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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 March 31, 2001
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 incorporation or organization) (I.R.S. Employer Identification No.)
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 May 14, 2001 there were 8,006,467 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, 2001
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Consolidated Statements of Operations for the three and nine months ended
March 31, 2001 and 2000................................................................ 3
Condensed Consolidated Balance Sheets at March 31, 2001 and
June 30, 2000.......................................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended March 31, 2001 and 2000.......................................................... 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.................................................................................................... 11
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
(in thousands, except per share amounts) 2001 2000 2001 2000
--------------- --------------- --------------- ---------------
GROSS REVENUE $ 47,305 $ 29,376 $128,834 $ 81,635
Less subcontractor costs and direct charges 15,243 8,050 40,935 23,443
--------------- --------------- --------------- ---------------
NET SERVICE REVENUE 32,062 21,326 87,899 58,192
--------------- --------------- --------------- ---------------
OPERATING COSTS AND EXPENSES:
Cost of services 26,031 17,732 71,391 48,390
General and administrative expenses 990 741 2,815 2,162
Depreciation and amortization 916 690 2,607 1,984
--------------- --------------- --------------- ---------------
27,937 19,163 76,813 52,536
--------------- --------------- --------------- ---------------
INCOME FROM OPERATIONS 4,125 2,163 11,086 5,656
Interest expense 343 263 1,237 686
--------------- --------------- --------------- ---------------
INCOME BEFORE TAXES 3,782 1,900 9,849 4,970
Federal and state income tax provision 1,437 684 3,682 1,789
--------------- --------------- --------------- ---------------
NET INCOME $ 2,345 $ 1,216 $ 6,167 $ 3,181
=============== =============== =============== ===============
EARNINGS PER SHARE:
Basic $ 0.32 $ 0.18 $ 0.86 $ 0.47
Diluted 0.29 0.17 0.78 0.45
=============== =============== =============== ===============
AVERAGE SHARES OUTSTANDING:
Basic 7,314 6,830 7,182 6,800
Diluted 8,097 7,281 7,860 7,116
=============== =============== =============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
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TRC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
(in thousands, except share data) 2001 2000
--------------- ----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 908 $ 1,566
Accounts receivable, less allowance for doubtful accounts 60,528 48,995
Deferred income tax benefits 1,508 1,208
Prepaid expenses and other current assets 1,516 1,053
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64,460 52,822
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PROPERTY AND EQUIPMENT, AT COST 27,638 23,617
Less accumulated depreciation and amortization 18,576 17,361
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9,062 6,256
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GOODWILL, NET OF ACCUMULATED AMORTIZATION 37,556 33,512
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INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 4,136 1,046
-------- --------
OTHER ASSETS 499 572
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$115,713 $ 94,208
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt $ 368 $ 100
Accounts payable 7,201 6,216
Accrued compensation and benefits 6,680 4,308
Billings in advance of revenue earned 11,631 3,160
Other accrued liabilities 5,849 2,770
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31,729 16,554
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NONCURRENT LIABILITIES:
Long-term debt 15,937 21,200
Deferred income taxes 3,258 2,006
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19,195 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, 7,974,902
shares issued at March 31, 2001 and 7,674,329 shares issued
at June 30, 2000 798 767
Additional paid-in capital 45,654 41,511
Retained earnings 21,234 15,067
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67,686 57,345
Less treasury stock (628,653 shares), at cost 2,897 2,897
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64,789 54,448
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$115,713 $ 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)
Nine Months Ended
March 31,
(in thousands) 2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,167 $ 3,181
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,607 1,984
Change in deferred taxes and other non-cash items 317 (24)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (7,961) (7,531)
Prepaid expenses and other current assets (387) (209)
Accounts payable 374 355
Accrued compensation and benefits 1,889 (16)
Billings in advance of revenue earned 8,471 2,953
Other accrued liabilities 1,349 41
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NET CASH PROVIDED BY OPERATING ACTIVITIES 12,826 734
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (4,076) (2,110)
Investments in and advances to unconsolidated affiliates (3,314) (545)
Acquisition of businesses, net of cash received (1,614) (4,177)
Decrease in other assets 56 35
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NET CASH USED IN INVESTING ACTIVITIES (8,948) (6,797)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (100) (3,600)
Net borrowings (repayments) under revolving credit facility (5,700) 8,600
Proceeds from exercise of stock options and warrants 1,264 94
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,536) 5,094
-------- --------
DECREASE IN CASH (658) (969)
Cash and cash equivalents, beginning of period 1,566 1,368
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 908 $ 399
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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
March 31, 2001
1. The condensed consolidated balance sheet at March 31, 2001 and the
consolidated statements of operations for the three and nine months
ended March 31, 2001 and 2000 and the condensed consolidated statements
of cash flows for the nine months ended March 31, 2001 and 2000 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. 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.
3. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVES
AND HEDGING ACTIVITIES. Currently, the Company does not have any
derivative instruments. Accordingly, the adoption of this Statement did
not impact the Company's consolidated operating results, financial
condition or cash flows.
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TRC COMPANIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three and Nine Months Ended March 31, 2001 and 2000
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 energy development and
conservation.
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 Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
NET SERVICE REVENUE 100.0 % 100.0 % 100.0 % 100.0 %
---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of services 81.2 83.2 81.2 83.2
General and administrative expenses 3.1 3.5 3.2 3.7
Depreciation and amortization 2.8 3.2 3.0 3.4
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 12.9 10.1 12.6 9.7
Interest expense 1.1 1.2 1.4 1.1
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 11.8 8.9 11.2 8.6
Federal and state income tax provision 4.5 3.2 4.2 3.1
---------- ---------- ---------- ----------
NET INCOME 7.3 % 5.7 % 7.0 % 5.5 %
========== ========== ========== ==========
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The revenue growth trend established in fiscal 1998 continued. Net service
revenue increased by 50.3% to $32.1 million during the three months ended March
31, 2001, compared to $21.3 million in the same period last year. For the nine
months ended March 31, 2001, net service revenue increased by 51% to $87.9
million, compared to $58.2 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
Strategy(R) and Energy sectors, and the additional revenue from acquisitions
made in fiscal 2000 and 2001.
As a percentage of net service revenue, cost of services decreased to 81.2%
during both the three and nine months ended March 31, 2001, from 83.2% in the
same periods last year. These decreases contributed directly to an increase in
income from operations as a percentage of net service revenue. Increases in the
cost of services of approximately 46.8% and 47.5%, respectively, during the
three and nine months ended March 31, 2001 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 and 2001.
As a percentage of net service revenue, general and administrative costs
decreased to 3.1% and 3.2%, respectively, during the three and nine month
periods ended March 31, 2001, from 3.5% and 3.7%, respectively, in 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 33.6% and 30.2%,
respectively, during the three and nine months ended March 31, 2001, were
primarily from additional costs necessary to support the Company's internal and
acquisition growth.
Depreciation and amortization expense increased by approximately 32.8% and
31.4%, respectively, during the three and nine months ended March 31, 2001, as
compared to the same periods last year. These increases were primarily due to
the additional goodwill amortization associated with businesses acquired in
fiscal 2000, and the related earnout payments comprised of cash and stock
recorded in fiscal 2001 associated with those acquisitions, and to a lesser
extent, the additional depreciation expense on equipment acquired through
acquisitions.
Income from operations increased by approximately 90.7% to $4.1 million during
the three months ended March 31, 2001, as compared to $2.2 million during the
same period last year. For the nine months ended March 31, 2001, income from
operations increased by approximately 96% to $11.1 million, as compared to $5.7
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) and Energy sectors;
and (2) the growth in revenue, without comparable increases in operating
overhead.
Interest expense increased during the three and nine months ended March 31,
2001, as compared to the same periods last year, primarily due to higher levels
of average debt outstanding because of acquisitions completed in fiscal 2000 and
2001. 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
38% and 37.4%, respectively, in the three and nine months ended March 31, 2001,
compared to an effective rate of 36% in the same periods last year. The
increases were primarily due to nondeductible goodwill amortization on the
acquisitions completed in fiscal 2000 and 2001. 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 nine months ended March 31,
2001 was approximately $12.8 million and was primarily driven by improved
operating performance, billings in advance of revenue earned and working capital
management, offset by an increase in accounts receivable due to the Company's
revenue growth.
Investing activities used cash of approximately $9 million during the nine
months ended March 31, 2001, consisting of $4.1 million in capital expenditures
for additional information technology and other equipment to support business
growth, $3.3 million for investments in and advances to unconsolidated
affiliates that provide services in the demand side of the energy market and
$1.6 million for acquisitions. The Company expects to make capital expenditures
of approximately $1.5 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 March 31, 2001, outstanding borrowings pursuant to
the agreement were $15.3 million, at an average interest rate of 7.5%.
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 March 31, 2001 and available
borrowings under the revolving credit facility 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 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 March 31, 2001.
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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.
May 15, 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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