<PAGE>
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 March 31, 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
- ---------------------------------------- --------------------------
(State or other jurisdiction (I.R.S. Employer
of 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 May 15, 2000 there were 6,878,343 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 MARCH 31, 2000
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Consolidated Statements of Operations for the three and
nine months ended March 31, 2000 and 1999................... 3
Condensed Consolidated Balance Sheets at March 31, 2000 and
June 30, 1999............................................... 4
Consolidated Statements of Cash Flows for the nine months ended
March 31, 2000 and 1999..................................... 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition..................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk .... 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 12
SIGNATURE.................................................................. 12
2
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PART I: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
(in thousands, except per share amounts) 2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
GROSS REVENUE $ 29,376 $ 17,930 $ 81,635 $ 55,324
Less subcontractor costs
and direct charges 8,050 3,859 23,443 15,222
------------ ------------ ------------ ------------
NET SERVICE REVENUE 21,326 14,071 58,192 40,102
------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Direct labor and fringe benefit costs 9,517 6,492 26,079 18,220
Indirect costs and expenses 8,215 5,268 22,311 15,313
General and administrative expenses 741 627 2,162 1,834
Depreciation and amortization 690 604 1,984 1,777
------------ ------------ ------------ ------------
19,163 12,991 52,536 37,144
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 2,163 1,080 5,656 2,958
Interest expense 263 100 686 341
------------ ------------ ------------ ------------
INCOME BEFORE TAXES 1,900 980 4,970 2,617
Federal and state income tax provision 684 372 1,789 994
------------ ------------ ------------ ------------
NET INCOME $ 1,216 $ 608 $ 3,181 $ 1,623
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
EARNINGS PER SHARE:
Basic $ 0.18 $ 0.09 $ 0.47 $ 0.24
Diluted 0.17 0.09 0.45 0.24
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
AVERAGE SHARES OUTSTANDING:
Basic 6,830 6,782 6,800 6,782
Diluted 7,281 6,874 7,116 6,822
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
(in thousands, except share data) 2000 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 399 $ 1,368
Accounts receivable, less allowance for doubtful accounts 37,375 31,479
Deferred income tax benefits 1,438 1,231
Prepaid expenses and other current assets 1,107 1,096
------------ ------------
40,319 35,174
------------ ------------
PROPERTY AND EQUIPMENT, AT COST 21,735 20,377
Less accumulated depreciation and amortization (16,806) (16,603)
------------ ------------
4,929 3,774
------------ ------------
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF
ACCUMULATED AMORTIZATION 29,044 26,519
------------ ------------
OTHER ASSETS 1,351 605
------------ ------------
$ 75,643 $ 66,072
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt and borrowings under revolving
credit facility $ 12,700 $ 7,600
Accounts payable 4,745 4,152
Accrued compensation and benefits 3,736 3,433
Other accrued liabilities 2,500 2,558
------------ ------------
23,681 17,743
------------ ------------
NONCURRENT LIABILITIES:
Long-term debt 200 300
Deferred income taxes 1,224 1,041
------------ ------------
1,424 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, 7,469,246
shares issued at March 31, 2000 and 7,427,846 shares
issued at June 30, 1999 747 743
Additional paid-in capital 39,084 38,719
Retained earnings 13,604 10,423
------------ ------------
53,435 49,885
Less treasury stock, at cost (2,897) (2,897)
------------ ------------
50,538 46,988
------------ ------------
$ 75,643 $ 66,072
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
(in thousands) 2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,181 $ 1,623
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,984 1,777
Change in deferred taxes and other non-cash items (24) 25
Changes in assets and liabilities, net of effects from acquisitions and
divestitures:
Accounts receivable (4,578) 1,299
Prepaid expenses and other current assets (209) (575)
Accounts payable 355 (2,265)
Accrued compensation and benefits (16) (581)
Other accrued liabilities 41 (342)
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 734 961
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,110) (714)
Proceeds from sale of instrumentation business - 2,750
Acquisition of businesses, net of cash acquired (4,177) (1,562)
Acquisition of equity investment and other (510) 33
----------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,797) 507
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (3,600) (3,600)
Net borrowings under revolving credit facility 8,600 1,500
Proceeds from exercise of stock options 94 -
----------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,094 (2,100)
----------- ---------
DECREASE IN CASH (969) (632)
Cash, beginning of period 1,368 1,379
----------- ---------
CASH, END OF PERIOD $ 399 $ 747
----------- ---------
----------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 969 $ 368
Income taxes paid, net of refunds 1,499 816
----------- ---------
----------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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TRC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
1. The condensed consolidated balance sheet at March 31, 2000, the
consolidated statements of operations for the three and nine months
ended March 31, 2000 and 1999 and the consolidated statements of cash
flows for the nine months ended March 31, 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. 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 March 2000, the Company's revolving credit facility with a
commercial bank was amended to increase the borrowing base to $20
million from $15 million and to extend the term of the facility to
March 2003.
4. On January 7, 2000, the Company completed the acquisition of Hunter
Associates Texas, Ltd. a civil engineering firm headquartered in
Dallas, Texas, which was effective January 1, 2000. The purchase price
of approximately $3.4 million consisted of a combination of cash,
25,000 shares of the Company's common stock, a 5-year warrant to
purchase 20,000 shares of the Company's common stock exercisable at
$7.81 per share and a holdback of approximately $.3 million. The
Company could make additional payments based upon revenue objectives
in each of the years in the three-year period ending December 31,
2002. 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 approximately $1.7 million (before
contingent consideration), which is being amortized over 30 years on a
straight-line basis.
6
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Accordingly, the following unaudited pro forma information for the nine
months ended March 31, 2000 and 1999 presents summarized results of
operations as if the acquisition had occurred at the beginning of the
periods presented 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):
<TABLE>
<CAPTION>
Nine Months Ended March 31,
(Unaudited) 2000 1999
------------ ------------
<S> <C> <C>
Net service revenue $83,934 $43,005
------- -------
Net income 3,564 2,044
------- -------
Earnings per share - diluted $ .50 $ .30
------- -------
</TABLE>
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.
In connection with the acquisitions completed in fiscal 1999, the
Company recorded approximately $1.6 million of additional costs in
excess of net assets acquired during the nine months ended March 31,
2000 related to an earnout in accordance with the terms of the
agreement and adjustments to purchase price allocations.
5. The Company recently entered into several long-term contracts under its
Exit Strategies-Registered Trademark- 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.
7
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TRC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three and Nine Months Ended March 31, 2000 and 1999
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 Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<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 44.6 46.1 44.8 45.4
Indirect costs and expenses 38.6 37.4 38.4 38.2
General and administrative expenses 3.5 4.5 3.7 4.6
Depreciation and amortization 3.2 4.3 3.4 4.4
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 10.1 7.7 9.7 7.4
Interest expense 1.2 0.8 1.1 0.9
------------ ------------ ------------ ------------
INCOME BEFORE TAXES 8.9 6.9 8.6 6.5
Federal and state income tax provision 3.2 2.6 3.1 2.5
------------ ------------ ------------ ------------
NET INCOME 5.7% 4.3% 5.5% 4.0%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
8
<PAGE>
The revenue growth trend established in fiscal 1998 continued. Net service
revenue increased by 52% to $21.3 million during the three months ended March
31, 2000, compared to $14.1 million in the same period last year. For the nine
months ended March 31, 2000, net service revenue increased by 45% to $58.2
million, compared to $40.1 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 the acquisition made in
January 2000 and from the acquisitions made in fiscal 1999.
Direct labor and fringe benefit costs increased by approximately 47% and 43%,
respectively, in the three and nine months ended March 31, 2000, as compared to
the same periods last year, primarily due to the increases in net service
revenue. Indirect costs and expenses increased by approximately 56% and 46%,
respectively, during the three and nine months ended March 31, 2000, as compared
to the same periods last year. These increases were primarily due to the
additional operating costs associated with the businesses acquired in the
current year and in fiscal 1999 and internal growth.
General and administrative expenses increased by approximately 18% during the
three and nine months ended March 31, 2000, as compared to the same periods
last year. These increases were primarily due to the acquisitions made in
fiscal 1999 and internal growth. However, as a percentage of net service
revenue, these costs decreased in both the three and nine months ended March
31, 2000, as compared to the same periods last year.
Depreciation and amortization expense increased by approximately 14% and 12%,
respectively, during the three and nine months ended March 31, 2000, as
compared to the same periods last year. These increases were primarily due to
additional depreciation expense on the equipment of businesses acquired in
the current and prior year and to additional amortization of costs in excess
of the net assets of acquired businesses.
Income from operations increased by approximately 100% to $2.2 million during
the three months ended March 31, 2000, as compared to $1.1 million during the
same period last year. For the nine months ended March 31, 2000, income from
operations increased by approximately 91% to $5.7 million, as compared to $3.0
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 nine months ended March 31,
2000, 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 the current year and 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 nine months ended March 31, 2000, 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
9
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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.
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 provided by operating activities for the nine months ended March
31, 2000 was approximately $.7 million. The cash generated by net income and
the non-cash charges against income for depreciation and amortization was
partially offset by the increase in accounts receivable due to the continued
growth in revenue and by higher income tax deposits and payment of the
accrued interest on the subordinated note repaid on July 1, 1999.
Investing activities used cash of approximately $6.8 million during the nine
months ended March 31, 2000. An acquisition completed in January 2000 and an
earnout and other payments on the acquisitions made in fiscal 1999 required
the use of approximately $4.2 million. The Company also made capital
expenditures of approximately $2.1 million for additional information
technology and other equipment to support business growth and invested
approximately $.5 million in certain Brownfield redevelopment property.
Subsequent to March 31, 2000, the Company used approximately $.5 million of
additional cash for an acquisition. The Company expects to make capital
expenditures of approximately $.8 million during the remainder of fiscal 2000.
The Company maintains a bank financing arrangement to assist in funding
various operating and financing activities. In March 2000, the Company
amended its revolving credit facility by increasing the borrowing base from
$15 million to $20 million, and extending the term of the facility from July
2001 to March 2003. The revolving credit facility is 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, 2000, outstanding borrowings
pursuant to the agreement were $12.6 million, at an average interest rate of
7.9%. The Company also had outstanding at March 31, 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.
10
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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 March 31, 2000 and
available borrowings under the revolving credit facility are expected to be
sufficient to meet the Company's cash requirements for the next twelve months.
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 completed a review of all
critical and non-critical systems and at December 31, 1999 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.
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 facility 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 rates under the revolving credit facility would
not have a material effect on the Company's operating results, financial
condition or cash flows.
11
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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 - There were no reports on Form 8-K filed during
the quarter ended March 31, 2000.
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 15, 2000 by: /s/ Harold C. Elston, Jr.
---------------------------------
Harold C. Elston, Jr.
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 399
<SECURITIES> 0
<RECEIVABLES> 40,384
<ALLOWANCES> (3,009)
<INVENTORY> 0
<CURRENT-ASSETS> 40,319
<PP&E> 21,735
<DEPRECIATION> (16,806)
<TOTAL-ASSETS> 76,643
<CURRENT-LIABILITIES> 23,681
<BONDS> 0
0
0
<COMMON> 747
<OTHER-SE> 49,791
<TOTAL-LIABILITY-AND-EQUITY> 76,643
<SALES> 0
<TOTAL-REVENUES> 81,635
<CGS> 0
<TOTAL-COSTS> 75,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 686
<INCOME-PRETAX> 4,970
<INCOME-TAX> 1,789
<INCOME-CONTINUING> 3,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,181
<EPS-BASIC> .47
<EPS-DILUTED> .45
</TABLE>
