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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to __________
Commission file number 1-5170
TRC COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0853807
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 Waterside Crossing
Windsor, Connecticut 06095
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 289-8631
-----------------------------------
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, and (2) has been subject to such filing requirements
for the past 90 days. YES [x] NO [_]
On September 30, 1996 there were 6,713,102 shares of the registrant's common
stock, $.10 par value, outstanding.
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TRC COMPANIES, INC.
Contents of Quarterly Report on Form 10-Q
Quarter Ended September 30, 1996
PART I - Financial Information
Item 1. Consolidated Financial Statements
Statements of Operations for the three months ended
September 30, 1996 and 1995................................... 3
Balance Sheets at September 30, 1996 and June 30, 1996............ 4
Statements of Cash Flows for the three months ended
September 30, 1996 and 1995................................... 5
Notes to Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition....................................... 7
PART II - Other Information
Item 1. Legal Proceedings.................................................10
Item 6. Exhibits and Reports on Form 8-K..................................10
Signature.....................................................................11
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PART I: FINANCIAL INFORMATION
TRC Companies, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
------------- -------------
<S> <C> <C>
Gross revenue $ 18,029,165 $ 20,018,912
Less subcontractor costs and direct charges 4,643,202 3,771,900
------------- -------------
Net service revenue 13,385,963 16,247,012
------------- -------------
Operating costs and expenses:
Salaries and other direct costs of services 11,248,356 16,054,550
General and administrative expenses 917,377 934,259
Depreciation and amortization 684,932 711,447
------------- -------------
12,850,665 17,700,256
------------- -------------
Income (loss) from operations 535,298 (1,453,244)
Interest expense 196,755 254,405
------------- -------------
Income (loss) before taxes 338,543 (1,707,649)
Federal and state income tax provision (benefit) 129,000 (649,000)
------------- -------------
Net income (loss) $ 209,543 $ (1,058,649)
============= =============
Earnings (loss) per share $ .03 $ (.15)
============= =============
Weighted average number of common and
common equivalent shares outstanding 6,894,971 7,089,802
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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TRC Companies, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,152,768 $ 1,321,524
Accounts receivable, less allowance
for doubtful accounts 28,777,800 27,977,190
Inventories 863,256 915,336
Deferred income tax benefits 1,238,000 1,219,000
Prepaid expenses and other current
assets 854,056 444,583
------------- -------------
32,885,880 31,877,633
------------- -------------
Property and equipment, at cost 19,706,753 19,667,334
Less accumulated depreciation and
amortization 14,238,698 13,802,300
------------- -------------
5,468,055 5,865,034
------------- -------------
Costs in excess of net assets of
acquired businesses, net of
accumulated amortization 25,677,671 25,903,615
------------- -------------
Other assets 762,769 588,407
------------- -------------
$ 64,794,375 $ 64,234,689
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,000,000 $ 7,000,000
Accounts payable 3,393,253 2,209,401
Accrued compensation and benefits 2,316,533 2,542,809
Income taxes payable 110,111 53,431
Other accrued liabilities 833,746 1,068,781
------------- -------------
13,653,643 12,874,422
------------- -------------
Noncurrent liabilities:
Long-term debt 6,000,000 5,200,000
Accrued lease obligations 62,032 96,480
Deferred income taxes 1,388,000 1,316,000
------------- -------------
7,450,032 6,612,480
------------- -------------
Shareholders' equity:
Capital stock:
Preferred, $.10 par value; 500,000
shares authorized, none issued - -
Common, $.10 par value; 30,000,000
shares authorized, 7,265,755
shares issued at September 30, 1996
and June 30, 1996 726,575 726,575
Additional paid-in capital 37,894,744 37,894,744
Retained earnings 7,629,787 7,420,244
------------- -------------
46,251,106 46,041,563
Less treasury stock, at cost 2,560,406 1,293,776
------------- -------------
43,690,700 44,747,787
------------- -------------
$ 64,794,375 $ 64,234,689
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</TABLE>
The accompanying notes are an integral part of the financial statements.
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TRC Companies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 209,543 $ (1,058,649)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 684,932 711,447
Change in deferred taxes and other
non-cash items 18,552 (648,668)
Changes in assets and liabilities:
Accounts receivable (800,610) 2,812,350
Inventories 52,080 99,476
Prepaid expenses and other current
assets (409,473) (557,573)
Accounts payable 1,183,852 (447,059)
Accrued compensation and benefits (226,276) (30,555)
Income taxes 56,680 (176,419)
Other accrued liabilities (235,035) 606,079
------------- -------------
Net cash provided by operating
activities 534,245 1,310,429
------------- -------------
Cash flows from investing activities:
Additions to property and equipment,
net (45,067) (174,394)
Decrease (increase) in other assets,
net (191,304) 23,632
------------- -------------
Net cash used in investing activities (236,371) (150,762)
------------- -------------
Cash flows from financing activities:
Net borrowings (repayments) on
long-term debt 800,000 (1,850,000)
Purchase of treasury stock (1,266,630) -
Principal repayments under capitalized
lease obligations - (17,595)
Proceeds from exercise of stock options - 5,875
------------- -------------
Net cash used in financing activities (466,630) (1,861,720)
------------- -------------
Decrease in cash and cash equivalents (168,756) (702,053)
Cash and cash equivalents, beginning
of period 1,321,524 2,180,764
------------- -------------
Cash and cash equivalents, end of
period $ 1,152,768 $ 1,478,711
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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TRC Companies, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
1. The consolidated balance sheet at September 30, 1996 and the consolidated
statements of operations and cash flows for the three months ended
September 30, 1996 and 1995 are unaudited, but in the opinion of the
Company, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results for the interim
periods. The results of operations for the three months ended September 30,
1996 are not necessarily indicative of the results to be expected for the
full fiscal year. Certain footnote disclosures usually included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report to Shareholders
for the fiscal year ended June 30, 1996.
2. Earnings (loss) per common share are based upon the weighted average number
of common shares outstanding and, when dilutive, common stock equivalents
using the treasury stock method.
3. The components of inventories were as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- --------------
<S> <C> <C>
Materials and supplies $ 400,704 $ 539,054
Work-in-progress 164,524 60,787
Finished goods 298,028 315,495
------------- --------------
$ 863,256 $ 915,336
============= ==============
</TABLE>
4. The results the three months ended September 30, 1995 reflect an operating
charge of approximately $2,112,000 after taxes or $.30 per share related to
staff reductions, excess lease costs and additional allowances for
government receivables. These charges were necessary to align resources
with current business conditions, resulting from a decrease in services to
the federal government, and the adverse effect of regulatory uncertainty
and reduction in government spending on commercial hazardous waste
engineering and consulting services.
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TRC Companies, Inc.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three Months Ended September 30, 1996 and 1995
Overview
TRC Companies, Inc. is an international environmental engineering and consulting
company with a premier reputation for expertise in all areas of air pollution
control, solid and hazardous waste management, risk assessment and process
engineering. The Company is one of the largest air pollution engineering
companies in the nation and provides innovative approaches to solid and
hazardous waste management.
The Company believes that it is strongly positioned as a provider of air
pollution control, pollution prevention and solid and hazardous waste
engineering and consulting services. Historically, the Company has realized a
significant amount of its revenue from federal government agencies. However,
future levels of government business will be dependent upon the Company's
selectivity in bidding on government projects coupled with the strategy to
reduce its dependence on government contracts, and its success in procuring
contract awards.
Results of Operations
The Company, in the course of providing its services, routinely subcontracts
drilling, laboratory analyses and other specialized services. These costs are
passed directly through to clients and, in accordance with industry practice,
are included in gross revenue. Because subcontractor costs and direct charges
can change significantly from project to project, the change in gross revenue is
not necessarily a true indication of business trends. Accordingly, the Company
considers net service revenue, which is gross revenue less subcontractor costs
and direct charges, as its primary measure of revenue growth.
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The following table presents the percentage relationships of certain items in
the consolidated statements of operations to net service revenue:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
------- ------
<S> <C> <C>
Net service revenue 100.0 % 100.0 %
------- ------
Operating costs and expenses:
Salaries and other direct costs of service 84.0 98.8 /1/
General and administrative expenses 6.9 5.7
Depreciation and amortization 5.1 4.4
------- ------
Income (loss) from operations 4.0 (8.9) /1/
Interest expense 1.5 1.6
------- ------
Income (loss) before taxes 2.5 (10.5)
Federal and state income tax provision (benefit) 0.9 (4.0)
------- ------
Net income (loss) 1.6 % (6.5)%
======= ======
</TABLE>
/1/ 78.5% and 11.4%, respectively, before $3.3 million operating charge
Net service revenue decreased by 17.6% during the three months ended
September 30, 1996 to $13.4 million, from $16.2 million in the same period last
year. The decrease was primarily due to the continued weak environmental
services market resulting from regulatory uncertainty and budget reductions in
federal enforcement spending, which has led to overall lower levels of
expenditures by industry for environmental engineering and remedial services,
coupled with greater competition and capacity for available work.
Salaries and other direct costs of services decreased by $4.8 million during the
three months ended September 30, 1996, as compared to the same period last year.
The decrease was primarily related to the $3.3 million operating charge
reflected in the same period of the prior year and the direct result of
continued cost reduction efforts. The operating charge recorded in the prior
year related to staff reductions, excess lease costs and additional allowances
for government receivables.
General and administrative expenses decreased by 2% during the three months
ended September 30, 1996, as compared to the same period last year, primarily
due to continued cost reduction efforts.
Depreciation and amortization expense decreased by 3.7% during the three months
ended September 30, 1996, as compared to the same period last year. This
decrease was due to the comparative reduction in capital expenditures during
fiscal 1996 and 1995, combined with the effect of other equipment which became
fully depreciated.
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<PAGE>
The Company reported income from operations of $535,298 for the three months
ended September 30, 1996, compared to a loss from operations of $1,453,244 in
the same period last year. The loss in the prior year was the direct result of
the operating charge. Income from operations in the current period continues to
be adversely affected by the reduction in net service revenue.
Interest expense decreased to $196,755 during the three months ended
September 30, 1996, from $254,405 in the same period last year. This decrease
resulted from lower levels of long-term debt outstanding.
The provision (benefit) for federal and state income taxes was 38% of income
(loss) before taxes for the three months ended September 30, 1996 and 1995. The
Company believes that there will be sufficient taxable income in the
carryforward periods to enable utilization of the deferred tax benefits.
As a result of the aforementioned, the Company reported net income of $209,543
or $.03 per share for the three months ended September 30, 1996, compared to a
net loss of $1,058,649 or $.15 per share in the same period last year.
Impact of Inflation
The Company's operations have not been materially affected by inflation or
changing prices because of the short-term nature of many of its contracts, and
most contracts of a longer term are subject to adjustment or have been priced to
cover anticipated increases in labor and other costs.
Liquidity and Capital Resources
Working capital increased to $19.2 million at September 30, 1996, from $19
million at June 30, 1996. This change resulted from working capital provided by
operations and the increase in long-term debt, partially offset by the
repurchase of the Company's common stock.
The Company has available a $35 million, unsecured revolving credit agreement
with a group of commercial banks through December 31, 2001. At September 30,
1996, outstanding borrowings under this agreement were $6 million. The amount
outstanding has been classified as long-term debt in accordance with the
Company's intention and ability to refinance the obligation on a long-term
basis. In addition, the Company had standby letters of credit outstanding
totaling $1 million which reduce available borrowings under the agreement.
At its February 2, 1996 meeting, the Board of Directors authorized the
repurchase of up to 500,000 shares of the Company's common stock, as in the
opinion of management, market condition may warrant. During the three months
ended September 30, 1996, the Company acquired an additional 305,900 shares for
$1.3 million at an average price of $4.14 per share, bringing the total shares
repurchased pursuant to the program to 383,000 shares. At its October 25, 1996
meeting, the Board of Directors authorized the repurchase of up to an additional
500,000 shares of the Company's common stock. The actual number of additional
shares repurchased will depend upon prevailing market conditions.
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The Company expects to make capital expenditures of approximately $1 million
during the remainder of fiscal 1996. The Company believes that cash generated
from operations, the cash on hand at September 30, 1996 and available borrowings
under the revolving credit agreement will be sufficient to meet the Company's
cash requirements for the remainder of fiscal 1997.
Forward-Looking Statements
This report contains forward-looking statements that describe the Company's
business prospects. These statements involve risks and uncertainties including,
but not limited to, regulatory uncertainty, funding for government projects,
level of demand for the Company's services, product acceptance, industry-wide
competitive factors, and political, economic or other conditions. Furthermore,
market trends are subject to changes which could adversely affect future
results.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3, Legal Proceedings, in the Company's Annual
Report on Form 10-K for the year ended June 30, 1996, for a description
of existing litigation against the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
27 - Financial Data Schedule (for SEC purposes only)
(b) Reports on Form 8-K - There were no reports on Form 8-K filed during
the quarter ended September 30, 1996.
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<PAGE>
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 thereunto duly authorized.
TRC COMPANIES, INC.
October 5, 1996 by: /s/ Peter J. Russo
------------------------------
Peter J. Russo
Senior Vice President and
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
QTR ENDED 9-30-96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,152,768
<SECURITIES> 0
<RECEIVABLES> 28,777,800
<ALLOWANCES> 0
<INVENTORY> 863,256
<CURRENT-ASSETS> 32,885,880
<PP&E> 19,706,753
<DEPRECIATION> 14,238,698
<TOTAL-ASSETS> 64,794,375
<CURRENT-LIABILITIES> 13,653,643
<BONDS> 0
0
0
<COMMON> 726,575
<OTHER-SE> 42,964,125
<TOTAL-LIABILITY-AND-EQUITY> 64,794,375
<SALES> 18,029,165
<TOTAL-REVENUES> 18,029,165
<CGS> 0
<TOTAL-COSTS> 17,493,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,755
<INCOME-PRETAX> 338,543
<INCOME-TAX> 129,000
<INCOME-CONTINUING> 209,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209,543
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
