SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
December 4, 1998
ATC GROUP SERVICES INC.
(Exact name of registrant as specified in charter)
Delaware 1-10583 46-0399408
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
104 East 25th Street, Tenth Floor, New York, New York 10010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-908-9500
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N/A
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(Former name or former address, if changed since last report.)
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Item 5. Other Events
ATC Group Services Inc. (the "Company") has recently taken actions to
improve future profitability and cash flow through cost reductions, targeted
growth in selective higher margin services and aggressive working capital
management. The Company has implemented several actions designed to expand sales
and revenue opportunities, including the restructuring of the Company's National
Sales Program, expanded industry marketing and sales activities, development of
improved marketing and public relations programs and increased internal
communication among divisions to expand cross-selling opportunities. The
Company's current annualized adjusted EBITDA "run rate" is approximately $15.5
to $16.0 million. This "run rate" reflects the impact of the cost reduction
programs already implemented by the Company as well as the elimination of
certain non-recurring expenses. Additionally, it is based on present revenue and
backlog levels and does not reflect any specific new contract opportunities or
other revenue growth. EBITDA for the first six months in fiscal 1999 was $5.2
million.
The Company is presently pursuing several large contract opportunities
and, while there is no guarantee that the Company will be awarded any of these
contracts, the Company believes that, as a result of these negotiations, net
revenue growth for fiscal 2000, without acquisitions, could realistically reach
approximately $7 million or more. Revenue growth at this level would represent
growth of approximately 5.0% over fiscal 1999 and would be consistent with
recent industry average growth estimates. Based on an additional $7.0 million of
net revenues, adjusted EBITDA could increase by approximately $3.0 million
(using the Company's current average gross margin).
Other profit improvement actions currently being pursued by the Company
include productivity increases from expanded use of subcontractors and "flex
staff." Additionally, the Company continues to evaluate other areas for specific
cost reductions and cost elimination. Finally, the Company expects a favorable
impact on profits from its focus on "profit-based incentives."
While the Company remains positive about its future prospects, on a
short-term basis, the Company faces
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significant liquidity demands, which stem principally from acquisition notes
payable, term note principal payments and subordinated note interest. In
addition, since December 4, 1998 there have existed certain Events of Default
regarding the maintenance of financial ratios under the Company's senior secured
credit facility. These Events of Default constitute Defaults under the indenture
relating to the Company's senior subordinated notes. The Company is pursuing a
number of alternatives to restructure its short term cash requirements and
access additional financing or credit support.
The Company has had a number of discussions with the lenders under its
senior secured revolving credit facility regarding an increase in the borrowing
base under such facility. To date such lenders have been unwilling to increase
available borrowings under the revolving credit facility beyond the $15 million
limit and have indicated that they do not intend to increase such limit in the
future unless the Company's financial position significantly improves.
The Company is currently in discussions with the holders of certain of
its acquisition notes payable regarding the extension of certain acquisition
note payments currently scheduled to become due in the fourth quarter. To date,
the holders of these acquisition notes payable have indicated that they will not
extend any of the fourth quarter payments. In addition, the Company has had
discussions with its principal shareholders and their affiliates regarding
additional equity financing and credit support. The principal shareholders have
indicated that they and their affiliates do not intend to provide additional
equity financing to the Company. The Company's principal shareholders have also
indicated that they or their affiliates are considering, under certain
circumstances, providing additional credit support to the Company through the
purchase of outstanding Company indebtedness, in the open market, pursuant to
negotiated transactions or otherwise. There can be no assurance that the Company
will be successful in restructuring its outstanding acquisition note payments or
receive any credit support from its principal shareholders or their affiliates,
whether pursuant to the purchase of outstanding Company indebtedness or
otherwise.
Unless the Company is able to restructure its short-term cash
requirements or access additional financing or
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credit support, based on current projections, the Company's cash needs through
the fiscal year end of February 28, 1999 will exceed its available resources and
the Company will not have sufficient cash to pay all these short-term cash
requirements, including the January 15, 1999 $6.0 million interest payment on
its $100 million aggregate principal amount of senior subordinated notes.
* * *
This Form 8-K contains "forward-looking" statements within the meaning
of the Securities Litigation Reform Act of 1995, including, without limitation,
those concerning: the Company's future profitability and cash flow; the ability
of the Company to expand sales; the ability of the Company to achieve revenue
and cross selling opportunities; future net revenues and adjusted EBITDA; the
effect on profits from the Company's focus on "profit-based incentives"; the
ability of the Company to meet its short-term cash needs, including the ability
to make the January 15, 1999 $6.0 million interest payment on its senior
subordinated notes; statements regarding the intentions of the lenders under the
Company's senior secured credit facility; and statements regarding any
additional financing or credit support from the Company's principal shareholders
or their affiliates. Such statements involve certain risks and uncertainties
that could cause actual results to differ materially from those in the
forward-looking statements. Potential risks and uncertainties include such
factors as: the demand for the Company's services; the impact of cost reductions
on revenues; utilization rates of Company personnel; changes in the pricing
environment; general economic conditions in the Company's markets; competitors'
actions; accuracy of assumptions regarding savings from restructuring
activities; the status and effectiveness of the Company's Year 2000 efforts; the
ability to successfully restructure future cash payments, particularly in the
short-term; whether or not the Company receives any credit assistance from its
principal shareholders or their affiliates, whether pursuant to the purchase of
outstanding Company indebtedness or otherwise; and other risks described in the
Company's filings with the Securities and Exchange Commission.
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SIGNATURE
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.
By: /s/ Paul J. Grillo
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Name: Paul J. Grillo
Title: Chief Financial Officer
Date: December 15, 1998
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