<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-10583
ATC GROUP SERVICES INC.
-----------------------
(Exact name of Registrant as specified in its charter)
Delaware 46-0399408
-------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 East 25th Street, 10th
Floor 10010
New York, New York
-------------------------------- ------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (212) 353-8280
-------------
NONE
-------------------------------------------------------------------
(Former name,
former address and former fiscal year if changed since last report)
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
The number of shares outstanding of the Registrant's Common Stock as of January
6, 1997 was 7,799,937.
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Balance Sheets
February 29, 1996 and November 30, 1996 (Unaudited).............. F-3
Consolidated Statements of Operations
Three months and nine months ended November 30, 1995 and 1996
(Unaudited)...................................................... F-4
Consolidated Statements of Stockholders' Equity
Nine months ended November 30, 1995 and 1996 (Unaudited)......... F-5
Consolidated Statements of Cash Flows
Nine months ended November 30, 1995 and 1996 (Unaudited)......... F-6
Notes to Consolidated Financial Statements
Three months and nine months ended November 30, 1996 (Unaudited). F-7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. F-13
PART II - OTHER INFORMATION:
Items 1-6.............................................................. F-18
Signatures............................................................. F-19
Exhibit 11 - Computation of Earnings Per Share
Three months and nine months ended November 30, 1995 and 1996
(Unaudited).............................................. F-20
Exhibit 27 - Financial Data Schedule
November 30, 1996 (Unaudited)............................ F-21
F-2
PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 1996 AND NOVEMBER 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
February 29, November 30,
1996 1996
--------------------- --------------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 13,469,443 $ 2,714,709
Trade accounts receivable, less allowance for doubtful accounts
($383,220 at February 29, 1996 and 1,284,925 at November 30, 1996). 14,161,774 35,212,157
Costs in excess of billings on uncompleted contracts................... 2,333,835 6,439,405
Prepaid expenses and other current assets.............................. 906,289 2,764,651
Deferred income taxes ................................................. 440,600 440,600
-------------------- ---------------------
Total current assets............................................... 31,311,941 47,571,522
PROPERTY AND EQUIPMENT, Net (Note C)....................................... 3,606,755 3,930,679
GOODWILL, net of accumulated amortization (Note B)
($453,646 at February 29, 1996 and 1,188,477 at November 30, 1996)..... 11,375,399 34,910,499
COVENANTS NOT TO COMPETE, net of accumulated amortization (Note B)
($258,099 at February 29, 1996 and 410,573 at November 30, 1996)....... 274,401 676,927
OTHER ASSETS............................................................... 116,104 1,438,425
-------------------- --------------------
$ 46,684,600 $ 88,528,052
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt........................................................$ 1,122,552 $ 305,000
Current maturities of long-term debt................................... 354,858 1,972,668
Accounts payable....................................................... 2,231,175 8,382,843
Income taxes payable................................................... 42,500 267,937
Accrued compensation................................................... 1,421,330 4,425,458
Accrued payment obligations - ATEC acquisition (Note B)................ - 2,923,511
Other accrued expenses ................................................ 1,162,210 3,679,664
-------------------- --------------------
Total current liabilities.......................................... 6,334,625 21,957,081
LONG-TERM DEBT, less current maturities (Note A)........................... 361,944 21,599,058
OTHER LIABILITIES.......................................................... 598,817 295,289
DEFERRED INCOME TAXES...................................................... 196,800 196,800
-------------------- --------------------
Total liabilities.................................................. 7,492,186 44,048,228
-------------------- --------------------
COMMITMENTS AND CONTINGENCIES (Notes B and E)
STOCKHOLDERS' EQUITY (Note D):
Common stock, par value $.01 per share; authorized 20,000,000 shares;
issued and outstanding: 7,796,577 shares at February 29, 1996 and
7,797,937 shares at November 30, 1996............................... 77,966 77,979
Additional paid-in capital............................................. 29,030,189 29,018,831
Notes receivable - common stock........................................ (45,000) -
Retained earnings...................................................... 10,129,259 15,383,014
-------------------- -------------------
Total stockholders' equity......................................... 39,192,414 44,479,824
-------------------- -------------------
$ 46,684,600 $ 88,528,052
==================== ===================
</TABLE>
See notes to consolidated financial statements.
F-3
PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1996 (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
-------------------------- --------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S>
<C> <C> <C> <C>
REVENUES.............................. $ 11,223,139 $ 32,848,840 $ 33,687,570 $ 83,416,851
REIMBURSABLE COSTS.................... 1,150,943 5,655,772 3,399,809 13,354,833
------------ ------------ ------------ ------------
NET REVENUES.......................... 10,072,196 27,193,068 30,287,761 70,062,018
COST OF NET REVENUES.................. 4,729,573 15,905,505 14,146,180 38,962,629
------------ ------------ ------------ ------------
Gross Profit............... 5,342,623 11,287,563 16,141,581 31,099,389
OPERATING EXPENSE:
Selling............................ 392,631 887,098 1,106,824 2,180,498
General and administration......... 3,083,198 7,201,702 9,435,809 18,779,916
Provision for bad debts............ 78,300 283,680 197,515 624,981
------------ ------------ ------------ ------------
3,554,129 8,372,480 10,740,148 21,585,395
------------ ------------ ------------ ------------
Operating income........... 1,788,494 2,915,083 5,401,433 9,513,994
------------ ------------ ------------ ------------
NONOPERATING EXPENSE (INCOME):
Interest expense................... 86,443 510,118 335,910 1,080,217
Interest income.................... (106,064) (25,668) (153,637) (221,115)
Other.............................. (3,560) (2,645) 23,240 (36,182)
------------ ------------ ------------- ------------
(23,181) 481,805 205,513 822,920
------------ ------------ ------------- ------------
Income before income taxes. 1,811,675 2,433,278 5,195,920 8,691,074
INCOME TAX EXPENSE (Note B)........... 707,000 927,000 1,677,000 3,365,000
------------ ------------ ------------- ------------
NET INCOME............................ $ 1,104,675 $ 1,506,278 $ 3,518,920 $ 5,326,074
============ ============ ============= ============
EARNINGS PER COMMON SHARE
AND DILUTIVE COMMON
EQUIVALENT SHARE:
Primary (Note D) (1).......... $ .15 $ .18 $ .52 $ .62
============ ============ ============= ============
Fully diluted (Note D) (1).... $ .15 $ .18 $ .52 $ .62
============ ============ ============= ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Primary....................... 7,542,528 8,454,151 6,735,948 8,537,271
============ ============ ============= ============
Fully diluted................. 7,542,528 8,454,151 6,735,948 8,570,170
============ ============ ============= ============
</TABLE>
(1) Includes a one-time tax benefit of $.05 per share related to the merger of
Aurora Environmental Inc. for the nine months ended November 30, 1995
(Note B).
See notes to consolidated financial statements.
F-4
PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1996 (Unaudited)
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Notes
Additional Receivable
Common Stock Paid-in -Common Retained
Shares Amount Capital Stock Earnings Total
------------ ---------- ----------- ------------ ----------- -----------
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 (Note D) ......... 1,970,000 19,700 21,608,289 - - 21,627,989
Sale of common stock at $1.83 to
$10.00 per share, upon exercise of
stock options and warrants............. 33,600 336 64,503 - - 64,839
Net issuance of common stock and
adjustments in connection with the
merger of Aurora Environmental
Inc. into ATC (Note B).................. 83,452 835 61,719 (30,000) - 32,554
Continuing registration costs applied
against additional paid-in capital...... - - (88,827) - - (88,827)
Common stock recovered in
connection with the Con-Test,
Inc. acquisition........................ (33,130) (331) (139,682) - - (140,013)
Other capital transactions................. 2,920 29 22,471 - - 22,500
Net income................................. - - - - 3,518,920 3,518,920
------------ ---------- ----------- ------------ ----------- -----------
BALANCE, November 30, 1995......... 7,794,860 $ 77,949 $29,012,926 $ (45,000) $ 9,805,281 $38,851,156
============ ========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Notes
Additional Receivable
Common Stock Paid-in -Common Retained
Shares Amount Capital Stock Earnings Total
------------ ---------- ----------- ------------ ----------- -----------
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 $2.50 to
$10.00 per share, upon exercise of
stock options and warrants............. 13,680 136 69,202 - - 69,338
Stock received as consideration for
sale ofassets........................... (12,320) (123) (51,990) - (72,319) (124,432)
Continuing registration costs applied
against additional paid-in capital...... - - (28,570) - - (28,570)
Other capital transactions................. - - - 45,000 - 45,000
Net income................................. - - - - 5,326,074 5,326,074
------------ ----------- ----------- ------------ ----------- -----------
BALANCE, November 30, 1996.................... 7,797,937 $ 77,979 $29,018,831 $ - $15,383,014 $44,479,824
============ =========== =========== ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1996 (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
1995 1996
--------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... $ 3,518,920 $ 5,326,074
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and leasehold amortization .............................. 543,991 642,779
Amortization of goodwill and covenants ............................... 304,450 887,305
Provision for bad debts .............................................. 197,515 624,981
Deferred income taxes ................................................ (206,559) -
Other ................................................................. (293,620) (130,586)
Changes in operating assets and liabilities, net ofamounts acquired
in acquisitions:
Accounts receivable and costs in excess of billings on uncompleted
contracts ......................................................... (3,712,216) (5,400,578)
Prepaid expenses and other assets.................................... (550,843) (448,876)
Accounts payable and accrued liabilities ............................ (1,020,947) (7,316,178)
Income taxes payable................................................. (113,248) 225,455
------------------- --------------------
Net cash flows from operating activities .......................... (1,332,557) (5,589,624)
------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of American Testing and Engineering Corp., net of cash
acquired ............................................................ - (8,965,952)
Purchase of 3D Information Services, Inc., net of cash acquired........ - (2,926,681)
Purchase of Hill International, Inc. subsidiaries ..................... (2,517,950) -
Purchase of BSE Management, Inc. ...................................... (207,990) -
Purchase of Con-Test, Inc. ............................................ (169,044) -
Purchase of R.E. Blattert and Associates .............................. (34,375) -
Purchase of property and equipment..................................... (711,031) (1,123,416)
Other.................................................................. (29,639) (1,353)
------------------- --------------------
Net cash flows from investing activities........................... (3,670,029) (13,017,402)
------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and notes payable............. 2,585,125 21,403,572
Proceeds from issuance of common stock, net of expenses................ 21,755,382 69,338
Principal payments on long-term debt and notes payable,
including capital lease obligations .............................. (6,467,167) (13,592,048)
Payments for continuing registration costs ............................ (88,827) (28,570)
------------------- --------------------
Net cash flows from financing activities .......................... 17,784,513 7,852,292
------------------- --------------------
Net change in cash and cash equivalents ........................... 12,781,927 (10,754,734)
CASH AND CASH EQUIVALENTS, Beginning of period .......................... 1,377,862 13,469,443
------------------- --------------------
CASH AND CASH EQUIVALENTS, End of period ................................ $ 14,159,789 $ 2,714,709
=================== ====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest ........................................................... $ 332,797 $ 967,711
=================== ====================
Income taxes......................................................... $ 1,646,957 $ 3,139,546
=================== ====================
</TABLE>
See notes to consolidated financial statements.
F-6
PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1996 (Unaudited)
A. GENERAL
Name Change - Effective October 8, 1996, the Company received
shareholder approval to change its name to "ATC Group Services Inc." from it
former name, ATC Environmental Inc. The change was made to reflect the Company's
expanded operations which extend beyond environmental consulting and now include
information technology consulting services.
Principles of Consolidation - The consolidated financial statements
include the accounts of ATC Group Services Inc and its wholly-owned subsidiaries
("ATC" or the "Company").
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly, in all material
respects, the financial position, the results of operations and the cash flows
for the periods presented herein. These results of operations are not
necessarily indicative of the results to be expected for the full year due to
certain seasonality factors and the effects and timing of large service
projects.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These condensed financial statements should be
read in conjunction with the consolidated financial statements and the notes
included in the Company's financial statements for the fiscal year ended
February 29, 1996, which are included in the Company's Annual Report on Form
10-K.
Nature of Business - ATC 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.
Credit Facility - On May 24, 1996 the Company entered into a
$20,000,000 bridge credit facility with The Chase Manhattan Bank (formerly
Chemical Bank) and Atlantic Bank of New York. Under the terms of the credit
agreement, the Company may borrow up to the amount of the facility, with
interest payable monthly at 1.75% above the adjusted Eurodollar rate (for an
effective interest rate of 7.31% at November 30, 1996). The agreement contains
certain restrictive covenants which are consistent for this type of facility,
including restrictions on dividend payments. Pursuant to an amendment, the
facility was increased to $23,000,000 and amounts borrowed are due May 30, 1997.
The Company is currently negotiating and anticipates entering into a longer term
agreement with the banks prior to the maturity date of the credit agreement. As
a result of the Company's intent and ability to secure long term financing, the
amounts borrowed under the bridge credit facility have been classified as long
term debt in the accompanying consolidated balance sheet.
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 has not had a material effect on the Company's
financial statements.
Earnings Per Share Data - Earnings per common share and dilutive
common equivalent share have been computed by using the weighted average number
of shares outstanding during each period. Outstanding dilutive stock warrants
and options are included in the computation of weighted average number of
shares.
Reclassifications - Certain reclassifications have been made to the
prior period's financial statements to conform to the current years
presentation.
F-7
PAGE
<PAGE>
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 November 30,1996.
The Company is contingently liable to ATEC for additional purchase
consideration up to $10,750,000 if certain net revenue levels are achieved and
certain other conditions are met. The maximum amounts payable, if fully earned,
would be paid as follows: $3,883,333 in fiscal 1998, $3,873,333 in fiscal 1999,
$1,293,334 in fiscal 2000 and $1,700,000 in fiscal 2002.
The 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.
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................................... 175,724
Direct expenses related to acquisition................ 23,149
-------------
$ 5,698,873
F-8
PAGE
<PAGE>
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 .......................................... 4,000,904
-------------
$ 5,698,873
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.... 700,000
Note payable at 8.75% interest............... 300,000
Liabilities assumed................................... 414,544
Direct expenses related to acquisition................ 885,538
-------------
$ 4,818,031
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
Covenants not to compete.............................. 37,500
Other assets.......................................... 30,572
Goodwill.............................................. 3,954,959
-------------
$ 4,818,031
The Company is contingently liable to reimburse up to $150,000
of certain facility lease costs. Hill International, Inc. has requested
reimbursement of the full amount of the facility lease costs, however,
the Company is disputing the reimbursement based on its counter-claims.
Applied Geosciences Inc. - Effective February 29, 1996, ATC
purchased certain assets and assumed certain liabilities of Applied Geosciences,
Inc. ("AGI"), a California based environmental consulting company having offices
in San Diego, Tustin and San Jose, California. The purchase price was comprised
of the following consideration:
Cash to seller........................................ $ 147,546
Cash to secured creditors of seller................... 441,514
Liabilities assumed................................... 225,538
Direct expenses related to acquisition................ 31,246
-------------
$ 845,844
F-9
PAGE
<PAGE>
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 agreement. At November 30,
1996, no contingent amounts had been earned.
The initial purchase price allocation is summarized as follows:
Accounts receivable, net.............................. $ 474,973
Property and equipment................................ 115,060
Covenants not to compete.............................. 30,000
Goodwill.............................................. 225,811
-------------
$ 845,844
Merger of Aurora Environmental Inc. - ATC and its parent, Aurora
Environmental Inc. ("Aurora") were merged pursuant to an agreement (the "Merger
Agreement") approved by a majority of shareholders of each company on June 29,
1995, with ATC being the surviving corporation. Under the Merger Agreement, ATC
exchanged .545 of a share of ATC Common Stock for each of Aurora's 6,131,104
shares of stock outstanding. ATC's common shares held by Aurora of 3,258,000
were canceled. Actual common shares outstanding increased by 83,356 shares. 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 those of ATC and the results of operations of ATC and Aurora were
combined as of the effective date of the merger. In addition, the intercompany
balance between ATC and Aurora was forgiven. As a result of the 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 the second quarter of fiscal 1996.
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 the Hill Businesses, ATEC and 3D
had occurred on March 1, 1995.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------------------------
Three Months Ended Six Months Ended
November 30, November 30,
1995 1996 1995 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues......................................... $ 38,823,591 $ 32,848,840 $115,314,350 $ 104,892,835
Net income....................................... $ 3,114,536 $ 1,506,278 $ 8,618,438 $ 6,451,246
Earnings per share (fully diluted)............... $ .41 $ .18 $ 1.23 $ .75
Weighted average shares (fully diluted).......... 7,542,528 8,454,151 7,003,329 8,570,170
</TABLE>
Reductions of pro forma revenues, net income and earnings per share
from 1995 to 1996 are attributable to declining revenue levels of the Hill
Businesses and ATEC in the periods preceding their purchase by ATC and the
increased weighted average shares resulting from the common stock offering.
C. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
February 29, November 30,
1996 1996
---------- ----------
<S> <C> <C>
Office equipment............................... $2,645,325 $3,065,973
Laboratory and field.equiptment................ 3,528,410 3,560,901
Transportation equipment....................... 267,304 269,084
Leasehold improvements......................... 633,595 839,905
---------- ----------
7,074,634 7,735,863
Less accumulated depreciation................... (3,467,879) (3,805,184)
---------- ----------
$3,606,755 $3,930,679
========== ==========
</TABLE>
F-10
PAGE
<PAGE>
D. COMMON STOCK OFFERING
On October 10, 1995, the Company filed a Registration Statement with
the Securities and Exchange Commission for the sale of 1,800,000 shares of
Common Stock of which 1,700,000 were sold by ATC, while the remaining were sold
by an officer/director of ATC. On October 30, 1995, the Company sold an
additional 270,000 shares to cover over-allotments under the same terms and
conditions as the public offering.
E. CONTINGENCIES
First Fidelity Bank, N.A., et al v. Hill International, Inc. et al,
Superior Court of New Jersey, Law Division, Burlington County, Docket No.
Bur-L-03400-95, filed December 19, 1995. On December 19, 1995, a second amended
complaint was filed in the above-entitled action which joined the Company as a
defendant and included a count against the Company seeking recovery of certain
assets purchased from Hill International, Inc. ("Hill") on the grounds that
plaintiff banks hold security interests in the assets and that Hill is in
default under the security agreement creating such alleged security interests.
The plaintiffs in this action are First Fidelity Bank, N.A. and United Jersey
Bank, N.A. The primary defendants are Hill 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 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.
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 State has made
a routine request for information to which the Company has responded.
The Company has been named or has claims pending arising out of the
conduct of its business. In the opinion of management, all other matters are
adequately covered by insurance, are without merit, or are not material.
F-11
PAGE
<PAGE>
F. 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.
<TABLE>
<CAPTION>
Environmental Information Adjustments &
Industry Segment Data & Engineering Technology Elimination's Total
------------- ------------- ------------- -------------
Quarter Ended November 30, 1996
- -------------------------------
<S> <C> <C> <C> <C>
Revenues......................................... $ 30,432,499 $ 2,416,341 $ - $ 32,848,840
Operating Income................................. 2,756,379 158,704 - 2,915,083
Depreciation and amortization.................... 233,633 4,072 - 237,705
Capital expenditures............................. 333,972 5,758 - 339,730
Nine Months Ended November 30, 1996
- -----------------------------------
<S> <C> <C> <C> <C>
Revenues......................................... $ 78,332,311 $ 5,084,540 $ - $ 83,416,851
Operating Income................................. 9,179,261 334,733 - 9,513,994
Depreciation and amortization.................... 634,574 8,205 - 642,779
Capital expenditures............................. 1,071,339 52,077 - 1,123,416
Identifiable assets as of November 30, 1996 $ 84,594,843 $ 6,233,209 $ (2,300,000) $ 88,528,052
- -----------------------------------------
</TABLE>
F-12
PAGES
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Developments
FY 1997
Acquisition of 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).
The acquisition has been accounted for as a purchase. The assets
acquired include certain tangible assets consisting of accounts receivable, work
in process and customer and certain other deposits. Additionally, ATC executed
an agreement to lease substantially all of ATEC's equipment and executed several
sublease agreements for premises leased by ATEC. ATC also obtained
non-competition agreements with ATEC, a non-acquired subsidiary, and the
majority shareholder of ATEC.
The purchase price consideration consisted of $9,000,000 of cash
paid at closing and property and facility lease payments and non-compete payment
obligations of $6,001,000 payable during the first year following the purchase.
The Company also assumed liability for ATEC's bank debt, approximately
$10,750,000, its accounts payable, and certain other recorded liabilities. The
Company is contingently liable to ATEC for additional purchase consideration up
to $10,750,000 if certain net revenue levels are achieved and certain other
conditions are met. 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.
Acquisition of 3D Information Services, Inc. - Effective May 28,
1996, ATC purchased certain assets and assumed certain specified liabilities of
3D Information Services, Inc. ("3D"), a New Jersey based information services
company providing technical information system consulting services in all phases
of information system design, development, maintenance and management in client
server and mainframe based environments. Its clients include major companies in
the telecommunications, financial services and pharmaceutical industries. 3D
reported revenues and net income of approximately $10,360,000 and $85,000
respectively, for its year ended December 31, 1995.
The acquisition has been accounted for as a purchase. Assets
purchased include customer contract rights, customer lists, order backlog,
customer records, employee contracts and tangible assets including accounts
receivable, work in process, field and office supplies, and equipment.
Consideration paid consisted of $3,000,000 of cash at closing and a note payable
for $2,500,000. In addition, ATC assumed certain liabilities of approximately
$175,724. ATC also entered into a three year non-compete agreement with the
majority stockholder.
FY 1996
Acquisition of 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.
Acquisition of Applied Geosciences, Inc. - Effective February 29,
1996, ATC purchased certain assets and assumed certain liabilities of Applied
Geosciences, Inc. ("AGI"). AGI's services include environmental and hazardous
waste site assessments, remediation design, air quality management, asbestos
services, litigation support and engineering geology through its offices located
in Southern California.
F-13
PAGE
<PAGE>
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. In connection with 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 carried 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 the second
quarter of fiscal 1996.
Results of Operations
Three Months Ended November 30, 1996 Compared with Three Months Ended
November 30, 1995
Revenues in the three months ended November 30, 1996 increased 193%
to $32,848,840, compared with $11,223,139 in the three months ended November 30,
1995. This increase was primarily attributable to the acquisition of ATEC and 3D
in May 1996 and from the acquisitions of the Hill Businesses and AGI completed
during the second half of fiscal 1996.
Revenues in the three months ended November 30, 1996 from ATC's
branch offices having comparable operations in the three months ended November
30, 1995 decreased 1.4% to $10,275,049, compared with $10,422,581 in the three
months ended November 30, 1995. Revenues attributable to the acquisitions of
certain assets of the Hill Businesses, AGI, ATEC and 3D totaled $22,573,791 or
68.7% of revenues, for the three months ended November 30, 1996. Revenues from
branch operations sold or discontinued contributed $325,108 for the three months
ended November 30, 1995.
Reimbursable costs represent direct project expenses billed to
environmental and engineering segment clients. For the three months ended
November 30, 1996, reimbursable costs increased 391% to $5,655,772 compared with
$1,150,943, in the three months ended November 30, 1995. Reimbursable costs as a
percentage of revenues increased to 17.2% in the three months ended November 30,
1996 compared with 10.3% in the three months ended November 30, 1995. 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, compared to ATC's fiscal 1996 reimbursable
costs which were approximately 11% of revenues.
Gross profit in the three months ended November 30, 1996 increased
111% to $11,287,563, compared with $5,342,623 in the three months ended November
30, 1995. Gross profit as a percentage of net revenue decreased to 41.5% in the
three months ended November 30, 1996, compared with 53.0% in the three months
ended November 30, 1995. The gross profit percentage decrease is due to lower
margins earned on certain of ATEC's environmental services, the final project
costs incurred to complete a large fixed-price contract which could not be
billed to the client, and the impact of lower net revenues in certain regions
where costs could not be reduced proportionately. In addition, the gross profit
percentage for the prior year was at a record high due to higher than normal
profitability level of certain large projects.
F-14
PAGE
<PAGE>
Operating expenses in the three months ended November 30, 1996
increased 136% to $8,372,480, compared with $3,554,129 in the three months ended
November 30, 1995. Operating expenses decreased as a percentage of net revenues
to 30.8% in the three months ended November 30, 1996 compared with 35.3% in the
three months ended November 30, 1995. The decrease in operating expenses as a
percentage of net revenue is the result of the additional net revenue from the
ATEC and other acquisitions without corresponding increases in fixed and
administrative costs. Employee costs increased 67% to $3,132,501, or 11.5% of
net revenues in the three months ended November 30, 1996 compared with
$1,873,895, or 18.6% of net revenues, in the three months ended November 30,
1995. 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 the
three months ended November 30, 1996, amortization of goodwill and intangibles
increased to $482,231, compared with $110,413 in the three months ended November
30, 1995 reflecting the additional goodwill amortization resulting from
acquisitions.
Operating income in the three months ended November 30, 1996
increased 63% to $2,915,083, compared with $1,788,494 in the three months ended
November 30, 1995. Operating income decreased as a percentage of net revenues to
10.7% in the three months ended November 30, 1996, compared with 17.8% in the
three months ended November 30, 1995.
Nonoperating expense in the three months ended November 30, 1996 was
$481,805 compared with nonoperating income of $23,181 in the three months ended
November 30, 1995. The change is primarily attributable to increased interest
expense due to the bank debt incurred in connection with the ATEC and 3D
acquisitions.
Income tax expense in the three months ended November 30, 1996 was
$927,000, compared with $707,000 in the three months ended November 30, 1995.
During the three months ended November 30, 1996 and 1995, the Company's
effective tax rates were 38.1% and 39.0%, respectively.
As a result of the foregoing, net income in the three months ended
November 30, 1996 increased 36% to $1,506,278, or $.18 per share on a fully
diluted basis, compared with $1,104,675 or $.15 per share on a fully diluted
basis, in the three months ended November 30, 1995. The fully diluted weighted
average number of shares outstanding increased 12% to 8,454,151 shares primarily
due to an increase in shares issued from the Common Stock Offering in October
1995. Net income decreased as a percentage of net revenues to 5.5% in the three
months ended November 30, 1996, compared with 11.0% in the three months ended
November 30, 1995.
Nine Months Ended November 30, 1996 Compared with Nine Months Ended November 30,
1995
Revenues in the nine months ended November 30, 1996 increased 148%
to $83,416,851, compared with $33,687,570 in the nine months ended November 30,
1995. This increase was primarily attributable to the acquisition of ATEC and 3D
in May 1996 and from the positive acquisitions of the Hill Businesses and AGI
during the second half of fiscal 1996.
Revenues in the nine months ended November 30, 1996 from ATC's
branch offices having comparable operations in the nine months ended November
30, 1995 increased 2.6% to $32,821,516 compared with $32,003,432 in the nine
months ended November 30, 1995. Revenues attributable to the acquisitions of
certain assets of the Hill Businesses, AGI, ATEC and 3D totaled $50,567,847, or
60.6% of revenues, for the nine months ended November 30, 1996. Revenues from
branch operations sold or discontinued contributed only $27,488 for the nine
months ended November 30, 1996 compared to $1,208,688 for the nine months ended
November 30, 1995.
Gross profit in the nine months ended November 30, 1996 increased
93% to $31,099,389, compared with $16,141,581 in the nine months ended November
30, 1995. Gross profit as a percentage of net revenue decreased to 44.4% in the
nine months ended November 30, 1996, compared with 53.3% in the nine months
ended November 30, 1995. The gross profit percentage decrease is due to lower
margins earned on certain of ATEC's environmental services, the final project
costs incurred to complete a large fixed-price contract which could not be
billed to the client, and the impact of lower net revenues in certain regions
where costs could not be reduced proportionately. In addition, the gross profit
percentage for the prior year was higher than normal due to high profitability
levels of certain large projects.
F-15
PAGE
<PAGE>
Operating expenses in the nine months ended November 30, 1996
increased 101% to $21,585,395, compared with $10,740,148 in the nine months
ended November 30, 1995. Operating expenses decreased as a percentage of net
revenues to 30.8% in the nine months ended November 30, 1996 compared with 35.5%
in the nine months ended November 30, 1995. The decrease in operating expenses
as a percentage of net revenue is the result of the additional net revenue from
the ATEC and other acquisitions without corresponding increases in fixed and
administrative costs. Employee costs increased 61.4% to $8,837,196, or 12.6% of
net revenues in the nine months ended November 30, 1996 compared with
$5,474,121, or 18.1% of net revenues, in the nine months ended November 30,
1995. 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 the
nine months ended November 30, 1996, amortization of goodwill and intangibles
increased to $887,305, compared with $304,450 in the nine months ended November
30, 1995 reflecting the additional goodwill amortization resulting from
acquisitions.
Operating income in the nine months ended November 30, 1996
increased 76% to $9,513,994, compared with $5,401,433 in the nine months ended
November 30, 1995. Operating income decreased as a percentage of net revenues to
13.6% in the nine months ended November 30, 1996, compared with 17.8% in the
nine months ended November 30, 1995.
Nonoperating expense in the nine months ended November 30, 1996
increased to $822,920 compared with $205,513 in the nine months ended November
30, 1995. The increase in nonoperating expense is primarily attributable to
increased interest expense due to bank debt outstanding since May 1996 when the
ATEC and 3D acquisitions were completed, offset in part by higher interest
income earned during the first three months of fiscal 1997 on the net proceeds
of the Common Stock Offering invested in short term investments prior to the
acquisitions.
Income tax expense in the nine months ended November 30, 1996 was
$3,365,000, compared with $1,677,000 in the nine months ended November 30, 1995.
The income tax expense for the nine months ended November 30, 1995 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 the nine months ended November 30, 1996 and 1995,
after adjusting for the one-time tax benefit, the Company's effective tax rates
were 38.7% and 39.0%, respectively.
As a result of the foregoing, net income in the nine months ended
November 30, 1996 increased 51% to $5,326,074, or $ .62 per share on a fully
diluted basis, compared with $3,518,920 or $.52 per share on a fully diluted
basis, in the nine months ended November 30, 1995. Excluding the impact of the
one-time tax benefit of $350,000, net income and fully diluted earnings per
share for the nine months ended November 30, 1995 would have been $3,168,920 and
$.47 respectively. The fully diluted weighted average number of shares
outstanding increased 27% to 8,570,170 shares primarily due to an increase in
shares issued from the Common Stock Offering and from shares, options and
warrants outstanding as a result of the Aurora merger effective June 29, 1995.
Net income decreased as a percentage of net revenues to 7.6% in the nine months
ended November 30, 1996, compared with 10.5% in the nine months ended November
30, 1995 after adjusting for the one-time tax benefit.
Liquidity and Capital Resources
At November 30, 1996, working capital was $25,614,441 compared with
working capital of $24,977,316 at February 29, 1996, an increase of $637,125.
This increase in working capital is primarily a result of the acquisitions of
ATEC and 3D and the increases from purchased accounts receivable, unbilled
receivables and prepaid expenses offset by assumed acquisition liabilities
including accounts payable and other current liabilities and future payment
obligations and cash paid to the sellers. As a result of the Company's recent
acquisitions of ATEC and 3D, the Company's tangible net worth decreased to
$8,892,398 at November 30, 1996 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 the nine months ended November 30, 1996, net cash flows used
in operating activities were $5,589,624, primarily due to the decrease in
accounts payable and other liabilities, representing payments of property
facility rentals, non-compete consideration and assumed liabilities of ATEC and
other acquisitions, and an increase in billed and unbilled receivables. Net cash
flows used in investing activities were $13,017,402, resulting from the
acquisitions of ATEC and 3D and purchases of property and equipment. Net cash
flows provided by financing activities were $7,852,292, primarily representing
the proceeds of the bridge credit facility, less payments made on long-term debt
and notes payable assumed from ATEC.
F-16
PAGE
<PAGE>
During the nine months ended November 30, 1995, net cash flows used
by operating activities were $1,332,557. Net cash flows used in investing
activities were $3,670,029 consisting of the purchase of the Hill Businesses and
additional acquisition costs in connection with the Con-Test and R.E. Blattert
acquisitions plus contingent purchase obligations related to the acquisition of
BSE Management Inc. and the purchase of property and equipment. Also during this
period, net cash flows from financing activities were $17,784,513, primarily
from proceeds from the Common Stock Offering and increased bank debt less
principal payments on long-term debt and notes payable of $6,467,167. In October
1995 the Company sold 1,970,000 shares in a common stock offering. The Company
utilized a portion of the net proceeds of the offering to repay outstanding bank
debt under its credit facilities.
In May 1996, the Company entered into a bridge credit facility with
The Chase Manhattan Bank (formerly Chemical Bank) and Atlantic Bank which
provided $20,000,000 of funds in connection with the Company's acquisition of
ATEC and 3D. The bridge credit facility has been increased to $23,000,000 and
borrowings under the agreement are due May 30, 1997, however, the Company
expects to complete a longer term agreement with the banks prior to the maturity
date of the bridge facility. The Company may also seek to obtain additional
public or private debt or equity financing in the future in order to reduce
certain existing bank debt and provide funds for future acquisitions, however,
no assurance can be given as to the Company's ability to obtain funds on
acceptable terms and conditions.
Management believes that as a result of cash on hand, current
working capital, the expected increase in available funds upon the completion of
the long-term bank credit facility, and anticipated funds generated internally
from operations will be sufficient to finance ATC's operations, to make payments
as they come due on ATC's completed acquisitions and to meet ATC's short-term
and long-term liquidity requirements.
F-17
PAGE
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
First Fidelity Bank, N.A., et al v. Hill International,
Inc. et al, Superior Court of New Jersey, Law Division, Burlington
County, Docket No. Bur-L-03400-95, filed December 19, 1995. On
December 19, 1995, a second amended complaint was filed in the
above-entitled action which joined the Company as a defendant and
included a count against the Company seeking recovery of certain
assets purchased from Hill International, Inc. ("Hill") on the
grounds that plaintiff banks hold security interests in the assets
and that Hill is in default under the security agreement creating
such alleged security interests. The plaintiffs in this action are
First Fidelity Bank, N.A. and United Jersey Bank, N.A. The primary
defendants are Hill 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 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.
Item 2. Changes in Securities:
Not Applicable
Item 3. Defaults Upon Senior Securities:
Not Applicable
F-18
PAGE
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders:
On October 8, 1996, the Company held its annual meeting
of shareholders at which time the Company's directors were
re-elected and amendments to increase the number of shares in the
1993 Incentive and Non-Qualified Stock Option Plan and to change the
Company's name to ATC Group Services Inc. were approved, as
previously reported in the Company's prior Form 10-Q for the
quarterly period ended August 31, 1996.
Item 5. Other Information:
Not Applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
11 - Computation of Earnings Per Share -
Three months and nine months ended
November 30, 1995 and
1996 (Unaudited)
27 - Financial Data Schedule
November 30, 1996 (Unaudited)
(b) Reports on Form 8-K:
Not Applicable
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 thereunto duly authorized.
ATC GROUP SERVICES INC.
(Registrant)
Dated: January 14, 1996 /s/ Morry F. Rubin
------------------------ -------------------------------------
Morry F. Rubin,
President and Chief Executive Officer
Dated: January 14, 1996 /s/ Richard L. Pruitt
------------------------ -------------------------------------
Richard L. Pruitt,
Vice President and Principal
Accounting Officer
F-19
PAGES
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1995 and 1996 (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, 1996 November 30, 1996
-------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
- --------------------------
Weighted averang numbe of shares of common stock
outstanding........................................ 6,738,257 7,792,964 6,091,458 7,789,104
Additional shared assuming exercise of dilutive
stock options and stock warrants................... 804,271 661,187 644,490 748,167
----------- ----------- ----------- -----------
Total average common and common equivalent shares
outstanding.................................... 7,542,528 8,454,151 6,735,948 8,537,271
============ =========== =========== ===========
Net Income........................................... $ 1,104,675 $ 1,506,278 $ 3,518,920 $ 5,326,074
============ =========== =========== ===========
Earings per common and dilutive common equivalent
share (1).......................................... $ .15 $ .18 $ .52 $ .62
============ =========== =========== ===========
Fully Diluted Earnings Per Share:
- --------------------------------
Weighted averang numbe of shares of common stock
outstanding........................................ 6,738,257 7,792,964 6,091,458 7,789,104
Additional shared assuming exercise of dilutive
stock options and stock warrants................... 804,271 661,187 644,490 781,066
----------- ----------- ----------- -----------
Total average common and common equivalent shares
outstanding.................................... 7,542,528 8,454,151 6,735,948 8,570,170
============ =========== =========== ===========
Net Income........................................... $ 1,104,675 $ 1,506,278 $ 3,518,920 $ 5,326,074
============ =========== =========== ===========
Earings per common and dilutive common equivalent
share (1).......................................... $ .15 $ .18 $ .52 $ .62
============ =========== =========== ===========
</TABLE>
(1) Includes a one-time tax benefit of $.05 per share related to the merger
of Aurora Environmental Inc. for the nine months ended November 30,
1995 (Note B).
F-20
PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES EXHIBIT 27
FINANCIAL DATA SCHEDULE
NOVEMBER 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
As of
Item Number Item Description November 30, 1996
--------------------
<S> <C>
5-02(1) Cash and cash items............................................. $ 2,714,709
5-02(2) Marketable securities........................................... -
5-02(3)(a)(1) Notes and accounts receivable - trade........................... 36,497,082
5-02(4) Allowances for doubtful accounts................................ (1,284,925)
5-02(6) Inventory....................................................... -
5-02(9) Total current assets............................................ 47,571,522
5-02(13) Property, plant and equipment................................... 7,735,863
5-02(14) Accumulated depreciation........................................ (3,805,184)
5-02(18) Total assets.................................................... 88,528,052
5-02(21) Total current liabilities....................................... 21,957,081
5-02(22) Bonds, mortgages, and similar debt.............................. 21,599,058
5-02(28) Preferred stock - mandatory redemption.......................... -
5-02(29) Preferred stock - no mandatory redemption....................... -
5-02(30) Common stock.................................................... 77,979
5-02(31) Other stockholders' equity...................................... 44,401,845
5-02(32) Total liabilities and stockholders' equity...................... 88,528,052
Nine Months
Ended
November 30, 1996
--------------------
5-03(b)1(a) Net sales of tangible products.................................. $ -
5-03(b)1 Total revenues.................................................. 83,416,851
5-03(b)2(a) Cost of tangible goods sold..................................... -
5-03(b)2 Total costs and expenses applicable to sales and revenues....... 52,317,462
5-03(b)3 Other costs and expenses........................................ 20,703,117
5-03(b)5 Provision for doubtful accounts and notes....................... 624,981
5-03(b)(8) Interest and amortization of debt discount...................... 1,080,217
5-03(b)(10) Income before taxes and other items............................. 8,691,074
5-03(b)(11) Income tax expense.............................................. 3,365,000
5-03(b)(14) Income/(loss) continuing operations............................. 5,326,074
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...................................................... 5,326,074
5-03(b)(20) Earnings per share - primary.................................... .62
5-03(b)(20) Earnings per share - fully diluted.............................. .62
</TABLE>
F-21
PAGE
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 2,714,709
<SECURITIES> 0
<RECEIVABLES> 36,497,082
<ALLOWANCES> 1,141,778
<INVENTORY> 0
<CURRENT-ASSETS> 47,571,522
<PP&E> 7,735,863
<DEPRECIATION> 3,805,184
<TOTAL-ASSETS> 88,528,052
<CURRENT-LIABILITIES> 21,957,081
<BONDS> 21,599,058
<COMMON> 77,979
0
0
<OTHER-SE> 44,401,845
<TOTAL-LIABILITY-AND-EQUITY> 88,528,052
<SALES> 0
<TOTAL-REVENUES> 83,416,851
<CGS> 0
<TOTAL-COSTS> 52,317,462
<OTHER-EXPENSES> 20,703,117
<LOSS-PROVISION> 624,981
<INTEREST-EXPENSE> 1,080,217
<INCOME-PRETAX> 8,691,074
<INCOME-TAX> 3,365,000
<INCOME-CONTINUING> 5,326,074
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,326,074
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
