UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A #2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Earliest Event Reported - May 24, 1996
ATC GROUP SERVICES INC.
-----------------------
(Exact name of Registrant as specified in its charter)
Delaware 1-10583 46-0399408
------------------------------- -------------- -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
104 East 25th Street, 10th Floor
New York, New York 10010
----------------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 353-8280
<PAGE>
Item 7. Exhibits and Financial Statements
(a)(1) Included are the American Testing and Engineering Corporation
financial statements as of December 31, 1995 and 1994 and for the Years Ended
December 31, 1995 and 1994, the Three Months Ended December 31, 1993 and the
Year Ended September 30, 1993 and Independent Auditors' Report dated January 31,
1997 (June 25, 1997 as to Note 11) issued by Deloitte & Touche LLP. These
financial statements are being filed in replacement of previously filed
financial statements of American Testing and Engineering Corporation for similar
periods audited by Coopers & Lybrand LLP. The reported amounts of total assets,
liabilities and shareholders' equity and of earnings and loss for each period do
not differ from those reported in the previous filing.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
ATC GROUP SERVICES INC.
---------------------------
(Registrant)
July 22, 1997 By: /s/ RICHARD L. PRUITT
- ------------- ----------------------------
(Dated) RICHARD L. PRUITT
Vice President and
Principal Accounting Officer
<PAGE>
AMERICAN TESTING AND
ENGINEERING CORPORATION
Financial Statements as of December 31, 1995 and 1994 and for the Years Ended
December 31, 1995 and 1994, the Three Months Ended December 31, 1993 and the
Year Ended September 30, 1993 and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
American Testing and Engineering Corporation
We have audited the accompanying balance sheets of American Testing and
Engineering Corporation (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, shareholders' equity and cash flows for the
years ended December 31, 1995 and 1994, the three months ended December 31, 1993
and the year ended September 30, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1994, and the results of its operations and its cash flows for the years ended
December 31, 1995 and 1994, the three months ended December 31, 1993 and the
year ended September 30, 1993 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
- --------------------------
Omaha, Nebraska
January 31, 1997
(June 25, 1997 as to Note 11)
<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS ........................................................................... 1995 1994
Current assets:
Cash ........................................................................... $ 46,693 $ 62,285
Receivables:
Trade accounts receivable .................................................... 20,282,027 20,732,006
Unbilled revenue on work in progress ......................................... 6,795,912 6,395,647
------------ ------------
27,077,939 27,127,653
Less allowance for doubtful accounts ......................................... (690,500) (814,600)
------------ ------------
26,387,439 26,313,053
Collateral bonds ............................................................... 801,430 1,110,652
Other current assets ........................................................... 779,722 825,214
------------ ------------
Total current assets .................................................. 28,015,284 28,311,204
Property and equipment, net (Note 3) ............................................. 5,901,641 9,041,493
Other Assets:
Cash surrender value of life insurance ......................................... 1,824,437 1,872,902
Advances to related parties (Note 4) ........................................... 156,712 114,141
Other .......................................................................... 428,621 324,125
------------ ------------
2,409,770 2,311,168
------------ ------------
Total assets .......................................................... $ 36,326,695 $ 39,663,865
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Working capital loans (Note 5) ................................................. $ 1,679,756 $ 632,235
Current portion of long-term debt (Note 5) ..................................... 11,043,881 3,548,168
Accounts payable, trade ........................................................ 7,804,426 7,211,534
Accrued salaries, wages and other compensation ................................. 3,948,186 4,774,441
Accrued legal liabilities (Note 11) ............................................ 1,288,265 1,391,875
Other accrued expenses ......................................................... 2,914,423 2,918,901
------------ ------------
Total current liabilities ............................................. 28,678,937 20,477,154
Long-term debt (Note 5) .......................................................... 877,095 10,255,382
Performance share obligation (Notes 2 and 7) ..................................... 688,147 1,139,894
Lease and revenue reserve ........................................................ 187,739 76,190
Minority interest ................................................................ 7,173 5,011
Commitments and contingencies (Notes 5, 7 and 11)
Shareholders' equity:
Common stock, no par value, 2,000,000 shares authorized;
1,585,000 shares issued and outstanding ...................................... 79,250 79,250
Additional paid-in capital ..................................................... 633,131 633,131
Advances to shareholders (Note 4) .............................................. (21,266) (17,947)
Retained earnings .............................................................. 5,196,489 7,015,800
------------ ------------
Total shareholders' equity ............................................ 5,887,604 7,710,234
------------ ------------
Total liabilities and shareholders' equity ............................ $ 36,326,695 $ 39,663,865
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three
Years Ended Months Ended Year Ended
December 31, December 31, September 30,
------------------------------ ------------- -------------
1995 1994 1993 1993
<S> <C> <C> <C> <C>
Revenues:
Service revenue ................................... $ 95,130,122 102,253,268 $ 28,354,269 $ 117,609,574
Cost of service revenue (Note 2) .................. 26,926,568 30,116,429 11,832,987 38,794,916
------------- ------------- ------------- -------------
Net service revenue ...................... 68,203,554 72,136,839 16,521,282 78,814,658
------------- ------------- ------------- -------------
Cost and expenses:
Engineering and consulting costs .................. 31,064,366 31,189,662 11,122,048 35,075,967
General and administrative expenses ............... 37,291,935 38,760,752 10,726,126 46,082,281
Interest expense .................................. 1,664,066 1,539,513 398,232 1,485,275
Legal judgment (Note 11) .......................... -- -- 704,375 --
------------- ------------- ------------- -------------
Total costs and expenses ................. 70,020,367 71,489,927 22,950,781 82,643,523
------------- ------------- ------------- -------------
Income (loss) before cumulative effect of
change in accounting method ............ (1,816,813) 646,912 (6,429,499) (3,828,865)
Cumulative effect of change in accounting
method (Note 2) ................................... -- 470,611 -- --
------------- ------------- ------------- -------------
Net income (loss) before minority interest (1,816,813) 1,117,523 (6,429,499) (3,828,865)
Minority interest ................................... 2,162 (3,904) (5,814) 3,751
------------- ------------- ------------- -------------
Net income (loss) ........................ $ (1,818,975) $ 1,121,427 $ (6,423,685) $ (3,832,616)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Advances Total
Common Paid-in to Retained Shareholders'
Stock Capital Shareholders Earnings Equity
<S> <C> <C> <C> <C> <C>
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1992 .................. $ 79,250 $ 384,240 $ -- $ 15,911,335 $ 16,374,825
Distributions to shareholders .............. -- -- -- (391,157) (391,157)
Advances to shareholders ................... -- -- (70,048) -- (70,048)
Reclassification of shareholder distribution
(Note 4) ................................. -- -- (630,496) 630,496 --
Net loss ................................... -- -- -- (3,832,616) (3,832,616)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1993 .................. 79,250 384,240 (700,544) 12,318,058 12,081,004
Advances to shareholder .................... -- -- (11,376) -- (11,376)
Net loss ................................... -- -- -- (6,423,685) (6,423,685)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 ................... 79,250 384,240 (711,920) 5,894,373 5,645,943
Shareholder contribution ................... -- 248,891 -- -- 248,891
Repayment of shareholder advances .......... -- -- 693,973 -- 693,973
Net income ................................. -- -- -- 1,121,427 1,121,427
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 ................... 79,250 633,131 (17,947) 7,015,800 7,710,234
Distributions to shareholders .............. -- -- -- (336) (336)
Advance to shareholder ..................... -- -- (3,319) -- (3,319)
Net loss ................................... -- -- -- (1,818,975) (1,818,975)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 ................... $ 79,250 $ 633,131 $ (21,266) $ 5,196,489 $ 5,887,604
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Years Ended Ended Year Ended
December 31, December 31, September 30,
<S> <C> <C> <C> <C>
------------ ------------ ------------ ------------
1995 1994 1993 1993
Cash flows from operating activities: -- -- -- --
Net income (loss) $ (1,818,975) $ 1,121,427 $ (6,423,685) $ (3,832,616)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 3,913,346 4,311,092 1,174,178 5,076,527
Revenue and lease reservations 111,549 76,190 -- --
Provision for doubtful accounts (124,049) (1,154,000) 288,600 281,000
(Gain) loss on sale of property and equipment 221,749 (76,446) (17,090) 176,382
Appreciation (depreciation) in performance share value (126,608) 217,433 -- --
Cumulative effect of change in accounting method -- (470,611) -- --
Appreciation of performance shares redeemed by issuance of
note payable -- -- -- 134,511
Changes in assets and liabilities:
Trade accounts receivable 449,979 2,095,995 3,480,946 2,756,359
Unbilled revenue on work in progress (400,316) 2,452,964 (2,502,053) (2,658,219)
Accounts payable 175,131 1,691,361 (4,736,242) 2,256,065
Accrued salaries and expenses (779,940) (5,277,894) 7,235,340 1,206,256
Collateral bonds 309,222 477,656 412,304 (847,024)
Other, net (60,949) 427,311 107,265 (1,144,252)
------------ ------------ ------------ ------------
Net cash provided by operating activities 1,870,139 5,892,478 (980,437) 3,404,989
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,310,662) (1,869,058) (474,064) (2,198,370)
Proceeds from sale of property and equipment 325,418 295,010 53,063 346,603
------------ ------------ ------------ ------------
Net cash used in investing activities (985,244) (1,574,048) (421,001) (1,851,767)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Net (deposits) borrowings (to) from cash collateral account 1,047,521 (1,767,190) -- --
Proceeds from obligations to banks and notes payable 2,059,189 7,175,000 11,015,000 23,765,000
Payments on obligations to banks and notes payable (3,941,762) (8,565,195) (10,823,825) (24,545,218)
Advances and distributions to shareholders (3,655) -- (11,376) (391,157)
Performance shares redeemed (479,542) (43,159) (14,517) (128,477)
Change in cash overdraft 417,762 (2,058,354) 1,215,597 (236,671)
Shareholder contribution -- 248,891 -- --
Proceeds from repayment of shareholder advances -- 693,973 -- --
------------ ------------ ------------ ------------
Net cash used in financing activities (900,487) (4,316,034) 1,380,879 (1,536,523)
------------ ------------ ------------ ------------
Increase (decrease) in cash (15,592) 2,396 (20,559) 16,699
Cash, beginning of period 62,285 59,889 80,448 63,749
------------ ------------ ------------ ------------
Cash, end of period $ 46,693 62,285 $ 59,889 80,448
============ ============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year
for:
Interest $ 1,554,879 1,489,863 $ 376,429 1,487,936
============ ============ ============ ============
Income taxes (Note 2) $ -- $ -- $ -- 577,043
============ ============ ============ ============
</TABLE>
During the year ended September 30, 1993, the Company redeemed performance
shares with a recorded value of $194,726, a redemption value of $493,856, by
issuance of a note payable of $329,237 and a cash payment for the residual.
The difference between the recorded and redemption value was recorded as
compensation expense and is included in general and administrative expenses.
During the year ended December 31, 1995, the three months ended December 31,
1993 and the year ended September 30, 1993, performance shares with a value of
$154,403, $120,757 and $72,634, respectively, were issued in lieu of accrued
bonuses.
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED
DECEMBER 31, 1993 AND THE YEAR ENDED SEPTEMBER 30, 1993
- -------------------------------------------------------------------------------
1. SUBSEQUENT EVENT
Effective May 23, 1996, the shareholders of American Testing and
Engineering Corporation (the Company) or ("ATEC") transferred
substantially all of the Company's tangible and intangible business assets
to ATC Environmental, Inc. ("ATC"), an unrelated company. The assets sold
included cash, accounts receivable, unbilled work in progress, prepaid
expenses, goodwill, customer contract rights and customer lists. In
addition, the Company leased to ATC substantially all of its property,
plant and equipment under annually renewable leases expiring six years
from the date of the closing. ATC additionally has the right to purchase
all fixed assets leased at the end of such period. Assets retained by the
Company include all nonleased fixed assets, intercompany accounts
receivable/payable, certain land, cash surrender value of life insurance
policies, and the investment in Waste Abatement Technology, L.P.
("WATEC").
As consideration for the sale, ATC assumed essentially all of the recorded
liabilities exclusive of bank debt which was repaid concurrent with the
sale of ATEC. In addition, at closing the Company received $6,000,000 in
cash and will receive, an additional $16,750,000 in lease payments, rents,
and consideration for covenants not to compete over the next six years. In
connection with this transaction, the Company recorded a gain of
approximately $4.9 million at the closing date, and additional contingent
gains approximating $12.5 million are expected to be recorded as certain
defined contingencies lapse.
The Company's credit agreement with Bank One (Note 5) expired on April 30,
1996. In anticipation of the sale of the Company, the bank amended and
extended the credit agreement through July 31, 1996. All amounts due Bank
One in connection with the credit agreement, exclusive of WATEC borrowings
of approximately $360,000 and contingent amounts due under letters of
credit, were paid on May 24, 1996, concurrent with the sale of the
Company's business operations to ATC.
In connection with the sale, the Company recorded additional 1996 expense
of approximately $2.2 million associated with the performance shares and
performance share options (see Notes 7 and 8) in accordance with the
Performance Share and Performance Share Option Plans. During the period
from January 1, 1996 through May 23, 1996, 94,830 additional performance
share options were granted at an option price of $7.41 per share.
These financial statements are presented on the historical basis of
accounting and are not presented on the basis of a liquidation, nor do
they reflect fair value accounting principles.
2. SIGNIFICANT ACCOUNTING POLICIES
General - ATEC engages in four principal lines of business which
contribute to gross revenues. They include traditional services which
consist of engineering and materials testing, environmental, hazardous
waste, and chemical testing laboratories. The geographic concentration of
the 40 plus offices is in the eastern half of the United States. The
concentration of revenue by client is largely industrial and small
business with approximately 25% of its revenue generated from federal,
state and local governmental agencies.
6
<PAGE>
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires that management
make estimates and assumptions affecting the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual amounts and results could
differ from the estimated amounts and results.
Consolidation Principles and Financial Statement Presentation - These
consolidated financial statements include the accounts of ATEC and WATEC,
a limited partnership in which the Company holds a 99% interest (together,
the "Company"). All significant intercompany accounts have been
eliminated.
Property and Equipment - Property and equipment are recorded at cost and
are depreciated using the straight-line method. Estimated useful lives
range from three to ten years for machinery, equipment and office
furniture and three to seven years for vehicles. Leasehold improvements
are generally amortized over the term of the respective leases.
Expenditures for normal repair and maintenance are charged to expense as
incurred. Cost and accumulated depreciation of assets disposed are removed
from the accounts, and any resulting gain or loss is included in income.
Income Taxes - Effective October 1, 1991, the Company elected status as an
S Corporation under the provisions of the Internal Revenue Code.
Accordingly, it is generally not subject to federal or state income taxes,
and the income or loss of the Company is reflected in the personal income
tax returns of its shareholders.
Revenue and Cost Recognition - The Company's principal business is
providing professional engineering and consulting services under
cost-plus-fee and fixed-price contracts. Revenues attributable to such
contracts and claims for revenue on additional contract revisions are
accounted for under the percentage-of-completion (cost-to-cost) method of
accounting and are recorded equivalent to costs incurred plus a pro rata
portion of estimated profits expected to be realized on the contracts.
Profits expected to be realized on contracts are based on total contract
value and management's estimates of costs at completion. These estimates
are reviewed and revised periodically throughout the lives of the
contracts, and adjustments to profits resulting from such revisions are
recorded in the accounting period in which the revisions are made.
Provisions for estimated losses on contracts are recorded when they are
identified.
Costs of service include all direct material and subcontract costs, and
those indirect costs related to contract performance.
Change in Accounting Method - Performance Share Obligation - Amounts
contributed by participants to the Performance Share Plan are recognized
as compensation expense when earned. Prior to January 1, 1994, the Company
recognized additional expense (appreciation of performance share value) or
other income (diminution of performance share value) upon election by the
participant to redeem units in accordance with the plan's provisions. To
more directly relate the periodic results of its operations with related
changes in the valuation of performance shares, the Company changed its
method of accounting for changes in the appreciation or diminution of
performance share value. As part of this change, during the year ended
December 31, 1994, the Company recorded a one-time cumulative benefit of
$470,611, which recognizes the cumulative difference in expense recorded
under the two methods from the inception of the plan through January 1,
1994.
7
<PAGE>
Reclassification - Certain amounts in the prior year's financial
statements have been reclassified to conform to the 1995 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31,
1995 1994
Machinery and equipment $ 11,584,942 $ 12,102,895
Vehicles 6,285,807 6,828,868
Office furniture and equipment 9,059,094 8,508,533
Leasehold improvements 3,256,232 3,660,734
Building 291,220 291,220
Land 276,480 276,480
Construction in progress 102,221 427,241
------------ ------------
30,855,996 32,095,971
Less accumulated depreciation (24,954,355) (23,054,478)
------------ ------------
$ 5,901,641 $ 9,041,493
============ ============
4. RELATED PARTY TRANSACTIONS
Advances to related parties are summarized as follows:
December 31
1995 1994
Mann Realty Co. $ 108,212 $ 68,913
Mann Technology, Inc. 7,085 3,813
ATEC International 41,415 41,415
------------ ------------
$ 156,712 $ 114,141
The Company has entered into certain noncancelable operating lease
agreements for office space with Mann Realty Co., a partnership in which
the Company's president is a partner. Minimum annual rental commitments
under these leases are included in Note 9 and aggregate $464,959,
$323,471, $208,884, $100,800, $100,800, and $756,000 for the years ending
December 31, 1996, 1997, 1998, 1999, 2000, and thereafter, respectively.
Rents paid to Mann Realty Co. for the years ended December 31, 1995 and
1994 and the three months ended December 31, 1993 and the year ended
September 30, 1993 were $607,913, $546,544, $193,230 and $615,144,
respectively. The Company also has $125,000 on deposit with Mann Realty
Co. pursuant to lease agreements on certain locations. No interest is
earned on advances, and there are no agreements identifying specific
repayment terms.
8
<PAGE>
The Company's president is an officer and shareholder of Mann Technology,
Inc., which serves as the corporate general partner and one-percent owner
of WATEC. Mann Technology, Inc.'s 1% interest and earnings therefrom have
been reflected as minority interest on the Company's consolidated balance
sheets and statements of operations. Two shareholders of the Company are
also shareholders in ATEC International. Advances to Mann Technology and
ATEC International bear no interest, and there are no agreements
identifying specific repayment terms.
The Company's interim distributions to shareholders for estimated income
taxes have been determined by the Company's management to be advances to
shareholders until such time as the actual liability is calculated.
Advances to shareholders were $21,266 and $17,947 at December 31, 1995 and
1994, respectively. The Company reports shareholder advances as a
reduction of shareholders' equity. The Company's Credit Agreement (Note 5)
requires that any such shareholder advances in excess of the related tax
liability be repaid to the Company when corresponding refunds are received
from taxing authorities.
5. LONG-TERM DEBT AND CREDIT AGREEMENTS
Long-term debt and credit agreements are summarized as follows:
December 31,
1995 1994
Credit agreement:
Working capital loan - ATEC $ 1,345,739 $ 332,810
Working capital loan - WATEC 344,017 299,425
------------ ------------
Borrowings under working capital loans $ 1,689,756 $ 632,235
============ ============
Term loan one $ 5,214,793 $ 6,907,321
Term loan two 1,572,648 2,715,048
Term loan three 1,240,313 1,791,563
Term loan four 1,709,033 1,475,000
Equipment acquisition loan 1,180,000 --
------------ ------------
Borrowings under term loans 10,916,787 12,888,932
Notes payable 1,004,189 914,618
------------ ------------
11,920,976 13,803,550
Less current portion (11,043,881) (3,548,168)
------------ ------------
Total long-term debt $ 877,095 $ 10,255,382
============ ============
Credit Agreement - Under the Company's credit agreement (the "Agreement")
with Bank One, Indianapolis, N.A. ("Bank One"), substantially all assets
have been pledged as collateral. The Agreement also contains certain
financial covenants which require the Company to meet financial ratios and
tests, including a minimum current ratio, a minimum tangible capital test,
a maximum debt to tangible capital ratio, and a minimum debt service
coverage ratio. The Company was in default of substantially all financial
ratio covenants as of December 31, 1995.
On April 30, 1996, the Company and Bank One amended and extended the
Agreement (the "Amended Agreement"). The Amended Agreement established new
financial ratios and tests which the Company is required to maintain. Bank
One may, at its sole discretion, extend the maturity date of the working
capital loans. The Amended Agreement provides for the revision of a
previously established cash collateral account, whereby the Company
deposits all cash into the account to pay down working capital loans and
then draws funds to meet current operating requirements.
9
<PAGE>
Under the Amended Agreement, the working capital loans bear interest,
payable monthly, at Bank One's prime rate, which was 8.5% at December 31,
1995, plus .75%, and mature on July 31, 1996. ATEC and WATEC may borrow up
to $3,000,000 and $1,000,000, respectively, under the working capital
loans. Additionally, the Agreement provides for annual short-term
equipment acquisition loans. On April 30, 1996, the due date for the
equipment acquisition loan was extended to July 31, 1996. The equipment
acquisition loan bears interest at Bank One's prime rate plus 1%.
Term loan one is due in consecutive monthly principal payments of $116,500
plus interest, with the remaining unpaid principal plus accrued interest
due March 1, 1998. The loan bears interest at Bank One's prime rate plus
1%. Term loan two is due in consecutive monthly principal payments of
$95,200 plus interest, with the remaining balances of principal and
interest due on June 1, 1997. The loan bears interest at an annual rate of
9.51% through February 28, 1996 and at Bank One's prime rate plus 1%
thereafter. Term loan three is due in consecutive monthly principal
payments of $45,938 plus interest, with the remaining balance of principal
and interest due on February 28, 1998. The loan bears interest at Bank
One's prime rate plus 1%. Term loan four is due in consecutive monthly
principal payments of $41,700 plus interest, with the remaining balance of
principal and interest due March 15, 1999. The loan bears interest at Bank
One's prime rate plus 1%.
The Term loans contain provisions which permit the bank to accelerate
payment terms in the event of non-compliance with covenants included in
the working capital loan.
A $6,000,000 facility for letters of credit is provided under the
Agreement with a 1.5% annual fee on outstanding letters of credit (Note
6). In addition, up to a maximum of $5,000,000 of total indebtedness under
the credit agreement has been guaranteed by the Company's principle
shareholder.
Notes Payable - The Company's principal shareholder advanced the Company
$750,000 in September 1994. The note bears interest at 12.0% and the
principal and accrued interest are due on February 1, 1997. The note is
subordinated to the interest of Bank One.
In connection with the retirement of certain performance share
obligations, a note with a principal balance of $254,189 was issued in
1995. The first payment of $127,094 plus accrued interest is due in May
1996, with the payment of the remaining $127,095 plus accrued interest due
on May 19, 1997. Interest is payable at the prime rate of Bank One.
6. LETTERS OF CREDIT
The Company has $5,904,353 in letters of credit outstanding at December
31, 1995, which collateralize performance bonds required under certain
contracts, certain litigation, and deductibles under workers' compensation
insurance. They expire in various amounts through November 1996.
7. PERFORMANCE SHARE OBLIGATION
The Company adopted a Performance Share Plan ("Share Plan") intended to
operate for the benefit of key employees of the Company. At the beginning
of each fiscal year, each Share Plan participant can elect to receive a
portion of his bonus payable under the ATEC Incentive Bonus Plan in the
form of Performance Shares ("Shares"), for which the Company has agreed to
later pay a formula value per Share, subject to adjustment (see below).
Except as otherwise determined by the Board, Shares issued in lieu of cash
bonuses were initially valued at twice the book value of shares of the
Company's common stock through September 30, 1992 and at one and one-half
times the book value of common stock, thereafter ("Purchase Price").
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The Company will satisfy the Performance Share Obligation by cash payments
to the Share Plan participants in the event of the Share Plan
participant's death, total disability, hardship or termination from the
Company, or upon sale of 50% of the Company's common stock or
substantially all of the assets of the Company.
The value per unit and the right to receive payment for Shares held by a
Share Plan participant are determined as follows:
Event Causing Unit Redemption Share Value Determined By
Death, total disability, hardship The Share Purchase Price plus or
or termination minus the change in book value
of the common stock of the
Company from the date of purchase
to the end of the fiscal year
immediately preceding the event.
Sale or transfer of more than 50% of The payment received by the
the issued and outstanding common Company shareholders for each
stock of the Company. share of the Company.
Sale of substantially all of the The payment received by the
assets of the Company, or the Company shareholders for each
liquidation of the Company. share of the Company.
Activity in the years ended December 31, 1995 and 1994 and the three
months ended December 31, 1993 and the
year ended September 30, 1993 was as follows:
Performance
Shares Obligations
Balance at September 30, 1992 255,499 $ 1,580,560
Issued 3,721 72,634
Redeemed (55,343) (323,203)
---------- ----------
Balance at September 30, 1993 203,877 1,329,991
Issued 10,677 120,757
Redeemed (1,061) (14,517)
---------- ----------
Balance at December 31, 1993 213,493 1,436,231
Cumulative effect of change in accounting method
(Note 1) -- (470,611)
Issued -- --
Redeemed (6,558) (43,159)
Appreciation in share value -- 217,433
---------- ----------
Balance at December 31, 1994 206,935 1,139,894
Issued 20,805 154,403
Redeemed (87,211) (479,542)
Depreciation in share value -- (126,608)
---------- ----------
Balance at December 31, 1995 140,529 $ 688,147
========== ===========
8. PERFORMANCE SHARE OPTION PLAN
Effective May 3, 1995, the Company adopted a Performance Share Option Plan
("Option Plan") intended to offer incentives beyond current compensation
to certain officers and key employees responsible for furthering the
Company's long-term earnings growth. Performance share options are issued
at the sole discretion of the Performance Share Option Plan Committee (the
"Committee"). Under the Plan, 200,000 option shares are available for
grant. The option price is determined by the Committee and for 1995 was
set at $7.41 per share. Options are exercisable only upon a "Transfer" of
ownership as defined in the Option Plan agreement. The options have no
stated expiration date but will expire upon termination of the optionee's
employment. No compensation expense was recorded during 1995, since the
options were granted at fair market value. At December 31, 1995, there
were 77,250 shares under option at an option price of $7.41 per share.
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9. LEASES
Minimum annual rental commitments under noncancelable operating leases at
December 31, 1995 (primarily for office space) are as follows:
1996 $ 2,642,509
1997 1,692,026
1998 1,060,172
1999 705,190
2000 302,074
Thereafter 822,097
--------------
$ 7,224,068
==============
Total rental expense for the year ended December 31, 1995 and 1994 and the
three months ended December 31, 1993 and the year ended September 30, 1993
was $3,404,000, $3,107,000, $775,000 and $3,216,000, respectively.
10. 401(k) PROFIT SHARING PLAN
The Company sponsors a defined contribution 401(k) Profit Sharing Plan
("Plan") covering substantially all employees. Annual contributions made
by the Company to the Plan are strictly discretionary in nature and may be
discontinued or temporarily suspended for a definite or indefinite period
of time. The Company's profit sharing contributions are allocated to the
account balance of each participant based upon the ratio of the
participant's Plan year compensation to the total Plan year compensation
of all participants and vest over a six-year period. There were no profit
sharing contributions for any of the periods presented.
During the year ended December 31, 1995, the Company contributed $331,064
to the 401(k) portion of the Plan, equivalent to 50% of employees' pre-tax
contributions, up to 3% of each employees' pay. These contributions also
vest over a six-year period. Participant forfeitures aggregating $49,460
were retained. The Company's contribution for the year ended December 31,
1994 was $273,513 with forfeitures of $46,938. The Company's contributions
to the Plan were $113,850 during the three months ended December 31, 1993.
During the year ended September 30, 1993, participant forfeitures totaling
$321,033 were retained to satisfy the Company's contribution to the Plan.
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11. LITIGATION
A lawsuit was filed on April 24, 1991 against the Company in the Superior
Court of Lake County, Indiana. The claim alleged negligent and careless
conduct on the part of the Company, which resulted in permanent personal
injuries being suffered by the plaintiff as a result of exposure to
hazardous materials while operating equipment at a landfill. On March 23,
1995, a trial jury returned a verdict against the Company and awarded the
plaintiff $704,375 in damages. The Company filed a motion with the Court
to correct errors in May 1995 and, as a result, the Court reduced the
judgment against the Company by $70,000. Since that time, the plaintiff
has accepted the Company's settlement offer of $500,000 and such amount
was paid subsequent to December 31, 1995. The Company has pursued recovery
of the settlement amount from its insurance carrier and in June 1997
reached an agreement to recover $550,000 from the insurance carrier
related to this claim.
On March 1, 1994, the Company and another party were named as defendants
in a lawsuit filed in the Court of Common Pleas, Franklin, Ohio. The
plaintiff alleges that the Company negligently performed an environmental
site assessment which failed to indicate environmental contamination that
has made a mortgage on the property in the amount of $15 million
worthless. The Company believes it has a meritorious defense with respect
to the lawsuit and intends to vigorously defend the action. While the
ultimate outcome cannot be determined at this time, management does not
believe it will have a material adverse effect on the Company's financial
statements.
By letter dated December 12, 1993, the Company entered the Voluntary
Disclosure Program administered by the U.S. Department of Defense ("DoD").
The bases of the disclosure are allegations that certain former Company
employees paid unlawful gratuities to a federal government inspector
concerning a contract at a federal government site. Possible violations
involve the federal Anti-Kickback Act, federal criminal law against
bribery, and the federal civil False Claims Act. The Company retained
independent legal counsel to undertake internal investigation of the
matter and to prepare a report for presentation to the Office of the
Inspector General, DoD. The Company could be responsible for the repayment
of any losses suffered by the federal government related to the
gratuities, fraud or kickbacks. In January 1995, the Company submitted the
internal investigation report to DoD in which it found that the illegal
gratuities had been paid by a former Company employee. The Company paid
the federal government the losses identified in the internal investigation
report. The Company does not believe it has any additional monetary
obligation to the federal government as a result of the matters covered by
the investigation; however, the federal government accepted the funds with
the express reservation that the acceptance did not constitute a
limitation of the Company's liability. The federal government conducted a
compliance audit of the report in 1995 and requested additional
information to determine if fines should be levied against the Company or
if the Company should be suspended from participation in future government
contracts. As of June 25, 1997, the Company is negotiating a final
settlement agreement with the DoD which will include the withdrawal of the
Company from all federal government contracting work. The Company has
historically derived approximately 10% of its net service revenues from
federal government sources.
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A complaint was filed in December 1995 against the Company and another
party in the Circuit Court of Dade County, Florida. The plaintiff alleges
that the Company failed to update its report on the suitability of the
foundation material after a substitution in those materials was made. As a
result of the plaintiff's reliance on this report, the materials used in
the foundation were found to be inadequate and the building pad settled,
resulting in damages. The Company believes it has a meritorious defense
with respect to the lawsuit and intends to vigorously defend the action.
While the ultimate outcome cannot be determined at this time, management
does not believe it will have a material adverse effect on the Company's
financial statements.
On December 5, 1996, the Company received notice of a claim by Western
Capital Corporation. Western Capital Corporation's claim against the
Company arises from a claim made by a third party. The third party
allegedly received serious bodily injuries during the removal of
underground storage tanks from Western Capital Corporation's property as a
subcontracted employee of the Company. The Company believes it has a
meritorious defense with respect to the lawsuit and intends to vigorously
defend the action. While the ultimate outcome cannot be determined at this
time, management does not believe it will have a material adverse effect
on the Company's financial statements.
The Company has been named or has claims pending arising out of the
ordinary conduct of its business. In the opinion of management, these
matters are adequately covered by insurance, appropriately provided for in
the accompanying financial statements, without merit, or are not material
to the Company's financial statements.
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