EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan which allows for
voluntary contributions into designated investment funds by eligible
employees. The Company may, at the discretion of its Board of
Directors, make additional contributions on behalf of the Plan's
participants. No Company contributions were made in fiscal years 1994,
1995, and 1996.
J. RELATED PARTY TRANSACTIONS
Until the merger of Aurora with ATC on June 29, 1995, certain
expenses, including salaries, fringe benefits, insurance, rent,
consulting fees, legal, accounting, and other general expenses, were
paid by ATC and Aurora, for the benefit of the other. These expenses
were allocated between the companies based on estimates of time spent,
square footage and use of the services received which management
believes to be reasonable. The intercompany liability was forgiven
pursuant to the terms of the Merger Agreement.
Changes to the related party liability account arising from
transactions with Aurora for the years ended February 28 (29) are as
follows:
<TABLE>
<C> <C> <C>
1994 1995 1996
Due To Related Company, beginning of year... $ 103,804 $ 122,141 $ 39,969
Interest expense charged to ATC by Aurora
at 8%................................... 11,800 9,028 521
Expenses paid by ATC and allocated to
Aurora.................................. (18,700) (82,120) (65,694)
Expenses paid by Aurora and allocated
to ATC.................................. 6,337 5,920 1,479
Cash payments to Aurora................... (41,100) (15,000) -
Cash payments from Aurora................. 60,000 - 136,537
Forgiveness of liability pursuant to
Merger Agreement (Note B)............... - - (112,812)
---------- ---------- ----------
Due To Related Company, end of year......... $ 122,141 $ 39,969 $ 0
========== ========== ==========
Average monthly balance..................... $ 139,765 $ 106,011 $ 30,729
========== ========== ==========
</TABLE>
F-16<PAGE>
<PAGE>
K. SUPPLEMENTAL INFORMATION
Supplemental cash flow information - Supplemental cash flow
information for the years ended February 28 (29) is as follows:
<TABLE>
<S> <C> <C> <C>
1994 1995 1996
Cash paid for interest.............. $ 173,174 $ 276,658 $ 374,466
Noncash investing and financing
activities:
Adjustment to tax benefit arising
from exercise of common stock
warrants........................ (40,927) - -
Cancellation of note payable to
stockholders related to
Bio/West rescission agreement... (750,000) - -
Liabilities assumed in connection
with business combinations...... 193,335 6,056,441 640,082
Common stock issued in connection
with business combinations...... 29,700 605,408 -
Common stock issued in connection
with the Aurora Merger.......... - - 61,117
Notes payable issued in connection
with business combinations...... 355,840 835,000 1,000,000
</TABLE>
Supplemental analysis of valuation and qualifying accounts
Changes in the allowance for doubtful accounts for the years ended
February 28 (29) are as follows:
<TABLE>
<S> <C> <C> <C>
1994 1995 1996
BALANCE, beginning of year........ $ 130,768 $ 167,344 $ 535,886
Provision for bad debts......... 143,017 188,819 290,165
Amounts written-off,
net of recoveries............. (63,941) (136,350) (309,932)
Adjustment for allowance for
doubtful accounts recorded
on net acquired (rescinded)
accounts receivable........... (42,500) 316,073 (132,899)
----------- ----------- -----------
BALANCE, end of year............ $ 167,344 $ 535,886 $ 383,220
=========== =========== ===========
</TABLE>
F-17<PAGE>
<PAGE>
L. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's unaudited quarterly results of operations for fiscal
1995 and 1996 are as follows:
Fiscal 1995 Three Months Ended
<TABLE>
<S> <C> <C> <C> <C>
May August November February
31 31 30 28
1994 1994 1994 1995
(1)
Revenues................... $ 8,167,900 $ 8,721,212 $ 9,228,737 $10,153,708
Gross profit............... 3,775,603 4,411,689 4,382,484 5,346,288
Income before income taxes. 1,123,914 1,592,608 1,298,043 1,285,955
Net income................. 689,514 981,008 796,043 789,955
Earnings per common share and
dilutive common equivalent
share:
Primary $ .13 $ .18 $ .13 $ .13
Fully diluted $ .12 $ .18 $ .13 $ .13
Fiscal 1996 Three Months Ended
May August November February
31 31 30 29
1995 1995 1995 1996
(2) (3)
Revenues................... $10,814,953 $11,649,478 $11,223,139 $11,277,327
Gross profit............... 5,269,542 5,529,416 5,342,623 4,308,142
Income before income taxes. 1,462,628 1,921,617 1,811,675 475,078
Net income................. 895,128 1,519,117 1,104,675 347,078
Earnings per common share and
dilutive common equivalent
share (4):
Primary................. $ .15 $ .23 $ .15 $ .04
Fully diluted........... $ .15 $ .23 $ .15 $ .04
</TABLE>
________
The Company's operations are seasonal in nature, with a
disproportionate percentage of income earned in the second and third
quarters.
(1) Reflects the acquisition of Con-Test, (Note B)
(2) Reflects the merger of ATC and Aurora, (Note B)
(3) Reflects the acquisition of the Hill Businesses, (Note B)
(4) For fiscal 1996, the sum of the quarterly earnings per share
is less than the reported fiscal year earnings per share
due to the averaging effect of the 1,970,000 shares issued in
connection with the Company's stock offering in October 1995.
F-18<PAGE>
<PAGE>
M. SUBSEQUENT EVENTS
Acquisition of American Testing and Engineering Corporation -
Effective May 24, 1996, ATC purchased certain assets and assumed
certain liabilities of American Testing and Engineering Corporation
("ATEC"), a national environmental consulting firm. ATEC provides
environmental consulting and engineering services including risk
assessments, compliance audits, environmental remediation consulting,
geotechnical, materials testing, industrial hygiene and analytical
services through a large network of branch and regional offices. For
its year ended December 31, 1995, ATEC had revenues of $85,020,000
and a net loss of ($1,820,000).
The acquisition will be accounted for as a purchase. The assets
acquired include customer contract rights, customer lists, order
backlog, customer records, and certain tangible assets consisting of
accounts receivable, work in process and customer and certain other
deposits. Additionally, ATC executed an agreement to lease
substantially all of ATEC's equipment and executed several sublease
agreements for premises leased by ATEC. ATC also obtained non-
competition agreements with ATEC, a non-acquired subsidiary, and the
majority shareholder of ATEC.
The purchase price consideration consisted of $9,000,000 of cash
paid at closing and property and facility lease payments and non-
compete payment obligations of $6,000,000 payable during the first year
following the purchase. The Company also assumed liability for ATEC's
bank debt, approximately $11,025,000, its accounts payable, and certain
other recorded liabilities. The Company may offset up to $2,000,000 of
the cash consideration paid at close against future payment obligations
if certain minimum net revenues are not achieved during the first year
following the purchase. The Company is contingently liable to ATEC for
additional purchase consideration up to $10,750,000 if certain net
revenue levels are achieved and certain other conditions are met.
Amounts, if fully earned, would be paid as follows; $3,883,333 in
fiscal 1998, $3,873,333 in fiscal 1999, $1,293,334 in fiscal 2000 and
$1,700,000 in fiscal 2002.
Acquisition of 3D Information Services, Inc. - Effective May 28,
1996, ATC purchased certain assets and assumed certain specified
liabilities of 3D Information Services, Inc. ("3D"), a New Jersey based
information services company providing technical information system
consulting services in all phases of information system design,
development, maintenance and management in client server and mainframe
based environments. Its clients include major companies in the
telecommunications, financial services and pharmaceutical industries.
3D reported revenues and net income of approximately $10,360,000 and
$135,000 respectively, for its year ended December 31, 1995.
The acquisition will be accounted for as a purchase. Assets
purchased include customer contract rights, customer lists, order
backlog, customer records, employee contracts and tangible assets
including accounts receivable, unbilled work in process, field and
office supplies, and equipment. Consideration paid consisted of
$3,000,000 of cash at closing and a note payable for $2,500,000 payable
in three annual payments plus interest. In addition, ATC assumed
certain liabilities of approximately $490,000. ATC also entered into a
three year non-compete agreement with the majority stockholder.
Bank Credit Agreement - On May 24, 1996 the Company entered into a
$20,000,000 bridge credit facility with Chemical Bank and Atlantic Bank
of New York. Under the terms of the credit agreement, the Company may
borrow up to the amount of the facility, with interest payable monthly
at 1.75% above the adjusted Eurodollar rate (7.18% at May 24, 1996).
Amounts borrowed are due September 20, 1996. The Company anticipates
entering into a longer term agreement with the banks prior to the
maturity date of the credit agreement. The Company borrowed
approximately $14,025,000 in connection with the ATEC and 3D
acquisitions. The agreement contains certain restrictive covenants
which are consistent for this type of facility, including restrictions
on dividend payments.
F-19
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information regarding the
Companys directors, executive officers and a key employee.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Officers and Directors:
George Rubin............... 68 Chairman of the Board and Secretary; Director
Morry F. Rubin............. 36 President, Chief Executive Officer, Treasurer; Director
Nicholas J. Malino......... 45 Senior Vice President, Financial and General Operations
Christopher P. Vincze...... 34 Senior Vice President, Financial and General Operations
Donald W. Beck............. 37 Senior Vice President
Wayne A. Crosby............ 42 Chief Financial Officer
Richard L. Pruitt.......... 55 Vice President, Principal Accounting Officer; Director
Richard S. Greenberg, Esq.. 46 Director
Julia S. Heckman........... 46 Director
Key Employee:
John J. Smith, Esq......... 45 General Counsel
</TABLE>
The business experience, principal occupations and employment, as
well as the periods of service, of each of the directors, executive
officers and a key employee of the Company during at least the last
five years are set forth below.
George Rubin has been Chairman of the Board of ATC since 1988.
From 1961 to 1987, Mr. Rubin served as President, Treasurer and a
director of Staff Builders, Inc. Staff Builders Inc., was a publicly
held corporation engaged in the business of providing temporary
personnel primarily in the health care field operating through
approximately 100 offices and with revenues over $100 million. Since
December 1986, Mr. Rubin has been a principal stockholder, executive
officer and a director of National Diversified services, Inc., a
publicly held corporation which completed a public offering in December
1986 and currently has no business operations. George Rubin is the
father of Morry F. Rubin.
Morry F. Rubin has been President, Chief Executive Officer,
Treasurer and a director of ATC since 1988. Mr. Rubin was also
President, Chief Executive Officer and Treasurer of Aurora from May
1985 to June 1995, and was a director of Aurora from September 1983 to
June 1995. Since 1986, Mr. Rubin has been a principal stockholder and
from 1986 to July 1995, Mr. Rubin was President and a director of
National Diversified services, Inc., a publicly held corporation, which
completed a public offering in December 1986 and currently has no
business operations. From 1981 to 1987, Mr. Rubin was employed in
sales and as a director of acquisitions for Staff Builders, Inc., a
publicly held company engaged in providing temporary personnel
primarily in the health care field. Morry F. Rubin is the son of
George Rubin.
Nicholas J. Malino has been Senior Vice President, Financial and
General Operations of ATC, since July 1993 and an employee of ATC since
October 1992. Mr. Malino has over fourteen years of experience in
managing professional service organizations. From February 1991 to
September 1993, Mr. Malino was the New York Regional Manager for Kemron
Inc., a hazardous waste consulting company headquartered in McLean,
Virginia. From August 1989 to January 1991, he was the Operations
Manager for the New York City branch of Professional Service
Industries, Inc.
Christopher P. Vincze has been Senior Vice President, Financial
and General Operations of ATC since July 1993, a regional manager of
ATC since July 1991 and Vice President of a subsidiary of ATC since
1992. Mr. Vincze joined Dennison Environmental, Inc. in 1984 as an
industrial hygienist and served as Vice President of Marketing and
Operations from 1987 to July 1991.
Donald W. Beck has been Senior Vice President of ATC since April
1990 and Vice President since January 1988. Mr. Beck is responsible
for managing the operations of certain ATC offices. Mr. Beck also
served as a director of ATC Laboratories, Inc., a predecessor company
of ATC, from November 1985 until January 1988, President of ATC
Laboratories, Inc. from May 1986 until January 1988 and as Vice
President of ATC Laboratories, Inc. from November 1985 until May 1986.
Mr. Beck has been a full-time employee of ATC (and formerly ATC
Laboratories, Inc.) since May 1982.
19<PAGE>
<PAGE>
Wayne A. Crosby has been Chief Financial Officer of ATC since July
1995. Prior to joining ATC, Mr. Crosby was the Chief Financial Officer
of BSE Management, Inc. from 1991 to 1993 and Chief Financial Officer
of Compex systems, Inc. from 1986 through 1990. Mr. Crosby is a
certified public accountant and was employed by Deloitte Haskins &
Sells for eight years.
Richard L. Pruitt is a Vice President, the Principal Accounting
Officer and a director of ATC. Mr. Pruitt has served as Vice President
of ATC since September 1990, as Principal Accounting Officer of ATC
since April 1988 and as a director of ATC since January 1988. Mr.
Pruitt served as Principal Financial Officer of ATC from September 1989
to April 1992 and from May 1993 to July 1995. Mr. Pruitt served as the
Principal Financial Officer and a director of Aurora from May 1985 to
June 1995 and served as Financial Manager of Aurora from February 1982.
Richard S. Greenberg, Esq. has been a director of ATC since July
1995. Mr. Greenberg has been a director of the Environmental
Management Consulting Services Croup at Coopers & Lybrand since October
1989. Mr. Greenberg has over 20 years of experience in the areas of
environmental management consulting, environmental litigation support
and legislative policy analysis.
Julia S. Heckman has been a director of ATC since August 1995.
Mrs. Heckman has been a Managing director with Rodman & Renshaw, Inc.'s
Investment Banking Group since April 1995 and had been a Managing
Director with Mabon securities Corp.'s Investment Banking Group since
1991. Prior to joining Mabon Securities Corp., Mrs. Heckman was a
Managing Director with Paine Webber Group Inc's Corporate Finance
Group. Mrs. Heckman serves as a member of the Company's Board of
Directors pursuant of the Underwriting Agreement between Rodman &
Renshaw, Inc. and the Company. See "Underwriting."
John J. Smith, Esq. has been General Counsel since August 1989 and
served as a Vice President of ATC from September 1990 through December
1993. Prior to joining ATC, from 1986 to 1989, Mr. Smith was the
Secretary of the South Dakota Department of Water and Natural
Resources, a cabinet level position responsible for managing all of the
State's environmental and natural resources development programs.
The Board of Directors has recently appointed an Audit Committee
and a Compensation Committee consisting of three directors including
Morry F. Rubin and the newly elected independent directors, Richard S.
Greenberg and Julia S. Heckman. The Audit Committee is responsible,
among other things, for approving and transactions between the Company
and any of its directors, officers or affiliates. The Compensation
Committee is responsible for setting compensation of the executive
officers of the Company and for granting any further options to
purchase Common Stock.
All directors of ATC will hold offices until the next annual
stockholders' meeting and until the election and qualification of their
successors. Officers hold their respective positions until their
successors are duly qualified or until they resign or are removed by
the Board of Directors.
Item 11. Executive Compensation.
This information will be contained in the definitive proxy
statement of the Company for the 1996 Annual Meeting of Stockholders
under the caption "Compensation of Directors and Executive officers"
and is incorporated herein by reference.
20<PAGE>
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth information as of May 1, 1996 with
respect to the share ownership by ATC's directors individually,
officers and directors as a group, and for record and/or beneficial
owners of more than 5% of the outstanding amount of such stock. For
purposes of calculating the amount of beneficial ownership and the
respective percentages, the number of shares of ATC Common Stock which
may be acquired by a person upon the exercise of outstanding options,
if any, notwithstanding the options vesting schedule, are considered
outstanding but are not deemed to be outstanding for the purpose of
computing the percentage of Common Stock owned by any other person.
<TABLE>
<CAPTION>
Number of Approximate
Name and Address Position Shares Owned Percent of
(1) Class
(2)
<S> <C> <C> <C>
Chairman of the
Board and
George Rubin Secretary; 1,512,542 18.3
(3) Director
President, Chief
Executive Officer,
Morry F. Rubin Treasurer; 800,489 10.1
(4) Director
Vice President,
Principal
Richard L. Pruitt Accounting Officer; 57,650 *
(5) Director
Julia S. Heckman Director 7,500 *
(6)
Richard S. Director 7,500 *
Greenberg, Esq.
(7)
All Officers and
Directors of ATC Various 2,557,023 29.6
as a Group(10
persons)(8)
</TABLE>
* Represents less than 1%.
____________
(1) Each person has sole voting power and investment power with
respect to the number of shares indicated as owned.
(2) Based upon 7,784,269 shares of American Stock outstanding as
of May 28, 1996.
(3) Shares owned include options to purchase 490,500 shares of
Common Stock. Address: 104 East 25th Street, 10th Floor, New York, NY
10010
(4) Shares owned include options to purchase 161,750 shares of
Common Stock. Address: 104 East 25th Street, 10th Floor, New York, NY
10010
(5) Shares owned include options to purchase 8,300 shares of
Common Stock. Address: 1515 East Tenth Street, Sioux Falls, SD 57103.
(6) Shares owned includes options to purchase 7,500 shares of
Common Stock. Address: Rodman & Renshaw, Inc, One Liberty Plaza-31st
Floor, 165 Broadway, New York, N.Y. 10006.
(7) Shares owned include options to purchase 7,500 shares of
Common Stock. Address: Coopers & Lybrand, 370 17th Street, Suite 3300,
Denver, CO 80202.
(8) Shares owned include options to purchase 832,550 shares of
Common Stock.
ATC does not know of any arrangement or pledge of its securities
by persons now considered in control of ATC that might result in a change
of control of ATC.
21<PAGE>
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Effective June 29, 1995, ATC and its parent, Aurora were merged
pursuant to an agreement approved by the majority of shareholders of
each company, with ATC as the surviving corporation (the "Aurora
Merger"). Prior to the Aurora Merger, Aurora was a holding company
which owned approximately 57% of ATC's outstanding Common Stock and had
substantially no other assets. Under the terms of the merger, each
outstanding share of Aurora Common stock was exchanged for .545 shares
of ATC Common Stock. ATC issued 3,341,356 shares of ATC Common Stock
in exchange for 6,131,104 shares of Aurora's common stock, and issued
options and warrants entitling the holders thereof to purchase up to
604,950 shares of ATC Common Stock upon exercise in replacement of
previously outstanding options and warrants to purchase Aurora's common
stock. ATC common shares held by Aurora of 3,258,000 were canceled.
Actual common shares outstanding increased by 83,356 shares. As a
result of the Aurora Merger, ATC utilized Aurora's net operating loss
carry forward to reduce its taxable income and accordingly recorded a
one-time reduction in income tax expense of approximately $350,000
($.05 per share) in fiscal 1996. Certain officers and directors of ATC
were stockholders of Aurora and participated in the merger on a
consistent basis with all Aurora security holders.
ATC has in the past, and may in the future, enter into
transactions with officers, directors and other affiliates which may be
deemed to be non-arms-length transactions (i.e. transactions between
related parties). Any new transactions would be approved by a majority
of disinterested Board of Directors and would be expected to be made on
terms no less favorable to ATC than could be arranged with independent
third parties. All material transactions during the past three years
between ATC and Aurora are set forth above.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) (1) Financial Statements
A list of the financial statements filed as a part of this Annual
Report is set forth in Item 8, and appears on Page F-1 herein; which
list is incorporated herein by reference.
(a) (2) Financial Statement Schedules
No financial statement schedules are in this Annual Report because
the information required is contained in the financial statements
incorporated by reference in (a) (1) above.
(a) (3) Exhibits
A list of exhibits required by Item 601 of Regulation S-K and an
index thereto appears on the following page of this Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
February 29, 1996. However, an amendment fo a Form 8-K dated
November 10, 1995 was filed during the quarter ended February 29,
1996.
22<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
2 Agreement and Plan of Merger to reincorporate in
Delaware(contained in Exhibits 3(b) and 3(c)(1)
2(a) Agreement and Plan of Merger between ATC Environmental Inc.
and Aurora Environmental Inc. (6)
3(a) Certificate of Incorporation of Registrant(1)
3(b) Certificate of Ownership and Merger of
Registrant(Delaware)(1)
3(c) By-Laws(1)
3(d) Certificate of Merger(Aurora Environmental Inc. Merging with
and into ATC Environmental Inc.)(9)
10 Employee Savings(401(k))Plan(2)
10(a) New York City Lease(3)
10(b) Form of Indemnity Agreement(10)
10(c) Asset Purchase Agreement between ATC Environmental Inc., a Delaware
corporation, and Hill International Inc., a Delaware corporation, executed on
November 10, 1995(5)
10(d) Six-Month Promissory Note executed and delivered by ATC
Environmental Inc. on November 10, 1995, payable to Hill International, Inc.
in the amount of $300,000(5)
10(e) Irrevocable Letter of Credit executed by Atlantic Bank of New
York on November 8, 1995, and delivered by ATC Environmental Inc. on November
10, 1995, payable on or after May 1, 1996, to Hill International, Inc. in the
amount of $730,625.00(5)
10(f) Bill of Sale delivered on November 10, 1995, conveying assets
referenced in assets purchase agreement from Hill International, Inc. to ATC
Environmental Inc.(5)
10(g) Non-Competition Agreement of Irvin E. Richter to ATC Environmental
Inc. Delivered on November 10, 1995(5)
10(h) Non-Competition Agreement of David L. Richter to ATC Environmental
Inc. Delivered on November 10, 1995(5)
10(i) Agreement for Sale and Purchase of Business Assets on May 24, 1996,
among ATC Environmental, American Testing and Engineering Corporation d/b/a
ATEC Associates, Inc. and Gerald D. Mann.(**)
10(j) Assumption of Liabilities Agreement on May 24, 1996, among ATC
Environmental Inc., American Testing and Engineering Corporation and Gerald
D. Mann.(**)
10(k) Master Equipment Lease Agreement on May 24, 1996, between ATC
Environmental Inc. and American Testing and Engineering Corporation.(**)
10(l) Master Sublease Agreement on May 24, 1996, between ATC Environmental
Inc. and American Testing and Engineering Corporation covering premises
leases at Indianapolis, IN, Atlanta, GA and Dallas, TX.(**)
10(m) Non-Competition Agreement on May 24, 1996, between ATC
Environmental Inc. and American Testing and Engineering Corporation.(**)
10(n) Mann Non-Competition Agreement on May 24, 1996, between ATC
Environmental Inc. and Gerald D. Mann.(**)
10(o) WATEC Non-Competition Agreement on May 24, 1996, between ATC
Environmental Inc. and Waste Abatement Technology, LLP.(**)
23<PAGE>
<PAGE>
10(p) Security Agreement on May 24, 1996, among ATC Environmental Inc.,
American Testing and Engineering Corporation and Gerald D. Mann.(**)
10(q) $500,000 Letter of Credit on May 24, 1996, from Chemical Bank, N.A.
against the account of ATC Environmental Inc. in favor of American Testing
and Engineering Corporation.(**)
10(r) Agreement for Sale and Purchase of Business Assets on May 28, 1996,
among ATC In Sys Technology Inc., 3D Information Services Inc. and Ciro De
Saro.(**)
10(s) Assumption of Liabilities Agreements on May 28, 1996, between ATC
In Sys Technology Inc., 3D Information Services Inc. and Ciro De Saro.(**)
10(t) Stockholders Non-Competition Agreement on May 28, 1996, between ATC
In Sys Technology Inc. and the stockholders of 3D Information Services Inc.(**)
10(u) Three-year, $2,500,000 Promissory Note on May 29, 1996, from ATC
Environmental Inc. to 3D Information Services Inc.(**)
10(v) Employment Agreement on May 29, 1996, between ATC Environmental Inc.
and Ciro De Saro.(**)
11 Statements re: Computation of per share earnings(*)
21 Subsidiaries of Registrant(4)
23 Independent Auditors' Consent-Deloitte & Touche LLP(*)
27 Financial Data Schedule(*)
99 1988 Stock Option Plan(7)
99(a) 1993 Stock Option Plan(8)
___________________________
* Filed herewith.
** To be filed under a Form 8-K within 15 days of the transaction date.
24<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX (continued)
<S> <C>
(1) Reference is made to the Registrant's Registration
Statement File No. 33-19889 on Form S-1, which is incorporated
by reference and contains exhibits 2, 3(a), 3(b) and 3(c).
(2) Reference is made to the Registrant's Form 10-K for the fiscal
year ended February 28, 1990 which is incorporated by
reference and contains Exhibit 10.
(3) Reference is made to the Registrant's Form 10-K for the fiscal
year ended February 29, 1992 which is incorporated by
reference and contains exhibit 10(a).
(4) During the fiscal year ended February 29, 1996, ATC had four
wholly-owned subsidiaries, namely, Hygeia ProScience
Laboratories Inc. ("Hygeia"), ATC Management Inc. ("Management
Co."), ATC New England Corp. ("ATC New England") and ATC
Blattert Inc. ("Blattert"). Hygeia, Management Co., ATC New
England and Blattert are formed under the laws of the States of
Delaware, South Dakota, Delaware and South Dakota, respectively.
Hygeia does business under the name Hygeia ProScience, Inc.
Management Co. Does business under the name ATC Management Inc.
ATC New England does business under its own name and Con-Test.
Blattert does business under ATC Blattert Inc., Blattert &
Associates Inc. And Microbial Environmental Services, Inc.
(5) Reference is made to the Registrant's Form 8-K dated November 10,
1995, which is incorporated by reference and contains Exhibits 10(c),
10(d), 10(e), 10(f), 10(g) and 10(h).
(6) Reference is made to the Registrant's Form S-4 Registration
Statement, file No. 33-88380 which is incorporated by reference
and contains Exhibit 2(a).
(7) Reference is made to the Registrant's Form S-8 Registration
Statement, file No. 33-55592 which is incorporated by reference
and contains Exhibit 99.
(8) Reference is made to the Registrant's Form S-8 Registration
Statement, File No. 33-77578 which is incorporated by reference
and contains Exhibit 99.1.
(9) Reference is made to the Registrant's Form 10-Q for the quarter
ended May 31, 1995, which is incorporated by reference
and contains Exhibit 3(d).
(10) Reference is made to the Registrant's Form 10-K for its fiscal
year ended February 28, 1995, which is incorporated by
reference and contains Exhibit 10(b).
</TABLE>
25<PAGE>
<PAGE>
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.
<TABLE>
<S> <C>
ATC ENVIRONMENTAL, INC
(Registrant)
By: /s/ MORRY F. RUBIN
MORRY F. RUBIN
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ GEORGE RUBIN May 29, 1996
(Dated)
GEORGE RUBIN,
Chairman of the Board and Secretary
/s/ MORRY F. RUBIN May 29, 1996
(Dated)
MORRY F. RUBIN,
President and Chief Executive Officer
/s/ RICHARD L. PRUITT May 29, 1996
(Dated)
Richard L. Pruitt,
Vice President and Principal Accounting Officer
/s/ WAYNE A. CROSBY May 29, 1996
(Dated)
Wayne A. Crosby
Chief Financial Officer
/s/ RICHARD S. GREENBERG, ESQ. May 29, 1996
(Dated)
Richard S. Greenberg, Esq.
Director
/s/ JULIA S. HECKMAN May 29, 1996
(Dated)
Julia S. Heckman
Director
</TABLE>
26<PAGE>
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
EXHIBIT 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
YEARS ENDED FEBRUARY 28 (29), 1994, 1995 AND 1996 (UNAUDITED)
<S> <C> <C> <C>
1994 1995 1996
Primary earnings per share:
Weighted average number of shares of
common stock outstanding.............. 5,298,258 5,492,657 6,517,500
Additional shares assuming exercise of
dilutive stock options and stock
warrants.............................. 78,663 261,199 663,916
----------- ----------- -----------
Total average common and common
equivalent shares outstanding.... 5,376,921 5,753,856 7,181,416
=========== =========== ===========
Net income........................... $ 1,867,048 $ 3,256,520 $ 3,865,998
=========== =========== ===========
Earnings per common and dilutive
common equivalent share.............. $ 0.35 $ 0.57 $ 0.54
=========== =========== ===========
Fully diluted earnings per share:
Weighted average number of shares
of common stock outstanding.......... 5,298,258 5,492,657 6,517,500
Additional shares assuming exercise
of dilutive stock options and stock
warrants............................. 98,115 357,576 663,916
----------- ----------- -----------
Total average common and common
equivalent shares outstanding..... 5,396,373 5,850,233 7,181,416
=========== =========== ===========
Net income........................... $ 1,867,048 $ 3,256,520 $ 3,865,998
=========== =========== ===========
Earnings per common and dilutive
common equivalent share.............. $ 0.35 $ 0.56 $ 0.54
=========== =========== ===========
</TABLE>
27<PAGE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-55592 and No. 33-73578 of ATC Environmental Inc. on Form S-8 of
our report dated May 6, 1996 (May 28, 1996, as to Note M), appearing
in this Annual Report on Form 10-K of ATC Environmental Inc. for the
fiscal year ended February 29, 1996.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 29, 1996
28<PAGE>
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES EXHIBIT 27
FINANCIAL DATA SCHEDULE
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
As of
Item Item February
Number Description 29, 1996
<S> <C> <C>
5-02(1) Cash and cash items $ 13,469,443
5-02(2) Marketable securities and short-term N/A
investments
5-02(3)(a)(1) Notes and accounts receivable - trade 16,878,829
5-02(4) Allowances for doubtful accounts 383,220
5-02(6) Inventory N/A
5-02(9) Total current assets 31,311,941
5-02(13) Property, plant and equipment 7,074,634
5-02(14) Accumulated depreciation 3,467,879
5-02(18) Total assets 46,684,600
5-02(21) Total current liabilities 6,334,625
5-02(22) Bonds, mortgages and similar debt 361,944
5-02(28) Preferred stock - mandatory redemption N/A
5-02(29) Preferred stock - no mandatory redemption N/A
5-02(30) Common stock 77,966
5-02(31) Other stockholders' equity 39,114,448
5-02(32) Total liabilities and stockholders' 46,684,600
equity
Year ended
February
29, 1996
5-03(b)1(a) Net sales of tangible products N/A
5-03(b)1 Total revenues $ 44,964,897
5-03(b)2(a) Costs of tangible goods sold N/A
5-03(b)2 Total costs and expenses applicable to 24,515,174
sales and revenues
5-03(b)3 Other costs and expenses 14,364,096
5-03(b)5 Provision for doubtful accounts and notes 290,165
5-03(b)(8) Interest and amortization of debt 376,621
discount
5-03(b)(10) Income before taxes and other items 5,670,998
5-03(b)(11) Income tax expense 1,805,000
5-03(b)(14) Income (loss) continuing operations 3,865,998
5-03(b)(15) Discontinued operations N/A
5-03(b)(17) Extraordinary items N/A
5-03(b)(18) Cumulative effect - changes in accounting N/A
principles
5-03(b)(19) Net income (loss) 3,865,998
5-03(b)(20) Earnings per share - primary $0.54
5-03(b)(20) Earnings per share - fully diluted $0.54
</TABLE>
29
<PAGE>
