<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A #1
-------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Earliest Event Reported - May 24, 1996
ATC ENVIRONMENTAL INC.
----------------------
(Exact name of Registrant as specified in its charter)
Delaware 1-10583 46-0399408
- ----------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
104 East 25th Street, 10th Floor
New York, New York 10010
- -------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 353-8280
---------------
PAGE
<PAGE>
Item 7. Exhibits and Financial Statements.
(a)(1)(i) Financial Statements of American Testing and
Engineering Corporation for the Years Ended December 31,
1995 and 1994, and for the Three Months Ended December 31,
1993, and the Year Ended September 30, 1995.
(b) Pro Forma Unaudited Combined Financial Data in connection
with the Acquisition of American Testing and Engineering
Coporation and 3D Information Services.
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.
ATC ENVIRONMENTAL, INC
----------------------
(Registrant)
August 6, 1996 By: /s/ Richard L. Pruitt
- -------------- ---------------------------
(Dated) RICHARD L. PRUITT
Vice President and
Principal Accounting Officer
PAGE
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED COMBINED FINANCIAL DATA IN CONNECTION WITH
THE ACQUISITION OF AMERICAN TESTING AND ENGINEERING CORPORATION
AND 3D INFORMATION SERVICES, INC.
The following pro forma unaudited combined condensed financial
data for ATC Environmental Inc. ("ATC"), American Testing and
Engineering Corporation ("ATEC") and 3D Information Services,
Inc. ("3D") have been prepared based upon the historical
financial results of the companies. The ATC financial data has
been adjusted to give effect to the merger of ATC with its
parent, Aurora Environmental, Inc. ("Aurora") and the Company's
acquisition of the environmental subsidiaries of Hill
International, Inc. ("Hill") comprising Hill's New York Region
Environmental Division (the "Hill Businesses"; collectively
"ATC As Adjusted"). The pro forma combined financial data give
effect to the merger of ATC and Aurora under a method of
accounting similar to a pooling of interests and the
acquisition of ATEC, 3D and the Hill Businesses by ATC under
the purchase method of accounting based upon the assumptions
set forth in the notes to the pro forma unaudited combined
financial data.
The pro forma combined statement of operations for the year
ended February 29, 1996, reflect the merger of Aurora and the
acquisitions of the Hill Businesses, ATEC and 3D as if each had
occurred at March 1, 1995, the beginning of the period
presented. The pro forma combined statement of operations for
the three months ended May 31, 1996 reflect the historical
results of ATC and the acquisitions of ATEC and 3D as if each
had occurred on March 1, 1996.
The pro forma unaudited combined financial data should be read
in conjunction with the audited consolidated financial
statements of the Company, the Hill Businesses, ATEC and 3D.
The pro forma combined results are intended for informational
purposes only and are not necessarily indicative of the results
which would have been attained if the merger and acquisitions
had been consummated at the beginning of the period presented
or which may be attained in the future.
1
PAGE
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (Unaudited)
THREE MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Note 2 Note 3
------------------------------ ------------------------------
ATEC 3D
Three Months ATC & ATEC Three Months
March 31, Pro Forma Pro Forma March 31, Pro Forma Pro Forma
ATC 1996 Adjustments Notes Combined 1996 Adjustments Notes Combined
----------- ------------ ----------- ----- ----------- ------------ ----------- ----- -----------
Revenues $16,645,983 $ 20,603,767 $(4,979,407) (A) $32,270,343 $ 2,645,734 $ (147,961) (A) $34,768,116
Cost of Revenues 9,363,971 12,821,299 (4,003,251) (B) 18,182,019 2,078,141 (110,656) (A) 20,149,504
----------- ------------ ----------- ----------- ------------ ----------- -----------
Gross Profit 7,282,012 7,782,468 (976,156) 14,088,324 567,593 (37,305) 14,618,612
Operating Expenses:
Selling 542,582 606,026 (100,405) (A) 1,048,203 165,405 (6,954) (A) 1,206,654
General and administrative 3,918,015 7,352,001 (2,985,214) (C) 8,284,802 287,160 27,666 (B) 8,599,628
Provision for bad debts 132,635 86,301 (6,012) (A) 212,924 - - 212,924
----------- ------------ ----------- ----------- ------------ ----------- -----------
4,593,232 8,044,328 (3,091,631) 9,545,929 452,565 20,712 10,019,206
----------- ------------ ----------- ----------- ------------ ----------- -----------
Operating Income (Loss) 2,688,780 (261,860) 2,115,475 4,542,395 115,028 58,017 4,599,406
Nonoperating Expense (Income):
Interest expense 57,326 355,426 16,892 (D) 429,644 - 51,563 (C) 481,207
Interest income (130,035) - - (130,035) (3,360) 35,833 (D) (97,562)
Other, net (10,814) (22,024) (1,231) (A) (31,607) 1,523 - (30,084)
----------- ------------ ----------- ----------- ------------ ----------- -----------
(83,523) 333,402 18,123 268,002 (1,837) 87,396 353,561
----------- ------------ ----------- ----------- ------------ ----------- -----------
Income (loss) before
income taxes 2,772,303 (595,262) 2,097,352 4,274,393 116,865 (145,413) 4,245,845
Income tax expense 1,054,000 - 570,794 (E) 1,624,794 15,000 (9,706) (E) 1,630,088
----------- ------------ ----------- ----------- ------------ ----------- -----------
Income (loss) before
minority interest 1,718,303 (595,262) 1,526,558 2,649,599 101,865 (135,707) 2,615,757
Minority interest - 449 (449) (A) - - - -
----------- ------------ ----------- ----------- ------------ ----------- -----------
Net income $ 1,718,303 ($595,711)$ 1,527,007 $ 2,649,599 $ 101,865 $ (135,707) $ 2,615,757
=========== ============ =========== =========== ============ =========== ===========
Earnings per Common Share and
Dilutive Common Equivalent
Share:
Primary $ 0.20 $ 0.31 $ 0.30
=========== =========== ===========
Fully diluted $ 0.20 $ 0.31 $ 0.30
=========== =========== ===========
Weighted Average Number of
Shares Outstanding:
Primary 8,581,643 8,581,643 8,581,643
=========== =========== ===========
Fully diluted 8,680,339 8,680,339 8,680,339
=========== =========== ===========
</TABLE>
2
PAGE
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (Unaudited)
YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Note 2 Note 3
------------------------------ ------------------------------
ATEC 3D
ATC Year Ended ATC & ATEC Year Ended
As Adjusted Dec. 31, Pro Forma Pro Forma Dec. 31, Pro Forma Pro Forma
(Note 4) 1995 Adjustments Notes Combined 1995 Adjustments Notes Combined
----------- ----------- ------------ ----- ------------ ------------ ----------- ----- ------------
Revenues $55,026,450 $95,130,122 $(11,619,111) (A) $138,537,461 $ 10,487,632 $ - $149,025,093
Cost of Revenues 30,401,728 26,926,568 (11,081,237) (B) 46,247,059 8,392,626 - 54,639,685
----------- ----------- ------------ ------------ ------------ ----------- ------------
Gross Profit 24,624,722 68,203,554 (537,874) 92,290,402 2,095,006 - 94,385,408
Operating Expenses:
Selling 1,769,809 31,064,366 (261,162) (A) 32,573,013 1,036,435 - 33,609,448
General and administrative 15,392,180 37,167,886 (9,911,835) (C) 42,648,231 975,044 (340,092) (B) 43,283,183
Provision for bad debts 434,165 124,049 (36,724) (A) 521,490 - - 521,490
----------- ------------ ----------- ------------ ------------ ----------- ------------
17,596,154 68,356,301 (10,209,721) 75,742,734 2,011,479 (340,092) 77,414,121
----------- ------------ ----------- ------------ ------------ ----------- ------------
Operating Income (Loss) 7,028,568 (152,747) 9,671,847 16,547,668 83,527 340,092 16,971,287
Nonoperating Expense (Income):
Interest expense 394,121 1,664,066 (165,422) (D) 1,892,765 89 206,250 (C) 2,099,104
Interest income (274,289) - - (274,289) (16,864) 150,000 (D) (141,153)
Other, net (14,883) - (292,603) (A) (307,486) 2,627 - (304,859)
----------- ------------ ----------- ------------ ------------ ----------- ------------
104,949 1,664,066 (458,025) 1,310,990 (14,148) 356,250 1,653,092
----------- ------------ ----------- ------------ ------------ ----------- ------------
Income (loss) before
income taxes 6,923,619 (1,816,813) 10,129,872 15,236,678 97,675 (16,158) 15,318,195
Income tax expense 2,263,864 - 3,158,962 (E) 5,422,826 12,387 27,716 (E) 5,462,929
----------- ------------ ----------- ------------ ------------ ----------- ------------
Income (loss) before
minority interest 4,659,755 (1,816,813) 6,970,910 9,813,852 85,288 (43,874) 9,855,266
Minority interest - 2,162 (2,162) (A) - - - -
----------- ------------ ----------- ------------ ------------ ----------- ------------
Net income $ 4,659,755 $ (1,818,975)$ 6,973,072 $ 9,813,852 $ 85,288 $ (43,874) $ 9,855,266
=========== ============ =========== ============ ============ =========== ============
Earnings per Common Share and
Dilutive Common Equivalent
Share:
Primary $ 0.63 $ 1.33 $ 1.33
=========== ============ ============
Fully diluted $ 0.63 $ 1.33 $ 1.33
=========== ============ ============
Weighted Average Number of
Shares Outstanding:
Primary 7,383,746 7,383,746 7,383,746
=========== ============ ============
Fully diluted 7,383,746 7,383,746 7,383,746
=========== ============ ============
</TABLE>
See notes to pro forma financial statements.
3
PAGE
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
Acquisition of Assets of ATEC - On May 24, 1996, ATC purchased
certain assets and assumed certain liabilities of ATEC, a
national environmental consulting firm. ATEC provides
environmental consulting and engineering services through a
large network of branch and regional offices. The acquisition
was accounted for a purchase. 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
$6,001,000 payable during the first year following the purchase.
The Company also assumed liability for ATEC's bank debt,
approximately $10,750,000, its accounts payable, and certain
other recorded liabilities. The Company is contingently liable
to ATEC for additional purchase consideration up to $10,750,000
if certain revenue levels are achieved and certain other
conditions are met. The maximum amount of contingent
consideration payable, if fully earned, would be paid as
follows: $3,883,000 in fiscal 1998, $3,873,333 in fiscal 1999,
$1,293,334 in fiscal 2000 and $1,700,000 in fiscal 2002.
Acquisition of Assets of 3D - Effective May 24, 1996 the Company
purchased certain assets and assumed certain specified
liabilities of 3D, a New Jersey based information services
company providing technical information consulting services.
The acquisition has been accounted for as a purchase.
Consideration paid consisted of $3,000,000 of cash at closing
and a note payable for $2,500,000 payable. In addition, ATC
assumed certain liabilities of approximately $198,000. ATC also
entered into a three year non-compete agreement with the
majority stockholder.
"ATC As Adjusted" Results of Operations - The "ATC As Adjusted"
results of operations give effect to the merger of ATC with its
parent, Aurora (which occurred on June 29, 1995) and ATC's
acquisition of the Hill Businesses (which occurred on November
10, 1995) as if each had occurred as of March 1, 1995, the
beginning of ATC's 1996 fiscal year. The merger of ATC and
Aurora has been accounted for under a method of accounting
similar to a pooling of interests, and the acquisition of the
Hill Businesses by ATC under the purchase method of accounting.
2. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF ATEC
The pro forma adjustments assume the acquisition of ATEC
occurred March 1, 1995 and reflects the adjustments to record
the purchase of certain assets and assumption of specified
liabilities based on ATEC's historical unaudited financial
statements, exclusive of a subsidiary not purchased by ATC
(WATEC) and branch offices discontinued by ATEC prior to ATC's
acquisition of ATEC.
4
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<PAGE>
The purchase price is comprised of the following consideration:
Consideration to seller and majority owner:
Cash paid at close $ 9,000,000
Payment obligations for property and facility rentals
and non-compete consideration 6,001,000
------------
15,001,000
------------
Liabilities assumed:
Current liabilities 15,731,076
Bank debt 10,750,000
------------
26,481,076
------------
Direct expenses and costs of transaction 139,438
------------
Total consideration $ 41,621,514
============
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. The
maximum amounts of contingent payable, 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 purchase price is subject to adjustment based upon a final
accounting of defined net equity as of the effective date of the
purchase. Additionally, the Company may set-off against certain
payment obligations the amount of any uncollected accounts
receivable and work in process, net of recorded allowances, not
collected within one year.
The initial purchase price allocation is summarized as follows:
Current Assets:
Accounts receivable and unbilled work in process,
net of allowances $ 18,957,768
Other current assets 2,023,996
Other assets 548,301
Covenant not to compete 430,000
Goodwill 19,661,449
------------
$ 41,621,514
============
5
PAGE
<PAGE>
The pro forma combined condensed statement of operations
reflects the following adjustments related to the acquisition of
ATEC.
A) Pro forma adjustments to eliminate WATEC, Discontinued
branches and adjust for the results of operations of ATEC for the
period subsequent to the acquisition.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
------------------------------------------ Three Months
Additional Ended
Discontinued March 31,
WATEC Branches Total 1996
------------ ------------ ------------ ------------
Revenues $ 10,112,194 $ 1,506,917 $ 11,619,111 $ 4,979,407
Cost of Revenues 7,848,406 1,412,516 9,260,922 3,778,337
------------ ------------ ------------ ------------
Gross Profit 2,263,788 94,401 2,358,189 1,201,070
Operating Expenses:
Selling 175,569 85,593 261,162 100,405
General and administrative 1,669,772 1,971,392 3,641,164 1,170,320
Provision for bad debts 49,522 (12,798) 36,724 6,012
------------ ------------ ------------ ------------
1,894,863 2,044,187 3,939,050 1,276,737
------------ ------------ ------------ ------------
Operating Income (loss) 368,925 (1,949,786) (1,580,861) (75,667)
Nonoperating Expense (Income):
Interest expense 171,128 129,679 300,807 90,030
Interest income - - - -
Other, net (18,392) 310,995 292,603 (1,231)
------------ ------------ ------------ ------------
152,736 440,674 593,410 88,799
------------ ------------ ------------ ------------
Income (loss) before taxes 216,189 (2,390,460) (2,174,271) (164,466)
Income tax expense - - - -
------------ ------------ ------------ ------------
Income before minority
interest 216,189 (2,390,460) (2,174,271) (164,466)
Minority Interest 2,162 - 2,162 449
------------ ------------ ------------ ------------
Net Income (loss) $ 214,027 $ (2,390,460) $ (2,176,433) $ (164,915)
============ ============ ============ ============
6
PAGE
<PAGE>
B)
To record the change in cost of revenues as follows:
</TABLE>
<TABLE>
<S> <C> <C>
Year Three Months
Ended Ended
Dec. 31, 1995 March 31, 1996
------------- --------------
Changes resulting from the acquisition:
Property and equipment related:
Pro Forma rental expense of ATEC property
and equipment $ 227,539 $ 56,885
------------- --------------
Less: Depreciation expense on property and
equipment not purchased 1,782,711 333,854
Total depreciation charged to cost of revenues (279,812) (60,554)
Less: WATEC discontinued branches (207,137) (39,361)
------------- --------------
Historical depreciation expense 1,295,762 233,939
------------- --------------
Net adjustment for property and
equipment and related costs (1,068,223) (177,054)
------------- --------------
Reduction in certain other costs as a result of the
integration of acquired operations into ATC:
Employee costs of ATEC employees not hired by ATC (752,092) (47,860)
------------- --------------
Cost of Revenues of subsidiary not purchased and
discontinued operations (Note A) (9,260,922) (3,778,337)
------------- --------------
$ (11,081,237) $ (4,003,251)
============= ==============
7
<PAGE> <PAGE>
C)
To record the change in general and administrative expenses as follows:
</TABLE>
<TABLE>
<S> <C> <C>
Year Three Months
Ended Ended
Dec. 31, 1995 March 31, 1996
------------- --------------
Changes resulting from the acquisition:
General and administrative expenses of subsidiary not
purchased and discontinued branches (Note A) $ (3,641,164) $ (1,170,320)
Less: Management fees charged by ATEC to WATEC
that will not be received in the future 585,725 99,493
------------- --------------
Net expense reduction from nonaquired operations (3,055,439) (1,070,827)
------------- --------------
Property and equipment related:
Pro forma rental expense of ATEC property and
equipment 320,762 80,191
------------- --------------
Less: Depreciation expense on property and
equipment not purchased
Total depreciation charged to general and
administrative expense 2,130,635 418,002
Less: WATEC (36,788) (7,521)
Discontinued branches (267,214) 16,369
------------- --------------
Historical depreciation expense 1,826,633 426,850
------------- --------------
Net adjustment for property and equipment
related costs (1,505,871) (346,659)
------------- --------------
Goodwill amortization, based on a 30 year
amortization period 655,382 163,846
------------- --------------
Amortization of covenants not to compete 43,429 10,857
------------- --------------
(3,862,499) (1,242,783)
------------- --------------
Reduction in certain other costs as a result of the
integration of acquired operations into ATC:
Employee costs of ATEC employees not hired (2,729,194) (682,299)
Expenses of ATEC facilities eliminated by
integrating operations into existing ATC
facilities and branches (1,018,473) (256,300)
Expenses of ATEC equipment leases eliminated by
integrating operations into ATC (277,588) (63,397)
Certain legal and accounting expenses of ATEC for
legal disputes not assumed by ATC (1,484,792) (372,772)
Reduction of professional and general insurance
costs to conform with ATC's insurance rates (397,781) (291,350)
Expenses of discontinued ATEC profit and performance
plans:
Performance share option plan share value
depreciation 126,608 -
401(k) profit sharing plan matching (268,116) (76,313)
------------- --------------
(6,049,336) (1,742,431)
------------- --------------
$ (9,911,835) $ (2,985,214)
============= ==============
</TABLE>
8
PAGE
<PAGE>
D)
To record the net adjustment to interest expense calculated
assuming the proceeds from ATC's bridge loan facility was
used to pay ATEC's outstanding debt and the initial cash paid
to seller.
<TABLE>
<S> <C> <C> <C> <C>
Year Three Months
Ended Ended
Debt Rate Dec. 31, 1995 March 31, 1996
------------ ----- ------------- --------------
ATC interest on bridge bank credit
facility borrowings used to pay
ATEC bank debt and cash
consideration paid at closing $ 20,000,000 7.25% $ 1,450,000 $ 362,500
Less: ATEC's recorded interest
on bank debt paid by ATC at close (1,314,615) (255,578)
------------- --------------
Net interest effect from debt
transactions 135,385 106,922
Interest expense of subsidiary not
purchased and discontinued
branches (Note A) (300,807) (90,030)
------------- --------------
$ (165,422) $ 16,892
============= ==============
</TABLE>
E) To record the imputed Federal and state income tax expenses as
though ATEC had not been a Subchapter S corporation and the income
tax effect of the pro forma adjustments at a 38% effective tax
rate. (ATC's effective tax rate for the year ended February 29,
1996 was 32.7% which was lower than the effective tax rate due to
the utilization of an Aurora net operating loss carryforward.
<TABLE>
<S> <C> <C>
Reported loss before income taxes $ (1,816,813) $ (595,262)
Pro forma adjustments 10,129,872 2,097,352
------------- --------------
Adjusted income before taxes 8,313,059 1,502,090
ATC's effective tax rate 38.0 % 38.0 %
------------- --------------
$ 3,158,962 $ 570,794
============= ==============
</TABLE>
9
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<PAGE>
3. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF 3D
The pro forma adjustments assume the acquisition of 3D occurred
March 1, 1995 and reflects the adjustments to record the
purchase of certain assets and assumption of specified
liabilities based on 3D's historical unaudited financial
statements.
Amounts paid to sellers:
Cash paid at close $ 3,000,000
Note Payable to seller 2,500,000
------------
5,500,000
Liabilities assumed:
Current liabilities 197,969
Direct expenses and costs of transaction 904
------------
Total consideration $ 5,698,873
============
The initial purchase price allocation is summarized as follows:
Current Assets:
Accounts receivable $ 1,163,981
Costs in excess of billings 279,047
Property and equipment 77,381
Other current assets 77,560
Covenant not to compete 100,000
Goodwill 4,000,904
------------
$ 5,698,873
============
The proforma combined condensed statement of operations reflects
the following adjustments related to the acquisition of 3D.
A) To eliminate results of operations subsequent to the
acquisition and thereby included in ATC's results of operations:
<TABLE>
<S> <C>
Three Months
Ended
Mar. 31, 1996
--------------
Revenues $ 147,961
--------------
Costs of revenues 110,656
Selling 6,954
General and administrative 11,835
--------------
Total costs and expenses 129,445
--------------
Pretax income $ 18,516
==============
</TABLE>
10
PAGE
<PAGE>
B)
To record the change in general and administrative expenses as
follows:
<TABLE>
<S> <C> <C>
Year Three Months
Ended Ended
Dec. 31, 1995 March 31, 1996
------------- --------------
Changes resulting from the acquisition:
Goodwill amortization, based on a 30 year
amortization period $ 133,363 $ 33,341
Covenant not to compete amortization, based on 3 year
amortization 33,333 8,333
------------- --------------
166,696 41,674
------------- --------------
Reduction in certain other costs as a result of the
integration of acquired operations into ATC:
Employee costs of ATEC employees not hired (494,527) -
Expenses of discontinued 3D profit and performance
plans (12,261) (2,173)
------------- --------------
(506,788) (2,173)
------------- --------------
To eliminate results of operations included in ATC's
results of operations (Note A) - (11,835)
------------- --------------
$ (340,092) $ 27,666
============= ==============
C) To record interest expense on 8.25% note
issued to seller $ 206,250 $51,563
============= ==============
D) To record the net reduction to interest income
for cash paid to seller $ 150,000 $ 35,833
============= ==============
E) To record the imputed Federal income tax expense as though 3D
had not been a Subchapter S corporation for Federal income tax
purposes and the income tax effect of the pro forma adjustments at
ATC's effective tax rate.
Reported loss before income taxes $ 97,675 $ 116,865
Pro forma adjustments (16,158) (145,413)
------------- --------------
Adjusted income before taxes 81,517 (28,548)
ATC's effective Federal tax rate 34.0 % 34.0 %
------------- --------------
$ 27,716 $ (9,706)
============= ==============
</TABLE>
11
<PAGE> <PAGE>
4. ATC AS ADJUSTED RESULTS OF OPERATIONS
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited)
YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Merger ATC & Hill Acquisition ATC as
ATC Aurora Adjustments Notes Aurora Business Adjustments Notes Adjusted
----------- ------------ ------------ ----- ----------- ------------ ----------- ----- -----------
Revenues $44,964,897 $ 14,409,850 $(14,409,850) (A) $44,964,897 $ 10,061,553 $ - $55,026,450
Cost of Revenues 24,515,174 7,526,443 (7,526,443) (A) 24,515,174 5,886,554 - 30,401,728
----------- ------------ ------------ ----------- ------------ ----------- -----------
Gross Profit 20,449,723 6,883,407 (6,883,407) 20,449,723 4,174,999 - 24,624,722
Operating Expenses:
Selling 1,513,222 439,638 (439,638) (A) 1,513,222 256,587 - 1,769,809
General and administrative 12,850,874 4,405,142 (4,293,782) (A) 12,962,234 3,018,586 (588,640) (A) 15,392,180
Provision for bad debts 290,165 67,015 (67,015) (A) 290,165 144,000 - 434,165
----------- ------------ ------------ ----------- ------------ ----------- -----------
14,654,261 4,911,795 (4,800,435) 14,765,621 3,419,173 (588,640) 17,596,154
----------- ------------ ------------ ----------- ------------ ----------- -----------
Operating Income 5,795,462 1,971,612 (2,082,972) 5,684,102 755,826 588,640 7,028,568
Nonoperating Expense (Income):
Interest expense 376,621 150,991 (150,991) (A) 376,621 - 17,500 (B) 394,121
Interest income (272,463) (45,489) 43,663 (A) (274,289) - - (274,289)
Other, net 20,306 81,835 (117,024) (C) (14,883) - - (14,883)
----------- ------------ ------------ ----------- ------------ ----------- -----------
124,464 187,337 (224,352) 87,449 - 17,500 104,949
----------- ------------ ------------ ----------- ------------ ----------- -----------
Income before income taxes 5,670,998 1,784,275 (1,858,620) 5,596,653 755,826 571,140 6,923,619
Income tax expense 1,805,000 775,960 (804,583) (D) 1,776,377 - 487,487 (C) 2,263,864
----------- ------------ ------------ ----------- ------------ ----------- -----------
Income before minority interest 3,865,998 1,008,315 (1,054,037) 3,820,276 755,826 83,653 4,659,755
Minority interest in Net Income
of Subsidiary - (510,520) 510,520 (B) - - - -
----------- ------------ ------------ ----------- ------------ ----------- -----------
Net income $ 3,865,998 $ 497,795 $ (543,517) $ 3,820,276 $ 755,826 $ 83,653 $ 4,659,755
=========== ============ ============ =========== ============ =========== ===========
Earnings per Common Share and
Dilutive Common
Equivalent Share:
Primary $ 0.54 (E) $ 0.52 $ 0.63
=========== =========== ===========
Fully diluted $ 0.54 (E) $ 0.52 $ 0.63
=========== =========== ===========
Weighted Average Number of
Shares Outstanding:
Primary 7,181,416 (E) 7,383,746 (E) 7,383,746
=========== =========== ===========
Fully diluted 7,181,416 (E) 7,383,746 (E) 7,383,746
=========== =========== ===========
</TABLE>
12
PAGE
<PAGE>
5. PRO FORMA ADJUSTMENTS FOR THE AURORA AND ATC MERGER
The ATC As Adjusted results of operations financial reflect
the following adjustments related to the merger of Aurora
and ATC:
A) Elimination of ATC's account balances included in Aurora's
consolidated results.
B) To reflect the effect of the conversion of Aurora's
minority interest.
C) The adjustment to other expense, net is comprised of the
following:
Mar. 1, 1995
to
Jun. 29, 1995
Elimination of ATC's accounts included in the consolidated
results (Note A) $ (20,549)
Elimination of merger costs during the period that would
not have been incurred had the merger been effective as
of the beginning of the period (96,475)
-------------
$ (117,024)
==============
D) To reflect the tax benefit of Aurora' net operating loss
carryforward:
Income Statement Pro Forma Adjustments:
Income tax expense for the period March 1, 1995 through June 29, 1995
Elimination of ATC's income tax expense (Note A) $ (775,960)
Tax benefit of Aurora's operating loss of $170,820 (65,766)
Tax effect of eliminating merger expenses (Note D) 37,143
-------------
$ (804,583)
=============
The pro forma combined income tax expense of $1,776,377
reflects a one time tax benefit of $350,000 resulting from
the utilization of Aurora's net operating loss carryforward
not previously recognized due to uncertainties of its
ultimate realization.
E) Assumes the outstanding warrants and options of Aurora
which converted in the merger are outstanding from the
beginning of the fiscal year.
6. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF THE HILL
BUSINESSES
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. ("Hill" or
"Seller"). Collectively these units represented the
Environmental Division of the New York Region of Hill
International, Inc. and are referred to as the "Hill
Businesses".
13
PAGE
<PAGE>
The pro forma unaudited combined financial data reflect the
acquisition of the Hill Businesses as if it had occurred at
March 1, 1995, the beginning of the fiscal 1996. The pro
forma combined statements of operations for the year ended
February 29, 1996 are based on the historical financial
results of the Hill Businesses for the period March 1, 1995
through September 30, 1995. No adjustments have been made
to conform the Hill Businesses results to ATC's fiscal
period as such information is not available and is not
material. ATC's historical balance sheet as of February 29,
1996 reflects the acquisition of the Hill Businesses.
Consideration and Accounting of the Hill Businesses:
The acquisition has been accounted for as a purchase. The
consideration for the acquisition and the allocation of the
purchase price is summarized as follows:
Consideration paid to Seller:
Cash $ 2,517,949
Letter of Credit, net imputed interest at 8.75%
due April 30, 1996 700,000
Note payable at 8.75% interest, due April 30, 1996 300,000
Liabilities assumed 414,544
Direct expenses related to the acquisition 263,475
------------
$ 4,195,968
============
Assets acquired and liabilities assumed are included in the
accompanying pro forma condensed balance sheet at their
estimated fair market value at the date of purchase. The
purchase price has been allocated as follows:
Cost in excess of billings on uncompleted contracts,
net of unrealizable amounts $ 620,000
Property and equipment - net 175,000
Other assets 30,572
Covenant not to compete 37,500
Goodwill 3,332,896
------------
$ 4,195,968
============
14
PAGE
<PAGE>
The proforma financial statements reflect the following
adjustments related to the acquisition of the Hill
Businesses:
A) To record the change in general and administrative
expenses as follows:
Mar. 1, 1995
to
Sep. 30, 1995
Changes in amortization to reflect purchase accounting adjustments:
Goodwill amortization, based on a 30 year amortization period 79,580
Less: the Hill Businesses historical goodwill amortization (18,000)
----------
Net goodwill amortization adjustment 61,580
Covenant not to compete amortization, based on a 13 month term 34,615
----------
96,195
----------
Reduction in certain other costs as a result of the integration
of acquired operations into ATC
Employee costs of excess employees of the Hill Businesses not
hired (387,492)
Expenses of facilities of the Hill Businesses eliminated by
integrating into ATC facilities (297,343)
----------
(684,835)
----------
$ (588,640)
==========
B) To record interest expense on acquisition debt issued to
Seller:
$300,000 Note payable, interest at 8.75% for six month term $ 13,125
$700,000 Letter of credit, interest imputed at 8.75% for six
month term 30,625
----------
43,750
Less: Amounts included in ATC's historical results for fiscal 1996 26,250
----------
$ 17,500
==========
C) To record the income tax expense of the Hill Businesses'
income as adjusted for the pro forma adjustments at ATC's
effective tax rate:
Reported income before taxes 755,826
Pro forma income adjustments:
General and administrative 588,640
Interest expense (17,500)
----------
Adjusted income before taxes 1,326,966
Effective tax rate 37 %
----------
Calculated tax provision 487,487
Recorded expense -
----------
Net adjustment $ 487,487
==========
15
PAGE
<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION
Financial Statements
For the Years Ended December 31, 1995 and 1994
PAGE
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
American Testing and Engineering Corporation
We have audited the accompanying consolidated balance sheets of
American Testing and Engineering Corporation as of December 31,
1995 and 1994, and the consolidated statements of operations,
changes in shareholders' equity and cash flows for the years then
ended. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits of
the financial statements provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
American Testing and Engineering Corporation as of December 31,
1995 and 1994, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted
accounting principles. Also, in our opinion, the supplemental
consolidating schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements,
substantially all of the assets of the Company were sold or leased
as of May 23, 1996.
/s/ Coopers and Lybrand L.L.P.
- ------------------------------
Indianapolis, Indiana
March 15, 1996, except as to the
information in Notes 1 and 5 for
which the date is May 23, 1996
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidated Balance Sheets
as of December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
Assets 1995 1994
------------ ------------
Current Assets:
Cash $ 46,693 $ 62,285
Receivables:
Trade accounts receivable 20,282,027 20,732,006
Unbilled revenue on work in progress 6,795,912 6,395,647
27,077,939 27,127,653
Less allowance foe doubtful accounts (690,500) (814,600)
------------ ------------
26,387,439 26,313,053
Collateral bonds 801,430 1,110,652
Other current assets 779,722 825,214
------------ ------------
Total current assets 28,015,284 28,311,204
------------ ------------
Property and equipment, net (Note 3) 5,901,641 9,041,493
Advances to related parties (Note 4) 156,712 114,141
Other assets 2,253,058 2,197,027
------------ ------------
Total assets $ 36,326,695 $ 39,663,865
============ ============
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
------------ ------------
Current liabilities:
Working capital loans $ 1,679,756 $ 632,235
Current portion of long-term debt 11,043,881 3,548,168
Accounts payable, trade 7,804,426 7,211,534
Accrued salaries, wages and other
compensation 3,948,186 4,774,441
Accrued expenses 4,202,688 4,310,776
------------ ------------
Total current liabilities 28,678,937 20,477,154
Long-term obligations (Note 5) 877,095 10,255,382
Performance share obligations (Notes 2 and 7) 688,147 1,139,894
Lease and revenue reserve 187,739 76,190
Minority interest 7,173 5,011
Shareholders' equity:
Common stock, no par value, 2,000,000
shares authorized, 1,585,000 shares issued
and outstanding 79,250 79,250
Additional paid-in capital 633,131 633,131
Advances to shareholders (Note 4) (21,266) (17,947)
Retained earnings 5,196,489 7,015,800
------------ ------------
Total shareholders' equity 5,887,604 7,710,234
------------ ------------
Total liabilities and shareholders' equity $ 36,326,695 $ 39,663,865
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> <PAGE>
American Testing and Engineering Corporation
Consolidated Statements of Operations
for the years ended December 31, 1995 and 1994
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1995 1994
------------ ------------
Revenues:
Service revenue $ 95,130,122 $102,253,268
Cost of service revenue (Note 2) (26,926,568) (30,116,429)
------------ ------------
Net service revenue 68,203,554 72,136,839
Cost and expenses:
Engineering and consulting expenses 31,064,366 31,189,662
General and administrative expenses 37,291,935 38,760,752
Interest expense 1,664,066 1,539,513
------------ ------------
Total costs and expenses 70,020,367 71,489,927
Income (loss) before cumulative effect
of change in accounting method (1,816,813) 646,912
Cumulative effect of change in accounting
method (Note 2) - 470,611
------------ ------------
Net income (loss) before minority interest (1,816,813) 1,117,523
Minority interest 2,162 (3,904)
------------ ------------
Net income (loss) $ (1,818,975) $ 1,121,427
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> <PAGE>
American Testing and Engineering Corporation
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Total
Common Paid-in Advances to Retained Shareholders'
Stock Capital Shareholders Earnings Equity
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 $ 79,250 $ 384,240 $ (711,920) $ 5,894,373 $ 5,645,943
Shareholder contribution - 248,891 - - 248,891
Repayment of shareholder advances - - 693,973 - 693,973
Net income - - - 1,121,427 1,121,427
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 79,250 633,131 (17,947) 7,015,800 7,710,234
Distributions to shareholders - - - (336) (336)
Advance to shareholder - - (3,319) - (3,319)
Net loss - - - (1,818,975) (1,818,975)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 $ 79,250 $ 633,131 $ (21,266) $ 5,196,489 $ 5,887,604
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidated Statements of Cash Flows
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1995 1994
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (1,818,975) $ 1,121,427
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 3,913,346 4,311,092
Revenue and lease reservations 111,549 90,476
Provision for doubtful accounts (124,049) (1,154,000)
(Gain) loss on sale of property and
equipment 221,749 (76,446)
Performance shares issued 154,403 -
Appreciation (depreciation) in performance
share value (126,608) 217,433
Cumulative effect of change in accounting
method - (470,611)
Changes in assets and liabilities:
Trade accounts receivable 449,979 2,095,995
Unbilled revenue on work in progress (400,316) 2,452,964
Accounts payable 175,131 1,691,361
Accrued salaries and expenses (934,343) (5,292,180)
Collateral bonds 309,222 477,656
Other, net (60,949) 427,311
------------ ------------
Net cash provided by operating
activities 1,870,139 5,892,478
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (1,310,662) (1,869,058)
Proceeds from sale of property and
equipment 325,418 295,010
------------ ------------
Net cash used in investing activities (985,244) (1,574,048)
------------ ------------
Cash flows from financing activities:
Net (deposits) borrowing (to) from cash
collateral account 1,047,521 (1,767,190)
Proceeds from obligations to banks and
notes payable 2,059,189 7,175,000
Payments on obligations to banks and notes
payable (3,941,762) (8,565,195)
Advances and distributions to shareholders (3,655) -
Performance shares redeemed (479,542) (43,159)
Change in cash overdraft 417,762 (2,058,354)
Shareholder contribution - 248,891
Proceeds from repayment of shareholder
advances - 693,973
------------ ------------
Net cash used in financing activities (900,487) (4,316,034)
------------ ------------
Increase (decrease) in cash (15,592) 2,396
Cash, beginning of period 62,285 59,889
------------ ------------
Cash, end of period $ 46,693 $ 62,285
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE>
American Testing and Engineering Corporation
Notes to Consolidated Financial Statements
1. Subsequent Event:
Effective May 23, 1996, the shareholders of the Company transferred
substantially all of the intangible business assets of American
Testing and Engineering Corporation ("ATEC") to ATC Environmental,
Inc. ("ATC"), an unrelated company. The assets sold included cash,
accounts receivable, unbilled work in progress, prepaid expenses,
goodwill, customer contract rights and customer lists. In
addition, the Company leased to ATC substantially all of its
property, plant and equipment under capital leases expiring six
years from the date of the closing. ATC has an irrevocable right
to purchase all fixed assets leased. Assets retained by the
Company include all nonleased fixed assets, intercompany accounts
receivable/payable, certain land, cash surrender value of life
insurance policies, and the investment in Waste Abatement
Technology, L.P. ("WATEC").
The Company's credit agreement with Bank One (Note 5) expired on
April 30, 1996. In anticipation of the sale of the Company, the
bank amended and extended the credit agreement through July 31,
1996. All amounts due Bank One in connection with the agreement,
exclusive of WATEC borrowings of approximately $360,000 and
contingent amounts due under letters of credit, were paid on
May 24, 1996, concurrent with the sale of the Company's business
operations to ATC.
In connection with the sale, the Company will record an estimated
additional 1996 expense of $2.2 million associated with the
performance shares and performance share options (see Notes 7 and
8) in accordance with the Performance Share and Performance Share
Option Plans. During the period from January 1, 1996 through May
23, 1996, 94,830 additional performance share options were granted
at an option price of $7.41 per share.
As consideration for the sale, ATC assumed substantially all of the
liabilities of ATEC. In addition, at closing the Company will
receive $6,000,000 in cash and will receive, over the next six
years, an additional $16,750,000 in lease payments, rents, and
consideration for covenants not to compete over the next six years.
In connection with this transaction, an estimated gain of $5.8
million will be recorded at the closing date, and additional
contingent gains approximating $12.5 million are expected to be
recorded as certain defined contingencies lapse.
These financial statements are presented on the historical basis of
accounting and are not presented on the basis of a liquidation, nor
do they reflect fair value accounting principles.
2. Significant Accounting Policies:
a. General: ATEC engages in four principal lines of business
which contribute to gross revenues. They include traditional
services which consist of engineering and materials testing
(25%), environmental (58%), hazardous waste (12%), and chemical
testing laboratories (5%). The geographic concentration of the
40 plus offices is in the eastern half of the United States, with
a smaller presence in Texas and on the West Coast. The
concentration of revenue by client is largely industrial and
small business with approximately 25% of its revenue generated
from federal, state and local governmental agencies. Most
revenue generation is conducted in the United States. The
Company is not materially dependent upon any one supplier to
carry out its revenue generation.
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
2. Significant Accounting Policies, continued:
The preparation of financial statements in conformity with
generally accepted accounting principles requires that management
make estimates and assumptions affecting the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual amounts and results could differ from the
estimated amounts and results.
b. Consolidation Principles and Financial Statement
Presentation: These consolidated financial statements include
the accounts of ATEC and WATEC, a limited partnership in which
the Company holds a 99 percent interest (together, the
"Company"). All significant intercompany accounts have been
eliminated.
c. Property and Equipment: Property and equipment are recorded
at cost and are depreciated using the straight-line method.
Estimated useful lives range from three to ten years for
machinery, equipment and office furniture and three to seven
years for vehicles. Leasehold improvements are generally
amortized over the term of the respective leases. Expenditures
for normal repair and maintenance are charged to expense as
incurred. Cost and accumulated depreciation of assets disposed
are removed from the accounts, and any resulting gain or loss is
included in income.
d. Income Taxes: Effective October 1, 1991, the Company
elected status as an S Corporation under the provisions of the
Internal Revenue Code. Accordingly, it is generally not subject
to federal or state income taxes, and the income or loss of the
Company is reflected in the personal income tax returns of its
shareholders.
e. Revenue and Cost Recognition: The Company's principal
business is providing professional engineering and consulting
services under cost-plus-fee and fixed-price contracts. Revenues
attributable to such contracts and claims for revenue on
additional contract revisions are accounted for under the
percentage-of-completion (cost-to-cost) method of accounting and
are recorded equivalent to costs incurred plus a pro rata portion
of estimated profits expected to be realized on the contracts.
Profits expected to be realized on contracts are based on total
contract value and management's estimates of costs at completion.
These estimates are reviewed and revised periodically throughout
the lives of the contracts, and adjustments to profits resulting
from such revisions are recorded in the accounting period in
which the revisions are made. Provisions for estimated losses on
contracts are recorded when they are identified.
Costs of service include all direct material and subcontract
costs, and those indirect costs related to contract performance.
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
2. Significant Accounting Policies, continued:
f. Change in Accounting Method-Performance Share Obligation:
Amounts contributed by participants to the Performance Share Plan
are recognized as compensation expense when earned. Prior to
January 1, 1994, the Company recognized additional expense
(appreciation of performance share value) or other income
(diminution of performance share value) upon election by the
participant to redeem units in accordance with the plan's
provisions. To more directly relate the periodic results of its
operations with related changes in the valuation of performance
shares, the Company changed its method of accounting for changes
in the appreciation or diminution of performance share value. As
part of this change, during the year ended December 31, 1994, the
Company recorded a one-time cumulative benefit of $470,611, which
recognizes the cumulative difference in expense recorded under
the two methods from the inception of the plan through January 1,
1994.
g. Reclassifications: Certain amounts in the 1994 financial
statements have been reclassified to conform to the 1995
presentation.
3. Property and Equipment:
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1995 1994
------------ ------------
Machinery and equipment $ 11,584,942 $ 12,102,895
Vehicles 6,285,807 6,828,868
Office furniture and equipment 9,059,094 8,508,533
Leasehold improvements 3,256,232 3,660,734
Building 291,220 291,220
Land 276,480 276,480
Construction in progress 102,221 427,241
------------ ------------
30,855,996 32,095,971
Less accumulated depreciation (24,954,355) (23,054,478)
------------ ------------
$ 5,901,641 $ 9,041,493
============ ============
</TABLE>
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
4. Related-party Transactions:
Advances to related parties are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1995 1994
------------ ------------
Mann Realty Co. $ 108,212 $ 68,913
Mann Technology, Inc. 7,085 3,813
ATEC International 41,415 41,415
------------ ------------
$ 156,712 $ 114,141
============ ============
</TABLE>
The Company has entered into certain noncancelable operating lease
agreements for office space with Mann Realty Co., a partnership in
which the Company's president is a partner. Minimum annual rental
commitments under these leases are included in Note 9 and aggregate
$464,959, $323,471, $208,884, $100,800, $100,800, and $756,000 for
the years ending December 31, 1996, 1997, 1998, 1999, 2000, and
thereafter, respectively. Rents paid to Mann Realty Co. for the
years ended December 31, 1995 and 1994 were $607,913 and $546,544,
respectively. The Company also has $125,000 on deposit with Mann
Realty Co. pursuant to lease agreements on certain locations. No
interest is earned on advances, and there are no agreements
identifying specific repayment terms.
The Company's president is an officer and shareholder of Mann
Technology, Inc., which serves as the corporate general partner and
one-percent owner of WATEC. Mann Technology, Inc.'s 1% interest
and earnings therefrom have been reflected as minority interest on
the Company's consolidated balance sheets and statements of
operations. Two shareholders of the Company are also shareholders
in ATEC International. Advances to Mann Technology and ATEC
International bear no interest, and there are no agreements
identifying specific repayment terms.
The Company's interim distributions to shareholders for estimated
income taxes have been determined by the Company's management to be
advances to shareholders until such time as the actual liability is
calculated. Advances to shareholders were $21,266 and $17,947 at
December 31, 1995 and 1994, respectively. The Company reports
shareholder advances as a reduction of shareholders' equity. The
Company's Credit Agreement (Note 5) requires that any such
shareholder advances in excess of the related tax liability be
repaid to the Company when corresponding refunds are received from
taxing authorities.
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
5. Long-term Debt:
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1995 1994
------------ ------------
Credit agreement:
Working capital loan-ATEC $ 1,345,739 $ 332,810
Working capital loan-WATEC 344,017 299,425
------------ ------------
Borrowings under working capital loans $ 1,689,756 $ 632,235
============ ============
Term loan one $ 5,214,793 $ 6,907,321
Term loan two 1,572,648 2,715,048
Term loan three 1,240,313 1,791,563
Term loan four 1,709,033 1,475,000
Equipment acquisition loan 1,180,000 -
------------ ------------
Borrowings under term loans 10,916,787 12,888,932
------------ ------------
Notes payable 1,004,189 914,618
------------ ------------
11,920,976 13,803,550
Less current portion (11,043,881) (3,548,168)
------------ ------------
Total long-term debt $ 877,095 $ 10,255,382
============ ============
</TABLE>
a. Credit Agreement: Under the Company's credit agreement (the
"Agreement") with Bank One, Indianapolis, N.A. ("Bank One"),
substantially all assets have been pledged as collateral. The
Agreement also contains certain financial covenants which require
the Company to meet financial ratios and tests, including a
minimum current ratio, a minimum tangible capital test, a maximum
debt to tangible capital ratio, and a minimum debt service
coverage ratio. The Company was in default of substantially all
financial ratio covenants at December 31, 1995.
On April 30, 1996, the Company and Bank One amended and extended
the Agreement (the "Amended Agreement"). The Amended Agreement
established new financial ratios and tests which the Company is
required to maintain. Bank One may, at its sole discretion,
extend the maturity date of the working capital loans. The
Amended Agreement provides for the establishment of a cash
collateral account, whereby the Company deposits all cash into
the account to pay down working capital loans and then draws
funds to meet current operating requirements.
Under the Amended Agreement, the working capital loans bear
interest, payable monthly, at Bank One's prime rate, which was
8.5% at December 31, 1995, plus .75%, and mature on July 31,
1996. ATEC and WATEC may borrow up to $3,000,000 and $1,000,000,
respectively, under the working capital loans. On April 30,
1996, the due date for the equipment acquisition loan was
extended to July 31, 1996. The equipment acquisition loan bears
interest at Bank One's prime rate plus 1%.
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
5. Long-term Debt, continued:
Term loan one is due in consecutive monthly principal payments of
$116,500 plus interest, with the remaining unpaid principal plus
accrued interest due March 1, 1998. The loan bears interest at
Bank One's prime rate plus 1%. Term loan two is due in
consecutive monthly principal payments of $95,200 plus interest,
with the remaining balances of principal and interest due on
June 1, 1997. The loan bears interest at an annual rate of 9.51%
through February 28, 1996 and at Bank One's prime rate plus 1%
thereafter. Term loan three is due in consecutive monthly
principal payments of $45,938 plus interest, with the remaining
balance of principal and interest due on February 28, 1998. The
loan bears interest at Bank One's prime rate plus 1%. Term loan
four is due in consecutive monthly principal payments of $41,700,
plus interest, with the remaining balance of principal and
interest is due March 15, 1999. The loan bears interest at Bank
One's prime rate plus 1%.
The Term loans contain provisions which permit the bank to
accelerate payment terms in the event of non-compliance with
covenants included in the working capital loan.
A $6,000,000 facility for letters of credit is provided under the
Agreement with a 1.5% annual fee on outstanding letters of credit
(Note 6). In addition, up to a maximum of $5,000,000 of total
indebtedness under the credit agreement has been guaranteed by
the Company's principle shareholder.
b. Notes Payable: The Company's principal shareholder advanced
the Company $750,000 in September 1994. The note bears interest
at 12.0% and the principal and accrued interest are due on
February 1, 1997. The note is subordinated to the interest of
Bank One.
In connection with the retirement of certain performance share
obligations, a note with a principal balance of $254,189 was
issued in 1995. The first payment of $127,094 plus accrued
interest is due in May 1996, with the payment of the remaining
$127,095 plus accrued interest due on May 19, 1997. Interest is
payable at the prime rate of Bank One.
6. Letters of Credit:
The Company has $5,901,353 in letters of credit outstanding at
December 31, 1995, which collateralize performance bonds required
under certain contracts, certain litigation, and deductibles under
workers' compensation insurance. They expire in various amounts
through November 1996.
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
7. Performance Share Obligation:
The Company has adopted a Performance Share Plan ("Share Plan")
intended to operate for the benefit of key employees of the
Company. At the beginning of each fiscal year, each Share Plan
participant can elect to receive a portion of his bonus payable
under the ATEC Incentive Bonus Plan in the form of Performance
Shares ("Shares"), for which the Company has agreed to later pay a
formula value per Share, subject to adjustment (see below). Except
as otherwise determined by the board of directors, Shares issued in
lieu of cash bonuses were initially valued at twice the book value
of shares of the Company's common stock through September 30, 1992
and at one and one-half times the book value of common stock,
thereafter ("Purchase Price").
The Company will satisfy the Performance Share Obligation by cash
payments to the Share Plan participants in the event of the Share
Plan participant's death, total disability, hardship or termination
from the Company, or upon sale of 50% of the Company's common stock
or substantially all of the assets of the Company. See Note 1.
The value per Unit and the right to receive payment for Shares held
by a Share Plan participant are determined as follows:
Event Causing Unit Redemption Share Value Determined By
Death, total disability, The Share Purchase Price plus
hardship or termination or minus the change in
book value of the common
stock of the Company from
the date of purchase to
the end of the fiscal year
immediately preceding the
event.
Sale or transfer of more than The payment received by the
50% of the issued and Company shareholders for
outstanding common stock each share of the Company.
of the Company
Sale of substantially all of The payment received by the
the assets of the Company, Company shareholders for
or the liquidation of the each share of the Company.
Company
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
7. Performance Share Obligation, continued:
Activity in the years ended December 31, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Performance
Shares Obligation
------------ ------------
Balance at December 31, 1993 213,493 $ 1,436,231
Cumulative effect of change in accounting
method (Note 1) - (470,611)
Issued - -
Redeemed (6,558) (43,159)
Appreciation in share value - 217,433
------------ ------------
Balance at December 31, 1994 206,935 1,139,894
Issued 20,805 154,403
Redeemed (87,211) (479,542)
Depreciation in share value - (126,608)
------------ ------------
Balance at December 31, 1995 140,529 $ 688,147
============ ============
8. Performance Share Option Plan:
Effective May 3, 1995 the Company adopted a Performance Share
Option Plan ("Option Plan") intended to offer incentives beyond
current compensation to certain officers and key employees
responsible for furthering the Company's long-term earnings growth.
Performance share options are issued at the sole discretion of the
Performance Share Option Plan Committee (the "Committee"). Under
the Plan, 200,000 option shares are available for grant. The
option price is determined by the Committee and for 1995 was set at
$7.41 per share. Options are exercisable only upon a "Transfer" of
ownership as defined in the Option Plan agreement. The options
have no stated expiration date but will expire upon termination of
the optionee's employment. No compensation expense was recorded
during 1995. At December 31, 1995, there were 77,250 shares under
option at an option price of $7.41 per share.
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
9. Leases:
Minimum annual rental commitments under noncancelable operating
leases at December 31, 1995 (primarily for office space) are as
follows:
Amount
-----------
1996 $ 2,642,509
1997 1,692,026
1998 1,060,172
1999 705,190
2000 302,074
Thereafter 822,097
-----------
$ 7,224,068
===========
Total rental expense for the years ended December 31, 1995 and 1994
was $3,404,000 and $3,107,000, respectively.
10. 401(k) Profit Sharing Plan:
The Company sponsors a defined contribution 401(k) Profit Sharing
Plan ("Plan") covering substantially all employees. Annual
contributions made by the Company to the Plan are strictly
discretionary in nature and may be discontinued or temporarily
suspended for a definite or indefinite period of time. The
Company's profit sharing contributions are allocated to the account
balance of each participant based upon the ratio of the
participant's Plan year compensation to the total Plan year
compensation of all participants and vest over a six-year period.
There were no profit sharing contributions for the year ended
December 31, 1995.
During the year ended December 31, 1995, the Company contributed
$331,064 to the 401(k) portion of the Plan, equivalent to 50% of
employees' pre-tax contributions, up to 3% of each employees' pay.
These contributions also vest over a six-year period. Participant
forfeitures aggregating $49,460 were retained. The Company's
contribution for the year ended December 1, 1994 was $273,513 with
forfeitures of $46,938.
11. Supplemental Disclosures of Cash Flow Information:
December 31,
1995 1994
----------- -----------
Cash paid during the year for:
Interest: $ 1,554,879 $ 1,489,863
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
12. Litigation:
A lawsuit was filed on April 24, 1991 against the Company in the
Superior Court of Lake County, Indiana. The claim alleged
negligent and careless conduct on the part of the Company, which
resulted in permanent personal injuries being suffered by the
plaintiff as a result of exposure to hazardous materials while
operating equipment at a landfill. On March 23, 1995, a trial jury
returned a verdict against the Company and awarded the plaintiff
$704,375 in damages. The Company filed a motion with the Court to
correct errors in May 1995 and, as a result, the Court reduced the
judgment against the Company by $70,000. Since that time, the
plaintiff has accepted the Company's settlement offer of $500,000
and such amount was paid subsequent to December 31, 1995. The
Company intends to vigorously pursue recovery of the settlement
amount from its insurance carrier.
On March 1, 1994, the Company and another party were named as
defendants in a lawsuit filed in the Court of Common Pleas,
Franklin, Ohio. The plaintiff alleges that the Company negligently
performed an environmental site assessment which failed to indicate
environmental contamination that has made a mortgage on the
property in the amount of $15 million worthless. The parties are in
the initial stages of discovery. The Company believes it has a
meritorious defense with respect to the lawsuit and intends to
vigorously defend the action. While the ultimate outcome cannot be
determined at this time, management does not believe it will have a
material adverse effect on the Company's financial position.
By letter dated December 12, 1993, the Company entered the
Voluntary Disclosure Program administered by the U.S. Department of
Defense ("DoD"). The bases of the disclosure are allegations that
certain former Company employees paid unlawful gratuities to a
federal government inspector concerning a contract at a federal
government site. Possible violations involve the federal Anti-
Kickback Act, federal criminal law against bribery, and the federal
civil False Claims Act. The Company retained independent legal
counsel to undertake internal investigation of the matter and to
prepare a report for presentation to the Office of the Inspector
General, DoD. The Company could be responsible for the repayment
of any losses suffered by the federal government related to the
gratuities, fraud or kickbacks. In January 1995, the Company
submitted the internal investigation report to DoD in which it
found that the illegal gratuities had been paid by a former Company
employee. The Company paid the federal government the losses
identified in the internal investigation report. The Company does
not believe it has any additional monetary obligation to the
federal government as a result of the matters covered by the
investigation; however, the federal government accepted the funds
with the express reservation that the acceptance did not constitute
a limitation of the Company's liability. The federal government
conducted a compliance audit of the report in 1995 and requested
additional information to determine if fines should be levied
against the Company or if the Company should be suspended from
participation in future government contracts. As of the date of
this report, the Company is negotiating a final settlement
agreement with the DoD which will include the withdrawal of the
Company from all federal government contracting work. During the
three-year period ended December 31, 1995, the Company derived
approximately 10% of its net service revenues from federal
government sources.
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
12. Litigation, continued:
A complaint was filed in December 1995 against the Company and
another party in the Circuit Court of Dade County, Florida. The
plaintiff alleges that the Company failed to update its report on
the suitability of the foundation material after a substitution in
those materials was made. As a result of the plaintiff's reliance
on this report, the materials used in the foundation were found to
be inadequate and the building pad settled, resulting in damages.
The Company believes it has a meritorious defense with respect to
the lawsuit and intends to vigorously defend the action. While the
ultimate outcome cannot be determined at this time, management does
not believe it will have a material adverse effect on the Company's
financial position.
An action was filed in September 1994 in the Court of Common Pleas
in Montgomery County, Ohio by an individual. This individual
alleges various physical impairments were caused by breathing
harmful fumes emitted by one of the Company's testing facilities.
This individual is not an employee of the Company and works in an
office adjacent to the Company's facility. The Company believes
the lawsuit is without merit and intends to vigorously defend the
action. While the ultimate outcome cannot be determined at this
time, management does not believe it will have a material adverse
effect on the Company's financial position.
The Company is also subject to numerous other legal proceedings and
claims which arise from employment, customer and contractual
matters. While the result of any litigation necessarily contains
an element of uncertainty, management is of the opinion that
adequate provision has been made as of December 31, 1995 for legal
proceedings and claims which they believe expose the Company to
liability.
<PAGE> <PAGE>
SUPPLEMENTAL SCHEDULES
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidating Balance Sheet as of December 31, 1995
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
American
Testing and
Engineering
ASSETS Corporation WATEC L.P. Eliminations Consolidated
------------ ------------ ------------ ------------
Current Assets:
Cash $ 41,123 $ 5,570 $ - $ 46,693
Receivables:
Trade accounts receivable 18,071,922 2,210,105 - 20,282,027
Unbilled revenue on work in progress 6,028,400 767,563 - 6,795,963
Intercompany receivable - 280,792 (280,792) -
------------ ------------ ------------ ------------
24,100,322 3,258,460 (280,792) 27,077,990
Less allowance for doubtful accounts (685,528) (5,023) - (690,551)
------------ ------------ ------------ ------------
23,414,794 3,253,437 (280,792) 26,387,439
Collateral bonds 778,725 22,705 - 801,430
Other current assets 671,855 107,867 - 779,722
------------ ------------ ------------ ------------
Total current assets 24,906,497 3,389,579 (280,792) 28,015,284
Property and equipment, net 5,678,485 223,156 - 5,901,641
Advances to related parties 149,627 7,085 - 156,712
Other assets 3,096,521 3,093 (846,556) 2,253,058
------------ ------------ ------------ ------------
Total current assets $ 33,831,130 $ 3,622,913 $ (1,127,348) $ 36,326,695
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Working capital loans $ 1,345,739 $ 334,017 $ - $ 1,679,756
Current portion of long-term debt 11,043,881 - - 11,043,881
Accounts payable, trade 6,188,997 1,615,429 - 7,804,426
Accrued salaries, wages and other
compensation 3,771,872 176,314 - 3,948,186
Accrued expenses 3,559,264 643,424 - 4,202,688
Intercompany payable 280,792 - (280,792) -
------------ ------------ ------------ ------------
Total current liabilities 26,190,545 2,769,184 (280,792) 28,678,937
Long-term obligations 877,095 - - 877,095
Performance share obligation 688,147 - - 688,147
Leasease and revenue reserve 187,739 - - 187,739
Minority interest - - 7,173 7,173
Shareholders' equity:
Common stock 79,250 - - 79,250
Additional paid-in capital 633,131 - - 633,131
Advances to shareholders (21,266) - - (21,266)
Retained earnings 5,196,489 853,729 (853,729) 5,196,489
------------ ------------ ------------ ------------
Total shareholders' equity 5,887,604 853,729 (853,729) 5,887,604
------------ ------------ ------------ ------------
Total liabilities and shareholders
equity $ 33,831,130 $ 3,622,913 $ (1,127,348) $ 36,326,695
============ ============ ============ ============
</TABLE>
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidating Income Statement for the year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
American
Testing and
Engineering
Corporation WATEC L.P. Eliminations Consolidated
Revenues: ------------ ------------ ------------ ------------
Service revenue $ 85,017,929 $ 11,534,941 $ (1,422,748) $ 95,130,122
Cost of services revenue (20,607,759) (7,741,557) 1,422,748 (26,926,568)
------------ ------------ ------------ ------------
Net service revenue 64,410,170 3,793,384 - 68,203,554
Equity in earnings of affiliate 214,027 - (214,027) -
------------ ------------ ------------ ------------
Total revenues 64,624,197 3,793,384 (214,027) 68,203,554
Costs and expenses:
Engineering and consulting costs 29,627,382 1,436,984 - 31,064,366
General and administrative expenses 35,322,852 1,969,083 - 37,291,935
Interest expenses 1,492,938 171,128 - 1,664,066
------------ ------------ ------------ ------------
Total costs and expenses 66,443,172 3,577,195 - 70,020,367
Income (loss) from operations before
minority interest (1,818,975) 216,189 (214,027) (1,816,813)
Minority interest - - 2,162 2,162
------------ ------------ ------------ ------------
Net income (loss) $ (1,818,975) $ 216,189 $ (216,189) $ (1,818,975)
============ ============ ============ ============
</TABLE>
PAGE
<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION
Financial Statements
For the Year Ended December 31, 1994,
the Three Months Ended December 31, 1993,
and the Year Ended September 30, 1993
PAGE
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
American Testing and Engineering Corporation
We have audited the accompanying consolidated balance sheets of
American Testing and Engineering Corporation as of December 31,
1994 and 1993 and September 30, 1993, and the consolidated
statements of operations, changes in shareholders' equity and cash
flows for the year ended December 31, 1994, the three months ended
December 31, 1993, and the year ended September 30, 1993. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits of
the financial statements provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
American Testing and Engineering Corporation as of December 31,
1994 and 1993 and September 30, 1993, and the results of its
operations and its cash flows for the year ended December 31, 1994,
the three months ended December 31, 1993, and the year ended
September 30, 1993, in conformity with generally accepted
accounting principles. Also, in our opinion, the supplemental
consolidating schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements,
effective January 1, 1994, the Company changed its method of
accounting for performance share obligations.
/s/ Coopers and Lybrand L.L.P.
- ------------------------------
Indianapolis, Indiana
March 31, 1995, except as to the
information presented in Note 4,
for which the date is May 4, 1995
1
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidated Balance Sheets
as of December 31, 1994 and 1993 and September 30, 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, September 30,
Assets 1994 1993 1993
------------ ------------ ------------
Currentassets:
Cash $ 62,285 $ 59,889 $ 80,448
Receivables:
Trade accounts receivable 20,732,006 22,828,001 26,308,947
Unbilled revenue on work in process 6,395,647 8,848,611 6,346,558
------------ ------------ ------------
27,127,653 31,676,612 32,655,505
Less allowance for doubtful accounts (814,600) (1,968,600) (1,680,000)
------------ ------------ ------------
26,313,053 29,708,012 30,975,505
Collateral bonds 1,110,652 1,588,308 1,999,612
Other current assets 825,214 866,815 744,661
------------ ------------ ------------
Total current assets 28,311,204 32,223,024 33,800,226
------------ ------------ ------------
Property and equipment, net (Note 2) 9,041,493 11,692,091 12,418,178
Advances to related parties (Note 3) 111,328 138,502 138,233
Other assets 2,199,840 2,572,280 2,817,782
------------ ------------ ------------
Total assets $ 39,663,865 $ 46,625,897 $ 49,174,419
============ ============ ============
</TABLE>
<PAGE> <PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, September 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 1993
------------ ------------ ------------
Current liabilities:
Working capital loans $ 632,235 $ 2,600,000 $ 2,000,000
Current portion of long-term debt 3,548,168 3,256,269 3,020,019
Accounts payable, trade 7,211,534 7,578,527 11,098,172
Accrued salaries, wages, and other
compensation 4,774,441 4,505,932 3,788,639
Accrued expenses 4,386,966 9,857,179 3,459,889
------------ ------------ ------------
Total current liabilities 20,553,344 27,797,907 23,366,719
Long-term obligations (Note 4) 10,255,382 11,736,901 12,381,976
Performance share obligation (Notes 1 and 6) 1,139,894 1,436,231 1,329,991
Minority interest 5,011 8,915 14,729
Shareholders' equity:
Common stock, no par value, 2,000,000 shares
authorized , 1,585,000 shares issued and
outstanding 79,250 79,250 79,250
Additional paid-in capital 633,131 384,240 384,240
Advances to shareholders (Note 4) (17,947) (711,920) (700,544)
Retained earnings 7,015,800 5,894,373 12,318,058
------------ ------------ ------------
Total shareholders' equity 7,710,234 5,645,943 12,081,004
------------ ------------ ------------
Total liabilities and
shareholders equity $ 39,663,865 $ 46,625,897 $ 49,174,419
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidated Statements of Operations
for the year ended December 31, 1994, the three months ended
December 31, 1993, and the year ended September 30, 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1994 1993 1993
------------ ------------ ------------
Revenues:
Service revenue $102,253,268 $ 28,354,269 $117,609,574
Cost of service revenue (Note 1) (30,116,429) (11,832,987) (38,794,916)
------------ ------------ ------------
Net service revenue 72,136,839 16,521,282 78,814,658
------------ ------------ ------------
Cost and expenses:
Engineering and consulting costs 35,593,894 11,122,048 35,075,967
General and administrative expenses 34,356,520 10,726,126 46,082,281
Interest expense 1,539,513 398,232 1,485,275
Legal judgment (Note 10) - 704,375 -
------------ ------------ ------------
Total costs and expenses 71,489,927 22,950,781 82,643,523
------------ ------------ ------------
Income (loss) before cumulative effect
of change in accounting method. 646,912 (6,429,499) (3,828,865)
Cumulative effect of change in accounting
method (Note 1) 470,611 - -
------------ ------------ ------------
Net income (loss) before minority
interest 1,117,523 (6,429,499) (3,828,865)
Minority interest (3,904) 5,814 (3,751)
------------ ------------ ------------
Net income (loss) $ 1,121,427 $ (6,423,685) $ (3,832,616)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidated Statements of Changes in Shareholders' Equity
for the year ended December 31, 1994, the three months ended
December 31, 1993, and the year ended September 30, 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Total
Common Paid-in Advances to Retained Shareholders'
Stock Capital Shareholders Earnings Equity
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1992 $ 79,250 $ 384,240 $ - $ 15,911,335 $ 16,374,825
Distributions to shareholders - - - (391,157) (391,157)
Advances to shareholders - - (70,048) - (70,048)
Net loss - - - (3,832,616) (3,832,616)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1993
as previously reported 79,250 384,240 (70,048) 11,687,562 12,081,004
Prior shareholder distributions
classified as shareholder advances (Note 3) - - (630,496) 630,496 -
------------ ------------ ------------ ------------ ------------
Balance, September 30,
1993, as adjusted 79,250 384,240 (700,544) 12,318,058 12,081,004
Advances to shareholder - - (11,376) - (11,376)
Net loss - - - (6,423,685) (6,423,685)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 79,250 384,240 (711,920) 5,894,373 5,645,943
Shareholder contribution - 248,891 - - 248,891
Repayment of shareholder advances - - 693,973 - 693,973
Net income - - - 1,121,427 1,121,427
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 $ 79,250 $ 633,131 $ (17,947) $ 7,015,800 $ 7,710,234
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidated Statements of Cash Flows
for the year ended December 31, 1994, the three months ended
December 31, 1993, and the year ended September 30, 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1994 1993 1993
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 1,121,427 $ (6,423,685) $ (3,832,616)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities :
Depreciation and amortization 4,311,092 1,174,178 5,076,527
Provision for doubtful accounts (1,154,000) 288,600 281,000
(Gain) loss on sale of property and
equipment (76,446) (17,090) 176,382
Performance shares issued - 120,757 72,634
Appreciation of performance share value 217,433 - -
Cumulative effect of change in accounting
method (470,611) - -
Appreciation of performance shares
redeemed by issuance of note payable - - 134,511
Changes in assets and liabilities:
Trade accounts receivable 2,095,995 3,480,946 2,756,359
Unbilled revenue on work in progress 2,452,964 (2,502,053) (2,658,219)
Prepaid expenses (75,852) (77,260) (200,220)
Accounts payable 1,691,361 (4,735,242) 2,256,065
Accrued salaries and expenses (5,201,704) 7,114,583 1,133,622
Collateral bonds 477,656 411,304 (847,024)
Other, net 503,163 184,525 (944,032)
------------ ------------ ------------
Net cash provided by (used in)
operating activities 5,892,478 (980,437) 3,404,989
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (1,869,058) (474,064) (2,198,370)
Proceeds from sale of property and
equipment 295,010 53,063 346,603
------------ ------------ ------------
Net cash used in investing activities (1,574,048) (421,001) (1,851,767)
Cash flows from financing activities:
Net deposits to cash collateral account (1,767,190) - -
Proceeds from obligations to banks and
notes payable 7,175,000 11,015,000 23,765,000
Payments on obligations to banks and notes
payable (8,565,195) (10,823,825) (24,545,218)
Advances to shareholders - (11,376) (391,157)
Performance shares redeemed (43,159) (14,517) (128,477)
Change in cash overdraft (2,058,354) 1,215,597 (236,671)
Additional paid-in capital 248,891 - -
Proceeds from repayment of shareholder
advances 693,973 - -
------------ ------------ ------------
Net cash provided by (used in)
financing activities (4,316,034) 1,380,879 (1,536,523)
------------ ------------ ------------
Increase (decrease) in cash 2,396 (20,559) 16,699
Cash, beginning of period 59,889 80,448 63,749
------------ ------------ ------------
Cash, end of period $ 62,285 $ 59,889 $ 80,448
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
PAGE
<PAGE>
American Testing and Engineering Corporation
Notes to Consolidated Financial Statements
1. Significant Accounting Policies:
a. Consolidation Principles and Financial Statement
Presentation: These consolidated financial statements include
the accounts of American Testing and Engineering Corporation
("ATEC") and Waste Abatement Technology, L.P. ("WATEC"), a
limited partnership in which the Company holds a 99 percent
interest (together, the "Company"). All significant
intercompany accounts have been eliminated.
b. Property and Equipment: Property and equipment are
recorded at cost and are depreciated using the straight-line
method. Estimated useful lives range from three to ten years
for machinery, equipment and office furniture and three to
seven years for vehicles. Leasehold improvements are
generally amortized over the term of the respective leases.
Expenditures for normal repair and maintenance are charged to
expense as incurred. Cost and accumulated depreciation of
assets disposed are removed from the accounts, and any
resulting gain or loss is included in income.
c. Income Taxes: Effective October 1, 1991, the Company
elected status as an S Corporation under the provisions of the
Internal Revenue Code. Accordingly, it is generally not
subject to federal or state income taxes, and the income or
loss of the Company is reflected in the personal income tax
returns of its shareholders. Income taxes paid during the
year ended September 30, 1993 relate to prior years in which
the Company was a C Corporation.
d. Revenue and Cost Recognition: The Company's principal
business is providing professional engineering and consulting
services under cost-plus-fee and fixed-price contracts.
Revenues attributable to such contracts and claims for revenue
on additional contract revisions are accounted for under the
percentage-of-completion (cost-to-cost) method of accounting
and are recorded equivalent to costs incurred plus a pro rata
portion of estimated profits expected to be realized on the
contracts.
Profits expected to be realized on contracts are based on
total contract value and management's estimates of costs at
completion. These estimates are reviewed and revised
periodically throughout the lives of the contracts, and
adjustments to profits resulting from such revisions are
recorded in the accounting period in which the revisions are
made. Provisions for estimated losses on contracts are
recorded when they are identified.
Costs of service include all direct material and subcontract
costs, and those indirect costs related to contract
performance. Prior to October 1, 1993, the Company classified
all indirect and direct contract costs, except for subcontract
costs, as engineering and consulting costs. Accordingly, for
the year ended September 30, 1993 $7,401,386 of such costs
previously reported as engineering and consulting costs have
been reclassified to costs of service revenue.
6
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
1. Significant Accounting Policies, continued:
e. Performance Share Obligation: Amounts contributed by
participants to the Performance Share Plan are recognized as
compensation expense when earned. Prior to January 1, 1994,
the Company recognized additional expense (appreciation of
performance share value) or other income (diminution of
performance share value) upon election by the participant to
redeem units in accordance with the plan's provisions.
To more directly relate the periodic results of its operations
with related changes in the valuation of performance shares,
the Company changed its method of accounting for changes in
the appreciation or diminution of performance share value. As
a result, the effect of any such change will be measured in
the period in which the change occurs rather than upon
redemption of the units, and the recorded obligation effective
January 1, 1994, is equivalent to the amount due employees in
the event of death, total disability, hardship, or
termination. As part of this change, during the year ended
December 31, 1994, the Company recorded a one-time cumulative
benefit of $470,611, which recognizes the cumulative
difference in expense recorded under the two methods from the
inception of the plan through January 1, 1994.
f. Reclassifications: In addition to the reclassification
of costs of service revenue discussed in d. above, certain
other reclassifications have been made within the September
30, 1993 financial statements to conform with the December 31,
1994 and 1993 presentations.
2. Property and Equipment:
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, September 30,
1994 1993 1993
------------ ------------ ------------
Machinery and equipment $ 12,102,895 $ 11,780,191 $ 11,692,099
Vehicles 6,828,868 7,682,159 7,803,469
Office furniture and equipment 8,508,533 8,180,688 8,002,663
Leasehold improvements 3,660,734 3,587,669 3,549,762
Building 291,220 291,220 291,220
Land 276,480 276,480 276,480
Construction in progress 427,241 8,853 -
------------ ------------ ------------
32,095,971 31,807,260 31,615,693
Less accumulated depreciation (23,054,478) (20,115,169) (19,197,515)
------------ ------------ ------------
$ 9,041,493 $ 11,692,091 $ 12,418,178
============ ============ ============
</TABLE>
7
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
3. Related-party Transactions:
Advances to related parties are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, September 30,
1994 1993 1993
------------ ------------ ------------
Douglass Environmental Services, Inc. $ - $ 27,174 $ 26,905
Mann Reality Co. 68,913 68,913 68,913
Mann Techology, Inc. 1,000 1,000 1,000
ATEC International 41,415 41,415 41,415
------------ ------------ ------------
$ 111,328 $ 138,502 $ 138,233
============ ============ ============
</TABLE>
The Company provides subcontractor services to Douglass
Environmental Services, Inc. (Douglass), a company in which a
shareholder of the Company is an officer and minority
shareholder. Revenues earned by the Company under
subcontracting agreements with Douglass for the year ended
December 31, 1994, the three months ended December 31, 1993, and
the year ended September 30, 1993 were $68,311, $150,391, and
$1,062,887, respectively.
The Company has entered into certain noncancelable operating
lease agreements for office space with Mann Realty Co., a
partnership in which the Company's president is a partner.
Minimum annual rental commitments under these leases are
included in Note 7 and aggregate $599,217, $463,711, $396,336,
$288,252, $180,168, and $942,782 for the years ending
December 31, 1995, 1996, 1997, 1998, 1999, and thereafter,
respectively. Rents paid to Mann Realty Co. for the year ended
December 31, 1994, the three months ended December 31, 1993, and
the year ended September 30, 1993 were $542,610, $193,230, and
$615,144, respectively. The Company also has $125,000 on
deposit with Mann Realty Co. pursuant to lease agreements on
certain locations. No interest is earned on advances, and there
are no agreements identifying specific repayment terms.
The Company's president is an officer and shareholder of Mann
Technology, Inc., which serves as the corporate general partner
and one-percent owner of WATEC. Mann Technology, Inc.'s 1%
interest and earnings therefrom have been reflected as minority
interest on the Company's consolidated balance sheets and
statements of operations. Two shareholders of the Company are
also shareholders in ATEC International. Advances to Mann
Technology and ATEC International bear no interest, and there
are no agreements identifying specific repayment terms.
The Company's interim distributions to shareholders for
estimated income taxes have been determined by the Company's
management to be advances to shareholders until such time as the
actual liability is calculated. As a result of this
determination, at September 30, 1993, $630,496 of previously
reported distributions has been reclassified as advances to
shareholders. Accordingly, advances to shareholders, as
restated, aggregated $700,544 at September 30, 1993. Advances
to shareholders were $711,920 and $17,947 at December 31, 1993
and 1994, respectively. The Company reports shareholder
advances as a reduction of shareholders' equity. The Company's
Credit Agreement (Note 4) requires that any such shareholder
advances in excess of the related tax liability be repaid to the
Company when corresponding refunds are received from taxing
authorities.
8
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
4. Long-term Debt:
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, September 30,
1994 1993 1993
------------ ------------ ------------
Credit agreement:
Working capital loan-ATEC $ 332,810 $ 2,100,000 $ 1,500,000
Working capital loan-WATEC 299,425 500,000 500,000
------------ ------------ ------------
Borrowings under working capital loans $ 632,235 $ 2,600,000 $ 2,000,000
============ ============ ============
Term loan one $ 6,907,321 $ 8,601,485 $ 9,039,710
Term loan two 2,715,048 3,857,448 4,143,048
Term Loan three 1,791,563 2,205,000 1,890,000
Equipment acquisition loan 1,475,000 - -
------------ ------------ ------------
Borrowings under term loans 12,888,932 14,663,933 15,072,758
Notes payable 914,618 329,237 329,237
------------ ------------ ------------
13,803,550 14,993,170 15,401,995
Less current portion (3,548,168) (3,256,269) (3,020,019)
------------ ------------ ------------
Total long-term debt $ 10,255,382 $ 11,736,901 $ 12,381,976
============ ============ ============
</TABLE>
a. Credit Agreement: On May 4, 1995, the Company entered
into a new credit agreement with Bank One, Indianapolis, N.A.
("Bank One"). Substantially all assets have been pledged as
collateral under the new credit agreement (the "Agreement").
The Agreement contains certain financial covenants which
require the Company to meet financial ratios and tests,
including a minimum current ratio, a minimum tangible capital
test, a maximum debt to tangible capital ratio, and a minimum
debt service coverage ratio.
Under the Agreement, ATEC and WATEC may borrow up to
$5,500,000 and $1,000,000, respectively, under working capital
loans. These loans bear interest, payable monthly, at Bank
One's prime rate, which was 8.50% at December 31, 1994, plus
.75%, and mature on April 30, 1996. Bank One may, at its sole
discretion, extend the maturity date of the working capital
loans. The Agreement provides for the establishment of a cash
collateral account, whereby the Company deposits all cash into
the account to pay down working capital loans and then draws
funds to meet current operating requirements.
9
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
4. Long-term Debt, continued:
Term loan one is due in consecutive monthly principal payments
of $116,500 plus interest, with the remaining unpaid principal
plus accrued interest due March 1, 1998. The loan bears
interest at Bank One's prime rate plus 1%. Term loan two is
due in consecutive monthly principal payments of $95,200 plus
interest, with the remaining balances of principal and
interest due on June 1, 1997. The loan bears interest at an
annual rate of 9.51% through February 28, 1996 and at Bank
One's prime rate plus 1% thereafter. Term loan three is due
in consecutive monthly principal payments of $45,937 plus
interest, with the remaining balance of principal and interest
due on February 28, 1998. The loan bears interest at Bank
One's prime rate plus 1%. On June 1, 1995, the outstanding
principal on the existing equipment acquisition loan converts
to a new term loan due in consecutive monthly principal
payments of $41,700 plus interest at Bank One's prime rate
plus 1%, with the remaining balances of principal and interest
due on March 15, 1999.
An additional equipment acquisition loan provided under the
Agreement permits the Company to borrow up to $2,500,000
through April 30, 1996 (the maturity date) for capital
expenditures, with interest payable monthly through the
maturity date at Bank One's prime rate plus 1%. Upon the
maturity date, the principle balance converts to a new term
loan due in 48 equal consecutive monthly payments, which
continue to bear interest at the same rate.
A $6,000,000 facility for letters of credit is provided under
the Agreement with a 1.5% annual fee on outstanding letters of
credit (Note 5). In addition, up to a maximum of $5,000,000
of total indebtedness under the credit agreement has been
guaranteed by the Company's principle shareholder.
b. Notes Payable: The Company's principal shareholder
advanced the Company $750,000 in September 1994. The note
bears interest at 12.0% and the principal and accrued interest
are due on February 1, 1996. The note is subordinated to the
interest of Bank One.
In connection with the retirement of certain performance share
obligations, a note with a principal balance of $329,237 was
issued. Payment of the remaining $164,618 of principal, plus
accrued interest at Bank One's prime rate, is due on January
10, 1995.
The aggregate maturities of long-term debt at December 31, 1994
are as follows:
1995 $ 3,548,168
1996 4,341,650
1997 2,879,498
1998 3,034,234
------------
$ 13,803,550
============
10
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
5. Letters of Credit:
The Company has $4,829,353 in letters of credit outstanding at
December 31, 1994, which collateralize performance bonds
required under certain contracts, certain litigation, and
deductibles under professional liability insurance. They expire
in various amounts through January 1996.
6. Performance Share Obligation:
The Company has adopted a Performance Share Plan ("Share Plan")
intended to operate for the benefit of key employees of the
Company. At the beginning of each fiscal year, each Share Plan
participant can elect to receive a portion of his bonus payable
under the ATEC Incentive Bonus Plan in the form of Performance
Shares ("Shares"), for which the Company has agreed to later pay
a formula value per Share, subject to adjustment (see below).
Except as otherwise determined by the Board, Shares issued in
lieu of cash bonuses were initially valued at twice the book
value of shares of the Company's common stock through
September 30, 1992 and at one and one-half times the book value
of common stock, thereafter ("Purchase Price").
The Company will satisfy the Performance Share Obligation by
cash payments to the Share Plan participants in the event of the
Share Plan participant's death, total disability, hardship or
termination from the Company, or upon sale of 50% of the
Company's common stock or substantially all of the assets of the
Company. See Note 1.
The value per Unit and the right to receive payment for Shares
held by a Share Plan participant are determined as follows:
Event Causing Unit Redemption Share Value Determined By
Death, total disability, The Share Purchase Price plus or
hardship or termination minus the change in book
value of the common stock of
the Company from the date of
purchase to the end of the
fiscal year immediately
preceding the event.
Sale or transfer of more than The payment received by the
50% of the issued and Company shareholders for each
outstanding common stock of share of the Company.
the Company
Sale of substantially all of the The payment received by the
assets of the Company, or the Company shareholders for each
liquidation of the Company share of the Company.
11
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Performance Share Obligation, continued:
Activity in the years ended December 31, 1994 and September 30,
1993 and the three months ended December 31, 1993 was as
follows:
<TABLE>
<S> <C> <C>
Performance
Shares Obligation
------------ ------------
Balance at September 30, 1992 255,499 $ 1,580,560
Issued 3,721 72,634
Redeemed (55,343) (323,203)
------------ ------------
Balance at September 30, 1996 203,877 1,329,991
Issued 10,677 120,757
Redeemed (1,061) (14,517)
------------ ------------
Balance at December 31, 1993 213,493 1,436,231
Cumulative effect of change in accounting
method (Note 1) - (470,611)
Issued - -
Redeemed (6,558) (43,159)
Appreciation of share value - 217,433
------------ ------------
Balance at December 31, 1994 206,935 $ 1,139,894
============ ============
</TABLE>
7. Leases:
Minimum annual rental commitments under noncancelable operating
leases at December 31, 1994 (primarily for office space) are as
follows:
Amount
-----------
1995 $ 2,488,443
1996 1,759,393
1997 1,107,861
1998 719,178
1999 548,398
Thereafter 1,148,021
-----------
$ 7,771,294
===========
Total rental expense for the year ended December 31, 1994, the
three months ended December 31, 1993, and the year ended
September 30, 1993 was approximately $755,000, $3,107,000, and
$3,216,000, respectively.
12
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
8. Profit Sharing Plan:
The Company sponsors a defined contribution 401(k) plan ("Plan")
covering substantially all employees. Annual contributions to
the Plan are made by the Company at its discretion but shall not
exceed the Company's current net profits, accumulated profits,
or the amount which the Company may lawfully contribute to a
qualified plan under provisions of the Internal Revenue Code.
The Company has reserved the right to discontinue or temporarily
suspend contributions made to the Plan for a definite or
indefinite period of time. The Company's contributions are
allocated to the account balance of each participant based upon
the ratio of the participant's plan year compensation to the
total plan year compensation of all participants and vest over a
six-year period.
During the year ended December 31, 1994, the Company contributed
$273,513 to the Plan and, additionally, participant forfeitures
aggregating $46,938 were retained. The Company's contributions
to the Plan were $113,850 during the three months ended December
31, 1993. During the year ended September 30, 1993, participant
forfeitures totaling $321,033 were retained to satisfy the
Company's contributions to the Plan.
9. Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1994 1993 1993
------------ ------------ ------------
Cash paid during the first year for:
Interest $ 1,489,863 $ 376,429 1,487,936
============ ============ ============
$ - $ - 577,043
============ ============ ============
</TABLE>
During the year ended September 30, 1993, the Company redeemed
performance shares with a recorded value of $194,726 and a
redemption value of $329,237 by issuance of a note payable.
10. Litigation:
A lawsuit was filed on April 24, 1991 against the Company and
two other parties in the Superior Court of Lake County, Indiana.
The claim alleged negligent and careless conduct on the part of
the Company, which resulted in permanent personal injuries being
suffered by the plaintiff as a result of exposure to hazardous
materials while operating equipment at a landfill. The
plaintiff sought unspecified judgments, and the Company remained
the sole defendant. In May of 1993, the Company received notice
from its general liability insurance carrier that coverage for
the suit was being denied. On March 23, 1995, a trial jury
returned a verdict against the Company and awarded the plaintiff
$704,375 in damages, which has been charged against the
consolidated statement of operations for the three months ended
December 31, 1993. The Company intends to vigorously pursue
recovery of the damages from its insurance carrier.
13
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
10. Litigation, continued:
The Company was brought into two civil actions by service of
complaints on or about July 2, 1993 in connection with the
collapse of large water intake pipes which are part of the
Northern Indiana Public Service Company power generation plant
in Northern Indiana. Both actions were subrogation actions
against numerous defendants and claimed damages in the amount of
$47,000,000. A summary judgment in the federal court action was
entered on behalf of the Company, and on September 29, 1994, the
Company's motion to make the summary judgment final was granted
by the Court without further appeal by the other parties in the
suit.
On March 1, 1994, the Company and another party were named as
defendants in a lawsuit filed in the Court of Common Pleas,
Franklin, Ohio. The plaintiff alleges that the Company
negligently performed an environmental site assessment which
failed to indicate environmental contamination that has made a
mortgage on the property in the amount of $15 million worthless.
The parties are in the initial stages of discovery. The Company
believes it has a meritorious defense with respect to the
lawsuit and intends to vigorously defend the action. While the
ultimate outcome cannot be determined at this time, management
does not believe it will have a material adverse effect on the
Company's financial position.
During 1994, the Company and two former employees were named as
additional defendants in an existing lawsuit against Siemens
A.G. and certain related entities ("Siemens") pending in the
U.S. Court for the Northern District of Georgia, Atlanta
Division. The claim arises from a number of environmental site
assessments performed by the Company for Siemens Service
Company, a former subsidiary of Siemens A.G. The plaintiff
alleges that the Company failed to provide complete and accurate
reports, which Siemens subsequently provided to the plaintiff
and on which the plaintiff relied in deciding to purchase stock
in a related Siemens entity. The suit seeks compensatory
damages in the amount of $18 million and punitive damages in the
amount of $150 million. Siemens and the Company have undertaken
a joint defense against the suit. Resolution of the dispute is
currently in mediation, and, to date, two sessions with
independent mediators have occurred. While the ultimate outcome
cannot be determined at this time, management, after
consultation with legal counsel, believes it will not have a
material adverse impact on the Company's financial position.
By letter dated December 12, 1993, the Company entered the
Voluntary Disclosure Program administered by the U.S. Department
of Defense ("DoD"). The bases of the disclosure are allegations
that certain former Company employees paid unlawful gratuities
to a federal government inspector concerning a contract at a
federal government site. Possible violations involve the
federal Anti-Kickback Act, federal criminal law against bribery,
and the federal civil False Claims Act. The Company retained a
law firm to undertake internal investigation of the matter and
to prepare a report for presentation to the Office of the
Inspector General, DoD.
14
PAGE
<PAGE>
Notes to Consolidated Financial Statements, Continued
10. Litigation, continued:
The Company could be responsible for the repayment of any losses
suffered by the federal government related to the gratuities,
fraud or kickbacks. In January 1995, the Company submitted the
internal investigation report to DoD in which it found that the
illegal gratuities had been paid by a former Company employee.
The Company paid the federal government the losses identified in
the internal investigation report. The Company does not believe
it has any additional monetary obligation to the federal
government as a result of the matters covered by the
investigation; however, the federal government accepted the
funds with the express reservation that the acceptance did not
constitute a limitation of the Company's liability. The federal
government is now conducting a compliance audit of the report
and could seek further remedies, including, without limitation,
substantial fines to the Company and/or suspension or debarment
from future government contracts. During the three year period
ended December 31, 1994, the Company derived less than 10% of
its net service revenues from federal government sources.
The Company is also subject to numerous other legal proceedings
and claims which arise from employment, customer and contractual
matters. While the result of any litigation necessarily
contains an element of uncertainty, management is of the opinion
that adequate provision has been made as of December 31, 1995
for legal proceedings and claims which they believe expose the
Company to liability.
15
PAGE
<PAGE>
SUPPLEMENTAL SCHEDULES
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidating Balance Sheet
as of December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
American
Testing and
Engineering
ASSETS Corporation WATEC L.P. Eliminations Consolidated
------------ ------------ ------------ ------------
Current assets:
Cash $ 51,931 $ 10,354 $ - $ 62,285
Receivables:
Trade accounts receivable 9,066,858 1,665,148 - 20,732,006
Unbilled revenue on work in progress 6,001,323 394,324 - 6,395,647
------------ ------------ ------------ ------------
25,068,181 2,059,472 - 27,127,653
Less allowance for doubtful accounts (812,200) (2,400) - (814,600)
------------ ------------ ------------ ------------
24,255,981 2,057,072 - 26,313,053
Collateral bonds 1,110,652 - - 1,110,652
Prepaid expenses 723,139 102,075 - 825,214
------------ ------------ ------------ ------------
Total current assets 26,141,703 2,169,501 - 28,311,204
Property and equipment, net 8,491,462 550,031 - 9,041,493
Advances to related parties 110,328 161,108 (160,108) 111,328
Other assets 2,826,464 3,093 (629,717) 2,199,840
------------ ------------ ------------ ------------
Total Assets $ 37,569,957 $ 2,883,733 $ (789,825) $ 39,663,865
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Working capital loans $ 332,810 $ 299,425 $ - $ 632,235
Current portion of long-term debt 3,502,103 - - 3,502,103
Accounts payable, trade 5,918,772 1,292,762 - 7,211,534
Accrued salaries, wages and other
compensation 4,524,262 250,179 - 4,774,441
Accrued expenses 4,140,435 406,639 (160,108) 4,386,966
------------ ------------ ------------ ------------
Total current liabilities 18,418,382 2,249,005 (160,108) 20,507,279
Long-term obligations 10,301,447 - - 10,301,447
Performance share obligation 1,139,894 - - 1,139,894
Minority interest - - 5,011 5,011
Shareholders'equity:
Common stock 79,250 - - 79,950
Additional paid-in capital 633,131 - - 633,131
Advances to shareholders (17,947) - - (17,947)
Retained earnings 7,015,800 634,728 (634,728) 7,015,800
------------ ------------ ------------ ------------
Total shareholders' equity 7,710,234 634,728 (634,728) 7,710,234
------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 37,569,957 $ 2,883,733 $ (789,825) $ 39,663,865
============ ============ ============ ============
</TABLE>
16
PAGE
<PAGE>
American Testing and Engineering Corporation
Consolidating Income Statement
for the year ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
American
Testing and
Engineering
Corporation WATEC L.P. Eliminations Consolidated
------------ ------------ ------------ ------------
Revenues:
Service revenue $ 94,918,854 $ 9,059,176 $ (1,724,762) $102,253,268
Cost of subcontractor services (26,073,184) (5,768,007) 1,724,762 (30,116,429)
------------ ------------ ------------ ------------
Net service revenue 68,845,670 3,291,169 - 72,136,839
Equity in earnings of affiliate (386,457) - 386,457 -
Total revenues 68,459,213 3,291,169 386,457 72,136,839
------------ ------------ ------------ ------------
Costs and expenses:
Engineering and consulting 33,778,590 1,815,304 - 35,593,894
General and administrative expenses 32,686,438 1,670,082 - 34,356,520
Interest expense 1,343,369 196,144 - 1,539,513
------------ ------------ ------------ ------------
Total costs and expenses 67,808,397 3,681,530 - 71,489,927
------------ ------------ ------------ ------------
Income (loss) from operations 650,816 (390,361) 386,457 646,912
Cumulative effect of change in accounting method 470,611 - - 470,611
------------ ------------ ------------ ------------
Net income (loss) before minority
interest 1,121,427 (390,362) 386,457 1,117,523
Minority interest - - (3,904) (3,904)
------------ ------------ ------------ ------------
Net income (loss) $ 1,121,427 $ (390,361) $ 390,361 $ 1,121,427
============ ============ ============ ============
</TABLE>
17
