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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 December 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
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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
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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 February 14, 2000 there were 6,831,693 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 DECEMBER 31, 1999
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Consolidated Statements of Operations for the three and six months
ended December 31, 1999 and 1998............................... 3
Condensed Consolidated Balance Sheets at December 31, 1999 and
June 30, 1999.............................................. 4
Consolidated Statements of Cash Flows for the six months ended
December 31, 1999 and 1998................................. 5
Notes to Condensed Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.................................... 8
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders.............. 11
Item 6. Exhibits and Reports on Form 8-K................................. 11
SIGNATURE................................................................... 12
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PART I: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
(in thousands, except per share amounts) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
GROSS REVENUE $27,130 $18,987 $52,259 $37,393
Less subcontractor costs
and direct charges 8,376 5,836 15,392 11,362
------- ------- ------- -------
NET SERVICE REVENUE 18,754 13,151 36,867 26,031
------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Direct labor and fringe benefit costs 8,344 5,889 16,562 11,729
Indirect costs and expenses 7,175 5,063 14,097 10,045
General and administrative expenses 724 607 1,421 1,207
Depreciation and amortization 643 594 1,294 1,173
------- ------- ------- -------
16,886 12,153 33,374 24,154
------- ------- ------- -------
INCOME FROM OPERATIONS 1,868 998 3,493 1,877
Interest expense 228 121 423 240
------- ------- ------- -------
INCOME BEFORE TAXES 1,640 877 3,070 1,637
Federal and state income tax provision 590 333 1,105 622
------- ------- ------- -------
NET INCOME $ 1,050 $ 544 $ 1,965 $ 1,015
------- ------- ------- -------
------- ------- ------- -------
EARNINGS PER SHARE:
Basic $ 0.15 $ 0.08 $ 0.29 $ 0.15
Diluted 0.15 0.08 0.28 0.15
------- ------- ------- -------
------- ------- ------- -------
AVERAGE SHARES OUTSTANDING:
Basic 6,800 6,782 6,800 6,782
Diluted 7,065 6,804 7,034 6,796
------- ------- ------- -------
------- ------- ------- -------
</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>
December 31, June 30,
(in thousands, except share data) 1999 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 307 $ 1,368
Accounts receivable, less allowance for doubtful accounts 34,006 31,479
Deferred income tax benefits 1,362 1,231
Prepaid expenses and other current assets 1,054 1,096
------------ ------------
36,729 35,174
------------ ------------
PROPERTY AND EQUIPMENT, AT COST 20,897 20,377
Less accumulated depreciation and amortization 16,486 16,603
------------ ------------
4,411 3,774
------------ ------------
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF
ACCUMULATED AMORTIZATION 27,587 26,519
------------ ------------
OTHER ASSETS 1,306 605
------------ ------------
$ 70,033 $ 66,072
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt and borrowings under line of credit $ 9,400 $ 7,600
Accounts payable 4,799 4,152
Accrued compensation and benefits 2,373 3,433
Other accrued liabilities 3,042 2,558
------------ ------------
19,614 17,743
------------ ------------
NONCURRENT LIABILITIES:
Long-term debt 300 300
Deferred income taxes 1,159 1,041
------------ ------------
1,459 1,341
------------ ------------
SHAREHOLDERS' EQUITY:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued - -
Common, $.10 par value; 30,000,000 shares authorized, 7,429,346
shares issued at December 31, 1999 and 7,427,846 shares
issued at June 30, 1999 743 743
Additional paid-in capital 38,726 38,719
Retained earnings 12,388 10,423
------------ ------------
51,857 49,885
Less treasury stock, at cost 2,897 2,897
------------ ------------
48,960 46,988
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$ 70,033 $ 66,072
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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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
(in thousands) 1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,965 $ 1,015
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,294 1,173
Change in deferred taxes and other non-cash items (13) 5
Changes in assets and liabilities:
Accounts receivable (3,253) (468)
Prepaid expenses and other current assets (208) (616)
Accounts payable 647 (1,233)
Accrued compensation and benefits (1,060) (638)
Other accrued liabilities (333) (253)
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (961) (1,015)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,395) (434)
Proceeds from sale of instrumentation business - 2,750
Acquisition of businesses (44) -
Acquisition of equity investment and other (468) (7)
------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,907) 2,309
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (3,500) (3,500)
Net borrowings (repayments) under line of credit 5,300 1,400
Proceeds from exercise of stock options 7 -
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,807 (2,100)
------------ -----------
DECREASE IN CASH (1,061) (806)
Cash, beginning of period 1,368 1,379
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CASH, END OF PERIOD $ 307 $ 573
------------ -----------
------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 743 $ 233
Income taxes paid, net of refunds 1,498 624
------------ -----------
------------ -----------
</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
December 31, 1999
1. The condensed consolidated balance sheet at December 31, 1999 and the
consolidated statements of operations for the three and six months
ended December 31, 1999 and 1998 and the consolidated statements of
cash flows for the six months ended December 31, 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. 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, 1999.
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.
3. In fiscal 1999, the Company completed three strategic acquisitions,
as more fully described on pages 14 and 15 of the Company's 1999
Annual Report to Shareholders. Accordingly, the following unaudited
pro forma information for the six months ended December 31, 1998
presents summarized results of operations as if the acquisitions had
occurred at the beginning of that period after giving effect to
adjustments, including amortization of costs in excess of the net
assets acquired, increased interest expense on acquisition borrowings
and related income tax effects (in thousands, except per share
amount):
Six Months Ended
December 31, 1998
-----------------
Net service revenue $ 32,724
-----------
Net income 1,332
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Earnings per share - diluted .20
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The pro forma financial information does not purport to be indicative
of the results of operations that would have occurred had the
acquisitions taken place at the beginning of the period, nor do they
purport to be indicative of the results that will be obtained in the
future.
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During the six months ended December 31, 1999, the Company recorded
approximately $1.5 million of additional costs in excess of net assets
acquired related to an earnout in accordance with the terms of the
agreement and an adjustment to purchase price allocation.
4. The Company recently entered into several long-term contracts under
its Exit Strategies(R)program which involve the transfer of
liability from the responsible parties to the Company for
remediation of environmental conditions at a site. In exchange,
the responsible parties have entered into fixed fee contracts with
the Company in amounts based on the estimated costs 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 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.
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TRC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three and Six Months Ended December 31, 1999 and 1998
OVERVIEW
TRC Companies, Inc. provides 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 clients 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 Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SERVICE REVENUE 100.0 % 100.0 % 100.0 % 100.0%
---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Direct labor and fringe benefit costs 44.4 44.8 44.9 45.1
Indirect costs and expenses 38.3 38.5 38.2 38.6
General and administrative expenses 3.9 4.6 3.9 4.6
Depreciation and amortization 3.4 4.5 3.5 4.5
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 10.0 7.6 9.5 7.2
Interest expense 1.3 0.9 1.2 0.9
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 8.7 6.7 8.3 6.3
Federal and state income tax provision 3.1 2.6 3.0 2.4
---------- ---------- ---------- ----------
NET INCOME 5.6 % 4.1 % 5.3 % 3.9%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
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<PAGE>
The revenue growth trend established in fiscal 1998 continued. Net service
revenue increased by 43% to $18.8 million during the three months ended December
31, 1999, compared to $13.2 million in the same period last year. For the six
months ended December 31, 1999, net service revenue increased by 42% to $36.9
million, compared to $26 million in the same period last year. These increases
were due to a combination of internal growth arising out of increased demand for
the Company's services and the additional revenue from acquisitions made in
fiscal 1999.
Direct labor and fringe benefit costs increased by approximately 41% in both the
three and six months ended December 31, 1999, as compared to the same periods
last year, primarily due to the increases in net service revenue. Indirect costs
and expenses increased by approximately 42% and 40%, respectively, during the
three and six months ended December 31, 1999, as compared to the same periods
last year. These increases were primarily due to the additional operating costs
associated with the businesses acquired in fiscal 1999.
General and administrative expenses increased by approximately 19% and 18%,
respectively, during the three and six months ended December 31, 1999, as
compared to the same periods last year. These increases were primarily due to
the acquisitions made in fiscal 1999. However, as a percentage of net service
revenue, these costs decreased to 4% from 5% in both the three and six month
periods ended December 31, 1999, as compared to the same periods last year,
reflecting management's philosophy of maximizing revenue without increasing
overhead.
Depreciation and amortization expense increased by approximately 8% and 10%,
respectively, during the three and six months ended December 31, 1999, as
compared to the same periods last year. These increases were primarily due to
additional depreciation expense on the furniture and equipment of businesses
acquired in fiscal 1999 and to additional amortization of costs in excess of
the net assets of acquired businesses.
Income from operations increased by approximately 87% to $1.9 million during
the three months ended December 31, 1999, as compared to $1 million during
the same period last year. For the six months ended December 31, 1999, income
from operations increased by approximately 86% to $3.5 million, as compared
to $1.9 million during the same period last year. The continued improvement
in operating performance was primarily due to: (1) the Company's focus toward
higher margin, economically driven markets; and (2) the growth in revenue,
without comparable increases in operating overhead.
Interest expense increased during the three and six months ended December 31,
1999, as compared to the same periods last year, primarily due to higher
interest rates and higher levels of debt outstanding because of acquisitions
completed in fiscal 1999. The Company's percentage of debt to capitalization
ratio continues to remain low, reflecting management's conservative
philosophy.
The provision for federal and state income taxes reflects an effective rate of
36% in the three and six months ended December 31, 1999, compared to an
effective rate of 38% in the same periods last year. The decreases are primarily
due to lower state income taxes. The Company believes that there will be
sufficient taxable income in future periods to enable utilization of available
deferred income tax benefits.
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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.
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.
Cash flows used in operating activities for the six months ended December 31,
1999 was approximately $1 million. The cash generated by net income and the
non-cash charges against income for depreciation and amortization was offset by
the increase in accounts receivable due to the continued growth in revenue, the
timing of the payroll payments and to higher income tax and interest payments.
Investing activities used cash of approximately $1.9 million during the six
months ended December 31, 1999, consisting primarily of expenditures for
additional information technology and other equipment to support business growth
and an equity investment in certain Brownfields redevelopment property.
Subsequent to December 31, 1999, the Company used approximately $2.9 million of
additional cash for an acquisition. Also, the Company expects to make capital
expenditures of approximately $1.5 million during the remainder of fiscal 2000.
The Company maintains a bank financing arrangement to assist in funding various
operating and financing activities. The Company has available a $15 million
revolving credit facility secured by accounts receivable which expires July
2001. 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 December 31, 1999, outstanding borrowings pursuant
to the agreement were $9.3 million, at an average interest rate of 8%. The
Company also had outstanding at December 31, 1999 a $.4 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 four remaining equal
installments.
On July 1, 1999, the Company repaid the final $3.5 million installment on the
subordinated note issued in March 1994 in connection with the acquisition of
Environmental Solutions, Inc., with cash provided by the revolving credit
facility.
The Company expects to increase its available cash flow over the remainder of
fiscal 2000, primarily from operations and from reductions in working capital
derived mainly from the accelerated collection of accounts receivable. The
cash generated from operations, the cash on hand at December 31, 1999 and
available borrowings under the bank line of credit are expected to be
sufficient to meet the Company's cash requirements for the remainder of
fiscal 2000.
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YEAR 2000 COMPLIANCE
The Company had recognized the need to ensure that its critical management,
financial and operating systems would recognize and process transactions for the
year 2000 and beyond. As a result, the Company competed a process to review, and
where appropriate, detailed plans were developed, implemented and tested. As of
December 31, 1999, this process was completed and the Company did not experience
any significant disruption as a result of the Year 2000 issue. The costs
specific to the Year 2000 issue did not have a material impact on the Company's
operating results, financial condition or cash flows.
Additionally, the Company completed an assessment of Year 2000 risks of its
critical suppliers and customers. Despite these efforts, the Company can provide
no assurance that all supplier and customer Year 2000 compliance plans were
successfully completed in a timely manner, although it is not currently aware of
any problems which would significantly impact its operations.
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 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on October 22, 1999, all
nominees for director were re-elected and PricewaterhouseCoopers, LLP were
appointed as the Company's independent accountants for the fiscal year ending
June 30, 2000 by a vote of 6,058,381 in favor of the appointment; 56,112 voted
against; and 4,900 abstained. There were no broker non-votes.
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 December 31, 1999.
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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 thereunto duly authorized.
TRC COMPANIES, INC.
February 14, 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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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 307
<SECURITIES> 0
<RECEIVABLES> 36,887
<ALLOWANCES> (2,881)
<INVENTORY> 0
<CURRENT-ASSETS> 36,729
<PP&E> 20,897
<DEPRECIATION> (16,486)
<TOTAL-ASSETS> 70,033
<CURRENT-LIABILITIES> 19,614
<BONDS> 0
0
0
<COMMON> 743
<OTHER-SE> 48,217
<TOTAL-LIABILITY-AND-EQUITY> 70,033
<SALES> 0
<TOTAL-REVENUES> 52,259
<CGS> 0
<TOTAL-COSTS> 48,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 423
<INCOME-PRETAX> 3,070
<INCOME-TAX> 1,105
<INCOME-CONTINUING> 1,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,965
<EPS-BASIC> .29
<EPS-DILUTED> .28
</TABLE>
