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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1995
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 1-5170
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: (203) 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 NO
On March 31, 1995 there were 7,089,552 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, 1995
PART I - Financial Information
Item 1. Consolidated Financial Statements
Statements of Operations for the three and nine months ended
March 31, 1995 and 1994................................................. 3
Balance Sheets at March 31, 1995 and June 30, 1994.......................... 4
Statements of Cash Flows for the nine months ended
March 31, 1995 and 1994................................................. 5
Notes to Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition................................................. 8
PART II - Other Information
Item 1. Legal Proceedings........................................................... 12
Item 6. Exhibits and Reports on Form 8-K............................................ 12
Signature............................................................................... 13
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PART I: FINANCIAL INFORMATION
TRC Companies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
------------- ------------- ------------- -------------
Gross revenue $ 22,380,777 $ 20,355,356 $ 70,676,534 $ 57,076,689
Less subcontractor costs and
direct charges 4,779,532 5,382,607 16,660,970 15,066,926
------------- ------------- ------------- -------------
Net service revenue 17,601,245 14,972,749 54,015,564 42,009,763
------------- ------------- ------------- -------------
Operating costs and expenses:
Salaries and other direct costs
of services 13,846,317 13,453,968 42,465,978 35,883,781
General and administrative expenses 992,752 1,026,517 2,934,169 2,637,558
Depreciation and amortization 760,988 590,515 2,232,331 1,624,367
------------- ------------- ------------- -------------
15,600,057 15,071,000 47,632,478 40,145,706
------------- ------------- ------------- -------------
Income (loss) from operations 2,001,188 (98,251) 6,383,086 1,864,057
Interest expense 331,376 41,360 1,096,592 71,306
Other income, net (6,833) (9,026) (14,548) (44,970)
------------- ------------- ------------- -------------
Income (loss) before taxes 1,676,645 (130,585) 5,301,042 1,837,721
Federal and state income tax provision (benefit) 600,000 (41,021) 2,014,000 683,882
------------- ------------- ------------- -------------
Net income (loss) $ 1,076,645 $ (89,564) $ 3,287,042 $ 1,153,839
------------- ------------- ------------- -------------
Earnings (loss) per share $ .15 $ (.01) $ .46 $ .17
------------- ------------- ------------- -------------
Weighted average number of common and
common equivalent shares outstanding 7,196,012 6,664,446 7,220,543 6,633,511
------------- ------------- ------------- -------------
The accompanying notes are an integral part of the financial statements.
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TRC COMPANIES, INC.
Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
1995 1994
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ASSETS
Current assets:
Cash and cash equivalents $ 2,017,269 $ 2,244,144
Accounts receivable, less allowance for doubtful accounts 32,550,534 32,395,013
Inventories 1,757,589 1,718,130
Deferred income tax benefits 843,502 1,397,702
Prepaid expenses and other current assets 509,781 661,967
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37,678,675 38,416,956
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Property and equipment, at cost 19,210,603 18,540,628
Less accumulated depreciation and amortization 11,703,436 10,281,785
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7,507,167 8,258,843
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Costs in excess of net assets of acquired businesses, net of
accumulated amortization 27,984,355 28,554,959
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Other assets 755,405 720,242
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$ 73,925,602 $ 75,951,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,000,000 $ 2,000,000
Accounts payable 2,921,814 2,859,540
Accrued compensation and benefits 2,601,356 3,431,441
Income taxes payable 696,287 778,102
Accrued costs related to disposed business 43,483 974,963
Current maturities of capitalized lease obligations 146,607 177,179
Other accrued liabilities 1,356,186 2,232,638
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12,765,733 12,453,863
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Noncurrent liabilities:
Long-term debt 14,350,000 20,080,000
Capitalized lease obligations, less current maturities 3,473 79,917
Accrued lease obligations 257,630 327,045
Deferred income taxes 1,158,700 1,026,610
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15,769,803 21,513,572
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Shareholders' equity:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued --- ---
Common, $.10 par value; 30,000,000 shares authorized, 7,259,205
shares issued at March 31, 1995 and 7,241,289 shares issued
at June 30, 1994 725,920 724,129
Additional paid-in capital 37,841,098 37,723,430
Retained earnings 7,601,274 4,314,232
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46,168,292 42,761,791
Less treasury stock, at cost (169,653 shares) 778,226 778,226
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45,390,066 41,983,565
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$ 73,925,602 $ 75,951,000
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The accompanying notes are an integral part of the financial statements.
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TRC COMPANIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $ 3,287,042 $ 1,153,839
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,232,331 1,624,367
Change in deferred taxes and other non-cash items 616,875 103,529
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (155,521) (4,044,279)
Inventories (39,459) (66,295)
Prepaid expenses and other current assets 152,186 (408,856)
Accounts payable 62,274 (1,154,187)
Accrued compensation and benefits (830,085) 161,456
Income taxes (81,815) 1,096,935
Accrued costs related to disposed business (931,480) (1,821,769)
Other accrued liabilities (901,452) (396,471)
------------ ------------
Net cash provided by (used in) operating activities 3,410,896 (3,751,731)
------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired --- (4,847,871)
Additions to property and equipment, net (739,621) (1,797,551)
Increase in other assets (155,593) (4,624)
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Net cash used in investing activities (895,214) (6,650,046)
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Cash flows from financing activities:
Net borrowings (repayments) on long-term debt (2,730,000) 7,045,000
Proceeds from exercise of stock options 94,459 250,162
Principal repayments under capitalized lease obligations (107,016) (83,440)
------------ ------------
Net cash provided by (used in) financing activities (2,742,557) 7,211,722
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Decrease in cash and cash equivalents (226,875) (3,190,055)
Cash and cash equivalents, beginning of period 2,244,144 4,669,802
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Cash and cash equivalents, end of period $ 2,017,269 $ 1,479,747
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The accompanying notes are an integral part of the financial statements.
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TRC Companies, Inc.
Notes to Consolidated Financial Statements
March 31, 1995
1. The consolidated balance sheet at March 31, 1995, the consolidated
statements of operations for the three and nine months ended March 31, 1995
and 1994 and the consolidated statements of cash flows for the nine months
ended March 31, 1995 and 1994 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 results of operations for the three and nine months ended
March 31, 1995 are not necessarily indicative of the results to be expected
for the full fiscal year. 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, 1994.
2. Earnings per common share are based upon the weighted average number of
common shares outstanding and, when dilutive, common stock equivalents
using the treasury stock method. Contingently issuable shares related to
the acquisition of Environmental Solutions, Inc. are not dilutive for
purposes of computing fully diluted earnings per share.
3. The components of inventories were as follows:
March 31, June 30,
1995 1994
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Materials and supplies $ 589,824 $ 633,064
Work-in-process 486,421 377,677
Finished goods 681,344 707,389
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$1,757,589 $1,718,130
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4. In March 1994, a wholly-owned subsidiary of the Company completed the
acquisition of substantially all of the assets, business, liabilities and
obligations of Environmental Solutions, Inc., an environmental engineering
and consulting business. The purchase price included cash of $4,848,000
(net of cash acquired), a $14,000,000 three-year 5.75% subordinated note
and 459,770 shares of the Company's common stock valued at $5,000,000. The
Company may also be required to issue up to an additional 827,586 shares of
common stock if certain profit objectives are achieved over the next four
years. The acquisition, which was effective as of the close of business on
February 28, 1994, has been accounted for using the purchase method of
accounting. The purchase price and expenses associated with the
acquisition resulted in costs in excess of the fair value of the net assets
acquired of approximately $23,287,000, which is being amortized over thirty
years on a straight-line basis.
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The following unaudited pro forma information for the nine months ended
March 31, 1994 presents summarized results of operations as if the
acquisition had occurred at the beginning of that period, after giving
effect to certain adjustments, including amortization of costs in excess of
the net assets acquired, increased interest expense on acquisition debt,
income tax effects and the increase in common shares outstanding:
(in thousands, except per share amounts)
----------------------------------------
Nine Months
Ended
March 31, 1994
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Net service revenue $ 56,048
Income from operations 3,744
Income before taxes 2,921
Net income 1,800
Earnings per share $ .26
The pro forma information presented does not purport to be indicative of
the results that actually would have occurred had the acquisition been made
at the beginning of the period.
5. In May 1994, the Company issued 528,736 shares of common stock in exchange
for the outstanding common stock of Mariah Associates, Inc. (Mariah), an
environmental consulting company. The acquisition has been accounted for
as a pooling-of-interests and, accordingly, the Company's consolidated
financial statements have been restated for all periods prior to the
acquisition to include the financial statements of Mariah.
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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, 1995 and 1994
Overview
TRC Companies, Inc. is an international environmental engineering and consulting
company with a premier reputation for expertise in all areas of air pollution
control, pollution prevention and hazardous waste engineering. Through a
network of offices throughout the United States, the Company's engineering and
instrumentation subsidiaries provide a full range of environmental engineering
and consulting, expert site and traffic engineering, weather modification
services and specialized pollution control measurement instrumentation to
industry and government.
Significant recent events in the development of the Company's business include:
(i) the acquisition in October 1992, of the capital stock of North American
Weather Consultants of Salt Lake City, Utah, a firm specializing in weather
modification services, meteorological consulting and air pollution control
engineering; (ii) the acquisition in March 1994, of the assets of Environmental
Solutions, Inc. of Irvine, California, a firm providing a broad range of
hazardous and solid waste consulting services, specializing in remedial design
and construction management; and (iii) the acquisition in May 1994, of the
capital stock of Mariah Associates, Inc. of Laramie, Wyoming, a full service
environmental consulting firm serving primarily the western states with a focus
on cultural resource consulting and environmental impact statements. All of the
foregoing acquisitions were treated as purchases for accounting purposes except
for Mariah which has been accounted for as a pooling-of-interests and,
accordingly , the Company's consolidated financial statements have been restated
for all periods prior to that acquisition to include the financial results of
Mariah.
Results of Operations
The Company, in the course of providing its services, routinely subcontracts
such services as drilling, laboratory analyses and other specialized 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 change significantly from project to project, the change
in gross revenue is not necessarily a true indication of business trends.
Accordingly, the Company considers net service revenue, which is gross revenue
less subcontractor costs and direct charges, as its primary measure of revenue
growth.
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The following table presents the percentage relationships of certain items in
the consolidated statements of operations related to net service revenue:
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
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Net service revenue 100.0% 100.0% 100.0% 100.0%
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Operating costs and expenses:
Salaries and other direct costs of services 78.7 89.8 78.6 85.4
General and administrative expenses 5.6 6.9 5.5 6.3
Depreciation and amortization 4.3 3.9 4.1 3.9
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Income (loss) from operations 11.4 (0.6) 11.8 4.4
Interest expense 1.9 0.3 2.0 0.2
Other income, net -- -- -- (0.1)
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Income (loss) before taxes 9.5 (0.9) 9.8 4.3
Federal and state income tax
provision (benefit) 3.4 (0.3) 3.7 1.6
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Net income (loss) 6.1% (0.6)% 6.1% 2.7%
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Net service revenue for the three and nine months ended March 31, 1995 increased
by 17.6% and 28.6%, respectively, as compared to the same periods last year.
These increases resulted primarily from the additional revenue from
Environmental Solutions, Inc., which was acquired in March 1994, and to an
increase in revenue from commercial air pollution engineering services,
partially offset by lower revenue from contracts with the U.S. Environmental
Protection Agency (EPA) and other federal government agencies.
Salaries and other direct costs of services increased by 2.9% and 18.3%,
respectively, during the three and nine months ended March 31, 1995, as compared
to the same periods last year, primarily due to the inclusion of the additional
costs from Environmental Solutions, Inc. However, as a percentage of net
service revenue, these costs decreased in the current three month period from
89.8% last year to 78.7%, and in the current nine month period from 85.4% last
year to 78.6%. These improvements were primarily due to achieving higher net
revenue per labor dollar and continued cost reduction efforts.
General and administrative expenses decreased by 3.3% in the three months ended
March 31, 1995 and increased by 11.2% in the nine months ended March 31, 1995,
as compared to the same periods last year. These changes were primarily due to
the additional costs from Environmental Solutions, Inc., offset by continuing
cost reduction efforts.
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Depreciation and amortization increased by 28.9% and 37.4%, respectively, during
the three and nine months ended March 31, 1995, as compared to the same periods
last year. These increases were primarily due to the additional amortization of
costs in excess of the net assets of acquired businesses, in connection with the
acquisition of Environmental Solutions, Inc.
For the three months ended March 31, 1995, the Company reported income from
operations of $2,001,188 as compared to a loss from operations of $98,251 in the
same period last year. The increase in income from operations resulted from the
inclusion of the results of Environmental Solutions, Inc. along with the
increase in net service revenue, a continued improvement in staff utilization,
and the reduction in operating costs as a percentage of net service revenue. The
loss from operations in the prior year was the direct result of recording
restructuring charges related to staff reductions and office closings, the
adverse effect of severe weather in the Northeast and lower revenue from
contracts with the EPA, partially offset by the inclusion of the operating
results of Environmental Solutions, Inc. For the nine months ended March 31,
1995, income from operations increased to $6,383,086 from $1,864,057 in the same
period last year, primarily from the inclusion of the results of Environmental
Solutions, Inc., the increase in net service revenue and the continued
improvement in staff utilization.
Interest expense increased during the three and nine months ended March 31,
1995, as compared to the same periods last year, primarily due to the additional
interest expense on the $14 million three-year subordinated note issued in
connection with the acquisition of Environmental Solutions, Inc. and interest on
bank borrowings under the Company's revolving credit agreement related to the
acquisition.
The effective federal and state income tax rate was 36% and 38%, respectively,
for the three and nine months ended March 31, 1995, as compared to 37% in the
same periods last year. The higher rate for the nine months ended March 31,
1995 results primarily from a higher effective state income tax rate. The
Company provides for income taxes in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, and
believes that there will be sufficient taxable income in the carryforward
periods to enable utilization of the deferred 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
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 believes that it is strongly positioned as a provider of air
pollution control, pollution prevention and hazardous waste engineering
services. Over the next several years, the Company anticipates a significant
increase in the demand for its highly specialized air pollution engineering
services as industry complies with the requirements of the Clean Air Act
Amendments of 1990. In addition, the acquisition of Environmental Solutions,
Inc. will increase the Company's revenue from hazardous waste services.
Historically, the Company has realized a significant amount of its revenue from
federal government agencies. Future levels of government business will be
dependent upon the Company's selectivity in bidding on government projects and
success in procuring contract awards.
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Working capital was $25 million at March 31, 1995, compared to $26 million at
June 30, 1994. The decrease is primarily due to the increase of $3 million in
the current maturity of long-term debt, offset by the working capital provided
by operations during the nine months ended March 31, 1995.
The Company has available a $35 million, unsecured revolving credit agreement
with a commercial bank which expires December 31, 2001. At March 31, 1995,
outstanding borrowings under this agreement were $7,350,000. The amount
outstanding has been classified as long-term debt in accordance with the
Company's intention and ability to refinance the obligation on a long-term
basis.
The Company expects to make capital expenditures of less than $500,000 during
the remainder of fiscal 1995. The Company believes that cash generated from
operations, the cash on hand at March 31, 1995, and available borrowings under
the revolving credit agreement will be sufficient to meet the Company's cash
requirements for the remainder of fiscal 1995.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3, Legal Proceedings, in the Company's Annual
Report on Form 10-K for the year ended June 30, 1994, for a
description of existing litigation against the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.3.4 Amended and Restated Revolving Credit and Term Loan
Agreement, by and among TRC Companies, Inc. and its
subsidiaries and The First National Bank of Boston, dated
March 15, 1995.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
during the quarter ended March 31, 1995.
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Signatures
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.
April 26, 1995 by: /s/ Peter J. Russo
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Peter J. Russo
Senior Vice President and
Chief Financial Officer
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