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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 December 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 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
___________________________________
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 December 31, 1995 there were 7,096,102 shares of the registrant's common
stock, $.10 par value, outstanding.
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TRC COMPANIES, INC.
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED DECEMBER 31, 1995
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Operations for the three and six months ended
December 31, 1995 and 1994................................... 3
Balance Sheets at December 31, 1995 and June 30, 1995............ 4
Statements of Cash Flows for the six months ended
December 31, 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................................................10
Item 6. Exhibits and Reports on Form 8-K.................................10
SIGNATURE....................................................................11
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PART I: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
-------------- -------------- -------------- --------------
GROSS REVENUE $ 19,960,381 $ 25,202,517 $ 39,979,293 $ 48,295,757
Less subcontractor costs and
direct charges 4,579,986 7,152,549 8,351,886 11,881,438
-------------- -------------- -------------- --------------
NET SERVICE REVENUE 15,380,395 18,049,968 31,627,407 36,414,319
-------------- -------------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Salaries and other direct costs
of services 12,631,791 14,066,235 28,686,341 28,622,738
General and administrative expenses 929,876 987,593 1,864,135 1,941,417
Depreciation and amortization 717,026 747,303 1,428,473 1,471,343
-------------- -------------- -------------- --------------
14,278,693 15,801,131 31,978,949 32,035,498
-------------- -------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS 1,101,702 2,248,837 (351,542) 4,378,821
Interest expense 232,632 371,131 487,037 765,216
Other income, net --- (6,755) --- (10,792)
-------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE TAXES 869,070 1,884,461 (838,579) 3,624,397
Federal and state income tax
provision (benefit) 330,000 735,000 (319,000) 1,414,000
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 539,070 $ 1,149,461 $ (519,579) $ 2,210,397
-------------- -------------- -------------- --------------
EARNINGS (LOSS) PER SHARE $ .08 $ .16 $ (.07) $ .31
-------------- -------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,136,524 7,224,524 7,113,163 7,232,808
-------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statement.
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TRC COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
ASSETS 1995 1995
-------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,170,407 $ 2,180,764
Accounts receivable, less allowance for doubtful accounts 30,399,432 32,306,865
Inventories 1,753,813 1,930,379
Deferred income tax benefits 1,604,252 1,164,702
Prepaid expenses and other current assets 950,441 398,187
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35,878,345 37,980,897
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PROPERTY AND EQUIPMENT, AT COST 19,456,934 19,440,171
Less accumulated depreciation and amortization 12,849,361 12,093,880
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6,607,573 7,346,291
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COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF
ACCUMULATED AMORTIZATION 27,287,910 27,752,208
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OTHER ASSETS 657,446 735,232
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$ 70,431,274 $ 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 2,854,446 2,989,020
Accrued compensation and benefits 2,761,659 2,930,930
Income taxes payable 319,868 591,145
Current maturities of capitalized lease obligations 41,339 64,649
Other accrued liabilities 2,062,442 1,436,902
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13,039,754 13,012,646
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NONCURRENT LIABILITIES:
Long-term debt 9,200,000 12,200,000
Accrued lease obligations 165,375 234,491
Deferred income taxes 1,969,160 1,813,610
Capitalized lease obligations, less current maturities --- 15,798
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11,334,535 14,263,899
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SHAREHOLDERS' EQUITY:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued
Common, $.10 par value; 30,000,000 shares authorized, 7,265,755
shares issued at December 31, 1995 and 7,259,209 shares issued
at June 30, 1995 726,575 725,920
Additional paid-in capital 37,892,918 37,855,092
Retained earnings 8,215,718 8,735,297
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46,835,211 47,316,309
Less treasury stock, at cost 778,226 778,226
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46,056,985 46,538,083
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$ 70,431,274 $ 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)
Six Months Ended
December 31,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (519,579) $ 2,210,397
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,428,473 1,471,343
Change in deferred taxes and other non-cash items (353,113) 528,156
Changes in assets and liabilities:
Accounts receivable 1,907,433 235,706
Inventories 176,566 (137,626)
Prepaid expenses and other current assets (552,254) (49,310)
Accounts payable (134,574) 1,393,936
Accrued compensation and benefits (169,271) (330,441)
Income taxes payable (271,277) (367,410)
Other accrued liabilities 625,540 (1,321,166)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,137,944 3,633,585
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (193,369) (338,894)
Decrease (increase) in other assets 45,695 (182,199)
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NET CASH USED IN INVESTING ACTIVITIES (147,674) (521,093)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on long-term debt (3,000,000) (1,680,000)
Principal repayments under capitalized lease obligations (39,108) (69,249)
Proceeds from exercise of stock options 38,481 24,955
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NET CASH USED IN FINANCING ACTIVITIES (3,000,627) (1,724,294)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,010,357) 1,388,198
Cash and cash equivalents, beginning of period 2,180,764 2,244,144
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,170,407 $ 3,632,342
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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
December 31, 1995
1. The consolidated balance sheet at December 31, 1995, the consolidated
statements of operations for the three and six months ended December 31,
1995 and 1994 and the consolidated statements of cash flows for the six
months ended December 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 six months
ended December 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, 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:
December 31, June 30,
1995 1995
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Materials and supplies $ 892,911 $ 896,161
Work-in-process 159,070 332,206
Finished goods 701,832 702,012
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$ 1,753,813 $ 1,930,379
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4. The results for the six months ended December 31, 1995 reflect an operating
charge recorded in the three months ended September 30, 1995 of
approximately $2,112,000 after tax or $.30 per share, related to staff
reductions, excess lease costs and 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 and Six Months Ended December 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 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. 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 Six Months Ended
December 31, December 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 82.1 77.9 90.7 /1/ 78.6
General and administrative expenses 6.0 5.5 5.9 5.3
Depreciation and amortization 4.7 4.1 4.5 4.1
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INCOME (LOSS) FROM OPERATIONS 7.2 12.5 (1.1)/2/ 12.0
Interest expense 1.5 2.1 1.5 2.1
Other income, net -- -- -- (0.1)
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INCOME (LOSS) BEFORE TAXES 5.7 10.4 (2.6) 10.0
Federal and state income tax provision (benefit) 2.2 4.0 (1.0) 3.9
-------------------- --------------------
NET INCOME (LOSS) 3.5% 6.4% (1.6)% 6.1%
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/1/ 80.3% before operating charge.
/2/ 9.3% before operating charge.
Net service revenue for the three and six months ended December 31, 1995
decreased by 14.8% and 13.1%, respectively, as compared to the same periods last
year. These decreases were primarily due to a continued reduction in services to
the federal government, the federal government's shutdown in December and the
adverse effect on commercial hazardous waste engineering and consulting services
resulting from regulatory uncertainty and anticipated reductions in federal
government spending. The Company believes that the federal government and
commercial hazardous waste markets will continue to be weak in the third
quarter.
Salaries and other direct costs of services decreased by 10.2% during the three
months ended December 31, 1995, as compared to the same period last year. This
decrease was the direct result of the cost reduction efforts taken in the
previous quarter to align resources with current business conditions. For the
six months ended December 31, 1995, these costs increased by .2% due to the
first quarter operating charge of $3,300,000 related to staff reductions, excess
lease costs and increased allowances for receivables.
General and administrative expenses decreased by 5.8% and 4.0%, respectively,
during the three and six months ended December 31, 1995, as compared to the same
periods last year, primarily due to continued cost reduction efforts.
Depreciation and amortization expense decreased by 4.1% and 2.9%, respectively,
during the three and six months ended December 31, 1995, as compared to the same
periods last year. These decreases are due to the comparative reduction in
expenditures for equipment in fiscal 1995 and during the first six months of the
current fiscal year combined with other equipment which became fully
depreciated.
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For the three months ended December 31, 1995, the Company reported income from
operations of $1,101,702, down from $2,248,837 in the same period last year. The
decrease was primarily due to the reduction in net service revenue, partially
offset by a decrease in operating expenses. For the six months ended December
31, 1995, the Company reported a loss from operations of $351,542, compared to
income from operations of $4,378,821 in the same period last year. The loss was
the direct result of the operating charge recorded in the first quarter and the
reduction in net service revenue.
Interest expense decreased by 37.3% and 36.4%, respectively, during the three
and six months ended December 31, 1995, as compared to the same periods last
year. These decreases resulted from lower levels of long-term debt outstanding
at lower rates of interest.
The provision (benefit) for federal and state income taxes for the three and six
months ended December 31, 1995, are recorded at an effective rate of 38%. 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
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
Working capital decreased to $22.8 million at December 31, 1995, from $25
million at June 30, 1995, primarily due to the repayment of long-term debt.
Although the Company incurred a net loss for the six months ended December 31,
1995, positive cash flow provided by operations and cash on hand resulted in the
Company repaying $3,000,000 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 December
31, 1995, outstanding borrowings under this agreement were $2.2 million. 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. In addition, the Company had standby letters of credit outstanding
totaling $1.0 million which reduce available borrowings under the agreement.
The Company expects to make capital expenditures of approximately $500,000
during the remainder of fiscal 1996. The Company believes that cash generated
from operations, the cash on hand at December 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 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. The Company does
not believe that there currently exists any litigation that will have a
material adverse effect on 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 December 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.
February 6, 1996 by: /s/Peter J. Russo
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Peter J. Russo
Senior Vice President and
Chief Financial Officer
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