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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For The Fiscal Year Ended February 28, 1997
Commission File Number: 1-10583
ATC GROUP SERVICES INC.
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(Exact name of Registrant as specified in its charter)
Delaware 46-0399408
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 East 25th Street, 10th Floor
New York, New York 10010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 353-8280
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of May 28, 1997, was approximately $54,890,000
representing approximately 5,047,362 shares of Common Stock at $10.875
per share, the last reported sales price for the Registrant's Common
Stock on such date.
The number of shares outstanding of the Registrant's Common Stock as of
May 28, 1997 was 7,802,987.
Documents Incorporated by Reference
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The definitive Proxy Statement for the Annual Meeting of Stockholders
to be held in 1997 and to be filed with the Commission not later that
June 28, 1997 has been incorporated by reference in whole or in part
in Item 11 of Part III, hereof.
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PART 1
Item 1. Business.
Overview
ATC Group Services Inc. ("ATC" or the "Company") is a specialized
national provider of technical and project management services to a large,
diverse customer base of Fortune 500 corporations, other businesses, and
federal, state and government agencies. The Company's technical and project
management services consist primarily of environmental and consulting
engineering services (doing business as ATC Associates) and information
technology services (doing business through ATC's wholly owned subsidiary ATC
InSys Technology Inc.). These services are offered to national, regional and
local clients through 63 branch offices in 30 states. The Company has grown in
recent years through internal expansion and through the acquisition of
businesses primarily in the environmental engineering and consulting industries.
The acquisition of American Testing and Engineering Corporation ("ATEC") and 3D
Information Services, Inc. in May 1996 expanded the Company's service offerings
to the construction material testing and engineering areas and the information
technology consulting sector.
ATC has focused on six areas of specialization within its environmental and
information technology segments as follows:
(i) Environmental engineering and consulting including environmental
audits, site assessments, remedial action planning and design,
and soil and groundwater remediation management;
(ii) Industrial hygiene consulting including asbestos management,
classical industrial hygiene and indoor air quality;
(iii) Construction materials engineering and testing involving the
design and analysis of building materials used in the upgrade of
the U.S. aging infrastructure and the needs of emerging industry
sectors such as those of the Personal Communications Services
("PCS")/Wireless communications industry;
(iv) Lead-based paint risk management;
(v) Health and safety consulting, including health and safety
training, hazardous materials site safety planning and industrial
safety consulting; and
(vi) Information technology consulting encompassing system design,
development, maintenance, and management services.
These areas of specialization contributed approximately 41%, 33%, 15%,
3%, 2%, and 6% respectively, of the Company's revenues in fiscal 1997.
The Company has experienced substantial increases in revenues and net
income over the past three fiscal years. ATC's revenues were $36,271,557,
$44,964,897, and $113,855,364, respectively, in its 1995, 1996 and 1997 fiscal
years, representing a compounded annual growth rate of 46% over this period.
Furthermore, ATC's net income was $3,256,520, $3,865,998, and $6,307,734,
respectively, in such fiscal years, representing a compounded annual growth rate
of 25% over such periods.
ATC attributes these positive operating results to its integrated strategy that
includes:
(i) Aggressive, but disciplined acquisitions program;
(ii) Enhancement of operations by integrating acquired businesses with
the Company's existing operations;
(iii) Enhancement of revenues by cross selling of newly acquired
services to existing clients;
(iv) Focus on certain higher growth sectors of the environmental
consulting and engineering services market, and certain higher
margin services such as policy development and decision support;
(v) Emphasis on basic business management issues, such as employee
utilization, credit and collections management, and regional
profit center accountability;
(vi) Utilization of its position as one of the few national providers
in a market typified by local and regional firms to provide
complete environmental management services to major corporations
with national and international property management needs, and
(vii) Development of an information technology consulting practice to
extend the Company's services into a higher growth market while
helping to differentiate its offerings in the environmental
consulting and engineering services markets.
The Company intends to employ this strategy as it seeks to further
penetrate the markets for its core services and expand its range of products and
services through strategic acquisitions and internal growth.
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Consulting and Services Industry
Environmental Industry
The public's concerns regarding exposure to contaminants initiated the
push for environmental regulations in the 1970's and 1980's that fueled rapid
growth in the industry. This growth slowed in the 1990's. Today, although public
concern for environmental issues remains high, a more practical risk-based
approach is emerging to direct limited resources toward areas of greatest risk.
Increasingly, the demand for environmental services is being driven by economic
and liability management considerations rather than regulation. The Company
believes that this shift will continue to create new and more profitable
opportunities for serving major commercial clients.
Generally, the environmental consulting and engineering industry is
viewed as having stabilized, with declining demand in some sectors being offset
by growth in others. Two independent market evaluations, one by The
Environmental Business Journal ("EBJ") and the other by the independent
marketing firm of Richard K. Miller & Associates, Inc. ("RKM&A"), estimate the
size of the environmental consulting and engineering services market for 1995 at
between $15 and $16 billion. Annual growth is projected at 2.8% to 5% through
the next three to four years.
The Company believes that, for the next few years, growth in demand
from private sector clients and in certain service areas will exceed the average
growth rate of the overall industry. These service areas include, according to
independent market assessments, lead-based paint management, indoor air quality
consulting services, occupational safety and industrial hygiene services, and
risk analysis services. In addition, new market sectors are constantly
developing new segments that could develop into new sources of business. The
Company is pursuing emerging opportunities in market segments for outsourcing of
environmental services to clients with large real estate holdings,
environmental, geotechnical and construction related assessments, testing and
design for the PCS/Wireless industry, and the identification, recovery and
development of so-called Brownfield sites - environmentally impaired properties
which can be returned to the market place with a "clean" status using a risk
based approach considering the end use of the property for determining the level
of clean up effort required.
Industry observers believe that the asbestos market will show little
growth and the hazardous waste services market will experience some decline in
the coming years. The estimated sizes of these markets in 1995, however, are $3
billion and $6 billion, respectively. The Company believes that, based on the
sizes of these markets and current clean up rates, these markets will remain
significant for the next several years. Furthermore, while governmental
expenditures are expected to evidence slower growth in the coming years as a
result of changes in political priorities, private sector spending on
environmental services is expected to increase, particularly in certain sectors.
Within the past three years, regulations have been promulgated which
have created new business opportunities within certain sectors of the
environmental consulting and engineering services industry. In February 1994,
the United States Department of Labor promulgated new asbestos regulations for
the construction industry, which are more stringent than the previous
regulations. Lead-based paint is another area of increasing regulatory activity,
partially in response to the provisions of Title X of the Housing and Community
Development Act of 1992, and partially as a result of increasing concern arising
from evidence of the severe health effects of childhood lead poisoning.
While the historical growth in environmental consulting and engineering
services has been stimulated by regulatory compliance concerns, the Company
believes that future growth will, in large part, be driven by private
litigation, asset preservation and productivity considerations. As companies
have become increasingly sensitive to the potential adverse consequences of
environmental problems and the potential impact of environmental liabilities,
they have taken an active approach to managing environmental health and safety
risks and liabilities, whether or not the subject of regulations. This trend is
currently being observed in such areas as steel structure repainting projects,
real estate transactional assessments and indoor air quality initiatives.
Bridge and tunnel authorities undertaking the removal of lead-based
paint from large steel structures are seeking to establish monitoring systems to
prevent the dispersion of lead dust into the environment. The Company believes
that such actions are motivated in large part by concerns regarding the
potential liabilities associated with lead contamination. Similarly, concerns
over environmental risks have made environmental assessments an integral
component of the due diligence process for commercial transactions. Financial
institutions frequently require environmental assessments prior to loan
origination, refinancing, and foreclosure activities, while insurance companies
increasingly require environmental assessments before issuing environmental
insurance liability policies.
As a result of the ATEC acquisition, ATC is now able to offer
construction materials engineering and construction materials testing services.
This is a stable market with some specific high growth segments. These services
are utilized by many of the same clients who purchase the Company's
environmental services. Our materials engineering and testing services provides
systematic testing of construction materials to verify that materials meet
quality specifications. This specialty engineering service provides valuable
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assistance during the construction of foundations, highways, bridges, towers,
airports, industrial plants, water and sewage treatment facilities, and many
other construction projects.
Within the environmental consulting and engineering industry there is a
tendency among larger national clients to seek firms to whom they can outsource
their environmental issues. During the fourth quarter of fiscal 1997 ATC
received three contracts from financial institutions to provide environmental
services on an outsourcing basis. These contracts could generate annual revenues
exceeding $6 million per year, although the ultimate amount realized will be
dependent upon the timing and scope of individual projects, real estate market
factors, the effect of industry consolidation as well as regulatory matters. The
Company's ability to provide specialized information technology services in
connection with these efforts was a significant factor in differentiating its
service offerings from those of competitors. The Company believes that this
trend toward outsourcing will continue in the coming years. Independent
observers estimate that this trend will favor larger, national companies that
can provide a broad range of services and secure the level of insurance coverage
required to protect their clients.
Information Technology Industry
ATC's information technology consulting services are provided
through its wholly owned subsidiary, ATC InSys Technology Inc. ("InSys"). InSys
provides high-level programming, systems analysis, project management,
information technology consulting and related computer services, including web
site development and other Internet and Intranet-related consulting and design
services. These services are provided in conjunction with the Company's
environmental and engineering services and as separate, independent services to
clients in the telecommunications, financial services and pharmaceutical
industries. The level of involvement of the Company's consultants ranges from
meeting the client's staffing and needs for programmers and analysts, to
comprehensive management of information solutions, outsourcing and the
implementation of leading edge information technologies. The Company has
developed offerings in several niche areas, including help desk support, the
design and implementation of Internet-enabled applications, and Internet site
hosting services. It has also developed specialized applications for the
management of environmental compliance issues on a customized basis for the
Company's environmental engineering clients and for internal use by the Company.
The increased use of technology has led to a dramatic rise in the
demand for information technology consulting, project support, software
development, and other computer-related services. To meet their business needs,
companies seek relationships with consulting firms for technical staff to
supplement internal resources, as a source of specialized expertise in leading
edge technologies, and for the management of complete projects.
The information technology professional services market grew by almost
25%, to a total of $24.7 billion, during 1996 according to a special study by
Input IT Intelligence Services ("INPUT") conducted for The Updata Group, Inc. It
is expected to grow at an annual compounded rate of 17.3% for the next five
years, to a total of $55 billion by the year 2001. In similar studies conducted
since 1993, actual industry growth has exceeded INPUT estimates every year.
INPUT estimates that in the consulting segment of the industry, which is the
primary segment in which InSys competes, 1996 revenues increased 29.3% to $7.0
billion. It forecasts annual compound growth at a rate of 21.1% over the next
five years to reach aggregate revenue of $18.3 billion by 2001. This estimated
growth reflects both an overall growth in the need for programmers and system
analysts and an increased reliance on outside consulting firms as a source for
these staffing needs. The Bureau of Labor Services estimates that the overall
need for computer scientists and systems analysts will grow by 91% during the
period 1994-2005.
The Company believes that the demand for Internet/Intranet system
development services will grow at a much faster rate as companies use the
Internet to provide their business partners with access to corporate data. This
is a specialized service area in which the Company has a growing expertise.
Strategy
Environmental Industry
The Company's integrated strategy focuses on increasing revenues
through acquisitions and internal growth by promoting its core services and
introducing new and innovative services while continuing to achieve
profitability in existing and acquired operations through the implementation of
rigorous financial and operational controls. Through strategic acquisitions, the
Company has been able to increase the variety of services that it offers and
develop a nationwide network of offices and facilities capable of servicing
national accounts.
ATC's acquisition strategy thus far has been to develop a national
infrastructure of offices and to diversify its service mix to produce an
engineering organization that has significant presence in most primary and
secondary markets and can supply services in several specific higher growth
niche areas. Culminating with the ATEC acquisition, this goal has substantially
been achieved. The Company's strategy in the future will be to concentrate on
acquiring companies that can be "tucked-in" to existing operations or into which
acquired operations can be merged with existing offices. These types of
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acquisitions can provide significant economic benefits. In addition, these
acquisitions can lead to bi-directional technology transfer with the acquired
company's services offered to ATC's existing client base and ATC's core services
offered to clients of the acquired company.
The environmental consulting and engineering services market is very
fragmented, with over 3,600 environmental consulting and engineering companies
in the United States, of which approximately 40 have over $100 million in annual
revenues. There are many specific service specialties and many small-sized
companies. This provides a substantial pool of potential acquisition candidates.
The Company operates in several fast growing niche areas of the
environmental consulting and engineering services industry. Lead-based paint
management, occupational safety and industrial hygiene services, and indoor air
quality are growing at above average rates according to independent sources. The
Company's strategy is to focus on expanding its service revenues in these higher
growth areas.
Two market segments have developed into potential sources of
significant revenue contribution for the future: environmental outsourcing
services and services to the growing PCS/Wireless industry. The Company believes
that it is uniquely positioned, as a result of project experience and its
singular capabilities in the area of information technology consulting, to
respond to the growing demand for outsourcing of environmental services from
clients with large real estate holdings. It is estimated that there will be
100,000 new antenna site installations over the next ten years to accommodate
the growing demand for wireless services. ATC is positioned to provide services
in the industry to assess the environmental condition of these sites, to
evaluate their suitability for that type of construction, and to perform
analysis of the materials used in this type of construction.
As a result of the acquisition of ATEC, the Company has acquired
capabilities in the fields of construction materials engineering ("CME"), and
construction materials testing ("CMT"). These services are sold, for the most
part, through the same distribution channels as ATC's core environmental
engineering services. An important strategy is to expand the revenue
contribution from these new services by their introduction to our existing
client base.
The Company believes that its positive operating results in recent
years are due, at least in part, to its disciplined approach to the management
of basic business fundamentals. ATC's professional corporate staff monitors and
oversees the financial and administrative functions of the business. ATC strives
to manage profit center accountability through a combination of goals and
incentives and performance monitoring.
Information Technology Industry
The Company's services generally involve the provision of programmers,
systems analysts, and technical support staff to clients on a contract basis for
projects lasting from a few months to periods exceeding one year. The Company's
information technology consultants typically work full-time at a client's work
site. About 75% of the Company's staff are directly involved in providing
client-site services on a fee/hour basis. Approximately 10% are involved in
providing outsourced or project based services from the Company's facilities.
The remaining staff are primarily involved in managing and selling information
technology services and in recruiting new staff to meet the demand for services.
The Company believes that growth in the demand for information
technology consulting services will be accompanied by on-going pressure on
profit margins as salaries paid for scarce staff increase and clients seek to
control total expenditures by outsourcing responsibilities for managing the
technical staff procurement process. To counter this pressure, while still
taking advantage of the growth opportunities available in the industry, the
Company needs to offer a superior employment environment to its consultants and
a clearly differentiated service capability for its clients. To achieve these
objectives, the Company will:
(i) Continue to build specialized service offerings in the design and
implementation of Internet/Intranet applications on an outsourced basis.
The Company believes that these services will permit it to leverage the
existing database, application development and network management skills of
its staff into higher margin activities.
(ii) Continue to develop and implement client systems that capitalize on the
Company's environmental and engineering capabilities, as well as on the
development of other service offerings that leverage its project management
capabilities, to increase operating margins. The Company believes that the
combination of its strong capabilities in environmental and engineering
services and its strong capabilities in information systems design have
been important in securing a number of major client projects.
(iii)Use the Company's information systems consulting staff as the primary
source of resources for meeting its internal information systems needs.
This provides the Company with access to state-of-the-art technical
resources at an advantageous cost and provides an opportunity to use these
projects to enhance recruitment, training and retention of information
technology staff.
(iv) Increase the proportion of work performed on an outsourced basis to obtain
higher margins and to improve the Company's ability to use these projects
to recruit and retain qualified staff.
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(v) Consider acquisition opportunities where these strengthen and extend the
Company's technical capabilities in high margin/high growth areas, broaden
the Company's penetration of major corporate accounts, or provide the
Company with improved access to sources of qualified technical staff.
Services and Products
Environmental Industry
The Company provides a range of specialized environmental consulting
and engineering services, including asbestos management, classical industrial
hygiene, construction materials engineering and testing, lead-based paint risk
management, health and safety training, environmental audits, remedial action
planning, design and management, and comprehensive environmental risk assessment
and management. The Company's services are offered individually or together as
part of the Company's full service approach to environmental consulting. During
fiscal 1997, ATC provided services to over 10,000 clients ranging from small
site investigations to large comprehensive assessment and remediation management
projects.
Environmental Management
ATC's environmental management services range from real property
investigations for environmental contamination, to turn-key remediation. These
services can include soil and ground water analysis, installation of monitoring
wells, recovery system design, regulatory permitting, contractor selection and
remediation oversight. Financial institutions, as well as certain states,
mandate pre-purchase or pre-loan real property environmental assessments prior
to property transfer, closure or sale. An environmental audit by ATC can help to
detect the presence of pollutants and, in some cases, to determine costs for
clean up.
Groundwater Assessments. At sites where the quality of groundwater is
in question, due to a confirmed or suspected spill or release of hazardous
substances, ATC performs assessments to identify the depth to static water,
define pressure zones or confining conditions, determine gradient and sample
groundwater. Once analytical results are known and soil and groundwater
conditions established, ATC's hydrologists, geologists and engineers analyze the
data through the use of predictive tools such as groundwater models to determine
the movement and ultimate destination of the contaminants.
Site Assessments and Characterizations. Site assessment and
characterization investigations involve defining the important physical and
chemical parameters of a contaminated site. A site assessment provides a
baseline for understanding subsurface conditions and is necessary before any
clean up can be designed or implemented.
Groundwater and Soil Remediation Management. ATC's services include the
management and oversight of clean up projects through the use of a variety of
diverse traditional and innovative technologies including bioremediation, land
farming, soil venting, air sparging, pump and treat, and thermal oxidation
systems. ATC's management services can include testing, scheduling,
coordination, documentation and approval of progress payments, and interaction
with regulatory agencies throughout the life of the project.
Industrial Hygiene
The Company offers a variety of industrial hygiene services, including
asbestos management, classical industrial hygiene investigations and analyses,
indoor air quality services and laboratory services.
Asbestos Management. ATC provides comprehensive asbestos testing and
consulting services. These services may begin with a survey of facilities to
determine the condition, type, quantity and location of asbestos. After
gathering field samples, the Company utilizes polarized light microscopy, phase
contrast microscopy and transmission electron microscopy to analyze asbestos
fibers. Other services include risk assessment, remediation design for asbestos
abatement, industrial hygiene services before, during and after the asbestos
removal process, development of operations and maintenance training programs for
facilities personnel, development of operations and maintenance programs for
custodial and maintenance personnel, and providing asbestos awareness seminars
for client personnel.
ATC's services are designed to enable building owners and operators to
comply with federal, state and local regulations for asbestos control, by
providing a comprehensive approach for controlling or removing asbestos. ATC's
technical personnel include registered architects, professional engineers,
certified industrial hygienists, certified safety professionals and asbestos
specialists, with extensive experience managing hazardous material. Such
personnel are licensed and certified by federal, state and local agencies.
Classical Industrial Hygiene. ATC evaluates potential health hazards in
occupational settings, including physical hazards and hazards arising from
exposure to chemical or biological substances. Potential hazards include
solvents, corrosive chemicals, gases, toxic dusts, radiation, lasers, noise,
lighting, heat, bacteria and molds. Evaluations determine the extent of exposure
to potentially hazardous substances and methods to control and minimize
associated risks. Field measurements are evaluated to determine compliance with
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governmental regulations and other standards. After corrective measures are
designed and implemented, ATC provides follow-up monitoring designed to ensure
that workplace exposures have been minimized.
Indoor Air Quality. Healthy indoor air quality is recognized as an
essential factor in promoting comfort and welfare. ATC provides investigations
designed to identify (i) sources of indoor air pollution; (ii) route of exposure
to individuals; (iii) route of entry into the body; and (iv) possible effects on
occupants. The investigatory process typically includes interviews of occupants
and air monitoring of indoor and outdoor ambient environments to evaluate
exposures, symptoms and concerns. A thorough building system investigation
evaluates mechanical and ventilation systems that may impact habitable space. An
inventory of chemicals, air contaminants, office equipment, plants, water
sources and other potentially harmful sub-chemicals, air contaminants, office
equipment, plants, water sources and other potentially harmful substances,
process equipment and maintenance practices may also be part of the evaluation.
After completing a facility evaluation, ATC recommends solutions that are
customized to the specific facility and problem.
Laboratory Services. ATC maintains analytical testing laboratories that
provide detection and analysis of a wide variety of materials, including
possible asbestos-containing material, suspected lead-based paint substances,
industrial and municipal waste water, and certain hazardous wastes and
substances in various media. These laboratories mainly support ATC's consulting
and remediation management services, but they also provide services to outside
clients. ATC's operations incorporate chain-of-custody and quality assurance
procedures and professionally recognized laboratory practices.
Construction Materials Testing and Engineering
Quality control in construction and industry is a major concern to
owners and project participants. Systematic testing of construction materials is
the only way that the architect or engineer can be sure that materials being
used by the contractor are of the quality specified. ATC is nationally known in
the area of Materials Engineering Testing and Inspection, a specialty within the
broad area of civil engineering and materials quality control. The Company's
quality control expertise provides valuable assistance in the construction of
foundations, highways, railroads, dams, bridges, towers, buildings, airports,
industrial plants, water supply facilities, sewage treatment facilities, dock
and waterway facilities, power plants, and many other construction projects.
ATC provides complete testing and inspection services for all phases
and materials of the construction industry. These services may be conducted in
the laboratory, in the fabricating plant, or at the construction site.
Geotechnical Consulting and Engineering - Competent geotechnical
services are important through all phases of the design and construction of a
project, whether it is a high-rise building, manufacturing plant, dam, landfill,
bridge, or any other structure that is supported on or within the earth. This
involves sampling earth materials and analyzing them in a soils laboratory.
Using the compiled data, ATC helps clients avoid poor foundation design or
unnecessary construction delays.
Lead Risk Management
Lead in paint, drinking water and soil is a major environmental problem
facing the United States. Lead has no known useful function in the human body
and is known to be toxic to virtually all organs in the body, even at relatively
low doses. In children, excessive exposure to lead can result in brain damage
leading to learning disabilities and, in some cases, retardation. Adult
exposures to excessive amounts of lead can cause reproductive, hematological and
nervous system disorders.
As the first state-accredited lead risk management training institute
in the nation, ATC was one of the first companies to provide national lead risk
management services. Furthermore, ATC co-authored and edited the first
comprehensive textbook on lead risk management. ATC is a co-founder of the
National Lead Abatement Council, the first trade organization representing
contractors, inspectors, vendors, attorneys and public officials engaged in
managing lead risks. ATC maintains a high degree of visibility and credibility
in the lead services arena through participation in professional and consensus
standard setting organizations and through publishing articles in trade
publications.
Until recently, lead risk management services were sought primarily to
establish compliance with lead poisoning prevention regulations. However, the
market is now expanding as clients increasingly seek voluntary risk reduction
programs and defend against a proliferation of lead poisoning lawsuits.
Federal law requires lead paint testing of all federally assisted
public housing authority projects nationwide, and the full lead paint abatement
of these projects. ATC has provided lead paint testing and abatement project
management services to numerous public housing authorities throughout the United
States. As this work proceeds, ATC is also pursuing opportunities created by two
new federally funded programs. The first program authorized approximately $25
million of federal grants to public housing authorities to conduct specialized
lead hazard risk assessments and develop property management programs to
maintain "lead-safe" dwellings until such time that lead paint can be abated.
The second program authorized approximately $400 million of federal grants to
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state and local regulatory agencies to conduct innovative lead paint inspection
and abatement. ATC has identified and is aggressively marketing the grantee
agencies.
Additional opportunities are presented by federal regulations under
Title X of the Housing and Community Development Act of 1992 which, among other
things: (i) established a national requirement for training and certification of
all lead contractor workers and supervisors, inspectors, risk assessors, project
designers and other individuals involved in lead paint activities; and (ii)
established new disclosure requirements applicable to all property transactions
affecting residential properties built prior to 1978.
ATC's lead management services are broadly categorized as: (i)
corporate lead risk management services; (ii) steel structure and industrial
compliance services; and (iii) residential lead paint testing and project
management services.
Corporate Lead Risk Management Services. ATC provides corporate lead
risk management programs, primarily to insurance companies, lending
institutions, law firms and large real estate managers. ATC's services enable
corporations to effectively address lead-related liabilities by advising these
institutions in their development and implementation of lead risk management
policies and procedures.
Policy development typically entails an examination of a client's real
estate with respect to potential lead liabilities. Working closely with
corporate legal and technical divisions, ATC recommends policies and procedures
to ensure lead-safe management of properties and compliance with applicable lead
poisoning prevention regulations. ATC also designs and implements special
studies or demonstration programs to provide empirical data for validating the
efficacy of property management guidelines. ATC's policy recommendations include
provisions for clients to anticipate, guard against, and effectively respond to
lead poisoning complaints, regulatory violations and lawsuits.
The Company's corporate lead risk management services include designing
and implementing compliance training seminars and workshops tailored to the
needs of the different program participants. ATC's corporate training programs
are periodically revised to reflect changes in accepted work practices.
ATC offers lead paint litigation support services exclusively in
support of property owners, managers, lending institutions and insurers. These
services include case consultation, regulatory analysis, document and deposition
review, expert testimony, as well as site investigation and testing services.
Steel Structure and Industrial Compliance Services. Nationwide,
hundreds of thousands of petroleum storage tanks, water tanks, transportation
bridges and other major structures are made of steel and painted with coats of
lead-based paints and leaded primers. These structures require periodic
maintenance, including full removal of the leaded paints and primers followed by
re-painting to prevent them from corroding.
ATC provides comprehensive environmental monitoring of surface
preparation activities that include the removal of lead and associated coatings
from steel structures. ATC employs trained engineers and has the expertise to
prepare abatement specifications and guide agencies, engineers and contractors
through lead removal activities in accordance with all federal, state and local
regulations. ATC prepares and has submitted numerous environmental monitoring
and sampling protocols to assist in protecting the public community, workers and
the environment from potential contamination resulting from lead removal
activities.
Residential Services. ATC provides residential property owners and
managers with services for the analysis of lead in paint, soil, air and drinking
water. Consultation services include surveys to identify lead problems, to
design safe and responsible procedures for the removal of lead paint and to
control lead dust and contaminated debris while reducing clean up costs. ATC
provides the necessary detailed specifications where exterior and internal
surfaces coated with lead paint must be abated. ATC also designs worker health
and safety plans for lead removal activities, and provides construction
monitoring of lead projects to prevent occupant, worker and third-party exposure
to lead dust.
Health and Safety
The Company has established several health and safety training and
advisory programs.
Education and Training. ATC operates training schools under the name
The Environmental Institute, as well as under ATC Associates. The Company
develops and presents public and private training courses each year for those
involved in environmental, asbestos, lead, hazardous materials and safety and
health issues. "Right-to-Know" programs in accordance with mandates by the
federal Occupational Safety and Health Administration ("OSHA"), the federal
Environmental Protection Agency ("EPA") and some state regulations are designed
to communicate information regarding the hazards of chemicals to workers and
communities. Instructors present practical, comprehensive courses, many of which
feature "hands-on" training. ATC routinely customizes courses to meet specific
client needs.
8
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Health and Safety Consulting. ATC occupational health and safety
programs enable employers and property owners to meet or exceed the requirements
established by federal, state or local regulations, particularly OSHA
regulations. A review of work practices can result in the recognition,
evaluation and design of proper safe work policies and procedures to minimize or
eliminate work-related injuries and illnesses.
Site Safety, Health and Emergency Response Plan. ATC offers a full
range of technical support services for site-specific safety and health programs
required for hazardous waste operations. Employers that are subject to OSHA
standards for hazardous waste operations utilize ATC to provide assistance in
many areas.
Information Technology Industry
ATC's information technology consulting services encompass all phases
of information system design, development, maintenance and management in client
server and mainframe-based environments. The Company provides analysis and
design services and system programming services to help clients in building new
computer systems and modifying existing computer systems. The Company also
provides support to clients in maintaining computer systems and in areas such as
help desk management and other system and network support services. The
Company's information technology services fall into the following broad
categories:
General Information Technology Consulting Services. The Company's
general information technology consulting services are designed to provide
highly trained technical personnel to meet the clients' supplemental staffing
needs. Such personnel typically provide services in the areas of design,
programming, testing, implementation, maintenance, support, data conversions and
the evaluation of networks, databases and operating systems on a fee/hour basis.
Internet/Intranet Applications Development. The Company provides
leading-edge technology design and implementation services to its clients in the
development of dynamic database applications that operate over the clients'
Intranets or through the Internet. These services can include web site hosting
services where appropriate to segregate the application database from the
client's internal data base systems.
Outsourcing Services. The Company has recently begun to offer
outsourcing services to provide staffing and management of all aspects of an
information technology project or service within guidelines established by the
Company and the client. The Company's outsourcing service offerings include help
desk support, remote network administration and Internet site development,
hosting, maintenance and support. These services now constitute approximately
10% of InSys revenues.
Clients and Marketing
Environmental Industry
The Company provides its environmental engineering consulting services
to Fortune 500 companies, small companies, real estate property owners and
managers and federal, state and local governments. The Company relies on
referrals from existing and former clients, architects and engineers for a large
portion of its contract leads. The Company's contracts are obtained by its sales
force through a bidding process and other forms of engagement.
Consistent with trends towards focusing on litigation, liability and
cost control management, there is an increasing tendency for companies to obtain
a greater share of their environmental consulting and engineering services from
a smaller number of larger providers. RKM&A attributes this trend to the broader
services offered, the desire to reduce the number of consultants used, and to
such issues as the greater insurance protection and indemnity coverage that
larger firms can provide. The Company believes that this trend presents a
significant opportunity for firms, such as ATC, that have the technical skills,
branch office locations, team mobilization capabilities and financial resources
to both perform the services and provide the insurance and indemnity protection
demanded by large corporate and government clients.
To take advantage of this trend, ATC's overall marketing strategy is a
combined national and regional approach. National efforts are directed by senior
professionals of the Company, while regional efforts are typically directed
either by a regional or branch manager, or by a sales and marketing
professional. The Company's regional sales and marketing departments generate
leads, act as proposal administrators, perform technical writing and generally
support the Company's sales efforts. In addition, senior technical and sales
staff have been assigned to marketing specific service sectors such as services
for the PCS/Wireless industry and Brownfields initiatives.
9
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<PAGE>
ATC presently markets its environmental consulting and engineering
services through its network of branch offices located in thirty states. Direct
marketing is accomplished by technical sales representatives, technical and
management personnel who call on prospective clients. ATC also utilizes
government and industry publications to identify potential services and requests
for project proposals for submission of competitive bids, direct mail
solicitation, and national trade advertising. In addition, ATC markets its
services through its environmental seminars and training courses for existing
and potential clients.
Information Technology Industry
The Company provides its information technology consulting services to
Fortune 500 and other clients, including major companies in the
telecommunications, financial services and pharmaceutical industries. A
significant majority of the Company's information technology services revenue is
derived from its existing client base. The Company obtains new clients through
personal sales presentations, telephone marketing calls, referrals from other
clients, and referrals from current and former staff.
Competition
The environmental engineering and information technology consulting
industries in which the Company operates are subject to intense competition. In
addition to the thousands of small environmental consulting and testing firms
operating nationally, ATC competes with several national environmental
engineering and consulting firms including Law Engineering, Inc., The Earth
Technology Corporation (a subsidiary of Tyco International, Inc.), Dames &
Moore, Inc. and Professional Service Industries, Inc. In the information
technology consulting market, ATC competes with many small and medium-sized
information technology firms as well as large temporary staffing companies,
including The Olsten Corporation, Corestaff, Inc. and Accustaff Incorporated
among others and large systems consulting firms.
Many of ATC's present and future competitors may have greater
financial, technical and personnel resources than ATC. It is not possible to
predict the extent of competition that ATC will encounter in the near future as
the environmental engineering and information technology consulting services
industries continue to mature and consolidate. Historically, competition has
been based primarily on the quality, timeliness and costs of services. The
ability of ATC to compete successfully will depend upon its marketing efforts,
its ability to accurately estimate costs, the quality of the work it performs,
its ability to hire and train qualified personnel and the availability of
insurance.
Governmental Regulation
Most environmental laws and regulations are promulgated by Congress and
departments and agencies of the federal government. Many of the federal
regulations contemplate enforcement by state agencies and adoption by the states
of similar regulations which must meet the minimum federal requirements. In
areas of environmental law where federal regulation is silent, the states may
adopt their own environmental laws. Local governments such as countries and
municipalities may also enact and enforce environmental laws that address local
concerns.
Additionally, in its operations, ATC and its employees are subject to
various regulatory, certification and licensing requirements.
Those federal agencies whose regulations, guidelines or standards have
the greatest potential impact on ATC are:
The United States Department of Labor - Occupational Safety and Health
Administration, which requires particular work practices, sets limits for worker
exposure on the job, requires employers to provide employees with personal
protective devices such as respirators, and requires employers to maintain
records for periods of up to 30 years;
The United States Environmental Protection Agency, which, through its
National Emissions Standards for Hazardous Air Pollutants, requires that it be
notified of asbestos removal or disturbance during renovation and demolition
projects and requires specific work practices at such projects, and which
through other statutes and regulations regulates a very broad spectrum of
industrial and commercial activities, including the disposal of hazardous waste;
The United States Department of Housing and Urban Development ("HUD"),
which sets the standards for the testing and remediation of lead-based paint in
publicly funded housing, and which provides funding for housing rehabilitation
including lead-based paint remediation; and
The United States Department of Transportation, which regulates
packaging and transportation of hazardous waste by all who transport or cause
the transport of hazardous waste.
The EPA, OSHA and HUD have each published regulations and guidelines to
safeguard employees and public occupants from certain environmental exposures.
Federal regulations specify work practices for removal of asbestos and lead
10
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<PAGE>
containing materials from buildings. Federal law also presently requires
employers to inform workers, and in some places the general public, of the
dangers connected with hazardous chemicals in the workplace. These "Right-to
Know" laws usually require employers to list all hazardous chemicals in the
workplace, to instruct workers about safe work practices, and to train workers
on how to respond in the case of exposure to or release of the hazardous
chemical. OSHA's Hazardous Communication Standard requires all employers to
provide information and training regarding hazardous chemicals in the workplace.
Most states and local governments have adopted licensing and
certification requirements for workers engaged in the environmental industry,
which require workers to attend training classes. ATC is currently accredited by
the National Voluntary Laboratory Program and expects to continue to participate
in all future National Institute of Standards and Technology programs. In
addition, ATC maintains various licenses and certifications pertaining to its
laboratories and certain field testing equipment. ATC has not experienced, and
does not contemplate, any material difficulties in complying with regulatory and
licensing provisions applicable to its business. ATC has received citations from
governmental authorities, none of which have had a material adverse effect on
the Company's business operations.
The Information Technology industry is not subject to significant
government regulation or certification efforts. It is affected by tax
regulations concerning the definition of independent contractors and by
regulations governing the immigration of non-US technical staff who make up a
growing percentage of the staff available for consulting assignments.
Insurance
ATC has secured a "claims made" professional liability insurance policy
covering a two year term, including contractor's pollution liability coverage,
with a two-year, per-claim and aggregate limit of $10,000,000 and a deductible
of $250,000, although increased limits have been obtained on a specific
endorsement basis to meet the needs of particular clients or contracts. A
"claims made" policy only insures against claims filed during the period in
which the policy is in effect. This policy covers both errors and omissions and
products/completed operations. ATC also carries occurrence form general
liability insurance in the amount of $1,000,000, with a $10,000,000 umbrella.
ATC's policy has been renewed in each of the last several years that the policy
has been in effect. The relatively low dollar amount of the policy limit
currently offered, the possible future unavailability or modification of this
insurance or any significant increase in insurance rates could have a materially
adverse effect on ATC's operations. Further, because customers may require that
ATC maintain liability insurance, the possible future unavailability of such
insurance could adversely affect ATC's ability to compete effectively. ATC
currently has two professional liability claims pending. One of these claims is
the Commonwealth of Massachusetts v. TLT Construction Corp. case described in
Legal Proceedings in Item 3 hereof. The second claim involves a minor matter
from which the risk of major loss is remote. Although various claims have been
made in the past against the Company's professional liability/contractor's
pollution policy, to date no such claim has ever resulted in an insured loss.
Personnel
As of May 1997, ATC employed 1,630 employees, 1,384 of which are
full-time employees. ATC's employees consist of 1,312 technical and professional
personnel, 47 sales and marketing persons and 271 administrative employees
inclusive of executive officers. The backgrounds of ATC's technical and
professional staff include, among other disciplines, environmental engineering,
information technology, industrial hygiene and hydrogeology, chemistry, biology
and geology. ATC from time-to-time hires additional personnel on a temporary
basis.
ATC believes that it has been able to establish and maintain a stable
work force of experienced personnel by paying competitive wages and by providing
standard benefits. ATC also pays the costs as they arise to have its workers
certified for its asbestos and environmental requirements, including tuition at
a certified training program and fees for certification, testing and licensing.
ATC believes that its own training school has helped to ensure the availability
of a trained work force. To help maintain and grow its Information Technology
staff, ATC is moving to increase the proportion of work performed in its own
facilities so that these projects may be used to provide enhanced training and
retention opportunities for staff when they are not engaged in client-site
consulting projects.
11
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<PAGE>
Item 2. Properties.
ATC leases office space, laboratory facilities, temporary housing
facilities and storage space under operating lease agreements, which have
varying dates of expiration. ATC utilizes all of its leased facilities near
maximum capacity. However, ATC does not foresee any difficulty in leasing
adequate supplementary facilities, if necessary and therefore does not believe
any of its leases are material. The Company's leases include: ATC's principal
executive, administrative, operations and laboratory facilities, aggregating
approximately 40,000 square feet are located at 104 East 25th Street, New York,
NY at a base rate of $290,412 per annum with a term ending on September 30,
2001. ATC and its Hygeia subsidiary have three separate lease and sublease
agreements which, on an aggregate basis, covers the premises housing its
consulting and laboratory operations at 600 West Cummings Park, Woburn,
Massachusetts, comprising approximately 21,000 square feet at an aggregate base
rent of approximately $264,000, with lease terms generally expiring near the end
of the summer in 2001. ATC entered into three material leases with the Mann
Realty Company in connection with its acquisition of the operations of ATEC.
These leases are for premises in Indianapolis, Indiana, Dallas, Texas and
Atlanta, Georgia, covering 15,827 square feet, 12,150 square feet and 18,700
square feet, respectively, at annual rents of $170,712, $100,800 and $178,776,
respectively. The terms of these three leases are ten years with an option to
terminate after four years upon the occurrence of certain specified business
conditions. Although the Company believes it can lease similar space, no
assurances can be given that the Company will obtain leases at the same
locations and at the same lease rates.
In addition, in its business, ATC utilizes various laboratory, field
and computer equipment which are owned or leased. ATC also rents equipment on a
project-by-project basis.
Item 3. Legal Proceedings.
First Fidelity Bank, N.A., et al v. Hill International, Inc. et al,
Superior Court of New Jersey, Law Division, Burlington County, Docket No.
Bur-L-03400-95, filed December 19, 1995. Irvin E. Richter, et al v. ATC Group
Services Inc., et al, United States District Court, District of New Jersey, Civ.
No. 96 CV 5818 (JBS) filed December 6, 1996. On December 19, 1995, a second
amended complaint was filed in the above-entitled action which joined the
Company as a defendant and included a count against the Company seeking recovery
of certain assets purchased from Hill International, Inc. ("Hill") on the
grounds that plaintiff banks hold security interests in the assets and that Hill
is in default under the security agreement creating such alleged security
interests. The plaintiffs in this action are First Fidelity Bank, N.A. and
United Jersey Bank, N.A. The primary defendants were Hill and certain of its
subsidiaries, and Irvin Richter, David Richter, Janice Richter and William
Doyle. Irvin Richter and David Richter are officers and stockholders of Hill. In
April 1996, the Company filed a cross-claim against Hill, Irvin Richter and
David Richter alleging breach of contract, fraud, among other allegations and
seeking unspecified damages, including punitive damages and equitable relief. In
August, 1996, Hill and the Richters filed an answer denying ATC's cross claims,
a cross-claim against ATC and a third party claim against certain members of
ATC's management. The cross claim and third party claim seek unspecified
damages, including punitive damages, for defamation, breach of the Richters'
non-competition agreements and securities fraud. The defamation claim is based
on plaintiff banks' allegation of fraud against Hill and the Richters in their
amended complaint, which Hill and the Richters allege was based on defamatory
statements made by ATC in settlement discussions with the plaintiff banks. In
its answer, the Company both denies that it made defamatory statements and
asserts that the defamation allegations fail to state a legally valid claim. The
breach of contract and securities claims are based on allegations that ATC made
representations concerning a registration rights agreement to be provided in
connection with options issued to the Richters as consideration for their
non-competition agreements. In its answer, the Company denies that an agreement
concerning registration rights was ever reached and asserts that the Richters
forfeited any such rights in any case as a result of their conduct in connection
with the asset purchase. These related cases are in their early stages with
discovery yet to take place. In January, 1997, the plaintiff bank dismissed
their claim against ATC. On December 6, 1996, Hill and the Richters commenced an
action against ATC and the same officers and employees of ATC alleging
essentially the same claims in federal court as in the state action. ATC has
answered, raising the same defenses and additional defenses related to the
timeliness of the federal claim. This is essentially the same action as in
federal court as the pending state action. It does not create a risk of double
recovery. In the Company's opinion, the outcome of this matter will not have a
significant effect on the Company's financial position or future results of
operations, although no assurances can be given in this regard.
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Commonwealth of Massachusetts v. TLT Construction Corp. et al,
Civ. Action No. 96-02281 F, Superior Court of Middlesex County, Massachusetts.
This is an action brought by the Commonwealth of Massachusetts in April 1996,
against the architects and general contractor on a renovation and construction
project on the Suffolk County Courthouse in Massachusetts. The basis of the
lawsuit is that one or more damp-proofing products specified by the architect
defendants and installed by the contractor defendant made employees in the
courthouse ill because of the off-gassing of harmful vapors. Dennison
Environmental Services Inc., ("Dennison") an ATC subsidiary, was joined on
August 13, 1996, as a third party defendant by TLT Construction Corporation, the
general contractor, because Dennison performed some air quality testing of the
air in the courthouse for the Commonwealth of Massachusetts during the
construction process. The contractor alleges that it acted in reliance on these
tests in continuing to install the material after the test report was given to
it by the state. Dennison has just recently been served and has not yet answered
the complaint. At this point, ATC considers the case to be totally without
merit, and ATC intends to vigorously defend the action. The Company currently
has in force a professional liability insurance policy covering this claim in
the amount of $10,000,000 with a deductible of $250,000. Notice of claim has
been made regarding this action and the insurer has agreed to assume the
defense. These related cases are in their early stages with discovery yet to
take place. In the Company's opinion, the outcome of this matter will not have a
significant effect on the Company's financial position or future results of
operations, although no assurances can be given in this regard.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock and Class C Common Stock Purchase Warrants
("Class C Warrants") are listed on the NASDAQ National Market under the symbols
"ATCS" and "ATCSL," respectively. Prior to August 23, 1995, the Company's Common
Stock and Class C Warrants were listed on the NASDAQ Small Cap Market under the
former symbols "ATCE" and "ATCEL". The Class C Warrants are exercisable at
$10.00 per share and expire April 30, 1998, subject to the Company's right to
call such warrants on 30 day's prior notice. The following table sets forth, for
the quarters indicated, the high and low bid prices of the Company's Stock on
the NASDAQ Small Cap Market and the high and low sales prices on the NASDAQ
National Market, as applicable.
<TABLE>
<CAPTION>
Common Stock
<S> <C> <C>
Fiscal Year Ended February 29, 1996: HIGH LOW
----------------------------------- -------- ---
First Quarter ..................................................................... $18-3/8 $ 8-7/8
Second Quarter (through August 22, 1995)........................................... 15-3/4 13-1/4
Second Quarter (August 23 through August 31, 1995)................................. 15-1/8 13-3/4
Third Quarter...................................................................... 17 12
Fourth Quarter..................................................................... 13-1/2 10-1/2
Fiscal Year Ended February 28, 1997:
-----------------------------------
First Quarter .................................................................... $15-7/8 $ 11-7/8
Second Quarter .................................................................... 15-3/8 12-1/4
Third Quarter...................................................................... 13-3/4 10-3/8
Fourth Quarter..................................................................... 10-5/8 7-1/4
Class C Warrants
Fiscal Year Ended February 29, 1996: HIGH LOW
----------------------------------- ---- ---
First Quarter...................................................................... $ 8-1/2 $ 3
Second Quarter..................................................................... 7-5/8 5-1/2
Third Quarter...................................................................... 9-1/8 5-1/2
Fourth Quarter..................................................................... 6-1/8 3
Fiscal Year Ended February 28, 1997:
-----------------------------------
First Quarter...................................................................... $ 5-7/8 $ 3-1/4
Second Quarter..................................................................... 5-3/8 2-3/8
Third Quarter...................................................................... 4-1/2 2-1/4
Fourth Quarter..................................................................... 2-1/2 7/8
</TABLE>
The quotations in the tables above reflect inter-dealer prices without
retail markups, markdowns or commissions. In addition, for all periods prior to
August 23, 1995, they do not represent actual transactions.
The Company had 639 record holders as of May 28, 1997 as reported by its
transfer agent (American Stock Transfer & Trust Company) representing
approximately 6,600 beneficial holders of ATC's Common Stock.
No cash dividends have been paid by ATC on its Common Stock and no such
payment is anticipated in the foreseeable future.
On May 28, 1997, the last reported sales price for the Company's Common
Stock and Class C Warrants on the NASDAQ National Market were $10-7/8 and $3,
respectively.
The Company is in the process of preparing a registration statement to
be filed with the Securities and Exchange Commission with regards to its Class C
Warrants. Until such registration statement is filed and declared effective by
the Commission, the Class C Warrants cannot be exercised by the holders after
June 3, 1997.
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Item 6. Selected Financial Data.
The following table sets forth, for the periods and at the dates
indicated, selected historical consolidated financial data of the Company. The
selected consolidated historical financial data has been derived from the
audited historical consolidated financial statements of the Company and should
be read in conjunction with such financial statements and the notes thereto
included elsewhere in this Annual Report.
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended February 28 (29),
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
1993 1994 1995 1996 1997
Statement of Operations Data: (1) (1)(2) (3) (4)(5) (6)(7)(8)
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Revenues $16,539,254 $ 26,664,385 $ 36,271,557 $ 44,964,897 $ 113,855,364
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Income before income taxes 653,144 3,077,048 5,300,520 5,670,998 10,397,734
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Net income 353,144 1,867,048 3,256,520 3,865,998 6,307,734
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Earnings per common
and dilutive common equivalent share:
Primary .07 .35 .57 .54 .74
Fully diluted .07 .35 .56 .54 .74
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Cash dividends per share -0- -0- -0- -0- -0-
- ------------------------------------------ --------------------------------------------------------------------------------------
February 28 (29),
- ------------------------------------------ --------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
Balance Sheet Data: (1) (1)(2) (3) (4)(5)(6)(9) (7)(8)(10)
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Working capital $ 3,342,527 $ 6,049,013 $ 8,113,738 $ 24,977,316 $ 27,701,694
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Long-term debt, less current
maturities 1,114,489 2,182,119 3,892,766 361,944 22,123,344
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Total assets 9,335,227 14,156,887 25,009,222 46,684,600 86,293,657
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Stockholders' equity $ 5,812,901 $ 7,659,485 $ 13,813,194 $ 39,192,414 $ 45,439,303
- ------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
</TABLE>
(1) ATC entered into an agreement to acquire Bio-West, Inc., effective June 10,
1992. This transaction was rescinded effective May 31, 1993.
(2) ATC acquired certain assets of BSE Management, Inc., effective April 30,
1993.
(3) ATC acquired certain assets of Con-Test, Inc., effective October 1, 1994.
(4) ATC and its parent, Aurora Environmental Inc., were merged effective June
29, 1995 with ATC as the surviving corporation. Net income includes a
one-time tax benefit of $350,000 ($0.05 per share) from the utilization of
Aurora's net operating loss carryforward.
(5) ATC acquired certain assets of the environmental subsidiaries of Hill
International Inc., effective November 10, 1995.
(6) ATC acquired certain assets of Applied Geosciences Inc., effective February
29, 1996.
(7) ATC acquired certain assets of American Testing and Engineering
Corporation effective May 24, 1996.
(8) ATC acquired certain assets of 3D Information Services, Inc. effective May
28, 1996.
(9) Working capital and stockholders' equity increased from net proceeds of the
Common Stock Offering of $21,554,461.
(10) Long term debt increased due to bank borrowings made in connection with the
acquisitions of American Testing and Engineering Corporation and 3D
Information Services, Inc.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Recent Developments
Senior Debt Offering & Bank Credit Agreement - On May 29, 1997 the Company
issued $32,500,000 of 8.18% Senior Secured Notes in a private placement
offering. The notes are payable in five installments beginning May 31, 2000;
interest is payable semi-annually commencing November 30, 1997. The Company has
the right to prepay the loans at a premium over the outstanding principal. In
connection with the note offering, the Company executed a credit agreement with
the Chase Manhattan Bank and Atlantic Bank of New York. The credit agreement
provides for a $15,000,000 revolving line of credit maturing on November 30,
1999. A portion of the proceeds of the Senior Secured Notes were used to repay
the outstanding borrowings of $21,350,000 as of May 29, 1997 under the Company's
bridge credit facility. The bridge facility was entered into in May, 1996 to
provide capital in connection with the Company's acquisition of American Testing
and Engineering Corporation and 3D Information Services, Inc.
Acquisitions
Fiscal 1997
American Testing and Engineering Corporation - On May 24, 1996, ATC
purchased certain assets and assumed certain liabilities of American Testing
and Engineering Corporation ("ATEC"), a national environmental consulting
firm. ATEC provides environmental consulting and engineering services
including risk assessments, compliance audits, environmental remediation
consulting, geotechnical, materials testing, industrial hygiene and analytical
services through a large network of branch and regional offices. For its year
ended December 31, 1995, ATEC had revenues of $85,020,000 and a net loss of
($1,820,000). However, as a result of economies and savings realized, the
acquisition was immediately accretive to earnings as well as benefiting the
Company's operations by expanding both its service offerings and geographic
base.
The assets acquired included intangible and tangible assets consisting
of accounts receivable, work in process and customer and certain other deposits.
Additionally, ATC executed an agreement to lease substantially all of the
sellers equipment and executed several sublease agreements for premises leased
by ATEC. ATC also obtained non-competition agreements with ATEC, a non-acquired
subsidiary, and the majority shareholder of ATEC.
3D Information Services, Inc. - Effective May 28, 1996, ATC purchased
certain assets and assumed certain specified liabilities of 3D Information
Services, Inc. ("3D"), a New Jersey based information services company providing
technical information system consulting services in all phases of information
system design, development, maintenance and management in client server and
mainframe based environments. 3D provides analysis and design services and
system programming services to help clients in building new computer systems and
modifying existing computer systems. 3D also provides support to clients in
maintaining computer systems and in areas such as help desk management and other
system support services. Employees of 3D typically work full-time at a client's
work site. Its clients include major companies in the telecommunications,
financial services and pharmaceutical industries. 3D reported revenues and net
income of approximately $10,360,000 and $135,000, respectively, for its year
ended December 31, 1995.
Fiscal 1996
Hill International Inc. Environmental Subsidiaries - On November 10,
1995, ATC purchased certain assets and assumed certain liabilities of the
subsidiary companies at Hill International, Inc. that provided environmental
consulting and engineering services (collectively the "Hill Businesses"). These
services include asbestos management, industrial hygiene and indoor air quality
consulting, environmental auditing and permitting, environmental regulatory
compliance, water and wastewater engineering, solid waste and landfill
management, hazardous waste management and analytical laboratory services. The
Hill Businesses operated from facilities located in New York City, Boston and
Willingboro, New Jersey. The Boston and New York offices have been integrated
with ATC's existing operations, and ATC has benefited from other cost-saving
measures taken, including the elimination of certain employees previously with
the Hill Businesses.
Applied Geosciences, Inc. - Effective February 29, 1996, ATC purchased
certain assets and assumed certain liabilities of Applied Geosciences, Inc.
("AGI"). AGI services included environmental and hazardous waste site
assessments, remediation design, air quality management, asbestos services,
litigation support and engineering geology through its offices located in San
Diego, Tustin, and San Jose, California.
Fiscal 1995
Con-Test, Inc. - Effective October 1, 1994, ATC purchased certain
assets and assumed certain liabilities of Con-Test, Inc. ("Con-Test") a
Massachusetts-based environmental consulting and engineering company with branch
offices in Massachusetts, Connecticut, Vermont, Rhode Island, New York and
Pennsylvania. Con-Test's primary services included industrial hygiene,
environmental and industrial health and safety, and lead-based paint management.
It also maintained an analytical laboratory and had developed a line of
environmental facilities management software used by several industrial firms
16
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and federal government agencies. Immediately upon acquiring the assets of
Con-Test, the Company instituted several cost-saving measures, including the
elimination of certain employees and facilities, to improve Con-Test's
operations and integrate it with the existing operations of the Company.
Microbial Environment Services, Inc. - On January 4, 1995, ATC assumed
the service performance obligations under certain contracts of Microbial
Environmental Services, Inc. ("MES"). MES was engaged in the business of
remediation of contaminated soils and water utilizing enhanced naturally
occurring biological processes. The services provided by MES also included
assessment of contaminated properties, design of bio-remediation systems,
management of bio-remediation projects and monitoring of compliance with clean
up standards.
R.E. Blattert and Associates - On January 13, 1995, ATC acquired
certain assets and assumed certain specified liabilities of R.E. Blattert and
Associates ("R.E. Blattert"). R.E. Blattert's main area of expertise was in
groundwater resource management.
Common Stock Offering
Effective October 1995, the Company sold 1,970,000 shares of common stock at an
offering price of $12.00 per share and received $21,554,461 net of underwriting
and other related expenses.
Merger of Aurora into ATC
Effective June 29, 1995, ATC and its parent, Aurora Environmental Inc.
("Aurora"), were merged pursuant to an agreement approved by the majority of
shareholders of each company, with ATC as the surviving corporation (the "Aurora
Merger"). Prior to the Aurora Merger, Aurora was a holding company which owned
approximately 57% of ATC's outstanding Common Stock and had substantially no
other assets. Under the terms of the merger, each outstanding share of Aurora
Common stock was exchanged for .545 shares of ATC Common Stock. ATC issued
3,341,356 shares of ATC Common Stock in exchange for 6,131,104 shares of
Aurora's common stock, and issued options and warrants entitling the holders
thereof to purchase up to 604,950 shares of ATC Common Stock upon exercise in
replacement of previously outstanding options and warrants to purchase Aurora's
common stock. ATC common shares held by Aurora of 3,258,000 were canceled.
Actual common shares outstanding increased by 83,356 shares. As a result of the
Aurora Merger, ATC utilized Aurora's net operating loss carryforward to reduce
its taxable income and accordingly recorded a one-time reduction in income tax
expense of approximately $350,000 ($.05 per share) in fiscal 1996.
17
<PAGE>
<PAGE>
Results of Operations
Fiscal Year Ended February 28, 1997 Compared with Fiscal Year Ended February 29,
1996
Revenues in fiscal 1997 increased 153% to $113,855,364 compared with
$44,964,897 in fiscal 1996. This increase was primarily attributable to the
acquisitions of ATEC and 3D in May 1996 and reflects a full years revenue
contribution from the Hill and AGI acquisitions completed in November 1995 and
February 1996, respectively.
Revenues in fiscal 1997, from ATC's branch offices having comparable
operations in fiscal 1996, increased 3.6% to $42,930,996 compared with
$41,423,054 in fiscal 1996. Revenues attributable to the acquisitions of certain
assets of the Hill Businesses, AGI, ATEC and 3D totaled $70,896,880, or 62.3% of
revenues, for fiscal 1997. Revenues from branch operations sold or discontinued
contributed only $27,488 for fiscal 1997 compared to $1,105,418 for fiscal 1996.
Reimbursable costs represent direct project expenses billed to
environmental and engineering segment clients. For fiscal 1997, reimbursable
costs increased 270% to $17,953,895, compared with $4,851,206 in fiscal 1996.
Reimbursable costs as a percentage of revenues increased to 15.8% fiscal 1997
compared with 10.8% in fiscal 1996. ATEC's traditional consulting services,
consisting of drilling, materials testing and engineering services, utilize
higher amounts of outside services and direct project expenses compared to those
consulting services being provided prior to the acquisition. For its year ended
December 31, 1995, ATEC's reimbursable costs were approximately 21% of revenues.
Gross profit in fiscal 1997 increased 106% to $42,150,762, compared
with $20,449,723 in fiscal 1996. Gross profit as a percentage of net revenues
decreased to 44.0% in fiscal 1997, compared with 51.0% in fiscal 1996. The gross
profit percentage decrease is due to lower margins earned on certain of ATEC's
environmental services, the final project cost incurred to complete a large
fixed-price contract with could not be billed to the client, and the impact of
lower net revenues in certain regions where costs could not be reduced
proportionately.
Operating expenses in fiscal 1997 increased 108% to $30,439,729, compared
with $14,654,261 in fiscal 1996. Operating expenses decreased as a percentage of
net revenues to 31.7% in fiscal 1997, compared with 36.5% in fiscal 1996. The
decrease in operating expenses as a percentage of net revenues is the result of
the additional net revenues from the ATEC and other acquisitions without
corresponding increases in fixed and administrative costs. Employee costs
increased 66.8% to $12,364,753, or 12.9% of net revenues in fiscal 1997,
compared with $7,413,551, or 18.5% of net revenues, in fiscal 1996. These
increases in total cost were due to employees hired in connection with the
expansion of ATC's operations. Other increases in operating expenses resulted
from higher facility costs and administrative expenses resulting from the growth
in operations and increased employee levels. Additionally, in fiscal 1997,
amortization of goodwill and intangibles increased to $1,216,008, compared with
$437,254 in fiscal 1996, reflecting the additional goodwill amortization
resulting from acquisitions.
Operating income in fiscal 1997 increased 102% to $11,711,033, compared
with $5,795,462 in fiscal 1996. Operating income decreased as a percentage of
net revenues to 12.2% in fiscal 1997, compared with 14.4% in the fiscal 1996.
Nonoperating expense in fiscal 1997, increased to $1,313,299 compared
with $124,464 in fiscal 1996. The increase in nonoperating expense is primarily
attributable to increased interest expense on bank debt outstanding since May
1996, when the ATEC and 3D acquisitions were completed, and from lower interest
income.
Income tax expense in fiscal 1997 was $4,090,000, compared with
$1,805,000 in fiscal 1996. The income tax expense for fiscal 1996 reflects a
one-time benefit of $350,000 resulting from the merger of Aurora into ATC which
allowed ATC to utilize Aurora's net operating loss carryforward as offsets to
future taxable income. During fiscal 1997 and 1996, after adjusting for the
one-time tax benefit, the Company's effective tax rates were 39.3% and 38.0%,
respectively.
As a result of the foregoing, net income for fiscal 1997, increased
63.2% to $6,307,734, or $.74 per share on a fully diluted basis, compared with
$3,865,998 or $.54 per share on a fully diluted basis, in fiscal 1996. Excluding
the impact of the one-time tax benefit of $350,000, net income and fully diluted
earnings per share for fiscal 1996, would have been $3,515,998 and $.49
respectively. The fully diluted weighted average number of shares outstanding
increased 18.5% to 8,508,061 shares primarily due to an increase in shares
issued from the Common Stock Offering in October 1995 and from shares, options
and warrants outstanding as a result of the Aurora Merger effective June 29,
1995.
18
PAGE
<PAGE>
Fiscal Year Ended February 29, 1996 Compared with Fiscal Year Ended February 28,
1995
Revenues in fiscal 1996 increased 24% to $44,964,897 compared with
$36,271,557 in fiscal 1995. This increase was primarily attributable to the
positive effect of acquisitions completed during the second half of fiscal 1995
and from the acquisition of the Hill Businesses in November 1995. Revenues
attributable to operations resulting from these acquisitions totaled
$12,034,346, or 26.8% of revenues, for fiscal 1996. During fiscal 1996,
increased revenues from certain existing operations were offset by lower
revenues from a significant customer due to delays in funding for certain
projects and the completion of certain work for another significant customer. In
addition, revenues of ATC's largest offices located in the Mid-Atlantic and New
England regions were negatively impacted for the three months ended February 29,
1996, due to severe winter weather conditions experienced. Revenues in these
regions, excluding revenues of the acquired Hill Businesses, declined $1,751,618
or 27.5% in the fourth quarter ended February 29, 1996 compared to the third
quarter period ended November 30, 1995. In fiscal 1995, where normal seasonal
changes were experienced, the decrease for the comparable period was less than
3%. The Hill Businesses were acquired just prior to the fourth quarter and were
also adversely affected by these weather conditions.
In fiscal 1996, ATC continued to penetrate its existing markets.
Revenues in fiscal 1996 from ATC's branch offices having comparable operations
in fiscal 1995, increased 2.6% to $32,930,551, compared with $32,095,387 in
fiscal 1995. If revenues from certain large projects for two significant
customers discussed below are eliminated in each period, ATC's revenues from
existing branch offices having comparable operations would have increased 16.2%
to $29,069,202 in fiscal 1996, compared with $25,022,792 in fiscal 1995.
Revenues in fiscal 1996 earned directly from the New York City School
Construction Authority ("NYCSCA") decreased 30.2% to $2,693,169, compared with
$3,859,595 in fiscal 1995. As a percentage of revenues, revenues from the NYCSCA
decreased to 6.0% in fiscal 1996, compared with 10.6% in fiscal 1995. During the
first quarter of fiscal 1996, delays in the approval of the NYCSCA's program
budget and funding requests for the New York City school construction and
maintenance program resulted in diminished service levels in asbestos management
consulting and testing services and, consequently, lower revenues to ATC under
this program. The NYCSCA's construction and maintenance program is ongoing and
is expected to continue over a period of years. ATC believes it has established
a strong relationship with the NYCSCA and expects to continue to provide
asbestos and other industrial hygiene services to the NYCSCA over the next
several years; however, no assurance can be made regarding the amount of
revenues, if any, that ATC will receive from the NYCSCA in the future once
current projects are completed. ATC's revenues under programs such as this one
are not predictable and will be dependent upon many factors such as the scope of
work necessary at particular sites, budgeting constraints and the timing of
projects.
Revenues in fiscal 1996 from the Army Corps of Engineers (the "Corps")
decreased 63.6% to $1,168,180, compared with $3,213,000 in fiscal 1995. As a
percentage of revenues, revenues from the Corps decreased to 2.6% in fiscal
1996, compared with 8.9% in fiscal 1995. The Company's revenues from the Corps
relates to certain asbestos management services and decreased due to the
completion of the larger phases of the project during fiscal 1995. Revenues from
the Corps are expected to continue through 1999 as part of the federal Base
Realignment and Closure project. However, no assurance can be made as to the
amount of revenues, if any, that ATC will receive from the Corps in the future
once current projects are completed.
Reimbursable costs represent direct project expenses billed to
environmental and engineering segment clients. For fiscal 1996, reimbursable
costs increased 61.6% to $4,851,206, compared with $3,001,811, in fiscal 1995.
Reimbursable costs as a percentage of revenues increased to 10.8% in fiscal
1996, compared with 8.3% in fiscal 1995. The increase in reimbursable costs and
reimbursable costs as a percentage of net revenues is due to higher subcontract
and drilling costs related to the Company's geological and remediation services.
These services increased from the R.E. Blattert and MES acquisitions.
Gross profit in fiscal 1996 increased 14.1% to $20,449,723, compared
with $17,916,064 in fiscal 1995. Gross profit as a percentage of net revenues
decreased to 51.0% in fiscal 1996, compared with 53.9% in fiscal 1995. ATC's
gross profits decreased due to the severe weather conditions experienced during
the three months ended February 29, 1996. Gross profit as a percentage of
revenues for the nine months ended November 30, 1995 was 47.9%. For the fourth
quarter ended February 29, 1996, gross profit decreased to $4,308,142 on
revenues of $11,277,327 or 38.2%. Cost of revenues includes the Company's
full-time professional field staff costs, depreciation of field and laboratory
equipment, contract maintenance costs and other costs which are generally fixed.
These costs did not decrease proportionately with the decrease in revenues.
Additionally, gross margin for fiscal 1995 was higher due to the profitability
level of several high margin projects.
19
PAGE
<PAGE>
Operating expenses in fiscal 1996 increased 19.2% to $14,654,261, compared
with $12,291,465 in fiscal 1995. Operating expenses decreased as a percentage of
net revenues to 36.5% in fiscal 1996, compared with 36.9% in fiscal 1995. The
decrease in operating expenses as a percentage of net revenues is the result of
ATC's ability to service greater revenue levels without corresponding increases
in fixed and administrative costs. Employee costs increased 18.0% to $7,413,551,
or 18.5% of net revenues, in fiscal 1996 compared with $6,284,726, or 18.9% of
net revenues, in fiscal 1995. These increases in employee costs were due to
employees hired in connection with the expansion of ATC's operations. Other
increases in operating expenses resulted from higher facility costs, travel and
administrative expenses resulting from the growth in operations and increased
employee levels. Additionally, in fiscal 1996, amortization of goodwill and
intangibles increased to $437,254, compared with $212,320 in fiscal 1995,
reflecting the additional goodwill amortization resulting from acquisitions.
Operating income in fiscal 1996 increased 3.0% to $5,795,462, compared
with $5,624,599 in fiscal 1995. Operating income as a percentage of net revenues
was 14.4% in fiscal 1996 and 16.9% in fiscal 1995.
Non-operating expenses in fiscal 1996 decreased 61.6% to $124,464
compared with $324,079 in fiscal 1995. The decrease in non-operating expenses is
primarily attributable to higher interest income earned on the net proceeds of
the Common Stock Offering invested in short term investments.
Income tax expense in fiscal 1996 was $1,805,000, compared with
$2,044,000 in fiscal 1995. The income tax expense reflects a one-time benefit of
$350,000 resulting from the merger of Aurora into ATC which allowed ATC to
utilize Aurora's net operating loss carryforwards as offsets to its future
taxable income. During fiscal 1996, excluding for the one-time tax benefit, and
fiscal 1995, the Company's effective tax rates were 38.0% and 38.6%,
respectively.
As a result of the foregoing, net income in fiscal 1996 increased 18.7%
to $3,865,998, or $.54 per share on a fully diluted basis, compared with
$3,256,520 or $.56 per share on a fully diluted basis, in fiscal 1995. Excluding
the impact of the one-time tax benefit of $350,000, net income and fully diluted
earnings per share would have been $3,515,998 and $.49, respectively, for fiscal
1996. The fully diluted weighted average number of shares outstanding increased
22.8% or 1,331,183 shares to 7,181,416 shares primarily due to an increase in
shares issued from the Common Stock Offering, additional shares, options and
warrants outstanding as a result of the Aurora Merger effective June 29, 1995,
the exercise of Class B warrants and the issuance of shares in connection with
the acquisition of Con-Test. Net income as a percentage of net revenues was 8.8%
in fiscal 1996, after excluding the one-time tax benefit, compared with 9.8% in
fiscal 1995.
Liquidity and Capital Resources
On May 29, 1997, the Company issued $32,500,000 of Senior Secured Notes and
entered into a credit agreement with the Chase Manhattan Bank and Atlantic Bank
of New York providing for a $15,000,000 revolving line of credit. A portion of
the proceeds of the Senior Secured Notes were used to repay the outstanding
borrowings of $21,350,000 as of May 29, 1997 under the bridge credit facility.
The Senior Secured Notes and borrowings under the line of credit are
collateralized by the Company's cash, accounts receivable, work in process, and
intangible assets. Under the terms of the Note and Credit Agreements, the
Company is required to comply with certain financial and business covenants,
including maintaining minimum working capital levels, fixed charge and interest
coverage ratios and limitations on dividend payments.
At February 28, 1997, working capital was $27,701,694 compared with
working capital of $24,977,316 at February 29, 1996, an increase of $2,724,378.
This increase in working capital is primarily a result of the acquisitions of
ATEC and 3D and the increased current assets including purchased accounts
receivable, unbilled receivables and prepaid expenses offset by cash paid to the
sellers and assumed acquisition liabilities including accounts payable, accrued
liabilities and future payment obligations. As a result of the Company's
acquisitions of ATEC and 3D, the Company's tangible net worth decreased to
$9,220,043 at February 28, 1997 from $27,542,614 at February 29, 1996, primarily
as a result of goodwill and non-compete amounts recognized in connection with
these transactions.
During fiscal 1997, net cash flows used in operating activities were
$6,684,689, primarily due to income generated from operations, increases in
billed and unbilled receivables offset by reductions of accounts payable and
other liabilities, including assumed liabilities associated with acquisitions.
Net cash flows used in investing activities were $13,144,324, resulting from the
acquisitions of ATEC and 3D and purchases of property and equipment. Net cash
flows provided by financing activities were $8,363,460, primarily representing
the proceeds of the bridge credit facility, less payments made on long-term debt
and notes payable assumed from ATEC.
During fiscal 1996, net cash flows used in operating activities were
$842,642, primarily due to income generated from operations offset by an
increase in billed and unbilled receivables. Net cash flows used in investing
activities were $4,586,939, resulting from the acquisitions of the Hill
Businesses, AGI, Con-Test and R.E. Blattert, additional contingent purchase
obligations in connection with the BSE and R.E. Blattert acquisitions and
purchases of property and equipment. Net cash flows provided by financing
activities were $17,521,162, primarily representing the net offering proceeds of
20
<PAGE>
<PAGE>
the Common Stock Offering plus the proceeds from a $2,585,125 increase in debt,
primarily bank debt under the Company's prior credit facilities, less payments
made on long-term debt and notes payable of $6,663,581.
During fiscal 1995, net cash flows provided by operating activities
were $3,030,703. Net cash flows used in investing activities were $4,099,812,
consisting primarily of the purchase of certain assets of BSE, Con-Test and MES,
and property and equipment. Also during this period, net cash flows provided by
financing activities were $1,052,082, primarily from the exercise of ATC's Class
B Warrants and borrowing under the Company's prior revolving credit facility
with Atlantic. These sources of cash were reduced by principal debt repayments,
including payments of $1,961,000 with respect to bank debt assumed in connection
with the Con-Test and R.E. Blattert acquisitions.
Management of the Company believes the proceeds from the issuance of
the Senior Secured Notes after repayment of the bridge credit facility, funds
available from its unused $15,000,000 bank line of credit and cash provided from
operations are adequate to fund current operations including liabilities
incurred in connection with the Company's acquisitions of ATEC and 3D.
The Company may seek to obtain additional public or private equity
financing in the future in order to expand operations, provide funds for future
acquisitions or reduce debt, however no assurance can be given as to the
Company's ability to obtain funds on acceptable terms and conditions.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 and an index thereto, appears on
page F-1 of this Annual Report, which follows this page.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
21
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997
Page
INDEPENDENT AUDITORS' REPORT .......................................... F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets
February 28 (29), 1996 and 1997................................. F-3
Consolidated Statements of Operations
For the Three Years Ended February 28, 1997..................... F-4
Consolidated Statements of Stockholders' Equity
For the Three Years Ended February 28, 1997..................... F-5
Consolidated Statements of Cash Flows
For the Three Years Ended February 28, 1997.................... F-6
Notes to Consolidated Financial Statements........................ F-7
All financial statement schedules are omitted because they are not
applicable, not required, or because the required information is included
elsewhere herein.
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
ATC Group Services Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of ATC
Group Services Inc. and subsidiaries as of February 29, 1996 and February 28,
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
28, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of ATC Group Services Inc. and
subsidiaries as of February 29, 1996 and February 28, 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended February 28, 1997, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 22, 1997
(May 29, 1997 as to Notes B and D)
F-2
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28 (29), 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 13,469,443 $ 2,003,890
Trade accounts receivable, less allowance for doubtful accounts
($383,220 in 1996 and $1,455,716 in 1997) (Note K)................................... 14,161,774 34,406,026
Costs in excess of billings on uncompleted contracts.................................... 2,333,835 5,191,569
Prepaid expenses and other current assets............................................... 906,289 2,934,193
Deferred income taxes (Note H).......................................................... 440,600 790,400
Refundable income taxes (Note H)........................................................ - 118,340
------------- ------------
Total current assets........................................................... 31,311,941 45,444,418
PROPERTY AND EQUIPMENT, Net (Note C) ...................................................... 3,606,755 3,784,633
GOODWILL, net of accumulated amortization
($453,646 in 1996 and $1,478,876 in 1997) (Note B) .................................... 11,375,399 35,587,076
COVENANTS NOT TO COMPETE, net of accumulated amortization
($258,099 in 1996 and $455,316 in 1997) (Note B)....................................... 274,401 632,184
OTHER ASSETS............................................................................... 116,104 845,346
------------- ------------
$ 46,684,600 $ 86,293,657
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt (Note D)................................................................ $ 1,122,552 $ 300,000
Current maturities of long-term debt (Note D) .......................................... 354,858 1,986,730
Accounts payable........................................................................ 2,231,175 7,440,024
Income taxes payable (Note H) .......................................................... 42,500 -
Accrued compensation.................................................................... 1,421,330 3,789,233
Accrued payment obligations - ATEC acquisition (Note B)................................. - 1,721,594
Other accrued expenses.................................................................. 1,162,210 2,505,143
--------------- --------------
Total current liabilities...................................................... 6,334,625 17,742,724
LONG-TERM DEBT, less current maturities (Note D) .......................................... 361,944 22,123,344
OTHER LIABILITIES (Note E) ............................................................... 598,817 270,386
DEFERRED INCOME TAXES (Note H) ............................................................ 196,800 717,900
--------------- --------------
Total liabilities.............................................................. 7,492,186 40,854,354
--------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes B and E)
STOCKHOLDERS' EQUITY (Notes B, D, F, and G):
Common stock, par value $.01 per share; authorized 20,000,000 shares;
issued and outstanding 7,796,577 shares in 1996 and 7,800,187 in 1997................ 77,966 78,002
Additional paid-in capital.............................................................. 29,030,189 28,996,627
Notes receivable - common stock ........................................................ (45,000) -
Retained earnings....................................................................... 10,129,259 16,364,674
-------------- -------------
Total stockholders' equity..................................................... 39,192,414 45,439,303
-------------- -------------
$ 46,684,600 $ 86,293,657
============= ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
REVENUES................................................................... $ 36,271,557 $ 44,964,897 $ 113,855,364
Reimbursable Costs...................................................... 3,001,811 4,851,206 17,953,895
------------- --------------- --------------
NET REVENUES............................................................... 33,269,746 40,113,691 95,901,469
COST OF NET REVENUES....................................................... 15,353,682 19,663,968 53,750,707
------------- -------------- --------------
Gross Profit................................................... 17,916,064 20,449,723 42,150,762
-------------- -------------- --------------
OPERATING EXPENSES:
Selling................................................................. 1,105,937 1,513,222 3,118,926
General and administrative.............................................. 10,996,709 12,850,874 26,299,172
Provision for bad debts................................................. 188,819 290,165 1,021,631
-------------- -------------- --------------
12,291,465 14,654,261 30,439,729
-------------- -------------- --------------
Operating Income................................................ 5,624,599 5,795,462 11,711,033
NON-OPERATING EXPENSE (INCOME):
Interest expense........................................................ 285,570 376,621 1,569,043
Interest income ........................................................ (34,073) (272,463) (230,610)
Other .................................................................. 72,582 20,306 (25,134)
-------------- -------------- --------------
324,079 124,464 1,313,299
-------------- -------------- --------------
Income before income taxes..................................... 5,300,520 5,670,998 10,397,734
INCOME TAX EXPENSE (Note H)................................................ 2,044,000 1,805,000 4,090,000
-------------- -------------- --------------
NET INCOME................................................................. $ 3,256,520 $ 3,865,998 $ 6,307,734
============== ============= =============
EARNINGS PER COMMON SHARE AND
DILUTIVE COMMON EQUIVALENT SHARE:
Primary (Note H)...................................................... $ .57 $ .54 $ .74
============== ============= =============
Fully diluted (Note H)................................................ $ .56 $ .54 $ .74
============== ============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Primary............................................................... 5,753,856 7,181,416 8,483,387
============== ============= =============
Fully diluted......................................................... 5,850,233 7,181,416 8,508,061
============== ============= =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notes
Additional Receivable-
Common Stock Paid-in Common Retained
Shares Amount Capital Stock Earnings Total
<S> <C> <C> <C> <C> <C> <C>
---------- --------- ----------- ----------- ------------ ------------
BALANCE, February 28, 1994 5,303,352 $ 53,034 $ 4,610,860 $ (34,250) $ 3,029,841 $ 7,659,485
Sale of common stock at $1.87 to
$5.00 per share, upon exercise of
stock options and warrants........... 16,980 170 51,354 - - 51,524
Sale of common stock at $8.00 per
share, upon exercise of Class B
common stock purchase warrants....... 284,803 2,848 2,275,576 - - 2,278,424
Issuance of common stock in
connection with the purchase of
Con-Test, Inc........................ 116,556 1,165 491,740 - - 492,905
Issuance of common stock in
connection with the purchase of
R.E. Blattert & Associates........... 16,327 163 112,340 - - 112,503
Other capital transactions.............. - - (57,417) 19,250 - (38,167)
Net income.............................. - - - - 3,256,520 3,256,520
---------- --------- ----------- ----------- ------------ ------------
BALANCE, February 28, 1995.............. 5,738,018 57,380 7,484,453 (15,000) 6,286,361 13,813,194
Issuance of common stock in public
offering at $12.00 per share less
expenses............................. 1,970,000 19,700 21,534,761 - - 21,554,461
Sale of common stock at $1.83 to
$10.50 per share, upon exercise of
stock options and warrants........... 39,613 396 100,223 - - 100,619
Net issuance of common stock and
adjustments in connection with the
merger of Aurora Environmental
Inc. into ATC (Note B)............... 83,356 834 60,283 (30,000) - 31,117
Common stock recovered in
connection with the Con-Test, Inc.
acquisition (Note B)................. (33,130) (331) (139,682) - - (140,013)
Other capital transactions.............. (1,280) (13) (9,849) - (23,100) (32,962)
Net income.............................. - - - - 3,865,998 3,865,998
---------- --------- ----------- ----------- ------------ ------------
BALANCE, February 29, 1996.............. 7,796,577 77,966 29,030,189 (45,000) 10,129,259 39,192,414
Sale of common stock at $1.85 to
$10.00 per share, upon exercise of
stock options and warrants........... 15,930 159 74,998 - - 75,157
Common stock received as consideration
for sale of assets................... (12,320) (123) (51,990) - (72,319) (124,432)
Other capital transactions.............. - - (56,570) 45,000 - (11,570)
Net income.............................. - - - - 6,307,734 6,307,734
---------- --------- ----------- ----------- ------------ ------------
BALANCE, February 28, 1997.............. 7,800,187 $ 78,002 $28,996,627 $ - $ 16,364,674 $ 45,439,303
========== ========= =========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 3,256,520 $ 3,865,998 $ 6,307,734
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and leasehold amortization......................... 707,318 776,917 882,803
Amortization of goodwill and covenants.......................... 212,320 437,254 1,216,008
Provision for bad debts......................................... 188,819 290,165 1,021,631
Deferred income taxes........................................... 23,500 (191,700) 171,300
Other........................................................... (57,258) (132,700) (143,981)
Changes in operating assets and liabilities, net of amounts acquired
in acquisitions:
Receivables........................................... (348,459) (4,168,658) (3,861,601)
Prepaid expenses and other assets..................... (22,269) (434,890) (143,679)
Accounts payable and other liabilities................ 72,615 (1,199,278) (12,210,762)
Income taxes refundable/payable....................... (1,002,403) (85,750) 75,858
-------------- --------------- -----------
Net cash flows from operating activities.................. 3,030,703 (842,642) (6,684,689)
-------------- --------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of ATEC, net of cash acquired.................................. - - (8,965,952)
Purchase of 3D Information Services, Inc., net of cash acquired......... - - (2,926,681)
Purchase of Hill Businesses............................................. - (2,517,949) -
Purchase of Applied Geosciences, Inc.................................... - (589,060) (22,324)
Purchase of Con-Test, Inc., net of cash acquired........................ (2,230,551) (169,038) -
Purchase of BSE Management, Inc. - contingent consideration............. (887,325) (207,990) -
Purchase of Microbial Environmental Services, Inc....................... (250,000) (45,307) -
Purchase of R.E. Blattert & Associates, net of cash acquired............ (9,541) (134,376) -
Purchase of property and equipment...................................... (756,444) (946,206) (1,285,695)
Proceeds from sale of property and equipment............................ 34,049 22,987 56,328
-------------- --------------- -----------
Net cash flows from investing activities.................. (4,099,812) (4,586,939) (13,144,324)
-------------- --------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of expenses................. 2,329,948 21,655,080 75,157
Proceeds from issuance of long-term debt................................ 1,580,318 2,585,125 22,270,297
Principal payments on long-term debt, including capital lease obligations (2,800,767) (6,663,581) (13,925,424)
Other capital transactions.............................................. (57,417) (55,462) (56,570)
-------------- --------------- -----------
Net cash flows from financing activities.................. 1,052,082 17,521,162 8,363,460
-------------- --------------- -----------
Net change in cash and cash equivalents................... (17,027) 12,091,581 (11,465,553)
CASH AND CASH EQUIVALENTS, Beginning of year................................ 1,394,889 1,377,862 13,469,443
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, End of year...................................... $ 1,377,862 $ 13,469,443 $ 2,003,890
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F6
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation - The consolidated financial statements
include the accounts of ATC Group Services Inc. (formerly ATC Environmental
Inc.) and its wholly-owned subsidiaries ATC New England Corp., ATC Blattert
Inc., Hygeia Laboratories Inc., ATC Management Inc. and ATC InSys Technology
Inc. All significant inter-company accounts and transactions have been
eliminated.
Nature of Business - ATC Group Services Inc. and its subsidiaries
("ATC" or the "Company") is a national business services firm providing
technical and project management services relating to environmental consulting
(the "environmental consulting and engineering" segment) and information
technology consulting services (the "information technology consulting"
segment). The Company's environmental consulting and engineering segment
provides environmental and geotechnical engineering services, architectural
engineering services, construction materials testing and analytical testing. The
Company's information technology consulting segment provides analysis and design
services and system programming services to assist clients in building new or
modifying existing computer systems. This business unit also provides support to
clients in maintaining computer systems.
Revenue Recognition - The Company generally contracts for services to
customers on the basis of a fixed fee per procedure or services performed.
Revenue is recognized as services are performed in accordance with the terms of
the contract.
Costs In Excess of Billings on Uncompleted Contracts - Costs in excess
of billings on uncompleted contracts represent unbilled services and
reimbursable expenses associated with ongoing projects.
Significant Customer - In fiscal 1997 there were no revenues from a
single customer exceeding 5%. In fiscal 1996 and 1995, revenues from a single
customer comprised approximately 6.0% and 10.6% of total revenues, respectively.
Property and Equipment - Property and equipment are carried at cost.
Depreciation is computed on either the straight-line or declining balance method
over the estimated useful lives of the assets, as follows:
Office equipment............................................ 5 years
Transportation equipment ................................. 4-5 years
Laboratory and field equipment............................ 5-7 years
Leasehold improvements............................ life of the lease
Amortization of Intangible Assets - Goodwill, which represents the
excess of cost over the fair market value of net assets acquired in the
Company's acquisitions, is being amortized on a straight-line basis over a 30
year period. The carrying value of goodwill is periodically evaluated on the
basis of management's estimates of future undiscounted operating income
associated with the acquired businesses. The covenants not to compete are being
amortized over the terms of the agreements, which are 1 to 7 year periods.
Statement of Financial Accounting Standards No. 121 - On March 1, 1996, the
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets to be Disposed Of. The
adoption of SFAS No. 121 did not have a material effect on the Company's
financial statements.
Income Taxes - ATC and its wholly-owned subsidiaries file a consolidated
income tax return. The liability method is used to measure deferred tax assets
and liabilities based on temporary differences between financial and taxable
income existing at each balance sheet date using enacted tax rates.
Credit Risk and Financial Instruments - Financial instruments which
potentially subject the Company to concentrations of credit risk are primarily
temporary investments and accounts receivable. The Company places its temporary
investments in highly rated financial institutions and investment grade
short-term debt instruments. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers, the
proportion of receivables from governmental entities, generally short payment
terms and dispersion across geographic areas.
Fair Values of Financial Instruments - Fair values of financial
instruments have been estimated based on market prices of similar instruments
and/or valuation techniques using market assumptions. The Company assumes that
F-7
PAGE
<PAGE>
the carrying amount of short-term financial instruments approximates their fair
value. For these purposes, short-term is defined as any item that matures or
represents a cash transaction between willing parties within six months or less
of the measurement date. Unless otherwise noted, the carry value of financial
instruments approximates fair value.
Earnings Per Common Share and Dilutive Common Equivalent Share -
Earnings per common share and dilutive common equivalent share have been
computed by using the weighted average number of shares outstanding during the
year. Outstanding dilutive stock warrants and stock options are included in the
computation of weighted average number of shares.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. SFAS No. 128, which becomes effective for financial
statements of the Company issued for fiscal years ending after December 15,
1997, replaces primary and fully diluted earnings per share, as disclosed under
current pronouncements, with basic and diluted earnings per share. Pro forma
basic earnings per share for the fiscal years 1995, 1996, and 1997 are $.59,
$.59, and $.81, respectively. Pro forma diluted earnings per share for the
fiscal years 1995, 1996, and 1997 are $.57, $.54 and $.74, respectively.
Cash and Cash Equivalents - For purposes of reporting cash flows, the
Company considers all commercial paper, money market funds and certificates of
deposit purchased with a maturity of three months or less at acquisition to be
cash equivalents.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements - In June 1996, the Financial Accounting
Standards Board issued SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, which established
accounting and reporting standards for such transfers. The Company intends to
adopt SFAS No. 125 effective March 1, 1997, as required. Management anticipates
that the adoption of SFAS No. 125 will not have a significant effect on the
Company's financial position and results of operations.
Reclassifications - Certain reclassifications have been made to the
prior years' financial statements to conform to the current year's presentation.
B. BUSINESS ACQUISITIONS AND MERGER
Business Acquisitions - The following acquisitions have been accounted
for as purchases. The acquired company's assets and liabilities are included in
the accompanying consolidated balance sheets at fair value at the date of
purchase. The acquired company's operations subsequent to the acquisition are
included in the accompanying consolidated statements of operations.
Fiscal 1997
American Testing and Engineering Corporation - On May 24, 1996 ATC
purchased certain assets and assumed certain liabilities of American Testing and
Engineering Corporation ("ATEC"), a national environmental consulting firm. ATEC
provides environmental engineering and consulting services through a large
network of branch and regional offices. The purchase price was comprised of the
following consideration:
Amounts paid to seller and a majority owner:
Cash............................................... $ 9,000,000
Payment obligations, for property and facility
rentals and non-compete consideration........... 6,001,000
Liabilities assumed:
Current liabilities................................ 15,731,076
Bank debt.......................................... 10,750,000
Direct expenses related to acquisition................... 139,438
---------------
$ 41,621,514
===============
The payment obligations to seller/majority owner are payable monthly or
quarterly and are included in accrued payment obligations - ATEC acquisition in
the accompanying consolidated balance sheet.
At February 28, 1997, the Company is contingently liable to ATEC for
additional purchase consideration up to $10,750,000 if certain conditions
are met. At February 28, 1997, the maximum amounts 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. Subsequent to February
28, 1997 the seller has met the contingent consideration requirements
obligating the Company to the fiscal 1998 amount.
F-8
PAGE
<PAGE>
In addition, in connection with the issuance of the Senior Secured Notes on May
29 1997, as discussed in Note D, the Company and seller agreed to remove
certain contingent consideration requirements; and as a result, the Company is
obligated to pay $2,420,766 and expects to be obligated to pay the remaining
contingent consideration of $2,745,900 in fiscal 1999. Additionally The Company
has the option to purchase certain properties from the seller for $1,700,000 in
fiscal 2002.
The initial purchase price allocation is summarized as follows:
Accounts receivable and work in process, net of allowances...... $ 18,957,768
Other current assets............................................ 2,023,996
Other assets.................................................... 548,301
Covenants not to compete........................................ 430,000
Goodwill ....................................................... 19,661,449
-------------
$ 41,621,514
============
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.
In connection with the purchase agreement, the Company has issued an
irrevocable letter of credit in the amount of $500,000 to secure the Company's
performance of its payment obligations. The letter of credit is renewable by the
seller until such time the Company has paid all of the purchase obligations in
full. At February 28, 1997, no amounts had been drawn against the letter of
credit.
3D Information Services, Inc. - On May 28, 1996, ATC purchased certain
assets and assumed certain liabilities of 3D Information Services, Inc. ("3D"),
a New Jersey based information services company providing technical information
consulting services in all phases of information system design, development,
maintenance and management in client server and mainframe based environments.
The purchase price was comprised of the following consideration:
Amounts paid to seller:
Cash...................................................... $ 3,000,000
Note payable.............................................. 2,500,000
Assumed liabilities............................................. 247,905
Direct expenses related to acquisition.......................... 23,149
---------------
$ 5,771,054
===============
The initial purchase price allocation is summarized as follows:
Accounts receivable............................................. $ 1,163,981
Work in process................................................. 279,047
Property and equipment.......................................... 77,381
Other current assets............................................ 77,560
Covenant not to compete......................................... 100,000
Goodwill ....................................................... 4,073,085
------------
$ 5,771,054
============
Fiscal 1996
Hill Businesses - In November 1995, ATC purchased certain assets and
assumed certain liabilities of Kaselaan & D'Angelo Associates, Inc., Hill
Environmental, Inc. (formerly the environmental division of Gibbs & Hill, Inc.)
and Particle Diagnostics, Inc., wholly owned subsidiaries of Hill International,
Inc. (collectively the "Hill Businesses").
The Hill Businesses provide environmental consulting and engineering
services, including asbestos management, industrial hygiene and indoor air
quality consulting, environmental auditing and permitting, environmental
regulatory compliance, water and wastewater engineering, solid waste landfill
management and analytical laboratory services. The purchase price was comprised
of the following consideration.
Amounts paid to seller:
Cash..................................................... $ 2,517,949
Letter of credit, net of imputed interest (Note E).. 700,000
Note payable at 8.75% interest (Note E)............. 300,000
Liabilities assumed............................................. 907,884
Direct expenses related to acquisition.......................... 885,538
---------------
$ 5,311,371
===============
F-9
<PAGE>
<PAGE>
Direct expenses related to acquisition includes costs incurred in order
to obtain proper title to the assets from Sellers bank as described further in
Note E. In addition, the Company issued to certain selling shareholders, 50,000
stock options to purchase restricted common stock at $13.875 per share as
consideration for non compete agreements.
The purchase price allocation is summarized as follows:
Costs in excess of billings on uncompleted contracts,
net of unrealizable amounts................................ $ 620,000
Property and equipment.......................................... 175,000
Other assets.................................................... 30,572
Covenants not to compete........................................ 37,500
Goodwill........................................................ 4,448,299
--------------
$ 5,311,371
==============
The Company is contingently liable to reimburse up to $150,000 of
certain facility lease costs if incurred by Hill International, Inc. The payment
of the contingent liability, which the Seller claims is now due, certain other
liabilities and the $300,000 note is being withheld pending the outcome of the
litigation (Note E).
Applied Geosciences, Inc. - Effective February 29, 1996, ATC purchased
certain assets and assumed certain liabilities of Applied Geosciences, Inc.
("AGI"), a California based environmental consulting company having offices in
San Diego, Tustin and San Jose, California. The purchase price was comprised of
the following consideration. In addition, AGI will receive contingent
consideration of up to $190,000 subject to actual collections of the purchased
trade receivables in excess of a minimum amount established under the
agreements. As of February 28, 1997 $22,324 of contingent consideration had been
earned and paid.
Cash to seller..................................................$ 147,546
Contingent consideration earned to date......................... 22,324
Cash to secured creditors of seller............................. 441,514
Liabilities assumed............................................. 225,538
Direct expenses related to acquisition.......................... 31,246
--------------
$ 868,168
==============
The purchase price allocation is summarized as follows:
Accounts receivable, net.......................................$ 474,973
Property and equipment......................................... 115,060
Covenants not to compete....................................... 30,000
Goodwill....................................................... 248,135
--------------
$ 868,168
==============
Other Acquisitions
Con-Test, Inc. - On October 1, 1994, ATC acquired substantially all of
the assets and liabilities of Con-Test, Inc. ("Con-Test"), a Massachusetts based
environmental consulting company having branch offices in the New England
states, New York and Pennsylvania. The seller guaranteed the net receivables
purchased resulting in the Company reacquiring 33,130 shares of its restricted
common stock in fiscal 1996. Effective March 31, 1996, the Company sold its East
Longmeadow, MA laboratory, originally part of the operations acquired from
Con-Test, back to the Seller in exchange for cash, 12,320 shares of the
Company's restricted common stock, and the assumption of certain liabilities and
facility lease obligations. The assets sold included property and equipment,
leasehold improvements, and intangible assets including contract rights,
accreditation rights, customer lists, and the use of the Con-Test business name
and logo.
R.E. Blattert & Associates - On January 13, 1995, ATC acquired
substantially all of the assets and liabilities of R.E. Blattert & Associates
("R.E. Blattert"), an environmental consulting firm having geologic,
environmental engineering and water resource expertise with offices in Indiana
and Iowa. In addition, the purchase agreement provides for the seller to receive
additional purchase consideration based on achieving agreed upon earnings
targets. At February 28, 1997, $200,000 of additional purchase consideration had
been earned and recorded as goodwill. The Company and Seller agreed to certain
modifications to the purchase agreement which limits the contingent
consideration to amounts earned through February 28, 1997.
Microbial Environmental Services, Inc. - On January 4, 1995, ATC
acquired certain operations of Microbial Environmental Services, Inc. ("MES").
ATC agreed to assume service performance obligations under certain contracts and
a lease obligation of MES and MES assigned its accounts receivable to ATC. ATC
additionally purchased certain field and laboratory equipment from MES and paid
a finder's fee to an unrelated party.
F-10
<PAGE>
<PAGE>
BSE Management, Inc. - In fiscal 1994, ATC acquired certain assets and
liabilities of BSE Management, Inc. ("BSE"), a California based environmental
consulting holding company and those of its subsidiaries, Diagnostic
Environmental Inc., Hygeia Environmental Laboratories and The Environmental
Institute Inc. The acquisition was accomplished by purchasing certain BSE assets
at a foreclosure sale, acquiring certain BSE unsecured debt from its holder,
entering into consulting and employment contracts and non-compete agreements
with certain key BSE employees, and assuming specified liabilities of BSE. The
purchase agreement provided for additional purchase consideration contingent
upon future cash receipts of the ongoing business over five years. These
contingent payments totaled $1,355,165 and have been fully earned as of February
29, 1996 and recorded as goodwill.
Aurora Environmental Inc. Merger - Effective June 29, 1995, ATC and
Aurora Environmental Inc. ("Aurora") merged, with ATC as the surviving
corporation. ATC exchanged .545 of a share of ATC common stock for each share of
Aurora stock. ATC common shares held by Aurora of 3,258,000 were canceled. The
merger has been accounted for in a manner similar to a pooling of interests.
Under this method of accounting, recorded assets and liabilities of Aurora were
combined with ATC and the results of operations of ATC and Aurora were combined
on the date the merger became effective. As a result of the merger, ATC utilized
Aurora's net operating loss carryforward, which was $970,000 as of the date of
the merger. In addition, ATC's liability to Aurora was canceled at the merger
date.
Pro Forma Financial Information (Unaudited) - The following unaudited
pro forma information sets forth the results of operations of ATC as if the
merger of Aurora and ATC's purchase of significant subsidiaries including ATEC,
3D and the Hill Businesses had occurred on March 1, 1995, the beginning of
fiscal 1996.
<TABLE>
<CAPTION>
PRO FORMA
Year Ended February 28 (29)
--------------------------------
1996 1997
------------- ------------
<S> <C> <C>
Revenues............................................................................ $149,025,093 $135,331,348
Net income.......................................................................... 9,796,788 7,432,906
Earnings per share (fully diluted).................................................. $ 1.33 $ .87
Weighted average shares............................................................. 7,383,746 8,508,061
C. PROPERTY AND EQUIPMENT
Property and equipment as of February 28 (29) consists of: 1996 1997
-------------- -------------
Office equipment.................................................................... $ 2,645,325 $ 3,339,049
Laboratory and field equipment...................................................... 3,528,410 3,335,721
Transportation equipment............................................................ 267,304 207,857
Leasehold improvements.............................................................. 633,595 849,700
7,074,634 7,732,327
Less accumulated depreciation....................................................... 3,467,879 3,947,694
Property and equipment, net......................................................... $ 3,606,755 $ 3,784,633
============== =============
</TABLE>
F-11
<PAGE>
<PAGE>
D. DEBT AND CREDIT AGREEMENTS
Short Term Debt - The February 28, 1997 balance consists of a 8.75%,
$300,000 note payable issued in connection with the Company's purchase of the
Hill Businesses. The Company has withheld payment on the note pending the
outcome of the litigation with Hill as discussed in Note E. At February 29,
1996, the Company had short-term notes payable of $1,122,552 with interest rates
of 6.7% to 8.75%.
<TABLE>
<CAPTION>
Long-Term Debt - Long term debt as of February (28) 29 consists of :
1996 1997
<S> <C> <C>
---------------- -----------
Borrowings from banks under the Company's $23,000,000 bridge credit
facility. Interest is payable monthly (7.3% at February 28, 1997)................ $ - $20,850,000
Note payable issued in connection with the purchase of 3D Information
Services, Inc. with a fixed interest rate of 8.25%. Interest and principal
are payable quarterly through May, 1999........................................... - 1,931,193
Insurance premium financing obligation payable in fixed monthly
installments of principal and interest through April, 1998. Interest
accrues at 6.4%................................................................... - 781,188
Note payable issued in connection with the purchase of Con-Test,
payable in three annual installments through September 30, 1997.
Interest accrues at 8.5% and is payable quarterly................................. 356,667 178,333
Notes payable issued in connection with other asset acquisitions due in
installments through May 1998. Interest rates range from the prime
rate, (8.25% at February 28, 1997) to 9.0%........................................ 123,121 146,272
Note payable assumed in connection with the purchase of ATEC. Interest
accrues at the prime rate plus 2% (10.25% at February 28, 1997). Principal
and interest are due May 19, 1997................................................ - 127,095
Notes payable issued in connection with the purchase of MES, with interest
at prime (8.25% at February 28, 1997) payable through February, 1998.............. 147,619 66,667
Other notes with interest rates ranging from 7.25% to 12.4% due in monthly
installments through October, 2001................................................ 89,395 29,326
------------- -----------
716,802 24,110,074
Less current maturities...................................................... 354,858 1,986,730
------------- ------------
Long-term debt, less current maturities...................................... $ 361,944 $ 22,123,344
============= ============
</TABLE>
Senior Secured Notes - On May 29, 1997, the Company issued $32,500,000
of 8.18% Senior Secured Notes due in annual installments beginning May, 2000,
through May, 2004, to a group of financial institutions. Interest on the Senior
Secured Notes is payable semi-annually on May 31, and November 30, commencing on
November 30, 1997. The Senior Secured Notes are collateralized by accounts
receivable, work-in-process, intangible assets and the Company's primary
depository accounts. The proceeds from the Senior Secured Notes have in part
been utilized to repay the Company's outstanding bridge credit facility.
Accordingly, at February 28, 1997, the Company has classified its $20,850,000
outstanding bridge credit facility as long-term debt. The bridge facility was
entered into in May, 1996, to provide capital in connection with the Company's
acquisition of American Testing and Engineering Corporation and 3D Information
Services, Inc.
Bank Credit Agreement - In connection with the Senior Secured Note
offering, the Company executed a credit agreement with the Chase Manhattan Bank
and Atlantic Bank of New York. The credit agreement provides for a $15,000,000
revolving line of credit maturing on November 30, 1999. The borrowings under the
line of credit are collateralized by the Company's cash, accounts receivable,
work in process, and intangible assets on a pari passu basis with the Senior
Secured Note holders. Under the terms of the Note and Credit Agreements, the
Company is required to comply with certain financial and business covenants
including maintaining minimum working capital levels, fixed charge and interest
ratios and restrictions on dividend payments.
Aggregate maturities of long-term debt as of February 28, 1997 are as
follows: fiscal 1998 - $1,986,730; fiscal 1999 - $1,028,877; fiscal 2000 -
$236,692; fiscal 2001 - $4,174,561; fiscal 2002 - $4,173,167 and thereafter
$12,510,047. Aggregate maturities of bank debt are based on the terms of the
Senior Secured Notes.
F-12
<PAGE>
<PAGE>
E. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments - The Company leases office space,
laboratory facilities, temporary housing facilities and automobiles under
operating lease agreements which expire at varying dates through September 2007.
The Company also rents equipment on a job-by-job basis. Minimum annual rental
commitments as of February 28, 1997 are as follows: fiscal 1998 - $4,188,850;
fiscal 1999 - $3,827,984; fiscal 2000 - $2,798,251; fiscal 2001 - $1,584,226;
fiscal 2002 - $1,064,121 and thereafter $2,822,804 (total $16,286,236).
Rental expense associated with facility and equipment operating leases for
fiscal years 1995, 1996 and 1997 was $1,355,410, $1,908,217 and $4,937,752
respectively.
Other Liabilities - Other liabilities consist of long-term lease
commitments and other long-term contractual obligations assumed in connection
with business acquisitions. Contractual obligations representing existing
liabilities recorded within the financial statements that are expected to be
realized during the next fiscal year are included within other accrued expenses.
Litigation - First Fidelity Bank, N.A., et al v. Hill International,
Inc. et al, Superior Court of New Jersey, Law Division, Burlington County,
Docket No. Bur-L-03400-95, filed December 19, 1995. Irvin E. Richter, et al v.
ATC Group Services Inc., et al, United States District Court, District of New
Jersey, Civ. No. 96 CV 5818 (JBS) filed December 6, 1996. On December 19, 1995,
a second amended complaint was filed in the above-entitled action which joined
the Company as a defendant and included a count against the Company seeking
recovery of certain assets purchased from Hill International, Inc. ("Hill") on
the grounds that plaintiff banks hold security interests in the assets and that
Hill is in default under the security agreement creating such alleged security
interests. The plaintiffs in this action are First Fidelity Bank, N.A. and
United Jersey Bank, N.A. The primary defendants were Hill and certain of its
subsidiaries, and Irvin Richter, David Richter, Janice Richter and William
Doyle. Irvin Richter and David Richter are officers and stockholders of Hill. In
April 1996, the Company filed a cross-claim against Hill, Irvin Richter and
David Richter alleging breach of contract, fraud, among other allegations and
seeking unspecified damages, including punitive damages and equitable relief. In
August, 1996, Hill and the Richters filed an answer denying ATC's cross claims,
a cross-claim against ATC and a third party claim against certain members of
ATC's management. The cross claim and third party claim seek unspecified
damages, including punitive damages, for defamation, breach of the Richters'
non-competition agreements and securities fraud. The defamation claim is based
on plaintiff banks' allegation of fraud against Hill and the Richters in their
amended complaint, which Hill and the Richters allege was based on defamatory
statements made by ATC in settlement discussions with the plaintiff banks. In
its answer, the Company both denies that it made defamatory statements and
asserts that the defamation allegations fail to state a legally valid claim. The
breach of contract and securities claims are based on allegations that ATC made
representations concerning a registration rights agreement to be provided in
connection with options issued to the Richters as consideration for their
non-competition agreements. In its answer, the Company denies that an agreement
concerning registration rights was ever reached and asserts that the Richters
forfeited any such rights in any case as a result of their conduct in connection
with the asset purchase. These related cases are in their early stages with
discovery yet to take place. In January, 1997, the plaintiff bank dismissed
their claim against ATC. On December 6, 1996, Hill and the Richters commenced an
action against ATC and the same officers and employees of ATC alleging
essentially the same claims in federal court as in the state action. ATC has
answered, raising the same defenses and additional defenses related to the
timeliness of the federal claim. This is essentially the same action as in
federal court as the pending state action. It does not create a risk of double
recovery. In the Company's opinion, the outcome of this matter will not have a
significant effect on the Company's financial position or future results of
operations, although no assurances can be given in this regard.
Commonwealth of Massachusetts v. TLT Construction Corp. et al,
Civ. Action No. 96-02281 F, Superior Court of Middlesex County, Massachusetts.
This is an action brought by the Commonwealth of Massachusetts in April 1996,
against the architects and general contractor on a renovation and construction
project on the Suffolk County Courthouse in Massachusetts. The basis of the
lawsuit is that one or more damp-proofing products specified by the architect
defendants and installed by the contractor defendant made employees in the
courthouse ill because of the off-gassing of harmful vapors. Dennison
Environmental Services Inc., ("Dennison") an ATC subsidiary, was joined on
August 13, 1996, as a third party defendant by TLT Construction Corporation, the
general contractor, because Dennison performed some air quality testing of the
air in the courthouse for the Commonwealth of Massachusetts during the
construction process. The contractor alleges that it acted in reliance on these
tests in continuing to install the material after the test report was given to
it by the state. Dennison has just recently been served and has not yet answered
the complaint. At this point, ATC considers the case to be totally without
merit, and ATC intends to vigorously defend the action. The Company currently
has in force a professional liability insurance policy covering this claim in
the amount of $10,000,000 with a deductible of $250,000. Notice of claim has
been made regarding this action and the insurer has agreed to assume the
defense. These related cases are in their early stages with discovery yet to
take place. In the Company's opinion, the outcome of this matter will not have a
significant effect on the Company's financial position or future results of
operations, although no assurances can be given in this regard.
F-13
PAGE
<PAGE>
State of New York Department of Taxation and Finance- The Company has
received a notice of audit from the New York State Department of Taxation and
Finance for the three fiscal years 1993, 1994, and 1995. The agent has issued a
preliminary audit report, which is expected to be the basis of a formal
assessment estimated to be approximately $200,000. The Company is disputing the
agents positions and intends to appeal any assessment if rendered. No assurances
can be given regarding the ultimate liability, if any, which may result.
The Company has been named or has claims pending arising out of the
conduct of its business. In the opinion of management, these matters are
adequately covered by insurance, are without merit, or are not material.
F. STOCK OPTIONS
A stock option plan, established in 1988, (the "1988 Plan") provides
for the granting of 200,000 options to employees for purchase of common stock at
prices which cannot be less than the fair market value at the time of the grant.
Options generally become exercisable at 20% per year, 50% per year for certain
participants, and expire within five years of the date of grant.
In 1993, the Board of Directors approved an additional stock option
plan (the "1993 Plan") providing for the granting of 200,000 options to
employees for purchase of common stock at prices which cannot be less than fair
market value at the time of the grant. In December 1995, the 1993 Plan was
amended to increase the number of options to 500,000 shares and in October 1996,
the 1993 Plan was amended to increase the number of options to 1,000,000 shares.
Options generally become exercisable at 20% per year and expire either within
five years or ten years of the date of grant.
In connection with the merger of Aurora into ATC, the Board of
Directors of ATC approved a stock option plan (the "1995 Plan") having identical
provisions to Aurora's 1987 Stock Option Plan. The 1995 Plan provides for the
granting of 81,750 options representing the previously outstanding Aurora stock
options after adjustment by the stock exchange rate of .545 as provided for
under the terms of the merger agreement. The 81,750 options were granted at an
exercise price of $5.32 per share in June 1995 to an officer of ATC in
replacement of previously held Aurora options. All of the options are
exercisable and expire within ten years of the date of grant.
As of February 28, 1997, under the 1988, 1993 and 1995 Plans, 1,096,400
options have been granted, 40,410 options exercised, 335,650 options expired and
521,000 options remain available for grant. In fiscal 1995, the Board of
Directors approved the granting of 20,000 options to an unrelated consultant for
purchase of common stock at $9.50 per share (fair market value at date of
grant). These options were terminated in fiscal 1996.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123 defines a fair market value based method of accounting for stock
based employee compensation plans and encourages all entities to adopt that
method of accounting. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.
The Company has decided to continue to apply the intrinsic value based
method of accounting for its stock-based employee compensation plans. If
compensation cost for the Company's stock-based compensation plans had been
determined based on the fair value at the grant dates for awards under the plans
consistent with the method of SFAS No. 123, Accounting for Stock Based
Compensation, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1996 1997
----------- -----------
Net Income:
As reported $ 3,865,998 $ 6,307,734
Pro forma $ 3,759,532 $ 6,065,136
Primary Earnings Per Share:
As reported $.54 $.74
Pro forma $.52 $.71
Fully Diluted Earnings Per Share:
As reported $.54 $.74
Pro forma $.52 $.71
F-14
PAGE
<PAGE>
The fair value for stock options was estimated using the Black-Scholes
option pricing model with assumptions for the risk-free interest rate of 7.8% in
fiscal 1996 and 5.4% in fiscal 1997, expected volatility of 48% in fiscal 1996
and 1997, expected life of approximately 5 years in fiscal 1996 and 1997, and no
expected dividends. The weighted average fair value of options granted during
fiscal 1996 and 1997 was $5.58 per option and $4.48 per option, respectively.
The changes in the outstanding stock options described above during fiscal
years 1995, 1996 and 1997 are summarized as follows:
WEIGHTED
AVERAGE
PRICE PER
OPTIONS SHARE
-------- -------
BALANCE, February 28, 1994........................ 170,700 $ 3.17
Granted......................................... 132,350 9.76
Exercised....................................... (6,980) 2.90
Expired......................................... (4,650) 9.48
--------
BALANCE, February 28, 1995........................ 291,420 6.03
Granted......................................... 334,500 9.44
Exercised....................................... (6,400) 5.56
Expired......................................... (34,800) 10.09
--------
BALANCE, February 29, 1996........................ 584,720 8.51
Granted......................................... 407,400 9.85
Exercised....................................... (14,030) 4.00
Expired......................................... (257,750) 12.62
--------
BALANCE, February 28, 1997........................ 720,340 $ 7.89
======== =======
Options exercisable at:
February 28, 1995................................. 127,000
February 29, 1996................................. 307,950
February 28, 1997................................. 457,550
The following table summarizes information about stock options outstanding and
exercisable as of February 28, 1997:
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted Weighted Average Weighted
Average Remaining Average
Range of Number Exercise Contractual Number Exercise
Exercise Price Outstanding Price Life Exercisable Price
- --------------------------------------------------------------------------------
$ 1.88 - $ 5.99 223,720 $ 3.84 0.1 years 217,340 $ 3.81
6.00 - 11.99 352,870 8.10 2.8 years 158,710 8.22
12.00 - 17.99 143,750 13.66 2.2 years 81,500 13.73
- --------------------------------------------------------------------------------
$ 1.88 - $17.99 720,340 $ 7.89 1.8 years 457,550 $ 7.11
================================================================================
G. COMMON STOCK WARRANTS
At February 28, 1997, there are 568,207 Class C warrants outstanding.
Each Class C warrant entitles the holder to purchase one share of common stock
at an exercise price of $10.00. The Company has reserved common shares equal to
the outstanding warrants for issuance upon the exercise of the Class C warrants.
The expiration date of the Class C warrants is April 30, 1998.
During the year ended February 28, 1995, 284,803 of 285,817 outstanding
Class B warrants were exercised at an exercise price of $8.00 allowing the
holder to receive one share of common stock per warrant and one Class C warrant.
The Class B warrants not exercised expired as of September 30, 1994.
In connection with the merger of Aurora in fiscal 1996, ATC issued
common stock purchase warrants for the purchase of 523,200 shares of ATC
common stock at prices ranging from $1.03 to $2.75 per share in replacement of
previously outstanding Aurora warrants. During fiscal 1996, 32,700 warrants were
exercised at approximately $1.83 per share. The remaining warrants expire from
November 30, 2000 to January 10, 2004.
F-15
PAGE
<PAGE>
H. INCOME TAXES
Income tax expense (benefit) for the three years ended February 28,
1997 consists of the following:
<TABLE>
<CAPTION>
FEDERAL STATE & LOCAL TOTAL
--------------- --------------- ---------------
<S> <C> <C> <C>
1995:
Current........................................................ $ 1,725,000 $ 295,500 $ 2,020,500
Deferred....................................................... 19,000 4,500 23,500
--------------- --------------- ---------------
Total......................................................... $ 1,744,000 $ 300,000 $ 2,044,000
=============== =============== ===============
1996:
Current........................................................ $ 1,700,400 $ 296,300 $ 1,996,700
Deferred....................................................... (161,700) (30,000) (191,700)
--------------- --------------- ---------------
Total......................................................... $ 1,538,700 $ 266,300 $ 1,805,000
=============== =============== ===============
1997:
Current........................................................ $ 3,207,100 $ 711,600 $ 3,918,700
Deferred....................................................... 168,100 3,200 171,300
--------------- --------------- ---------------
Total......................................................... $ 3,375,200 $ 714,800 $ 4,090,000
=============== =============== ===============
</TABLE>
The Company made Federal and State income tax payments of
approximately $3,023,000, $2,077,000, and $ 4,062,000 in fiscal 1995,
1996 and 1997, respectively.
A reconciliation of the statutory US Federal tax rate and
effective tax rate for the three years ended February 28, 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- -------------- -------------
<S> <C> <C> <C>
Statutory US Federal rate....................................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit...................... 4.1 4.3 4.5
Tax benefit of Aurora's net operating loss carryforward......... - (6.2) -
Tax exempt interest income...................................... - (2.4) (1.3)
Non-deductible expenses......................................... 0.5 2.1 2.1
--------------- -------------- -------------
......................................................... 38.6% 31.8% 39.3%
=============== =============== =============
</TABLE>
The tax effects of temporary differences that give rise to a
significant portion of the deferred tax assets and liabilities as of February 28
(29) consist of the following:
1996 1997
------------ -----------
Deferred tax assets:
Nondeductible liabilities....................... $ 339,400 $ 682,900
Nondeductible bad debt reserve.................. 76,900 453,800
Aurora net operating loss carryforward.......... 150,000 -
------------ -----------
566,300 1,136,700
Deferred tax liabilities:
Property and equipment.......................... 108,000 95,800
Prepaid expenses................................ 125,800 346,400
Intangible assets............................... 88,700 622,000
------------ -----------
322,500 1,064,200
------------ -----------
Net deferred tax asset ............................ $ 243,800 $ 72,500
============ ===========
The current portion of net deferred tax assets of $440,600 and $790,400
at February 28 (29), 1996 and 1997 is classified in the consolidated balance
sheets in current assets. The non-current portion is classified in non-current
liabilities.
During fiscal 1996, ATC utilized a one-time tax benefit of $350,000 to
offset taxable income relating to Aurora's net operating loss carryforward at
the time of the ATC and Aurora merger.
I. EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan which allows for voluntary
contributions into designated investment funds by eligible employees. The
Company may, at the discretion of its Board of Directors, make additional
contributions on behalf of the Plan's participants. No Company contributions
were made in fiscal years 1995, 1996, and 1997.
F-16
<PAGE>
<PAGE>
J. INDUSTRY SEGMENT DATA
The Company provides services through its environmental consulting and
engineering segment and its information technology consulting segment. Prior
year segment data is not presented as the Company only operated in the
environmental and engineering segment prior to the acquisition of 3D in May 1996
as discussed in Note B.
<TABLE>
<CAPTION>
Industry Segment Data:
Environmental Information Adjustments &
& Engineering Technology Elimination's Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Year Ended February 28, 1997
Revenues.......................................... $ 106,661,312 $ 7,228,755 $ (34,703) $ 113,855,364
Operating income.................................. 11,323,277 387,756 - 11,711,033
Depreciation and amortization..................... 1,949,711 149,100 - 2,098,811
Capital expenditures.............................. $ 1,244,756 $ 40,939 - 1,285,695
Identifiable assets as of
February 28, 1997.............................. $ 83,486,251 $ 6,080,060 $ (3,390,994) $ 86,175,317
</TABLE>
K. SUPPLEMENTAL INFORMATION
Supplemental cash flow information - Supplemental cash flow information for
the years ended February 28 (29) is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Cash paid for interest............................................. $ 276,658 $ 374,466 $ 1,515,432
Noncash investing and financing activities:
Liabilities assumed in connection with business combinations..... 6,056,441 640,082 26,728,981
Common stock issued in connection with business combinations..... 605,408 - -
Common stock recovered in connection with the Con-Test, Inc.
acquisition.................................................. - 140,013 -
Common stock issued in connection with the Aurora Merger......... - 61,117 -
Common stock received as consideration for sale of assets........ - - 124,432
Notes payable issued in connection with business combinations.... 835,000 1,000,000 2,589,086
</TABLE>
Supplemental analysis of valuation and qualifying accounts - Changes in
the allowance for doubtful accounts for the three years ended February 28, 1997
are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
BALANCE, beginning of year......................................... $ 167,344 $ 535,886 $ 383,220
Provision for bad debts........................................ 188,819 290,165 1,021,631
Amounts written-off, net of recoveries......................... (136,350) (309,932) (452,836)
Adjustment for allowance for doubtful accounts recorded on net
acquired (rescinded) accounts receivable................... 316,073 (132,899) 503,701
------------- ------------ ------------
BALANCE, end of year............................................... $ 535,886 $ 383,220 $ 1,455,716
============= ============ ============
</TABLE>
F-17
<PAGE>
<PAGE>
L. QUARTERLY FINANCIAL DATA (Unaudited)
The Company's unaudited quarterly results of operations for fiscal 1996
and 1997 are as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Three Months Ended
May 31 August 31 November 30 February 29
1995 1995(1) 1995 (2) 1996
-------------------------------------------- ------------------ ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
Revenues................................... $ 10,814,953 $ 11,649,478 $ 11,223,139 $ 11,277,327
Gross profit............................... 5,269,542 5,529,416 5,342,623 4,308,142
Income before income taxes................. 1,462,628 1,921,617 1,811,675 475,078
Net income................................. 895,128 1,519,117 1,104,675 347,078
Earnings per common share and dilutive
common equivalent share (4):
Primary................................ $ .15 $ .23 $ .15 $ .04
Fully diluted.......................... $ .15 $ .23 $ .15 $ .04
Fiscal 1997 Three Months Ended
May 31 August 31 November 30 February 28
1996(3) 1996 1996 1997
-------------------------------------------- ------------------ ------------------- ------------------ --------------
Revenues................................... $ 16,645,983 $ 33,922,028 $ 32,848,840 $ 30,438,513
Gross profit............................... 7,282,012 12,529,814 11,287,563 11,051,373
Income before income taxes................. 2,772,303 3,485,493 2,433,278 1,706,660
Net income................................. 1,718,303 2,101,493 1,506,278 981,660
Earnings per common share and dilutive
common equivalent share:
Primary................................ $ .20 $ .25 $ .18 $ .12
Fully diluted.......................... $ .20 $ .25 $ .18 $ .12
</TABLE>
The Company's operations are seasonal in nature, with a larger
percentage of income earned in the second quarter.
(1) Reflects the merger of ATC and Aurora effective June 29, 1995, (Note
B). Net income includes a one-time tax benefit of $350,000 ($.05 per
share) resulting from the merger of Aurora.
(2) Reflects the acquisition of the Hill Businesses effective November 10,
1995, (Note B).
(3) Reflects the acquisition of American Testing and Engineering
Corporation and 3D Information Services, Inc. effective May 24, 1996
and May 28, 1996, respectively.
(4) For fiscal 1996, the sum of the quarterly earnings per share is less
than the reported fiscal year earnings per share due to the averaging
effect of the 1,970,000 shares issued in connection with the Company's
stock offering in October 1995.
F-18
<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information regarding the
Company's directors, executive officers and a key employee.
<TABLE>
<CAPTION>
Name Age Position
Officers and Directors:
<S> <C> <C>
George Rubin.................. 69 Chairman of the Board and Secretary; Director
Morry F. Rubin................ 37 President, Chief Executive Officer, Treasurer; Director
Nicholas J. Malino............ 47 Senior Vice President, Financial and General Operations
Christopher P. Vincze......... 35 Senior Vice President, Financial and General Operations
Donald W. Beck................ 38 Senior Vice President
John J. (Jeff) Goodwin........ 48 President and Director of ATC InSys Technology Inc.
Richard L. Pruitt............. 57 Vice President, Principal Accounting Officer; Director
Wayne A. Crosby............... 43 Chief Financial Officer
Richard S. Greenberg, Esq..... 47 Director
Julia S. Heckman.............. 47 Director
Key Employee:
John J. Smith................. 46 General Counsel
</TABLE>
The business experience, principal occupations and employment, as well
as the periods of service, of each of the directors, executive officers and a
key employee of the Company during at least the last five years are set forth
below. Officers of ATC Group Services Inc. also are officers of certain of ATC's
subsidiary companies.
George Rubin has been Chairman of the Board of ATC since 1988. From 1961 to
1987, Mr. Rubin served as President, Treasurer and a director of Staff Builders,
Inc. Staff Builders Inc., was a publicly held corporation engaged in the
business of providing temporary personnel primarily in the health care field
operating through approximately 100 offices and with revenues over $100 million.
Since December 1986, Mr. Rubin has been a principal stockholder, executive
officer and a director of National Diversified Services, Inc., a publicly held
corporation which completed a public offering in December 1986 and currently has
no business operations. George Rubin is the father of Morry F. Rubin.
Morry F. Rubin has been President, Chief Executive Officer, Treasurer and a
director of ATC since 1988. Mr. Rubin was also President, Chief Executive
Officer and Treasurer of Aurora from May 1985 to June 1995, and was a director
of Aurora from September 1983 to June 1995. Since 1986, Mr. Rubin has been a
principal stockholder and from 1986 to July 1995, Mr. Rubin was President and a
director of National Diversified Services, Inc., a publicly held corporation,
which completed a public offering in December 1986 and currently has no business
operations. From 1981 to 1987, Mr. Rubin was employed in sales and as a director
of acquisitions for Staff Builders, Inc., a publicly held company engaged in
providing temporary personnel primarily in the health care field. Morry F. Rubin
is the son of George Rubin.
Nicholas J. Malino has been Senior Vice President, Financial and General
Operations of ATC, since July 1993 and an employee of ATC since October 1992.
Mr. Malino has over fourteen years of experience in managing professional
service organizations. From February 1991 to September 1992, Mr. Malino was the
New York Regional Manager for Kemron Inc., a hazardous waste consulting company
headquartered in McLean, Virginia. From August 1989 to January 1991, he was the
Operations Manager for the New York City branch of Professional Service
Industries, Inc.
Christopher P. Vincze has been Senior Vice President, Financial and General
Operations of ATC since July 1993, a regional manager of ATC since July 1991 and
Vice President of a subsidiary of ATC since 1992. Mr. Vincze joined Dennison
Environmental, Inc. in 1984 as an industrial hygienist and served as Vice
President of Marketing and Operations from 1987 to July 1991.
Donald W. Beck has been Senior Vice President of ATC since April 1990 and
Vice President since January 1988. Mr. Beck is responsible for managing the
operations of certain ATC offices. Mr. Beck also served as a director of ATC
Laboratories, Inc., a predecessor company of ATC, from November 1985 until
January 1988, President of ATC Laboratories, Inc. from May 1986 until January
1988 and as Vice President of ATC Laboratories, Inc. from November 1985 until
May 1986. Mr. Beck has been a full-time employee of ATC (and formerly ATC
Laboratories, Inc.) since May 1982.
22
<PAGE>
<PAGE>
John J. (Jeff) Goodwin has been President and a director of ATC InSys
Technology Inc. since it was formed in May 1996. From September 1994 until May
1996, Mr. Goodwin served as President of the Contest Systems Division of ATC,
providing clients with specialized systems for managing environmental hazards.
Prior to joining ATC, Mr. Goodwin directed a national information systems
consulting practice for Datronics Management Inc. from December 1991 until
August 1994. From April 1980 until October 1991, Mr. Goodwin was employed by
Ernst & Young LLP, an international professional services firm, where he was
admitted as a Partner in 1984. In this capacity, Mr. Goodwin directed a public
sector and environmental services consulting practice and a decision support
systems practice, and was a client-service partner in Ernst & Young's general
Information Technology consulting practice.
Richard L. Pruitt is a Vice President, the Principal Accounting Officer and
a director of ATC. Mr. Pruitt has served as Vice President of ATC since
September 1990, as Principal Accounting Officer of ATC since April 1988 and as a
director of ATC since January 1988. Mr. Pruitt served as Principal Financial
Officer of ATC from September 1989 to April 1992 and from May 1993 to July 1995.
Mr. Pruitt served as the Principal Financial Officer and a director of Aurora
from May 1985 to June 1995 and served as Financial Manager of Aurora from
February 1982.
Wayne A. Crosby has been Chief Financial Officer of ATC since July 1995.
Prior to joining ATC, Mr. Crosby was the Chief Financial Officer of BSE
Management, Inc. from 1991 to 1993 and Chief Financial Officer of Compex
Systems, Inc. from 1986 through 1990. Mr. Crosby is a certified public
accountant and was employed by Deloitte & Touche LLP (formerly Deloitte Haskins
& Sells) for eight years.
Richard S. Greenberg, Esq. has been a director of ATC since July 1995. Mr.
Greenberg has been a director of the Environmental Management Consulting
Services Group at Coopers & Lybrand since October 1989. Mr. Greenberg has over
20 years of experience in the areas of environmental management consulting,
environmental litigation support and legislative policy analysis.
Julia S. Heckman has been a director of ATC since August 1995. Mrs. Heckman
has been a Managing director with Rodman & Renshaw, Inc.'s Investment Banking
Group since April 1995 and had been a Managing Director with Mabon Securities
Corp.'s Investment Banking Group since 1991. Prior to joining Mabon Securities
Corp., Mrs. Heckman was a Managing Director with Paine Webber Group Inc.'s
Corporate Finance Department. Mrs. Heckman serves as a member of the Company's
Board of Directors pursuant to the Underwriting Agreement dated October 10,
1995, between Rodman & Renshaw, Inc. and the Company.
John J. Smith, Esq. has been General Counsel since August 1989 and served
as a Vice President of ATC from September 1990 through December 1993. Prior to
joining ATC, from 1986 to 1989, Mr. Smith was the Secretary of the South Dakota
Department of Water and Natural Resources, a cabinet level position responsible
for managing all of the State's environmental and natural resources development
programs.
The Board of Directors has an Audit Committee and a Compensation Committee
consisting of three directors including Morry F. Rubin and the independent
directors, Richard S. Greenberg and Julia S. Heckman. The Audit Committee is
responsible, among other things, for approving and transactions between the
Company and any of its directors, officers or affiliates. The Compensation
Committee is responsible for setting compensation of the executive officers of
the Company and for granting any further options to purchase Common Stock.
All directors of ATC will hold offices until the next annual stockholders'
meeting and until the election and qualification of their successors. Officers
hold their respective positions until their successors are duly qualified or
until they resign or are removed by the Board of Directors.
Item 11. Executive Compensation.
This information will be contained in the definitive proxy statement of
the Company for the 1997 Annual Meeting of Stockholders under the caption
"Compensation of Directors and Executive Officers" and is incorporated herein by
reference.
23
<PAGE>
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of May 28, 1997 with
respect to the share ownership by ATC's directors individually, officers and
directors as a group, and for record and/or beneficial owners of more than 5% of
the outstanding amount of such stock. For purposes of calculating the amount of
beneficial ownership and the respective percentages, the number of shares of ATC
Common Stock which may be acquired by a person upon the exercise of outstanding
options, if any, notwithstanding the options vesting schedule, are considered
outstanding but are not deemed to be outstanding for the purpose of computing
the percentage of Common Stock owned by any other person.
<TABLE>
<CAPTION>
Number of Approximate
Name and Address Position Shares Owned Percent of Class
(1) (2)
<S> <C> <C> <C>
Chairman of the Board and
Secretary;
George Rubin (3) Director 1,512,542 18.2
President, Chief
Executive Officer, Treasurer;
Morry F. Rubin (4) Director 800,489 10.1
Vice President,
Principal Accounting Officer;
Richard L. Pruitt (5) Director 49,050 *
Julia S. Heckman (6) Director 15,000 *
Richard S. Greenberg, Esq. (7) Director 15,000 *
All Officers and Directors of ATC
as a Group(11 persons)(8) Various 2,600,114 29.9
Investment Advisor registered
Corbyn Investment Management, Inc. under Section 8 of the Investment
et al (9) Company Act of 1940 1,034,199 13.3
Investment Company under Section
8 of the Investment Company Act
The Parnassus Fund (10) of 1940 595,000 7.6
</TABLE>
* Represents less than 1%.
- ------------
(1) Each person has sole voting power and investment power with respect to
the number of shares indicated as owned.
(2) Based upon 7,802,987 shares of Common Stock outstanding as of May 28,
1997.
(3) Shares owned include warrants to purchase 490,500 shares of Common
Stock. Address: 104 East 25th Street, 10th Floor, New York, NY 10010.
(4) Shares owned include options to purchase 161,750 shares of Common
Stock. Address: 104 East 25th Street, 10th Floor, New York, NY 10010
24
<PAGE>
<PAGE>
(5) Shares owned include options to purchase 10,800 shares of Common
Stock. Address: 1515 East Tenth Street, Sioux Falls, SD 57103.
(6) Shares owned includes options to purchase 15,000 shares of Common
Stock. Address: Rodman & Renshaw, Inc., 2 World Financial Center, 30th
Floor, New York, NY 10281.
(7) Shares owned include options to purchase 15,000 shares of Common
Stock. Address: Coopers & Lybrand, 370 17th Street, Suite 3300,
Denver, CO 80202.
(8) Shares owned include options to purchase 873,688 shares of Common
Stock.
(9) As reported in Schedule 13G to the Securities and Exchange Commission
dated January 6, 1997. Includes shares owned or beneficially owned by
Corbyn Investment Management, Inc. and Greenspring Fund, Inc. Address:
2330 West Joppa Road, Suite 108, Lutherville, MD 21093
(10) As reported in Schedule 13G to the Securities and Exchange Commission
dated February 10, 1997. Address: One Market, Stewart Tower, Suite
1600, San Francisco, CA 94105
ATC does not know of any arrangement or pledge of its securities by
persons now considered in control of ATC that might result in a change of
control of ATC.
Item 13. Certain Relationships and Related Transactions.
Effective June 29, 1995, ATC and its parent, Aurora were merged
pursuant to an agreement approved by the majority of shareholders of each
company, with ATC as the surviving corporation (the "Aurora Merger"). Prior to
the Aurora Merger, Aurora was a holding company which owned approximately 57% of
ATC's outstanding Common Stock and had substantially no other assets. Under the
terms of the merger, each outstanding share of Aurora Common stock was exchanged
for .545 shares of ATC Common Stock. ATC issued 3,341,356 shares of ATC Common
Stock in exchange for 6,131,104 shares of Aurora's common stock, and issued
options and warrants entitling the holders thereof to purchase up to 604,950
shares of ATC Common Stock upon exercise in replacement of previously
outstanding options and warrants to purchase Aurora's common stock. ATC common
shares held by Aurora of 3,258,000 were canceled. Actual common shares
outstanding increased by 83,356 shares. As a result of the Aurora Merger, ATC
utilized Aurora's net operating loss carry forward to reduce its taxable income
and accordingly recorded a one-time reduction in income tax expense of
approximately $350,000 ($.05 per share) in fiscal 1996. Certain officers and
directors of ATC were stockholders of Aurora and participated in the merger on a
consistent basis with all Aurora security holders.
ATC has in the past, and may in the future, enter into transactions
with officers, directors and other affiliates which may be deemed to be
non-arms-length transactions (i.e. transactions between related parties). Any
new transactions would be approved by a majority of disinterested Board of
Directors and would be expected to be made on terms no less favorable to ATC
than could be arranged with independent third parties. All material transactions
during the past three years between ATC and Aurora are set forth above.
25
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
A list of the financial statements filed as a part of this Annual
Report is set forth in Item 8, and appears on Page F-1 herein; which list is
incorporated herein by reference.
(a) (2) Financial Statement Schedules
No financial statement schedules are in this Annual Report because the
information required is contained in the financial statements incorporated by
reference in (a) (1) above.
(a) (3) Exhibits
A list of exhibits required by Item 601 of Regulation S-K and an index
thereto appears on the following page of this Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
February 28, 1997.
26
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Description
2 Agreement and Plan of Merger to reincorporate in Delaware (contained in
Exhibits 3(b) and 3(c), (1)
2(a) Agreement and Plan of Merger between ATC Environmental Inc. and Aurora
Environmental Inc. (5)
3(a) Certificate of Incorporation of Registrant (1)
3(b) Certificate of Ownership and Merger of Registrant (Delaware) (1)
3(c) By-Laws (1)
3(d) Certificate of Merger (Aurora Environmental Inc. Merging with and into ATC
Environmental Inc.) (8)
10 Employee Savings (401(k)) Plan (2)
10(a) New York City Lease (3)
10(b) Form of Indemnity Agreement (9)
10(c)Asset Purchase Agreement between ATC Environmental Inc., a Delaware
corporation, and Hill International Inc., a Delaware corporation, executed
on November 10, 1995 (4)
10(d)Six-Month Promissory Note executed and delivered by ATC Environmental Inc.
on November 10, 1995, payable to Hill International, Inc. in the amount of
$300,000 (4)
10(e)Irrevocable Letter of Credit executed by Atlantic Bank of New York on
November 8, 1995, and delivered by ATC Environmental Inc. on November 10,
1995, payable on or after May 1, 1996, to Hill International, Inc. in the
amount of $730,625.00 (4)
10(f)Bill of Sale delivered on November 10, 1995, conveying assets referenced in
assets purchase agreement from Hill International, Inc. to ATC
Environmental Inc. (4)
10(g)Non-Competition Agreement of Irvin E. Richter to ATC Environmental Inc.
Delivered on November 10, 1995 (4)
10(h)Non-Competition Agreement of David L. Richter to ATC Environmental Inc.
Delivered on November 10, 1995 (4)
10(i)Agreement for Sale and Purchase of Business Assets on May 24, 1996, among
ATC Environmental Inc., American Testing and Engineering Corporation d/b/a
ATEC Associates, Inc. and Gerald D. Mann. (10)
10(j)Assumption of Liabilities Agreement on May 24, 1996, among ATC
Environmental Inc., American Testing and Engineering Corporation and Gerald
D. Mann. (10)
10(k)Master Equipment Lease Agreement on May 24, 1996, between ATC Environmental
Inc. and American Testing and Engineering Corporation. (10)
10(l)Master Sublease Agreement on May 24, 1996, between ATC Environmental Inc.
and American Testing and Engineering Corporation covering premises leases
at Indianapolis, IN, Atlanta, GA and Dallas, TX. (10)
10(m)Non-Competition Agreement on May 24, 1996, between ATC Environmental Inc.
and American Testing and Engineering Corporation. (10)
10(n)Mann Non-Competition Agreement on May 24, 1996, between ATC Environmental
Inc. and Gerald D. Mann. (10)
27
<PAGE>
<PAGE>
EXHIBIT INDEX (continued)
Exhibit Description
10(p)Security Agreement on May 24, 1996, among ATC Environmental Inc., American
Testing and Engineering Corporation and Gerald D. Mann. (10)
10(q)$500,000 Letter of Credit on May 24, 1996, from Chemical Bank, N.A.
against the account of ATC Environmental Inc. in favor of American Testing
and Engineering Corporation. (10)
10(r)Agreement for Sale and Purchase of Business Assets on May 28, 1996, among
ATC InSys Technology Inc., 3D Information Services Inc. and Ciro De Saro.
(10)
10(s)Assumption of Liabilities Agreements on May 28, 1996, between ATC InSys
Technology Inc., 3D Information Services Inc. and Ciro De Saro. (10)
10(t)Stockholders Non-Competition Agreement on May 28, 1996, between ATC InSys
Technology Inc. and the stockholders of 3D Information Services Inc. (10)
10(u)Three-year, $2,500,000 Promissory Note on May 29, 1996, from ATC
Environmental Inc. to 3D Information Services Inc. (10)
10(v)Employment Agreement on May 29, 1996, between ATC Environmental Inc. and
Ciro De Saro. (10)
11 Statements re: Computation of per share earnings (*)
21 Subsidiaries of Registrant (**)
23 Independent Auditors' Consent-Deloitte & Touche LLP (*)
27 Financial Data Schedule (*)
99 1988 Stock Option Plan (6)
99(a)1993 Stock Option Plan (7)
99(b)Amendment to 1993 Stock Option Plan (*)
99(c)1995 Stock Option Plan (*)
- ---------------------------
* Filed herewith.
** During the fiscal year ended February 28, 1997, ATC had five operating
subsidiaries, namely, Hygeia Laboratories Inc. ("Hygeia"), ATC Management
Inc. ("Management Co."), ATC New England Corp. ("ATC New England"), ATC
Blattert Inc. ("Blattert"), and ATC InSys Technology Inc. ("ATC InSys").
Hygeia, Management Co., ATC New England, Blattert and ATC InSys are formed
under the laws of the States of Delaware, South Dakota, Delaware, South
Dakota and Delaware, respectively. Hygeia has done business under the name
Hygeia ProScience Laboratories, Inc. Management Co. does business under the
name ATC Management Inc. ATC New England does business under its own name
and Con-Test. Blattert has done business under the names ATC Blattert Inc.,
R.E. Blattert & Associates Inc. and Microbial Environmental Services, Inc.
ATC InSys does business under the names ATC InSys Technology Inc. and 3D
Information Services Inc. Additionally, ATC Environmental Inc. was
incorporated for the use in future operations.
28
<PAGE>
<PAGE>
EXHIBIT INDEX (continued)
- --------------------------------------------------------------------------------
Exhibits incorporated by reference from previously filed documents are as
follows:
(1) Reference is made to the Registrant's Registration Statement File No.
33-19889 on Form S-1, which is incorporated by reference and contains
exhibits 2, 3(a), 3(b) and 3(c).
(2) Reference is made to the Registrant's Form 10-K for the fiscal year ended
February 28, 1990 which is incorporated by reference and contains Exhibit
10.
(3) Reference is made to the Registrant's Form 10-K for the fiscal year ended
February 29, 1992 which is incorporated by reference and contains exhibit
10(a).
(4) Reference is made to the Registrant's Form 8-K dated November 10, 1995, as
amended, which is incorporated by reference and contains Exhibits 10(c),
10(d), 10(e), 10(f), 10(g) and 10(h).
(5) Reference is made to the Registrant's Form S-4 Registration Statement, file
No. 33-88380 which is incorporated by reference and contains Exhibit 2(a).
(6) Reference is made to the Registrant's Form S-8 Registration Statement, file
No. 33-55592 which is incorporated by reference and contains Exhibit 99.
(7) Reference is made to the Registrant's Form S-8 Registration Statement, File
No. 33-77578 which is incorporated by reference and contains Exhibit 99.1.
(8) Reference is made to the Registrant's Form 10-Q for the quarter ended May
31, 1995, which is incorporated by reference and contains Exhibit 3(d).
(9) Reference is made to the Registrant's Form 10-K for its fiscal year ended
February 28, 1995, which is incorporated by reference and contains Exhibit
10(b).
(10) Reference is made to the Registrant's Form 8-K dated May 24, 1996 as
amended, which is incorporated by reference and contains Exhibits 10(i),
10(j), 10(k), 10(l), 10(m), 10(n), 10(o), 10(p), 10(q), 10(r), 10(s),
10(t), 10(u) and 10(v).
29
<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 GROUP SERVICES INC.
(Registrant)
/s/ MORRY F. RUBIN May 29, 1997
------------------------------------ ------------
(Dated)
MORRY F. RUBIN
President, Chief Executive Officer, Treasurer; Director
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ GEORGE RUBIN May 29, 1997
----------------------------------- ------------
GEORGE RUBIN, (Dated)
Chairman of the Board and Secretary
/s/ MORRY F. RUBIN May 29, 1997
------------------------------------ ------------
(Dated)
MORRY F. RUBIN,
President, Chief Executive Officer, Treasurer; Director
/s/ RICHARD L. PRUITT May 29, 1997
------------------------------------ ------------
(Dated)
Richard L. Pruitt,
Vice President and Principal Accounting Officer; Director
/s/ WAYNE A. CROSBY May 29, 1997
------------------------------------ ------------
(Dated)
Wayne A. Crosby
Chief Financial Officer
/s/ RICHARD S. GREENBERG, ESQ. May 29, 1997
------------------------------------ ------------
(Dated)
Richard S. Greenberg, Esq.
Director
/s/ JULIA S. HECKMAN May 29, 1997
------------------------------------ ------------
(Dated)
Julia S. Heckman
Director
30
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
THREE YEARS ENDED FEBRUARY 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares of common stock outstanding......... 5,492,657 6,517,500 7,791,506
Additional shares assuming exercise of dilutive stock options
and stock warrants.............................................. 261,199 663,916 691,881
------------ ------------ ------------
Total average common and common equivalent shares
outstanding................................................. 5,753,856 7,181,416 8,483,387
============ ============ ============
Net income............................................................ $ 3,256,520 $ 3,865,998 $ 6,307,734
============ ============ ============
Earnings per common and dilutive common equivalent share.............. $ 0.57 $ 0.54 $ 0.74
============ ============ ============
Fully diluted earnings per share:
Weighted average number of shares of common stock outstanding.......... 5,492,657 6,517,500 7,791,506
Additional shares assuming exercise of dilutive stock options
and stock warrants............................................. 357,576 663,916 716,555
------------ ------------ ------------
Total average common and common equivalent shares
outstanding................................................. 5,850,233 7,181,416 8,508,061
============ ============ ============
Net income............................................................ $ 3,256,520 $ 3,865,998 $ 6,307,734
============ ============ ============
Earnings per common and dilutive common equivalent share.............. $ 0.56 $ 0.54 $ 0.74
============ ============ ============
</TABLE>
31
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT EXHIBIT 23
We consent to the incorporation by reference in Registration Statements No.
33-55592, No. 33-73578 and No. 333-10547 of ATC Group Services Inc. on Form S-8
of our report dated May 22, 1997, (May 29, 1997 as to Notes B and D) appearing
in this Annual Report on Form 10-K of ATC Group Services Inc. for the year ended
February 28, 1997.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 29, 1997
32
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES EXHIBIT 27
FINANCIAL DATA SCHEDULE
FEBRUARY 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
As of
Item Number Item Description February 28, 1997
<S> <C> <C>
5-02(1) Cash and cash items $ 2,003,890
5-02(2) Marketable securities and short-term investments -
5-02(3)(a)(1) Notes and accounts receivable - trade 35,861,742
5-02(4) Allowances for doubtful accounts 1,455,716
5-02(6) Inventory -
5-02(9) Total current assets 45,444,418
5-02(13) Property, plant and equipment 7,732,327
5-02(14) Accumulated depreciation 3,947,694
5-02(18) Total assets 86,293,657
5-02(21) Total current liabilities 17,742,724
5-02(22) Bonds, mortgages and similar debt 24,410,074
5-02(28) Preferred stock - mandatory redemption -
5-02(29) Preferred stock - no mandatory redemption -
5-02(30) Common stock 78,002
5-02(31) Other stockholders' equity 45,361,301
5-02(32) Total liabilities and stockholders' equity 86,293,657
Year ended February
28, 1997
5-03(b)1(a) Net sales of tangible products $
5-03(b)1 Total revenues 113,855,364
5-03(b)2(a) Costs of tangible goods sold -
5-03(b)2 Total costs and expenses applicable to sales and revenues 71,704,602
5-03(b)3 Other costs and expenses 29,162,354
5-03(b)5 Provision for doubtful accounts and notes 1,021,631
5-03(b)(8) Interest and amortization of debt discount 1,569,043
5-03(b)(10) Income before taxes and other items 10,397,734
5-03(b)(11) Income tax expense 4,090,000
5-03(b)(14) Income (loss) continuing operations 6,307,734
5-03(b)(15) Discontinued operations -
5-03(b)(17) Extraordinary items -
5-03(b)(18) Cumulative effect - changes in accounting principles -
5-03(b)(19) Net income (loss) 6,307,734
5-03(b)(20) Earnings per share - primary .74
5-03(b)(20) Earnings per share - fully diluted .74
</TABLE>
33
<PAGE>
<PAGE>
AMENDMENT TO 1993 STOCK OPTION PLAN
Section 3 of the 1993 Incentive and Non-Statutory Stock Option Plan is
amended to read as follows:
3. Stock Subject to Plan.
---------------------
Subject to the provisions of paragraph 12 hereof, there shall be reserved
for issuance or transfer upon the exercise of Options to be granted from time to
time Under the Plan an aggregate of 1,000,000 shares of Common Stock, which
shares may be in whole or in part, as the Board of Directors of the Company
shall from time to time determine, authorized and unissued shares of Common
Stock or issued shares of Stock which shall have been reacquired by the Company.
If any Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall again be available for the purposes of the Plan.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 2,003,890
<SECURITIES> 0
<RECEIVABLES> 35,861,742
<ALLOWANCES> 1,455,716
<INVENTORY> 0
<CURRENT-ASSETS> 45,444,418
<PP&E> 7,732,327
<DEPRECIATION> 3,947,694
<TOTAL-ASSETS> 86,293,657
<CURRENT-LIABILITIES> 17,742,724
<BONDS> 24,410,074
<COMMON> 78,002
0
0
<OTHER-SE> 45,361,301
<TOTAL-LIABILITY-AND-EQUITY> 86,293,657
<SALES> 0
<TOTAL-REVENUES> 113,855,364
<CGS> 0
<TOTAL-COSTS> 71,704,602
<OTHER-EXPENSES> 29,162,354
<LOSS-PROVISION> 1,021,631
<INTEREST-EXPENSE> 1,569,043
<INCOME-PRETAX> 10,397,734
<INCOME-TAX> 4,090,000
<INCOME-CONTINUING> 6,307,734
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,307,734
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
