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UNITED STATES 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, 2000
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
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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) 298-9692
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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 November 10, 2000, there were 7,133,391 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, 2000
<TABLE>
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated Statements of Operations for the three months ended
September 30, 2000 and 1999............................................................ 3
Condensed Consolidated Balance Sheets at
September 30, 2000 and June 30, 2000................................................... 4
Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 2000 and 1999 ............................... 5
Notes to Condensed Consolidated Financial Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................ 10
SIGNATURE.................................................................................................... 10
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PART I: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
(in thousands, except per share data) 2000 1999
------------ -----------
<S> <C> <C>
GROSS REVENUE $ 36,887 $ 25,129
Less subcontractor costs and direct charges 10,184 7,016
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NET SERVICE REVENUE 26,703 18,113
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OPERATING COSTS AND EXPENSES:
Cost of services 21,719 15,140
General and administrative expenses 860 697
Depreciation and amortization 847 651
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23,426 16,488
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INCOME FROM OPERATIONS 3,277 1,625
Interest expense 485 195
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INCOME BEFORE TAXES 2,792 1,430
Federal and state income tax provision 1,033 515
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NET INCOME $ 1,759 $ 915
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EARNINGS PER SHARE:
Basic $ .25 $ .13
Diluted .23 .13
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AVERAGE SHARES OUTSTANDING:
Basic 7,067 6,800
Diluted 7,636 7,003
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
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TRC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
(in thousands, except share data) 2000 2000
------------ ------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash $ 1,237 $ 1,566
Accounts receivable, less allowance for doubtful accounts 52,544 48,995
Deferred income tax benefits 1,397 1,208
Prepaid expenses and other current assets 1,198 1,053
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56,376 52,822
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PROPERTY AND EQUIPMENT, AT COST 24,878 23,617
Less accumulated depreciation and amortization 17,784 17,361
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7,094 6,256
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COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF
ACCUMULATED AMORTIZATION 33,161 33,512
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OTHER ASSETS 2,280 1,618
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$ 98,911 $ 94,208
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 100 $ 100
Accounts payable 6,675 6,216
Accrued compensation and benefits 5,222 4,308
Billings in excess of revenue earned 2,372 3,160
Other accrued liabilities 2,666 2,770
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17,035 16,554
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NON-CURRENT LIABILITIES:
Long-term debt 23,200 21,200
Deferred income taxes 2,060 2,006
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25,260 23,206
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued - -
Common, $.10 par value; 30,000,000 shares authorized, 7,711,595
shares issued at September 30, 2000 and 7,674,329 shares
issued at June 30, 2000 771 767
Additional paid-in capital 41,916 41,511
Retained earnings 16,826 15,067
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59,513 57,345
Less treasury stock, at cost 2,897 2,897
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56,616 54,448
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$ 98,911 $ 94,208
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
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TRC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
(in thousands) 2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,759 $ 915
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 847 651
Change in deferred taxes and other non-cash items (48) (10)
Changes in assets and liabilities:
Accounts receivable (3,549) (1,546)
Prepaid expenses and other current assets (145) (41)
Accounts payable 459 49
Accrued compensation and benefits 914 44
Billings in excess of revenue earned (788) 32
Other accrued liabilities (104) (377)
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NET CASH USED IN OPERATING ACTIVITIES (655) (283)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,329) (761)
Issuance of note receivable (625) -
Acquisition of equity investments and other (45) 1
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NET CASH USED IN INVESTING ACTIVITIES (1,999) (760)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility 2,000 4,000
Repayment of long-term debt - (3,500)
Proceeds from exercise of stock options and warrants 325 4
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NET CASH PROVIDED BY FINANCING ACTIVITIES 2,325 504
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DECREASE IN CASH (329) (539)
Cash, beginning of period 1,566 1,368
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CASH, END OF PERIOD $ 1,237 $ 829
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 319 $ 453
Income taxes paid, net of refunds 1,250 732
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
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TRC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(in thousands)
1. The condensed consolidated balance sheet at September 30, 2000, the
consolidated statement of operations and the condensed consolidated
statement of cash flows for the three months ended September 30, 2000
and 1999 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
June 30, 2000 condensed consolidated balance sheet data was derived
from the audited financial statements but does not include all
disclosures required by generally accepted accounting principles in
the United States. Certain footnote disclosures usually included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States 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, 2000.
2. Earnings per share is computed in accordance with the provisions of
Statement of Financial Accounting 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.
For purposes of computing diluted earnings per share, the weighted
average number of shares outstanding was increased by 569 shares and
203 shares for the three months ended September 30, 2000 and 1999,
respectively, representing the potential dilutive effects of
outstanding stock options and warrants.
3. The Company recently entered into several long-term contracts under its
Exit Strategies(R)program which involve the transfer of liability for
remediation of environmental conditions at a site from the responsible
parties to the Company. In exchange, the responsible parties have
entered into a fixed fee contract with the Company in an amount based
on the estimated cost of remediation. The Company generally assumes
the risk for all remediation costs for pre-existing site conditions
and believes that through in-depth technical analysis, comprehensive
cost estimation and creative remedial approaches as approved by
applicable regulatory agencies, it is able to execute pricing
strategies which protect the Company's return on these projects. As
additional protection, the Company obtains remediation cost cap
insurance from rated insurance companies which provides coverage for
cost increases arising from unknown or changed conditions. The Company
believes that it is adequately protected from risks on these projects
and that adverse developments, if any, will not have a material impact
on the Company's consolidated operating results, financial condition
or cash flows.
4. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVES
AND HEDGING ACTIVITIES. The Statement, as amended, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The
Statement requires companies to recognize all derivative instruments
on their balance sheet as either assets or liabilities measured at
fair value. The Statement also specifies a new method of accounting
for hedging transactions, prescribes the types of items and
transactions that may be hedged, and specifies detailed criteria to be
met to qualify for hedge accounting. The Company has adopted this
Statement in fiscal 2001. Adoption of this Statement did not have a
material impact on the Company's consolidated operating results,
financial condition or cash flows.
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TRC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 and 1999
OVERVIEW
The Company is a leading provider of technical, financial risk management and
construction services to industry and government primarily in the United States
market. The Company's main focus is in the areas of infrastructure improvements
and expansions, environmental management and information technology.
RESULTS OF OPERATIONS
The Company, in the course of providing its services, routinely subcontracts
drilling, laboratory analyses, construction equipment and other services. These
costs are passed directly through to customers and, in accordance with industry
practice, are included in gross revenue. Because subcontractor costs and direct
charges can vary significantly from project to project, the Company considers
net service revenue, which is gross revenue less subcontractor costs and direct
charges, as its primary measure of revenue growth.
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,
2000 1999
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<S> <C> <C>
NET SERVICE REVENUE 100.0% 100.0%
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OPERATING COSTS AND EXPENSES:
Cost of services 81.3 83.6
General and administrative expenses 3.2 3.8
Depreciation and amortization 3.2 3.6
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INCOME FROM OPERATIONS 12.3 9.0
Interest expense 1.8 1.1
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INCOME BEFORE TAXES 10.5 7.9
Federal and state income tax provision 3.9 2.8
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NET INCOME 6.6% 5.1%
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</TABLE>
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<PAGE>
The revenue growth trend established in fiscal 1998 continued. Net service
revenue increased by 47.4% to $26.7 million during the three months ended
September 30, 2000, compared to $18.1 million in the same period last year. The
increase was due to a combination of internal growth arising out of increased
revenue from the Company's services including, as expected, revenue from the
Exit Strategies(R) program, and the additional revenue from acquisitions made in
fiscal 2000.
Cost of services also increased by approximately 43.5% during the three months
ended September 30, 2000, as compared to the same period last year, primarily
due to the increase in net service revenue and additional operating costs
associated with the businesses acquired in fiscal 2000. However, as a percentage
of net service revenue, these costs decreased to 81.3% from 83.6% last year.
General and administrative expenses increased by approximately 23.4% during the
three months ended September 30, 2000, as compared to the same period last year.
The increase was primarily from additional costs necessary to support the
Company's internal and acquisition growth. However, as a percentage of net
service revenue, these costs decreased to 3.2% from 3.8% last year.
Depreciation and amortization expense increased by approximately 30% during the
three months ended September 30, 2000, as compared to the same period last year.
This increase was due to the additional depreciation expense on the equipment of
businesses acquired in fiscal 2000 and to the additional amortization of costs
in excess of the net assets of the acquired businesses.
Income from operations increased by approximately 102% to $3.3 million during
the three months ended September 30, 2000, as compared to $1.6 million during
the same period last year. The continued improvement in operating performance
was primarily attributable to: (1) the Company's focus toward higher margin,
economically driven markets, such as the Exit Strategy program; and (2) the
growth in revenue without comparable increases in operating overhead.
Interest expense increased during the three months ended September 30, 2000, as
compared to the same period last year, primarily due to higher levels of debt
outstanding because of acquisitions completed in the last two years.
The provision for federal and state income taxes reflects an effective rate of
37% for the three months ended September 30, 2000, compared to an effective rate
of 36% in the same period last year. The increase was primarily due to
nondeductible costs in excess of the net assets acquired on the acquisitions
completed in fiscal 2000. The Company believes that there will be sufficient
taxable income in future periods to enable utilization of available deferred
income tax benefits.
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.
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LIQUIDITY AND CAPITAL RESOURCES
The Company primarily relies on cash from 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.
Cash flow used in operating activities for the three months ended September 30,
2000 was approximately $.7 million. The cash generated by net income and the
non-cash charges against income for depreciation and amortization were primarily
offset by the increase in accounts receivable due to the growth in revenue as
well as higher income tax payments.
Investing activities used cash of approximately $2 million during the three
months ended September 30, 2000, consisting primarily of expenditures for
additional information technology and other equipment to support business
growth. The Company expects to make capital expenditures of approximately $3
million during the remainder of fiscal 2001. In addition, the Company issued a
one-year $.6 million 8% note to a provider of web enabled energy services in
contemplation of an equity investment in that entity. The Company has the option
to convert the note into a 12.5% equity interest of the debtor.
The Company maintains a bank financing arrangement to assist in funding various
operating and financing activities. The Company has available a $25 million
revolving credit facility secured by accounts receivable which expires March
2003. 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 September 30, 2000, outstanding borrowings pursuant
to the agreement were $23 million, at an average interest rate of 8.5%. The
Company also had outstanding at September 30, 2000 a $.3 million 7 3/4%
subordinated note issued in connection with the purchase of Hydro-Geo
Consultants, Inc. in March 1998. The note is repayable in three remaining equal
installments.
The Company expects to increase its available cash flow over the remainder of
fiscal 2001, primarily from operations and from reductions in working capital
derived mainly from the collection of accounts receivable. The cash generated
from operations, the cash on hand at September 30, 2000 and available borrowings
under the bank line of credit will be sufficient to meet the Company's cash
requirements for the remainder of fiscal 2001.
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to borrowings under the Company's revolving credit agreement with a
commercial bank. These borrowings bear interest at variable rates and the fair
value of this indebtedness is not significantly affected by changes in market
interest rates. An effective increase or decrease of 10% in the current
effective interest rate under the revolving credit agreement would not have a
material effect on the Company's consolidated operating results, financial
condition or cash flows.
PART II: OTHER INFORMATION
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 -
On July 14, 2000, the Company filed a Form 8-K/A amending the May
15, 2000 Form 8-K filing reporting that on January 7, 2000, the
Company had completed the acquisition of Hunter Associates, Inc.
On August 3, 2000, the Company filed a Form 8-K/A amending the
June 2, 2000 Form 8-K filing reporting that on May 23, 2000, the
Company had completed the acquisition of Lowney Associates.
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.
November 10, 2000 by: /s/ Harold C. Elston, Jr.
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Harold C. Elston, Jr.
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer)
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