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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 March 31, 1996
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
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 Waterside Crossing
Windsor, Connecticut 06095
- ------------------------------- ------------------------------------
(Address of principal executive (Zip Code)
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 March 31, 1996 there were 7,021,802 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, 1996
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Operations for the three and nine months ended
March 31, 1996 and 1995.................................. 3
Balance Sheets at March 31, 1996 and June 30, 1995.......... 4
Statements of Cash Flows for the nine months ended
March 31, 1996 and 1995.................................. 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
2
PART I: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
GROSS REVENUE $19,422,036 $22,380,777 $59,401,329 $70,676,534
Less subcontractor costs and
direct charges 4,613,083 4,779,532 12,964,969 16,660,970
----------- ----------- ----------- -----------
NET SERVICE REVENUE 14,808,953 17,601,245 46,436,360 54,015,564
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Salaries and other direct costs
of services 13,592,606 13,846,317 42,278,947 42,465,978
General and administrative expenses 1,020,665 992,752 2,884,800 2,934,169
Depreciation and amortization 724,678 760,988 2,153,151 2,232,331
----------- ----------- ----------- -----------
15,337,949 15,600,057 47,316,898 47,632,478
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (528,996) 2,001,188 (880,538) 6,383,086
Interest expense 212,072 331,376 699,109 1,096,592
Other income, net -- (6,833) -- (14,548)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES (741,068) 1,676,645 (1,579,647) 5,301,042
Federal and state income tax
provision (benefit) (286,000) 600,000 (605,000) 2,014,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (455,068) $ 1,076,645 $ (974,647) $ 3,287,042
----------- ----------- ----------- -----------
EARNINGS (LOSS) PER SHARE $ (.06) $ .15 $ (.14) $ .46
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,063,952 7,196,012 7,096,759 7,220,543
----------- ----------- ----------- -----------
The accompanying notes are an integral part of the financial statements.
3
TRC COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 761,139 $ 2,180,764
Accounts receivable, less 29,193,151 32,306,865
allowance for doubtful accounts
Inventories 1,056,857 1,930,379
Deferred income tax benefits 1,694,702 1,164,702
Prepaid expenses and other current
assets 706,774 398,187
----------- -----------
33,412,623 37,980,897
----------- -----------
PROPERTY AND EQUIPMENT, AT COST 19,571,982 19,440,171
Less accumulated depreciation and
amortization 13,324,944 12,093,880
----------- -----------
6,247,038 7,346,291
----------- -----------
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED
BUSINESSES, NET OF ACCUMULATED
AMORTIZATION 27,055,763 27,752,208
----------- -----------
OTHER ASSETS 615,100 735,232
----------- -----------
$67,330,524 $73,814,628
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,000,000 $ 5,000,000
Accounts payable 2,401,779 2,989,020
Accrued compensation and benefits 2,245,436 2,930,930
Income taxes payable 62,275 591,145
Current maturities of capitalized
lease obligations 960 64,649
Other accrued liabilities 1,972,621 1,436,902
----------- -----------
13,683,071 13,012,646
----------- -----------
NONCURRENT LIABILITIES:
Long-term debt 6,500,000 12,200,000
Accrued lease obligations 130,928 234,491
Deferred income taxes 1,913,610 1,813,610
Capitalized lease obligations,
less current maturities -- 15,798
----------- -----------
8,544,538 14,263,899
----------- -----------
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 March
31, 1996 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 7,760,650 8,735,297
----------- -----------
46,380,143 47,316,309
Less treasury stock, at cost 1,277,228 778,226
----------- -----------
45,102,915 46,538,083
----------- -----------
$67,330,524 $73,814,628
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The accompanying notes are an integral part of the financial statements.
4
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31,
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (974,647) $3,287,042
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,153,151 2,232,331
Change in deferred taxes and
other non-cash items (533,563) 616,875
Changes in assets and
liabilities:
Accounts receivable 3,113,714 (155,521)
Inventories 873,522 (39,459)
Prepaid expenses and other
current assets (308,587) 152,186
Accounts payable (587,241) 62,274
Accrued compensation and
benefits (685,494) (830,085)
Income taxes payable (528,870) (81,815)
Accrued costs related to
disposed business (37,492) (931,480)
Other accrued liabilities 573,211 (901,452)
----------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 3,057,704 3,410,896
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment,
net (308,417) (739,621)
Decrease (increase) in other assets 71,096 (155,593)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (237,321) (895,214)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on long-term debt (3,700,000) (2,730,000)
Purchase of treasury stock (499,002) --
Principal repayments under
capitalized lease obligations (79,487) (107,016)
Proceeds from exercise of stock
options 38,481 94,459
----------- ----------
NET CASH USED IN FINANCING ACTIVITIES (4,240,008) (2,742,557)
----------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,419,625) (226,875)
Cash and cash equivalents, beginning
of period 2,180,764 2,244,144
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 761,139 $2,017,269
----------- ----------
The accompanying notes are an integral part of the financial statements.
5
TRC COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. The consolidated balance sheet at March 31, 1996, the consolidated
statements of operations for the three and nine months ended March 31, 1996
and 1995 and the consolidated statements of cash flows for the nine months
ended March 31, 1996 and 1995 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, 1996 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:
March 31, June 30,
1996 1995
------------ ------------
Materials and supplies $ 703,195 $ 896,161
Work-in-process 96,273 332,206
Finished goods 257,389 702,012
------------ ------------
$ 1,056,857 $ 1,930,379
------------ ------------
4. The results for the three and nine months ended March 31, 1996 reflect
operating charges of $1,100,000 (approximately $700,000 after-tax) and
$4,400,000 (approximately $2,800,000 after-tax), respectively, related to
staff reductions, selected office closures, excess lease costs and
allowances for government receivables and commercial inventories. 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.
6
TRC COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three and Nine Months Ended March 31, 1996 and 1995
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.
7
The following table presents the percentage relationships of certain items in
the consolidated statements of operations to net service revenue:
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
------------------- -------------------
NET SERVICE REVENUE 100.0% 100.0% 100.0% 100.0%
------------------- -------------------
OPERATING COSTS AND EXPENSES:
Salaries and other direct costs of
services 91.8/1/ 78.7 91.0/2/ 78.6
General and administrative expenses 6.9 5.6 6.2 5.5
Depreciation and amortization 4.9 4.3 4.7 4.1
------------------- -------------------
INCOME (LOSS) FROM OPERATIONS (3.6)/1/ 11.4 (1.9)/2/ 11.8
Interest expense 1.4 1.9 1.5 2.0
------------------- -------------------
INCOME (LOSS) BEFORE TAXES (5.0) 9.5 (3.4) 9.8
Federal and state income tax provision
(benefit) (1.9) 3.4 (1.3) 3.7
------------------- -------------------
NET INCOME (LOSS) (3.1)% 6.1% (2.1)% 6.1%
=================== ===================
/1/ 84.4% and 3.9%, respectively, before operating charge.
/2/ 81.6% and 7.6%, respectively, before operating charge.
The Company incurred net losses of $455,068 and $974,647, respectively, for the
three and nine months ended March 31, 1996, as compared to net income of
$1,076,645 and $3,287,042, respectively, in the same periods of the prior year.
The losses include charges of $1,100,000 (approximately $700,000 after-tax) and
$4,400,000 (approximately $2,800,000 after-tax), respectively, recorded during
the three and nine month periods related to reductions in staff, selected office
closures, excess lease costs and increased allowances for receivables and
inventories. In addition, the results for the periods were effected by a
continued reduction in services to the federal government, the federal
government's shutdown in December 1995, the prolonged adverse weather conditions
in the Northeast and the continuing adverse effect on commercial hazardous waste
engineering and consulting services resulting from regulatory uncertainty and
anticipated reductions in federal enforcement spending.
Net service revenue decreased for the three and nine months ended March 31, 1996
by 15.9% and 14%, respectively, as compared to the same periods last year. These
decreases were primarily due to the reduction in services to the federal
government and the weak commercial hazardous waste engineering market resulting
from regulatory uncertainty and anticipated reductions in federal enforcement
spending.
Salaries and other direct costs of services decreased during the three and nine
months ended March 31, 1996, as compared to the same periods last year. Although
partially offset by the $1,100,000 and $4,400,000 charges recorded during the
three and nine month periods, respectively, these decreases were the direct
result of continued cost reduction efforts taken to align resources with current
business conditions.
8
General and administrative expenses increased by 2.8%, during the three months
ended March 31, 1996, as compared to the same period last year, primarily due to
the increased costs of salaries and benefits and an increase in costs related to
acquisitions and international marketing efforts. For the nine months ended
March 31, 1996, general and administrative expenses decreased by 1.7%, as
compared to the same period last year, primarily due to cost reduction efforts.
Depreciation and amortization expense decreased by 4.8% and 3.5%, respectively,
during the three and nine months ended March 31, 1996, as compared to the same
periods last year. These decreases were due to the comparative reduction in
expenditures for equipment in fiscal 1995 and during the first nine months of
the current fiscal year combined with other equipment which became fully
depreciated.
For the three and nine months ended March 31, 1996, the Company reported losses
from operations of $528,996 and $880,538, respectively, as compared to income
from operations of $2,001,188 and $6,383,068, respectively, in the same periods
last year. The losses were the direct result of the operating charges recorded
in the first and third quarters and to the reduction in net service revenue.
Interest expense decreased by 36% and 36.2%, respectively, during the three and
nine months ended March 31, 1996, 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
nine months ended March 31, 1996, are recorded at an effective rate of
approximately 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 $19.7 million at March 31, 1996, from $25 million
at June 30, 1995, primarily due to the repayment of long-term debt, the $2
million increase in the current portion of long-term debt, the net loss for the
nine months ended March 31, 1996 and the purchase of treasury stock. Although
the Company incurred a net loss for the nine months ended March 31, 1996,
positive cash flow provided by operations and cash on hand resulted in the
Company repaying $3.7 million of its long-term debt.
9
The Company has available a $35 million, unsecured revolving credit agreement
with a group of commercial banks which expires December 31, 2001. At March 31,
1996, outstanding borrowings under this agreement were $6.5 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 million which reduce available borrowings under the agreement.
The Company expects to make capital expenditures of approximately $250,000
during the remainder of fiscal 1996. The Company believes that cash generated
from operations, the cash on hand at March 31, 1996 and available borrowings
under the revolving credit agreement will be sufficient to meet the Company's
cash requirements for the remainder of fiscal 1996.
10
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 March 31, 1996.
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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.
May 7, 1996 by: /s/Peter J. Russo
---------------------------
Peter J. Russo
Senior Vice President and
Chief Financial Officer
12