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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 September 30, 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 (Zip Code)
executive offices)
Registrant's telephone number, including area code: (860) 289-8631
___________________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [x] NO [_]
On September 30, 1995 there were 7,090,552 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 SEPTEMBER 30, 1995
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Operations for the three months ended
September 30, 1995 and 1994......................................................... 3
Balance Sheets at September 30, 1995 and June 30, 1995................................. 4
Statements of Cash Flows for the three months ended
September 30, 1995 and 1994......................................................... 5
Notes to Financial Statements.......................................................... 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................................. 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 11
Item 6. Exhibits and Reports on Form 8-K....................................................... 11
SIGNATURE.......................................................................................... 12
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PART I: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1995 1994
------------- ---------------
GROSS REVENUE $ 20,018,912 $ 23,093,240
Less subcontractor costs and direct charges 3,771,900 4,728,889
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NET SERVICE REVENUE 16,247,012 18,364,351
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OPERATING COSTS AND EXPENSES:
Salaries and other direct costs of services 16,054,550 14,556,503
General and administrative expenses 934,259 953,824
Depreciation and amortization 711,447 724,040
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17,700,256 16,234,367
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INCOME (LOSS) FROM OPERATIONS (1,453,244) 2,129,984
Interest expense 254,405 394,085
Other income, net --- (4,037)
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INCOME (LOSS) BEFORE TAXES (1,707,649) 1,739,936
Federal and state income tax provision (benefit) (649,000) 679,000
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NET INCOME (LOSS) $ (1,058,649) $ 1,060,936
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EARNINGS (LOSS) PER SHARE $ (.15) $ .15
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WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,089,802 7,241,092
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The accompanying notes are an integral part of the financial statements.
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TRC COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
1995 1995
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,478,711 $ 2,180,764
Accounts receivable, less allowance for doubtful accounts 29,494,515 32,306,865
Inventories 1,830,903 1,930,379
Deferred income tax benefits 1,887,512 1,164,702
Prepaid expenses and other current assets 955,760 398,187
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35,647,401 37,980,897
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PROPERTY AND EQUIPMENT, AT COST 19,562,198 19,440,171
Less accumulated depreciation and amortization 12,505,665 12,093,880
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7,056,533 7,346,291
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COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF
ACCUMULATED AMORTIZATION 27,520,059 27,752,208
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OTHER ASSETS 696,454 735,232
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70,920,447 73,814,628
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 5,000,000 5,000,000
Accounts payable 2,541,961 2,989,020
Accrued compensation and benefits 2,900,375 2,930,930
Income taxes payable 414,726 591,145
Current maturities of capitalized lease obligations 62,852 64,649
Other accrued liabilities 2,042,981 1,436,902
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12,962,895 13,012,646
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NONCURRENT LIABILITIES:
Long-term debt 10,350,000 12,200,000
Capitalized lease obligations, less current maturities --- 15,798
Accrued lease obligations 199,823 234,491
Deferred income taxes 1,922,420 1,813,610
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12,472,243 14,263,899
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SHAREHOLDERS' EQUITY:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued
Common, $.10 par value; 30,000,000 shares authorized, 7,260,209
shares issued at September 30, 1995 and 7,259,209 shares issued
at June 30, 1995 726,020 725,920
Additional paid-in capital 37,860,867 37,855,092
Retained earnings 7,676,648 8,735,297
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46,263,535 47,316,309
Less treasury stock, at cost 778,226 778,226
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45,485,309 46,538,083
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$ 70,920,447 $ 73,814,628
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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)
Three Months Ended
September 30,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,058,649) $ 1,060,936
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 711,447 724,040
Change in deferred taxes and other non-cash items (648,668) 286,601
Changes in assets and liabilities:
Accounts receivable 2,812,350 214,264
Inventories 99,476 90,606
Prepaid expenses and other current assets (557,573) (427,061)
Accounts payable (447,059) 527,862
Accrued compensation and benefits (30,555) (399,634)
Income taxes (176,419) (28,995)
Other accrued liabilities 606,079 (1,299,322)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,310,429 749,297
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (174,394) (188,351)
Decrease (increase) in other assets 23,632 (133,720)
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NET CASH USED IN INVESTING ACTIVITIES (150,762) (322,071)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) on long-term debt (1,850,000) 320,000
Proceeds from exercise of stock options 5,875 18,729
Principal repayments under capitalized lease obligations (17,595) (27,109)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,861,720) 311,620
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (702,053) 738,846
Cash and cash equivalents, beginning of period 2,180,764 2,244,144
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,478,711 $ 2,982,990
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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
September 30, 1995
1. The consolidated balance sheet at September 30, 1995 and the consolidated
statements of operations and cash flows for the three months ended September
30, 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 months ended September 30, 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, 1995.
2. Earnings (loss) 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:
September 30, June 30,
1995 1995
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Materials and supplies $ 861,305 $ 896,161
Work-in-process 110,034 332,206
Finished goods 859,564 702,012
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$ 1,830,903 $ 1,930,379
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4. The results for the three months ended September 30, 1995 reflect an
operating charge of approximately $2,112,000 after tax or $.30 per share
related to staff reductions, excess lease costs and additional allowances
for government receivables. These charges were necessary to align resources
with current business conditions, resulting from a decrease in services to
the federal government, and the adverse effect of regulatory uncertainty and
reduction in government spending on commercial hazardous waste engineering
and consulting services.
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TRC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended September 30, 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 quality and
solid and hazardous waste management as well as regulatory compliance and
permitting, water resources engineering, air pollution engineering, risk
assessment, pollution prevention, civil engineering, process engineering and the
development of strategic plans for environmental issues. The Company is one of
the largest air pollution engineering companies in the nation and provides
innovative approaches to solid and hazardous waste management.
The Company believes that it is strongly positioned as a provider of air
pollution control, pollution prevention and solid and hazardous waste
engineering and consulting services. Over the next several years, the Company
anticipates an increase in the demand for its highly specialized air pollution
engineering and consulting services as industry complies with the requirements
of the Clean Air Act Amendments of 1990. In addition, TRC Environmental
Solutions, Inc. will increase the Company's revenue from solid and hazardous
waste services in the United States and internationally. Historically, the
Company has realized a significant amount of its revenue from federal government
agencies. However, future levels of government business will be dependent upon
the Company's selectivity in bidding on government projects coupled with the
strategy to reduce its dependence on government contracts, and its success in
procuring contract awards.
RESULTS OF OPERATIONS
The Company, in the course of providing its services, routinely subcontracts
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 to net service revenue:
Three Months Ended
September 30,
1995 1994
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NET SERVICE REVENUE 100.0 % 100.0 %
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OPERATING COSTS AND EXPENSES:
Salaries and other direct costs of services 98.8 /1/ 79.3
General and administrative expenses 5.7 5.2
Depreciation and amortization 4.4 3.9
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INCOME (LOSS) FROM OPERATIONS (8.9) /1/ 11.6
Interest expense 1.6 2.1
Other income, net -- --
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INCOME (LOSS) BEFORE TAXES (10.5) 9.5
Federal and state income tax provision (benefit) (4.0) 3.7
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NET INCOME (LOSS) (6.5) % 5.8 %
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/1/ 79.1% and 11.4%, respectively, before $3,300,000 operating charge
The Company reported a net loss of $1,058,649 or $.15 per share for the three
months ended September 30, 1995, as compared to net income of $1,060,936 in the
same period last year. The loss was the direct result of recording an operating
charge of $3,300,000 (approximately $2,112,000 after tax or $.30 per share)
related to reductions in staff and related expenses, excess lease costs of
underutilized offices and increased allowances primarily for government
receivables. These charges were necessary to align resources with current
business conditions while maintaining the Company's strong position as a
provider of air pollution control, pollution prevention and solid and hazardous
waste engineering and consulting services. In addition, results for the three
month period were affected by a continued reduction in services to the federal
government, and the adverse effect on commercial hazardous waste engineering and
consulting services resulting from regulatory uncertainty and reduction in
federal government spending.
Net service revenue decreased by 11.5% during the three months ended September
30, 1995 to $16.2 million, from $18.4 million in the same period last year.
This decrease was primarily due to the reduction in services to the federal
government and the weak commercial hazardous waste engineering market resulting
from regulatory uncertainty and the reduction in federal government spending.
Salaries and other direct costs of services increased by 10.3% during the three
months ended September 30, 1995, as compared to the same period last year. This
increase was primarily due to the $3,300,000 charge recorded during the three
months ended September 30, 1995 related to staff reductions, excess lease costs
and increased allowances for receivables. Excluding the charge, these costs
decreased as a percentage of net service revenue to 79.1%, from 79.3% last
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year. The cost reduction resulted from lower employment costs necessary to
support the current level of net service revenue.
General and administrative expenses decreased by 2% during the three months
ended September 30, 1995, as compared to the same period last year, primarily
due to continued cost reduction efforts.
Depreciation and amortization expense decreased by 2% during the three months
ended September 30, 1995, as compared to the prior year. This decrease is due
to the comparative reduction in capital expenditures during fiscal 1995, and
during the first three months of the current fiscal year.
For the three months ended September 30, 1995, the Company reported a loss from
operations of $1,453,244, as compared to income from operations of $2,129,984 in
the same period last year. The loss was the direct result of the operating
charge recorded during the period and the impact of the reduction in net service
revenue.
Interest expense decreased to $254,405 during the three months ended September
30, 1995, from $394,085 last year. This decrease resulted from lower levels of
long-term debt outstanding at lower rates of interest.
The provision for federal and state incomes reflects a benefit at the rate of
38% for the three months ended September 30, 1995. 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
Working capital decreased to $22.7 million at September 30, 1995, from $25
million at June 30, 1995, primarily due to the net loss for the three months
ended September 30, 1995 and to the repayment of long-term debt. Although the
Company incurred a net loss for the three months ended September 30, 1995,
positive cash flow was provided by operations which resulted in the Company
repaying $1,850,000 of its long-term debt.
The Company has available a $35 million, unsecured revolving credit agreement
with a group of commercial banks which expires December 31, 2001. At September
30, 1995, outstanding borrowings under this agreement were $3.4 million. The
amount outstanding has been classified as long-term debt in accordance with the
Company's intention and ability to refinance the
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obligation on a long-term basis. In addition, the Company had standby letters of
credit outstanding totalling $1.0 million which reduce available borrowings
under the agreement. In connection with the acquisition of Environmental
Solutions, Inc. in March 1994, the Company issued a $14 million three-year 5.75%
subordinated note, of which $12 million remained outstanding at September 30,
1995.
The Company expects to make capital expenditures of approximately $1.0 million
during the remainder of fiscal 1996. The Company believes that cash generated
from operations, the cash on hand at September 30, 1995 and available borrowings
under the revolving credit agreement will be sufficient to meet the Company's
cash requirements for the remainder of fiscal 1996.
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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, 1995, for a description
of existing litigation against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
27 - Financial Data Schedule (for SEC purposes only)
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
during the quarter ended September 30, 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.
October 31, 1995 by: /s/ Peter J. Russo
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Peter J. Russo
Senior Vice President and
Chief Financial Officer
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