<PAGE>
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 March 31, 1999
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 1-9947
TRC COMPANIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0853807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Waterside Crossing
Windsor, Connecticut 06095
(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 March 31, 1999 there were 6,782,202 shares of the registrant's common stock,
$.10 par value, outstanding.
<PAGE>
TRC COMPANIES, INC.
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 1999
<TABLE>
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Operations for the three and nine months ended
March 31, 1999 and 1998................................................................ 3
Balance Sheets at March 31, 1999 and June 30, 1998.......................................... 4
Statements of Cash Flows for the nine months ended
March 31, 1999 and 1998............................................................... 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........................................................................... 11
Item 6. Exhibits and Reports on Form 8-K............................................................ 11
SIGNATURE.................................................................................................... 11
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
1999 1998 (1) 1999 1998 (1)
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
GROSS REVENUE $17,930,361 $16,398,434 $55,323,696 $53,012,559
Less subcontractor costs
and direct charges 3,859,369 3,479,036 15,221,868 14,158,995
----------------- ---------------- ---------------- -----------------
NET SERVICE REVENUE 14,070,992 12,919,398 40,101,828 38,853,564
----------------- ---------------- ---------------- -----------------
OPERATING COSTS AND EXPENSES:
Direct labor and fringe benefit costs 6,491,943 5,774,192 18,220,113 17,192,495
Indirect costs and expenses 5,267,626 5,310,645 15,312,415 16,151,958
General and administrative expenses 626,957 591,459 1,834,221 1,875,492
Depreciation and amortization 604,208 681,201 1,777,310 2,018,218
----------------- ---------------- ---------------- -----------------
12,990,734 12,357,497 37,144,059 37,238,163
----------------- ---------------- ---------------- -----------------
INCOME FROM OPERATIONS 1,080,258 561,901 2,957,769 1,615,401
Interest expense 100,651 138,576 340,656 581,988
----------------- ---------------- ---------------- -----------------
INCOME BEFORE TAXES 979,607 423,325 2,617,113 1,033,413
Federal and state income tax provision 372,000 161,000 994,000 393,000
----------------- ---------------- ---------------- -----------------
NET INCOME $ 607,607 $ 262,325 $ 1,623,113 $ 640,413
----------------- ---------------- ---------------- -----------------
----------------- ---------------- ---------------- -----------------
EARNINGS PER SHARE - BASIC AND DILUTED $ .09 $ .04 $ .24 $ .10
----------------- ---------------- ---------------- -----------------
----------------- ---------------- ---------------- -----------------
AVERAGE SHARES OUTSTANDING:
Basic 6,782,202 6,703,279 6,782,202 6,693,161
Diluted 6,873,799 6,719,741 6,821,914 6,699,081
----------------- ---------------- ---------------- -----------------
----------------- ---------------- ---------------- -----------------
</TABLE>
(1) Includes operating results of instrumentation business which was sold in
July 1998. See page 7 for comparative results without instrumentation
business.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
<PAGE>
TRC COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 746,913 $ 1,379,388
Accounts receivable, less allowance for doubtful accounts 27,688,789 27,775,396
Inventories 237,506 1,359,410
Deferred income tax benefits 917,019 950,000
Prepaid expenses and other current assets 923,727 588,965
------------------ ------------------
30,513,954 32,053,159
------------------ ------------------
PROPERTY AND EQUIPMENT, AT COST 19,651,093 21,273,379
Less accumulated depreciation and amortization 16,222,466 17,267,575
------------------ ------------------
3,428,627 4,005,804
------------------ ------------------
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF
ACCUMULATED AMORTIZATION 24,352,383 24,873,714
------------------ ------------------
OTHER ASSETS 613,287 670,934
------------------ ------------------
$58,908,251 $61,603,611
------------------ ------------------
------------------ ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt $ 5,100,000 $ 3,600,000
Accounts payable 2,376,487 4,133,321
Accrued compensation and benefits 2,379,609 2,684,642
Other accrued liabilities 1,477,770 1,159,570
------------------ ------------------
11,333,866 11,577,533
------------------ ------------------
NONCURRENT LIABILITIES:
Long-term debt 300,000 3,900,000
Deferred income taxes 1,196,194 1,671,000
------------------ ------------------
1,496,194 5,571,000
------------------ ------------------
SHAREHOLDERS' EQUITY:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued - -
Common, $.10 par value; 30,000,000 shares authorized, 7,410,855
shares issued at March 31, 1999 and June 30, 1998 741,085 741,085
Additional paid-in capital 38,634,234 38,634,234
Retained earnings 9,599,875 7,976,762
------------------ ------------------
48,975,194 47,352,081
Less treasury stock, at cost 2,897,003 2,897,003
------------------ ------------------
46,078,191 44,455,078
------------------ ------------------
$58,908,251 $61,603,611
------------------ ------------------
------------------ ------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<PAGE>
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,623,113 $ 640,413
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,777,310 2,018,218
Change in deferred taxes and other non-cash items, net 24,997 129,000
Changes in assets and liabilities, excluding effects of
acquisitions and disposition:
Accounts receivable 1,298,607 2,360,097
Inventories (272,716) (295,298)
Prepaid expenses and other current assets (301,791) 618,511
Accounts payable (2,264,867) (498,026)
Accrued compensation and benefits (581,222) (921,624)
Unearned revenue - 824,738
Income taxes 3,373 404,212
Other accrued liabilities (345,916) (721,866)
---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 960,888 4,558,375
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of instrumentation business 2,750,000 -
Acquisition of businesses, net of cash received (1,561,873) (430,839)
Additions to property and equipment, net (714,136) (763,005)
Decrease in other assets, net 32,646 74,826
---------------- ----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 506,637 (1,119,018)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (3,600,000) -
Net borrowings (repayments) under line of credit 1,500,000 (4,000,000)
---------------- ----------------
NET CASH USED IN FINANCING ACTIVITIES (2,100,000) (4,000,000)
---------------- ----------------
DECREASE IN CASH AND CASH EQUIVALENTS (632,475) (560,643)
Cash and cash equivalents, beginning of period 1,379,388 1,020,065
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 746,913 $ 459,422
---------------- ----------------
---------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<PAGE>
TRC COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
1. The consolidated balance sheet at March 31, 1999 and the
consolidated statements of operations for the three and nine
months ended March 31, 1999 and 1998 and the consolidated
statements of cash flows for the nine months ended March 31, 1999
and 1998 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. 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, 1998.
2. Earnings per share is computed in accordance with the provisions of
Statement of Financial Standards No. 128, Earnings per Share. Basic
earnings per share is based upon the weighted average common shares
outstanding. Diluted earnings per share reflect the potential dilutive
effect of outstanding stock options and warrants.
3. The components of inventories were as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---------------- ----------------
<S> <C> <C>
Materials and supplies $237,506 $ 774,645
Work-in-progress - 155,443
Finished goods - 429,322
---------------- ----------------
$237,506 $1,359,410
---------------- ----------------
---------------- ----------------
</TABLE>
[OBJECT OMITTED]
The reduction in inventories was directly related to the sale of the
instrumentation business in July 1998.
4. In March, the Company completed the acquisition of the
outstanding shares of Alton Geoscience, Inc., headquartered in
Irvine, California. Alton's primary business activities include
site investigations, remediation and monitoring services for
major oil and pipeline companies, and has annual revenue of
approximately $10 million. The purchase price included cash of
approximately $1.6 million (net of cash received) and a $.5 million
holdback payable in one year. The Company will make an
additional payment equal to 75% of Alton's pre-tax profit for the
twelve month period ending September 30, 1999. The
acquisition has been accounted for using the purchase method of
accounting. The cost of the acquisition in excess of the fair value
of the net assets acquired was not significant.
6
<PAGE>
TRC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three and Nine Months Ended March 31, 1999 and 1998
OVERVIEW
TRC Companies, Inc. (the "Company") is an environmental engineering
and remediation, water resource and infrastructure company. The
Company's key business sectors include: energy, mining, petrochemical,
waste management and government.
RESULTS OF OPERATIONS
The Company, in the course of providing its services, routinely subcontracts
drilling, laboratory analyses, construction equipment 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 Company also considers net service revenue as a measure of
performance.
In July 1998, the Company completed the sale of its instrumentation business
which resulted in a gain that was not material. Management's discussion and
analysis of revenue and operating costs and expenses for the three and nine
months ended March 31, 1999, are compared to the same periods last year on a
pro forma basis, with the results of the instrumentation business excluded.
Statements of operations for the three and nine months ended March 31, 1999
and the same periods of last year on a pro forma basis follow (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
Pro forma Pro forma
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
GROSS REVENUE $17,930 $15,747 $55,324 $50,823
----------- ----------- ----------- ------------
NET SERVICE REVENUE 14,071 12,268 40,102 36,664
----------- ----------- ----------- ------------
OPERATING COSTS AND EXPENSES:
Direct labor and fringe benefit costs 6,492 5,515 18,220 16,301
Indirect costs and expenses 5,268 4,995 15,313 15,245
General and administrative expenses 627 591 1,834 1,875
Depreciation and amortization 604 630 1,777 1,852
----------- ----------- ----------- ------------
12,991 11,731 37,144 35,273
----------- ----------- ----------- ------------
INCOME FROM OPERATIONS 1,080 537 2,958 1,391
Interest expense 100 139 341 580
----------- ----------- ----------- ------------
INCOME BEFORE TAXES 980 398 2,617 811
Federal and state income tax provision 372 151 994 309
----------- ----------- ----------- ------------
Net income $ 608 $ 247 $ 1,623 $ 502
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Earnings per share $ .09 $ .04 $ .24 $ .07
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
7
<PAGE>
On a pro forma basis, net service revenue increased by approximately 15%
during the three months ended March 31, 1999 to $14.1 million. For the nine
months ended March 31, 1999, net service revenue increased by approximately
9% to $40.1. These increases reflect initiation of management's growth plan
described in the Company's 1998 annual report to shareholders and to a lesser
extent, from the additional revenue from Alton Geoscience, Inc. which was
acquired in March 1999.
Direct labor and fringe benefit costs increased by approximately 18% and 12%,
respectively, during the three and nine months ended March 31, 1999, primarily
due to the increase in revenue. As a percentage of revenue, indirect costs and
expenses decreased approximately 4% in both the three and nine month periods.
These improvements resulted from management's continuing program to increase
staff utilization and reduce operational overhead.
General and administrative expenses remained relatively even for the three and
nine months ended March 31, 1999, indicating a reduction relative to revenue.
This continuing improvement also reflects management's intent to eliminate
non-productive overhead costs.
Depreciation and amortization expense decreased approximately 4%, during the
three and nine months ended March 31, 1999. These decreases were due to the
comparative reduction in capital expenditures over the last several years,
combined with the effect of equipment which became fully depreciated.
The Company reported income from operations of $1.1 million and $3.0 million,
respectively, for the three and nine months ended March 31, 1999, up from $.5
million and $1.4 million respectively, in the same periods last year. The
continued improvement in operating performance was primarily due to the growth
in revenue and reductions in operational overhead.
Interest expense decreased by approximately 28% and 41%, respectively, during
the three and nine months ended March 31, 1999, resulting from management's
debt reduction program.
The provisions for federal and state income taxes reflect an effective rate of
approximately 38% for the three and nine months ended March 31, 1999 and 1998.
The Company believes that there will be sufficient taxable income in future
periods to enable utilization of the deferred tax benefits shown in the
Company's consolidated balance sheet on page 4.
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
the fact that most contracts of a longer term are subject to adjustment or have
been priced to cover anticipated increases in labor and other costs.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on cash provided by operations and borrowings based upon the
strength of its balance sheet to fund operations. The Company's liquidity is
assessed in terms of its overall ability to generate cash to fund its operating
and investing activities, and to reduce debt. Of particular importance in the
management of liquidity are cash flows generated from operating activities,
acquisitions, capital expenditure levels and an adequate bank line of credit.
Operating activities are the principal source of cash flow for the Company.
Operating activities provided approximately $1.0 million of cash flow during the
nine months ended March 31, 1999, primarily comprised of cash generated by net
income, the non-cash charges against income for depreciation and amortization
and from accounts receivable, partially offset by the timing of
payments to subcontractors. The decrease in net cash from operating
activities for the nine months ended March 31, 1999, compared to the same
period last year was primarily due to non-recurring reductions in accounts
receivable last year, the prepayment received in fiscal 1998 on an Exit
Strategies-TM- project resulting in unearned revenue and to the timing of the
payments to subcontractors in early fiscal 1999 for work completed in the
fourth quarter of fiscal 1998 on the same Exit Strategies-TM- project.
Investing activities provided approximately $.5 million of cash flow during the
nine months ended March 31, 1999. In July 1998, The Company received
approximately $2.8 million from the sale of its instrumentation business. In
March 1999, the Company completed the acquisition of Alton Geoscience, Inc., for
approximately $1.6 million (net of cash received). The Company expects to use
approximately $4 million of additional cash for proposed acquisitions during the
remainder of fiscal 1999. For the nine months ended March 31, 1999, the Company
had capital expenditures of approximately $.7 million for equipment to support
business growth. The Company expects to make capital expenditures of
approximately $.3 million during the remainder of fiscal 1999.
The Company maintains a bank financing arrangement to assist in funding various
operating and financing activities. The Company has available a $10 million
revolving credit facility secured by accounts receivable. Borrowings under the
agreement bear interest at the bank's base rate or the Eurodollar rate plus
1 3/4%. The agreement requires the Company to meet certain financial ratios. At
March 31, 1999, outstanding borrowings pursuant to the agreement were $1.5
million, at an average interest rate of 7.1%.
At March 31, 1999, the Company had outstanding a $3.5 million subordinated note
due in July 1999, issued in March 1994 in connection with the acquisition of
Environmental Solutions, Inc. and subsequently amended in July 1997. Interest on
the note accrues at the greater of the interest rate paid on the Company's bank
debt or 7 3/4%. The Company also had outstanding at March 31, 1999 a $.4 million
7 3/4% subordinated note due in March 2003, issued in connection with the
acquisition of Hydro-Geo Consultants, Inc. in March 1998. This note is repayable
in four equal annual installments.
9
<PAGE>
The Company expects to increase cash flow from operating activities over the
remainder of fiscal 1999, primarily from continued growth in operating profits
and from a recent management program to significantly accelerate collections of
accounts receivable. The cash generated from operations, the cash on hand at
March 31, 1999 and available borrowings under the bank line of credit will be
sufficient to meet the Company's operating and investing cash requirements for
the remainder of fiscal 1999.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its critical management,
financial and operating systems will recognize and process transactions for the
year 2000 and beyond. As a result, all computer systems and applications are
being reviewed and, where appropriate, detailed plans have been, or are being,
developed and implemented on a schedule intended to permit the Company's systems
to be fully compliant with year 2000 requirements.
Systems critical to our business operations which have been identified as
non-year 2000 compliant are either being replaced or upgraded through program
modifications. Consistent with the Company's objective to have all critical
systems operational by June 30, 1999, substantially all necessary replacements,
upgrades and program modifications have been completed and successfully tested.
In addition to our in-house efforts, we are asking certain vendors, major
customers, service suppliers, communication providers, banks and other financial
institutions whose systems failures could have a significant impact on our
business operations to verify their year 2000 readiness.
Based on current information the costs specific to the year 2000 issue are
not expected to have a material impact on the Company's future operating
results, financial condition or cash flows. Although the Company expects to
be fully year 2000 compliant on a timely basis, the Company cannot completely
control its critical suppliers and customers failure to address this issue
successfully.
The Company is currently developing contingency plans to be implemented as part
of its efforts to identify and mitigate any year 2000 issues. These plans will
be completed by June 30, 1999.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes new standards for
reporting information about operating segments in annual and interim financial
statements. The standard also requires descriptive information about the way the
operating segments are determined, the products and services provided by the
segments and the nature of differences between reportable segment measurements
and those used for the consolidated enterprise. This standard is effective for
the Company in fiscal 1999. Adoption in interim financial statements is not
required until the year after initial adoption; however, comparative prior
period information is required. Adoption is not expected to have a material
impact on the financial position or results of operations of the Company.
10
<PAGE>
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, government funding, level of demand
for the Company's services, 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, 1998, for a
description of existing litigation against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC purposes only)
(b) Reports on Form 8-K - On April 8, 1999, the Company filed a
Form 8-K relative to the completion of the acquisition of Alton
Geoscience, Inc.
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.
May 14, 1999 by: /s/Harold C. Elston, Jr.
----------------------------------------------
Harold C. Elston, Jr.
Senior Vice President, Secretary and Treasurer
(Chief Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 746,913
<SECURITIES> 0
<RECEIVABLES> 30,276,789
<ALLOWANCES> (2,588,000)
<INVENTORY> 237,506
<CURRENT-ASSETS> 30,153,954
<PP&E> 19,651,093
<DEPRECIATION> (16,222,466)
<TOTAL-ASSETS> 58,908,251
<CURRENT-LIABILITIES> 11,333,866
<BONDS> 0
0
0
<COMMON> 741,085
<OTHER-SE> 45,337,106
<TOTAL-LIABILITY-AND-EQUITY> 58,908,251
<SALES> 0
<TOTAL-REVENUES> 55,323,696
<CGS> 0
<TOTAL-COSTS> 52,365,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340,656
<INCOME-PRETAX> 2,617,113
<INCOME-TAX> 994,000
<INCOME-CONTINUING> 1,623,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,623,113
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
