<Page>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 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
- ----------------------------------- --------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5 WATERSIDE CROSSING
WINDSOR, CONNECTICUT 06095
----------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 298-9692
-----------------------------------
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 September 24, 2002 there were 12,652,184 shares of the registrant's common
stock, $.10 par value, outstanding.
===============================================================================
<Page>
TRC COMPANIES, INC.
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED DECEMBER 31, 2001
PART I - FINANCIAL INFORMATION
This amendment to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 2001, is being filed to adjust the condensed consolidated
financial statements as previously filed on February 14, 2002. In order to
preserve the nature and character of the disclosures set forth in such items as
previously filed, no attempt has been made in this amendment to update such
disclosures other than adjustments for the Company's 3 for 2 stock split
effective March 2002. Except as required to reflect the effects of the
adjustments, all information contained in this amendment is stated as of the
date of the original filing. For additional information regarding the
adjustments, see Note 9 to Notes to Condensed Consolidated Financial Statements
Item 1. Condensed Consolidated Financial Statements:
<Table>
Consolidated Statements of Operations for the three and six months ended
December 31, 2001 (as adjusted) and 2000............................................... 3
Condensed Consolidated Balance Sheets at December 31, 2001 (as adjusted)
and June 30, 2001...................................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months
ended December 31, 2001 (as adjusted) and 2000......................................... 5
Notes to Condensed Consolidated Financial Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......................................... 16
Item 6. Exhibits and Reports on Form 8-K............................................................ 16
SIGNATURE.................................................................................................... 17
CERTIFICATIONS............................................................................................... 18
</Table>
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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) 2001 2000 2001 2000
------- -------- ---------- --------
(as adjusted) (as adjusted)
GROSS REVENUE $65,533 $44,642 $123,090 $81,529
Less subcontractor costs
and direct charges 20,881 15,508 41,960 25,692
------- -------- -------- -------
NET SERVICE REVENUE 44,652 29,134 81,130 55,837
------- -------- -------- -------
OPERATING COSTS AND EXPENSES:
Cost of services 37,270 23,641 66,481 45,360
General and administrative expenses 1,310 965 2,403 1,825
Depreciation and amortization 771 844 1,426 1,691
------- -------- -------- -------
39,351 25,450 70,310 48,876
------- -------- -------- -------
INCOME FROM OPERATIONS 5,301 3,684 10,820 6,961
Interest expense 328 409 617 894
------- -------- -------- -------
INCOME BEFORE TAXES 4,973 3,275 10,203 6,067
Federal and state income tax provision 1,902 1,212 3,902 2,245
------- -------- -------- -------
NET INCOME 3,071 2,063 6,301 3,822
Dividends and accretion charges
on preferred stock 25 -- 25 --
------- -------- -------- -------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 3,046 $ 2,063 $ 6,276 $ 3,822
======= ======= ======== =======
EARNINGS PER SHARE:
Basic $ 0.25 $ 0.19 $ 0.54 $ 0.36
Diluted 0.23 0.18 0.48 0.33
======= ======= ======== =======
AVERAGE SHARES OUTSTANDING:
Basic 12,053 10,748 11,644 10,675
Diluted 13,471 11,768 13,003 11,611
======= ======= ======== =======
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-3-
<Page>
TRC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
December 31, June 30,
(in thousands, except share data) 2001 2001
------------ -----------
(as adjusted
and unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,063 $ 851
Accounts receivable, less allowance for doubtful accounts 86,506 61,090
Insurance recoverable - environmental remediation 2,339 4,055
Deferred income tax benefits 2,387 1,882
Prepaid expenses and other current assets 2,137 1,353
-------- --------
95,432 69,231
-------- --------
PROPERTY AND EQUIPMENT, AT COST 33,929 28,913
Less accumulated depreciation and amortization 20,149 19,075
-------- --------
13,780 9,838
-------- --------
GOODWILL, NET OF ACCUMULATED AMORTIZATION 73,855 38,943
-------- --------
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 5,083 5,134
-------- --------
LONG-TERM ACCOUNTS RECEIVABLE 4,120 2,046
-------- --------
LONG-TERM INSURANCE RECOVERABLE - ENVIRONMENTAL REMEDIATION 1,847 2,011
-------- --------
OTHER ASSETS 1,167 469
-------- --------
$195,284 $127,672
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt $ 1,299 $ 368
Accounts payable 12,845 7,821
Accrued compensation and benefits 7,726 7,734
Billings in advance of revenue earned 7,548 10,752
Environmental remediation liability 2,593 5,635
Other accrued liabilities 8,615 4,913
-------- --------
40,626 37,223
-------- --------
NONCURRENT LIABILITIES:
Long-term debt 23,555 14,637
Deferred income taxes 9,611 3,826
Long-term environmental remediation liability 1,847 2,011
-------- --------
35,013 20,474
-------- --------
MANDATORILY REDEEMABLE PREFERRED STOCK 14,581 --
-------- --------
SHAREHOLDERS' EQUITY:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, 15,000 issued -- --
Common, $.10 par value; 30,000,000 shares authorized, 13,217,697
shares issued at December 31, 2001 and 12,122,967 shares issued at
June 30, 2001 1,322 1,212
Additional paid-in capital 76,311 47,608
Retained earnings 30,328 24,052
-------- --------
107,961 72,872
Less treasury stock, at cost 2,897 2,897
-------- --------
105,064 69,975
-------- --------
$195,284 $127,672
========= =========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-4-
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TRC COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
Six Months Ended
December 31,
(in thousands) 2001 2000
--------- ---------
(as adjusted)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,301 $ 3,822
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,426 1,691
Change in deferred taxes and other non-cash items (279) 318
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (current and long-term) (6,010) (1,845)
Prepaid expenses and other current assets 102 (135)
Accounts payable 2,500 661
Accrued compensation and benefits (2,473) 7
Billings in advance of revenue earned (3,218) 4,417
Insurance recoverable (current and long-term) 1,881 3,287
Environmental remediation liability (current and long-term) (3,206) (2,285)
Other accrued liabilities 407 502
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (2,569) 10,440
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,951) (2,531)
Investments in and advances to unconsolidated affiliates (390) (3,019)
Acquisition of businesses, net of cash received (11,685) (54)
Decrease in other assets, net 7 55
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (14,019) (5,549)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net of issuance costs 14,581 --
Net borrowings (repayments) of long-term obligations 2,436 (5,800)
Proceeds from exercise of stock options and warrants 783 696
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 17,800 (5,104)
-------- --------
INCREASE (DECREASE) IN CASH 1,212 (213)
Cash and cash equivalents, beginning of period 851 1,566
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,063 $ 1,353
======== =========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-5-
<Page>
TRC COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(in thousands, except per share data)
1. The condensed consolidated balance sheet at December 31, 2001 and the
consolidated statements of operations for the three and six months ended
December 31, 2001 and 2000 and the condensed consolidated statements of
cash flows for the six months ended December 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, 2001
condensed consolidated balance sheet information was derived from the
audited financial statements but does not include all disclosures
required by accounting principles generally accepted in the United States
of America. Certain footnote disclosures usually included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted. These
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2001.
With respect to the unaudited financial information of TRC Companies,
Inc. for the three and six months ended December 31, 2001 and 2000,
included herein, PricewaterhouseCoopers LLP reported that they have
applied limited procedures in accordance with professional standards for
a review of such information. However, their separate report dated
February 14, 2002, except as to Note 9, for which the date is August 26,
2002 appearing herein, states that they did not audit and they do not
express an opinion on that unaudited financial information. Accordingly,
the degree of reliance on their report on such information should be
restricted in light of the limited nature of the review procedures
applied. PricewaterhouseCoopers LLP is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report
on the unaudited financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified
by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of
the Act.
2. In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS 141 requires that all business combinations be accounted for under
the purchase method and that certain acquired intangible assets in a
business combination be recognized as assets apart from goodwill. SFAS
142 requires that ratable amortization of goodwill and other intangible
assets with an indefinite life be replaced with periodic tests of
impairment and that identifiable intangible assets other than goodwill be
amortized over their useful lives. SFAS 141 is effective for all business
combinations completed after June 30, 2001. The Company elected to early
adopt the provisions of SFAS 142 effective July 1, 2001.
-6-
<Page>
The table below shows the effect on net income had SFAS 142 been adopted
in prior periods.
<Table>
<Caption>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
2001 2000 2001 2000
------------ --------- --------- ---------
NET INCOME:
Reported net income $ 3,046 $ 2,063 $ 6,276 $ 3,822
Add back: goodwill amortization (net of taxes) -- 226 -- 448
--------- --------- --------- ---------
Adjusted net income $ 3,046 $ 2,289 $ 6,276 $ 4,270
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Reported basic earnings per share $ 0.25 $ 0.19 $ 0.54 $ 0.36
Add back: goodwill amortization (net of taxes) -- 0.02 -- 0.04
--------- --------- --------- ---------
Adjusted basic earnings per share $ 0.25 $ 0.21 $ 0.54 $ 0.40
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Reported diluted earnings per share $ 0.23 $ 0.18 $ 0.48 $ 0.33
Add back: goodwill amortization (net of taxes) -- 0.02 -- 0.04
--------- --------- --------- ---------
Adjusted diluted earnings per share $ 0.23 $ 0.20 $ 0.48 $ 0.37
========= ========= ========= =========
</Table>
3. On October 15, 2001, the Company completed the acquisition of the
SITE-Blauvelt group of companies ("SITE"). SITE is a transportation
infrastructure firm headquartered in Mt. Laurel, New Jersey with offices
in a number of other states. The purchase price of $22,940 (before
contingent consideration) consisted of approximately 870 shares of the
Company's common stock and resulted in goodwill of $18,858 being recorded
in accordance with SFAS 141. Additionally, intangible assets acquired
were recorded and are immaterial to the Company's financial condition.
The significant assets and liabilities acquired were accounts receivable
of $16,712, long-term debt of $5,663 and deferred income tax liability of
$5,952. The Company may make additional payments if certain financial
goals are achieved in each of the next three years. The acquisition has
been accounted for using the purchase method of accounting in accordance
with SFAS 141.
In addition to the SITE acquisition, the Company completed the
acquisition of several other companies during the six months ended
December 31, 2001. The gross purchase price for these acquisitions was
approximately $13,390 (before contingent consideration) consisting of a
combination of cash, assumed debt and shares of the Company's common
stock. As a result of these acquisitions, goodwill of $10,530 was
recorded in accordance with SFAS 142. Additionally, intangible assets
acquired were recorded and are immaterial to the Company's financial
condition. These acquisitions have also been accounted for using the
purchase method of accounting in accordance with SFAS 141.
-7-
<Page>
Accordingly, the following unaudited pro forma information for the six
months ended December 31, 2001 and 2000 presents summarized results of
operations as if current and prior year acquisitions had occurred at the
beginning of the periods presented after giving effect to adjustments,
including increased interest expense on acquisition borrowings,
amortization of intangible assets, excluding goodwill and
indefinite-lived intangible assets, and related income tax effects:
<Table>
<Caption>
Six Months Ended
December 31,
-----------------------
(Unaudited) 2001 2000
-------- --------
Net service revenue $100,217 $ 88,153
-------- --------
Net income $ 7,609 $ 4,944
-------- --------
Earnings per share - diluted $ 0.56 $ 0.39
-------- --------
</Table>
The unaudited pro forma financial information does not purport to be
indicative of the results that would have occurred had the acquisitions
taken place at the beginning of the periods presented, nor do they
purport to be indicative of the results that will be obtained in the
future.
The Company also recorded additional purchase price payments during the
six months ended December 31, 2001, related to five acquisitions
completed in the last several years, resulting in additional goodwill of
$5,335 being recorded in accordance with SFAS 142. Additionally, the
Company recorded an adjustment to purchase price allocation for an
acquisition completed in fiscal 2001 that resulted in additional goodwill
of $189.
4. On December 19, 2001 the Company completed a private placement of $15,000
of a newly designated class of preferred stock with Fletcher
International, Ltd., an affiliate of Fletcher Asset Management, Inc.
("Fletcher") of New York City. The preferred stock is convertible into
TRC common stock at a conversion price of $37.66 per share. The Company
also granted Fletcher the right, commencing on December 15, 2002 and
ending on December 14, 2003, to purchase up to $10,000 of one or more
additional series of preferred stock under similar terms and conditions.
The preferred stock issued to Fletcher has a five-year term with a 4%
annual dividend, which is payable at the Company's option in either cash
or common stock. The Company will have the right to redeem the preferred
stock for cash once the price of its common stock reaches certain
predetermined levels. Following 48 months of issuance, the preferred
stock is redeemable by Fletcher in common stock. On the five-year
expiration date, any shares of preferred stock still outstanding are to
be mandatorily redeemed, at the Company's option, in either cash or
shares of common stock. The preferred stock was recorded net of issuance
costs of $419.
-8-
<Page>
5. For purposes of computing diluted earnings per share the Company uses the
treasury stock method. Additionally, when computing dilution related to
the preferred stock, conversion is assumed as of the beginning of the
period. The following table sets forth the computation of basic and
diluted earnings per share:
<Table>
<Caption>
Three Months Ended Three Months Ended
December 31, December 31,
2001 2001 2000 2000
----------------------- -----------------------
Diluted Basic Diluted Basic
-------- -------- --------- --------
Net income $ 3,071 $ 3,071 $ 2,063 $ 2,063
Dividends and accretion charges on preferred stock -- (25) -- --
-------- -------- -------- --------
Net income available to common shareholders $ 3,071 $ 3,046 $ 2,063 $ 2,063
======== ======== ======== ========
Weighted average common shares outstanding 12,053 12,053 10,748 10,748
Potential common shares:
Stock options and warrants 1,343 -- 1,020 --
Convertible preferred stock 75 -- -- --
-------- -------- -------- --------
Total potential common shares 13,471 12,053 11,768 10,748
======== ======== ======== ========
Earnings per share $ 0.23 $ 0.25 $ 0.18 $ 0.19
======== ======== ======== ========
</Table>
<Table>
<Caption>
Six Months Ended Six Months Ended
December 31, December 31,
2001 2001 2000 2000
----------------------- -----------------------
Diluted Basic Diluted Basic
-------- -------- --------- --------
Net income $ 6,301 $ 6,301 $ 3,822 $ 3,822
Dividends and accretion charges on preferred stock -- (25) -- --
-------- -------- -------- --------
Net income available to common shareholders $ 6,301 $ 6,276 $ 3,822 $ 3,822
======== ======== ======== ========
Weighted average common shares outstanding 11,644 11,644 10,675 10,675
Potential common shares:
Stock options and warrants 1,322 -- 936 --
Convertible preferred stock 37 -- -- --
-------- -------- -------- --------
Total potential common shares 13,003 11,644 11,611 10,675
======== ======== ======== ========
Earnings per share $ 0.48 $ 0.54 $ 0.33 $ 0.36
======== ======== ======== ========
</Table>
-9-
<Page>
6. The Company has entered into several long-term contracts under its Exit
Strategy program under which the Company is obligated to complete the
remediation of environmental conditions at a site for a fixed fee. The
Company assumes the risk for remediation costs for pre-existing site
environmental 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 up to a specified maximum
amount significantly in excess of the estimated cost of remediation. Upon
signing of the contract, the Company receives the fixed fee contract
price which is deposited in a restricted account held by the insurance
company and the Company is reimbursed as it performs under the contract.
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.
One Exit Strategy contract entered into by the Company also involved the
Company entering into a consent decree with government authorities and
assuming the obligation for the settling responsible parties'
environmental remediation liability for the site. The Company's expected
remediation cost is fully funded by the contract price received and is
fully insured by an environmental remediation cost cap policy.
7. The Company maintains bank financing arrangements which provide revolving
credit facilities totaling $37,000 to assist in funding various operating
and investing activities. The amount available will reduce to $32,000 on
March 11, 2002. Borrowings under the agreements bear interest at the
banks' base rate or the Eurodollar rate plus or minus applicable margins,
are collateralized by all assets of the Company and are due and payable
between October 2002 and March 2003 when the agreements would expire or
be extended. The agreements contain various covenants including, but not
limited to, restrictions related to net worth, EBITDA, leverage, asset
sales, mergers and acquisitions, creation of liens and dividends on
common stock (other than stock dividends).
8. On February 6, 2002, the Company announced a 3-for-2 stock split of its
common stock. The additional shares were distributed on March 5, 2002 in
the form of a 50% stock dividend to shareholders of record on February
19, 2002. The accompanying financial statements and notes thereto have
been adjusted to reflect the stock split.
9. The Company is amending its Quarterly Report on Form 10-Q for the quarter
ended December 31, 2001. In the previously reported operating results for
the quarter ended December 31, 2001, the Company recognized revenue
totaling $1,392, representing environmental work performed for a newly
formed company (customer), the principals of which the company had
successfully worked with in the past. This customer is currently unable
to pay for the services provided, but has entered into an agreement to
pay, or as an alternative, to allow the Company to participate in the
project on which those services were performed. Because this customer may
not have had sufficient substance to pay at the time the work was
performed, the manner in which this transaction was initially accounted
for has been adjusted. As a result, the previously reported quarterly and
six
-10-
<Page>
month results have been adjusted to reflect the reversal of the revenue
recorded on this project.
Also, as a 60% owner of a recently formed energy services business joint
venture, the Company had included 60% of the joint venture's start-up
losses in the Company's operating results. However, it was determined
that since the Company had funded all of the joint venture's costs, it
should report 100% of the losses.
The effects of these adjustments on the previously reported three and six
month operating results are as follows:
<Table>
<Caption>
Three Months Ended Six Months Ended
December 31, 2001 December 31, 2001
------------------------ -----------------------
As As
previously As previously As
reported adjusted reported adjusted
---------- --------- ---------- ---------
Gross revenue $ 66,924 $ 65,533 $124,482 $123,090
---------- --------- ---------- ---------
Net service revenue 46,044 44,652 82,522 81,130
---------- --------- ---------- ---------
Operating income 6,542 5,301 12,272 10,820
---------- --------- ---------- ---------
Net income 3,837 3,071 7,197 6,301
---------- --------- ---------- ---------
Earnings per share:
Basic $ 0.32 $ 0.25 $ 0.62 $ 0.54
Diluted 0.28 0.23 0.55 0.48
---------- --------- ---------- ---------
</Table>
The effects of these adjustments on the previously reported balance
sheets are as follows:
<Table>
<Caption>
December 31, 2001
-----------------------
As
previously As
reported adjusted
---------- --------
Current assets $ 96,824 $ 94,432
---------- --------
Investments and advances to unconsolidated affiliates 5,391 5,083
---------- --------
Current liabilities 41,316 40,626
---------- --------
Noncurrent liabilities 35,127 35,013
---------- --------
Shareholders' equity 105,960 105,064
---------- --------
</Table>
The effects of these adjustments had no impact on net cash used in
operating activities.
-11-
<Page>
TRC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three and Six Months Ended December 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 power development and conservation.
RESULTS OF OPERATIONS
The Company derives its revenue from fees for providing engineering and
consulting services. The types of contracts with our customers and the
approximate percentage of net service revenue for the six months ended December
31, 2001 from each contract type are as follows:
o Time and material 45%
o Fixed price or lump sum 40%
o Cost-type with various fee arrangements 15%
In the course of providing its services the Company routinely subcontracts
drilling, laboratory analyses, construction equipment and other services. These
costs are passed directly through to customers and, in accordance with industry
practice, are included in gross revenue. Because subcontractor costs and direct
charges can vary significantly from project to project, the Company considers
net service revenue, which is gross revenue less subcontractor costs and direct
charges, as its primary measure of revenue growth.
The following table presents the percentage relationships of certain items in
the consolidated statements of operations to net service revenue.
<Table>
<Caption>
Three Months Ended Six Months Ended
December 31, December 31,
------------------ -----------------
2001 2000 2001 2000
------ ------ ------ ------
NET SERVICE REVENUE 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
OPERATING COSTS AND EXPENSES:
Cost of services 83.5 81.1 81.9 81.2
General and administrative expenses 2.9 3.3 3.0 3.3
Depreciation and amortization 1.7 2.9 1.8 3.0
----- ----- ----- -----
INCOME FROM OPERATIONS 11.9 12.7 13.3 12.5
Interest expense 0.7 1.4 0.8 1.6
----- ----- ----- -----
INCOME BEFORE TAXES 11.2 11.3 12.5 10.9
Federal and state income tax provision 4.3 4.2 4.8 4.0
----- ----- ----- -----
NET INCOME 6.9 7.1 7.7 6.9
Dividends and accretion charges
on preferred stock 0.1 0.0 0.0 0.0
----- ----- ----- -----
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS 6.8 % 7.1 % 7.7 % 6.9 %
===== ===== ===== =====
</Table>
-12-
<Page>
The revenue growth trend established in fiscal 1998 continued. Net service
revenue increased by 53.3% to $44.7 million during the three months ended
December 31, 2001, compared to $29.1 million in the same period last year.
Approximately 20% of the net service revenue growth was organic and
approximately 80% of the growth resulted from acquisitions. Net service revenue
from acquired companies is considered part of acquisition growth during the
twelve months from the date acquired. For the six months ended December 31,
2001, net service revenue increased by 45.3% to $81.1 million, compared to $55.8
million in the same period last year. Approximately 35% of this net service
revenue growth was organic and approximately 65% resulted from acquisitions. As
discussed below, the organic operating income growth was greater than growth
from acquisitions. This is due to an increase in margins on organic work and
seasonality of the acquisitions. Management's goal continues to be to balance
organic and acquisition growth.
As a percentage of net service revenue, cost of services increased to 83.5%
during the three months ended December 31, 2001, from 81.1% in the same period
last year. This increase was attributable to the SITE acquisition, which
currently requires a larger percentage of cost of services for each net service
revenue dollar generated, when compared to the Company as a whole. For the six
months ended December 31, 2001, costs of services, as a percentage of net
service revenue, increased to 81.9% from 81.2% in the same period last year. The
increases in cost of services of approximately 57.6% and 46.6%, respectively,
during the three and six months ended December 31, 2001 were due to additional
operating costs incurred to support the increase in net service revenue.
As a percentage of net service revenue, general and administrative costs
decreased to 2.9% and 3.0%, respectively, during the three and six months ended
December 31, 2001, from 3.3% in both periods last year. This decrease is due to
the Company's ability to manage these costs at a rate lower than the increase in
net service revenue. Increases in general and administrative expenses of
approximately 35.8% and 31.7%, respectively, during the three and six months
ended December 31, 2001, were primarily from additional costs to support the
Company's growth.
Depreciation and amortization expense decreased by approximately 8.6% and 15.7%,
respectively, during the three and six months ended December 31, 2001, as
compared to the same periods last year. These decreases were primarily due to
the Company's early adoption of SFAS 142, "Goodwill and Other Intangible
Assets". In accordance with SFAS 142, the Company no longer amortizes goodwill.
The decrease associated with the adoption of SFAS 142 was partially offset by an
increase in depreciation expense associated with equipment acquired through
acquisitions.
Income from operations increased by approximately 43.9% to $5.3 million during
the three months ended December 31, 2001, as compared to $3.7 million during the
same period last year. Approximately 34% of the operating income growth was
organic and approximately 66% resulted from acquisitions. Income from operations
from acquired companies is considered part of acquisition growth during the
twelve months from the date acquired. For the six months ended December 31,
2001, income from operations increased by approximately 55.4% to $10.8 million,
as compared to $7.0 million during the same period last year. Approximately 60%
of this operating income growth was organic and approximately 40% resulted from
acquisitions. The improvement in operating performance was primarily due to: (1)
the Company's focus
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toward higher margin, economically driven markets, (2) the growth in revenue,
without comparable increases in overhead, and (3) the favorable impact resulting
from the adoption of SFAS 142.
Interest expense decreased during the six months ended December 31, 2001, as
compared to the same period last year, primarily due to lower average interest
rates. The Company's percentage of debt to capitalization ratio continues to
remain relatively low, reflecting management's conservative debt philosophy.
The provision for federal and state income taxes reflects an effective rate of
38.3% in the three and six months ended December 31, 2001, compared to an
effective rate of 37% in the same periods last year. The increases were
primarily due to an increase in the Company's federal income tax rate bracket as
a result of the Company's income growth. The Company believes that there will be
sufficient taxable income in future periods to enable utilization of available
deferred income tax benefits.
IMPACT OF INFLATION
The Company's operations have not been materially affected by inflation or
changing prices because of the short-term nature of many of its contracts, and
the fact that most contracts of a longer term are subject to adjustment or have
been priced to cover anticipated increases in labor and other costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company primarily relies on cash from operations, financing activities and
borrowings based upon the strength of its balance sheet to fund operations. The
Company's liquidity is assessed in terms of its overall ability to generate cash
to fund its operating and investing activities, and to reduce debt. Of
particular importance in the management of liquidity are cash flows generated
from operating activities, acquisitions, capital expenditure levels and an
adequate bank line of credit.
Cash flow used in operating activities for the six months ended December 31,
2001 was approximately $2.6 million. The cash generated by net income and the
non-cash charges against income for depreciation and amortization was primarily
offset by the $6.0 million increase in accounts receivable resulting from the
Company's high revenue growth. Expressed as a percentage of gross revenue,
accounts receivable continues to reduce based on managements focus on this item.
Investing activities used cash of approximately $14 million during the six
months ended December 31, 2001, primarily consisting of $11.7 million to acquire
several companies and $2 million in capital expenditures for additional
information technology and other equipment to support business growth. During
the remainder of fiscal 2002, the Company expects to make capital expenditures
of approximately $2 million and expects expenditures for acquisitions to
increase at a stronger pace than in fiscal 2001.
Financing activities provided cash of approximately $17.8 million during the six
months ended December 31, 2001 to support operating and investing activities.
The private placement of a new class of preferred stock on December 19, 2001,
provided $14.6 million (net of issuance costs)
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and the remaining $3.2 million was primarily provided by net borrowings on the
Company's credit facilities.
The Company maintains bank financing arrangements which provide revolving credit
facilities totaling $37 million to assist in funding various operating and
investing activities. The amount is currently scheduled to reduce to $32 million
on March 11, 2002. The Company is working with its bankers to increase the
facility and extend the current expiration date to March 2005. Borrowings under
the agreements bear interest at the banks' base rate or the Eurodollar rate plus
or minus applicable margins. At December 31, 2001, outstanding borrowings
pursuant to the agreements were $22.2 million, at an average interest rate of
4.2%.
The cash generated from operations, the cash on hand at December 31, 2001 and
available borrowings under the credit facilities will be sufficient to meet the
Company's cash requirements for the remainder of fiscal 2002.
NEW ACCOUNTING GUIDANCE
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations". The standard requires that legal
obligations associated with the retirement of tangible long-lived assets be
recorded at fair value when incurred and is effective January 1, 2003 for the
Company. The Company is currently reviewing the provisions of SFAS 143 to
determine if and how it applies to the Company.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", which provides
guidance on the accounting for the impairment or disposal of long-lived assets
and is effective January 1, 2002 for the Company. The Company is currently
reviewing the provisions of SFAS 144 to determine if and how it applies to the
Company.
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 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.
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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 November 14, 2001.
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
-------- -------------- -------------- -------------
Richard D. Ellison 11,029,392 104,625 November 13, 2002
Edward G. Jepsen 11,029,392 104,625 November 13, 2002
Edward W. Large 11,029,392 104,625 November 13, 2002
J. Jeffrey McNealey 11,029,392 104,625 November 13, 2002
The shareholders approved the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending June 30, 2002. The
proposal was adopted as 10,763,592 shares voted for, 13,905 shares voted against
and 356,522 shares abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits --
15 Letter re: unaudited interim financial information
99 Report of Independent Accountants
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K --
On October 26, 2001, the Company filed a Form 8-K (amended under cover of
Form 8-K/A filed on December 26, 2001) reporting that on October 15,
2001, the Company completed the acquisition of the Site-Blauvelt
Engineers Group.
On December 26, 2001, the Company filed a Form 8-K reporting that the
Company had completed a private placement of $15 million of a newly
designated class of preferred stock with Fletcher International, Ltd., an
affiliate of Fletcher Asset Management, Inc. in New York City.
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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.
September 27, 2002 by: /s/ John W. Hohener
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John W. Hohener
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer)
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CERTIFICATIONS
I, Richard D. Ellison, certify that:
1. I have reviewed this quarterly report on Form 10Q/A for the quarterly period
ended December 31, 2001 of TRC Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.
Date: September 27, 2002
/s/ RICHARD D. ELLISON
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Richard D. Ellison
Chief Executive Officer
I, John W. Hohener, certify that:
1. I have reviewed this quarterly report on Form 10Q/A for the quarterly period
ended December 31, 2001 of TRC Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.
Date: September 27, 2002
/s/ JOHN W. HOHENER
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John W. Hohener
Chief Financial Officer
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