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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 December 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
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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 12, 2001 there were 7,301,395 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, 2000
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Consolidated Statements of Operations for the three and six months ended
December 31, 2000 and 1999............................................................. 3
Condensed Consolidated Balance Sheets at December 31, 2000 and
June 30, 2000.......................................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months
ended December 31, 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 4: Submission of Matters to a Vote of Security Holders......................................... 10
Item 6. Exhibits and Reports on Form 8-K............................................................ 10
SIGNATURE.................................................................................................... 11
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PART I: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
(in thousands, except per share amounts) 2000 1999 2000 1999
-------- -------- -------- --------
GROSS REVENUE $ 44,642 $ 27,130 $ 81,529 $ 52,259
Less subcontractor costs
and direct charges 15,508 8,376 25,692 15,392
-------- -------- -------- --------
NET SERVICE REVENUE 29,134 18,754 55,837 36,867
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of services 23,641 15,519 45,360 30,659
General and administrative expenses 965 724 1,825 1,421
Depreciation and amortization 844 643 1,691 1,294
-------- -------- -------- --------
25,450 16,886 48,876 33,374
-------- -------- -------- --------
INCOME FROM OPERATIONS 3,684 1,868 6,961 3,493
Interest expense 409 228 894 423
-------- -------- -------- --------
INCOME BEFORE TAXES 3,275 1,640 6,067 3,070
Federal and state income tax provision 1,212 590 2,245 1,105
-------- -------- -------- --------
NET INCOME $ 2,063 $ 1,050 $ 3,822 $ 1,965
======== ======== ======== ========
EARNINGS PER SHARE:
Basic $ 0.29 $ 0.15 $ 0.54 $ 0.29
Diluted 0.26 0.15 0.49 0.28
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING:
Basic 7,165 6,800 7,116 6,800
Diluted 7,845 7,065 7,741 7,034
======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
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TRC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
(in thousands, except share data) 2000 2000
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,353 $ 1,566
Accounts receivable, less allowance for doubtful accounts 52,025 48,995
Deferred income tax benefits 1,378 1,208
Prepaid expenses and other current assets 1,195 1,053
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55,951 52,822
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PROPERTY AND EQUIPMENT, AT COST 25,878 23,617
Less accumulated depreciation and amortization 18,054 17,361
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7,824 6,256
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GOODWILL, NET OF ACCUMULATED AMORTIZATION 34,248 33,512
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INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 3,892 1,046
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OTHER ASSETS 509 572
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$ 102,424 $ 94,208
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 233 $ 100
Accounts payable 6,949 6,216
Accrued compensation and benefits 4,502 4,308
Billings in advance of revenue earned 9,041 3,160
Other accrued liabilities 2,990 2,770
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23,715 16,554
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NONCURRENT LIABILITIES:
Long-term debt 15,667 21,200
Deferred income taxes 2,313 2,006
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17,980 23,206
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SHAREHOLDERS' EQUITY:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued - -
Common, $.10 par value; 30,000,000 shares authorized, 7,857,127
shares issued at December 31, 2000 and 7,674,329 shares
issued at June 30, 2000 786 767
Additional paid-in capital 43,951 41,511
Retained earnings 18,889 15,067
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63,626 57,345
Less treasury stock, at cost 2,897 2,897
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60,729 54,448
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$ 102,424 $ 94,208
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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)
Six Months Ended
December 31,
(in thousands) 2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,822 $ 1,965
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,691 1,294
Change in deferred taxes and other non-cash items 318 (13)
Changes in assets and liabilities:
Accounts receivable (2,307) (3,842)
Prepaid expenses and other current assets (135) (208)
Accounts payable 661 647
Accrued compensation and benefits 7 (1,060)
Billings in advance of revenue earned 5,881 589
Other accrued liabilities 502 (333)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 10,440 (961)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,531) (1,395)
Investments in and advances to unconsolidated affiliates (3,019) (484)
Acquisition of businesses, net of cash received (54) (44)
Decrease in other assets 55 16
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NET CASH USED IN INVESTING ACTIVITIES (5,549) (1,907)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt - (3,500)
Net borrowings (repayments) under revolving credit facility (5,800) 5,300
Proceeds from exercise of stock options and warrants 696 7
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,104) 1,807
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DECREASE IN CASH (213) (1,061)
Cash and cash equivalents, beginning of period 1,566 1,368
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,353 $ 307
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 833 $ 743
Income taxes paid, net of refunds 1,517 1,498
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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, 2000
1. The condensed consolidated balance sheet at December 31, 2000 and the
consolidated statements of operations for the three and six months
ended December 31, 2000 and 1999 and the condensed consolidated
statements of cash flows for the six months ended December 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. 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 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.
3. The Company has 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 (e.g.,
American International Group) 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,
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 and Six Months Ended December 31, 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 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.
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
NET SERVICE REVENUE 100.0 % 100.0 % 100.0 % 100.0 %
---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of services 81.1 82.7 81.2 83.1
General and administrative expenses 3.3 3.9 3.3 3.9
Depreciation and amortization 2.9 3.4 3.0 3.5
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INCOME FROM OPERATIONS 12.7 10.0 12.5 9.5
Interest expense 1.4 1.3 1.6 1.2
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INCOME BEFORE TAXES 11.3 8.7 10.9 8.3
Federal and state income tax provision 4.2 3.1 4.0 3.0
---------- ---------- ---------- ----------
NET INCOME 7.1 % 5.6 % 6.9 % 5.3 %
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The revenue growth trend established in fiscal 1998 continued. Net service
revenue increased by 55.3% to $29.1 million during the three months ended
December 31, 2000, compared to $18.8 million in the same period last year. For
the six months ended December 31, 2000, net service revenue increased by 51.5%
to $55.8 million, compared to $36.9 million in the same period last year. These
increases were 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.
As a percentage of net service revenue, cost of services decreased to 81.1% and
81.2%, respectively, during the three and six months ended December 31, 2000,
from 82.7% and 83.1%, respectively, in the same periods last year. This decrease
contributed directly to an increase in income from operations as a percentage of
net service revenue. Increases in the cost of services of approximately 52.3%
and 48%, respectively, during the three and six months ended December 31, 2000
were primarily due to additional operating costs incurred to support the
increase in net service revenue and additional operating costs associated with
the businesses acquired in fiscal 2000.
As a percentage of net service revenue, general and administrative costs
decreased to 3.3% from 3.9% in both the three and six month periods ended
December 31, 2000, as compared to the same periods last year. This decrease also
contributed directly to an increase in income from operations as a percentage of
net service revenue. Increases in general and administrative expenses of
approximately 33.3% and 28.4%, respectively, during the three and six months
ended December 31, 2000, were primarily from additional costs to support the
Company's internal and acquisition growth.
Depreciation and amortization expense increased by approximately 31.3% and
30.7%, respectively, during the three and six months ended December 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
fiscal 2000 and the additional amortization of goodwill of acquired businesses.
Income from operations increased by approximately 97.2% to $3.7 million during
the three months ended December 31, 2000, as compared to $1.9 million during the
same period last year. For the six months ended December 31, 2000, income from
operations increased by approximately 99.3% to $7 million, as compared to $3.5
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, such as the Exit Strategy(R) program; and (2) the
growth in revenue, without comparable increases in operating overhead.
Interest expense increased during the three and six months ended December 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 fiscal 2000. Reductions in debt made during the quarter are
expected to result in lower interest costs in future periods. 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
37% in the three and six months ended December 31, 2000, compared to an
effective rate of 36% in the same periods last year. The increases were
primarily due to nondeductible goodwill 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.
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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 provided by operating activities for the six months ended December
31, 2000 was approximately $10.4 million and was primarily driven by improved
operating performance, billings in advance of revenue earned and working capital
management.
Investing activities used cash of approximately $5.5 million during the six
months ended December 31, 2000, consisting of $2.5 million in capital
expenditures for additional information technology and other equipment to
support business growth and $3 million for investments in and advances to
unconsolidated affiliates providing services in the demand side of the energy
market. The Company expects to make capital expenditures of approximately $2
million during the remainder of fiscal 2001 and expects expenditures for
acquisitions to continue at a pace similar to fiscal 2000.
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 December 31, 2000, outstanding borrowings pursuant
to the agreement were $15.1 million, at an average interest rate of 8.2%.
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 accelerated collection of accounts receivable. The cash
generated from operations, the cash on hand at December 31, 2000 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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on October 27, 2000.
Proxies for the meeting were solicited pursuant to Regulation 14A. At the
meeting, the following matters were voted upon:
All nominees for director were reelected as follows:
DIRECTOR VOTES IN FAVOR VOTES WITHHELD TERM EXPIRING
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Richard D. Ellison 5,691,775 562,246 October 26, 2001
Edward G. Jepsen 5,691,775 562,246 October 26, 2001
Edward W. Large 5,691,775 562,246 October 26, 2001
J. Jeffrey McNealey 5,691,775 562,246 October 26, 2001
The shareholders also ratified an amendment to the Stock Option Plan, to
increase by 750,000 the shares of common stock for which options may be granted
under the Stock Option Plan. The proposal was adopted as 3,285,979 shares voted
for, 1,639,954 shares voted against, 1,291 shares abstained and 1,326,797 shares
did not vote; and
The shareholders approved the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending June 30, 2001. The
proposal was adopted as 6,247,588 shares voted for, 4,861 shares voted against
and 1,572 shares abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed during
the quarter ended December 31, 2000.
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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, 2001 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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