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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, 1996
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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 (I.R.S. Employer Identification
or organization) 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
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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 preceeding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [_]
On December 31, 1996 there were 6,662,102 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, 1996
PART I - Financial Information
Item 1. Consolidated Financial Statements
Statements of Operations for the three and six months ended
December 31, 1996 and 1995........................................... 3
Balance Sheets at December 31, 1996 and June 30, 1996.................... 4
Statements of Cash Flows for the six months ended
December 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........................................................ 10
Item 6. Exhibits and Reports on Form 8-K......................................... 10
Signature.............................................................................. 11
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PART 1: FINANCIAL INFORMATION
TRC COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Gross revenue $ 17,210,373 $ 19,960,381 $ 35,239,538 $ 39,979,293
Less subcontractor costs and
direct charges 4,485,406 4,579,986 9,128,608 8,351,886
------------ ------------ ------------ ------------
Net service revenue 12,724,967 15,380,395 26,110,930 31,627,407
------------ ------------ ------------ ------------
Operating costs and expenses:
Salaries and other direct costs
of services 10,725,764 12,631,791 21,974,120 28,686,341
General and administrative expenses 916,417 929,876 1,833,794 1,864,135
Depreciation and amortization 687,806 717,026 1,372,738 1,428,473
------------ ------------ ------------ ------------
12,329,987 14,278,693 25,180,652 31,978,949
------------ ------------ ------------ ------------
Income (loss) from operations 394,980 1,101,702 930,278 (351,542)
Interest expense 202,272 232,632 399,027 487,037
------------ ------------ ------------ ------------
Income (loss) before taxes 192,708 869,070 531,251 (838,579)
Federal and state income tax
provision (benefit) 73,000 330,000 202,000 (319,000)
------------ ------------ ------------ ------------
Net income (loss) $ 119,708 $ 539,070 $ 329,251 $ (519,579)
============ ============= ============ ============
Earnings (loss) per share $ .02 $ .08 $ .05 $ (.07)
============ ============ ============ ============
Weighted average number of
common and common equivalent
shares outstanding 6,704,620 7,136,524 6,809,157 7,113,163
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
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TRC COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1996 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 1,162,454 $ 1,321,524
Accounts receivable, less allowance for doubtful accounts 26,658,796 27,977,190
Inventories 1,050,009 915,336
Deferred income tax benefits 1,251,000 1,219,000
Prepaid expenses and other current assets 777,138 444,583
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30,899,397 31,877,633
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Property and equipment, at cost 19,852,157 19,667,334
Less accumulated depreciation and amortization 14,683,616 13,802,300
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5,168,541 5,865,034
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Cost in excess of net assets of acquired businesses, net of
accumulated amortization 25,451,727 25,903,615
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Other assets 720,857 588,407
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$ 62,240,522 $ 64,234,689
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,000,000 $ 7,000,000
Accounts payable 2,025,950 2,209,401
Accrued compensation and benefits 2,248,550 2,542,809
Income taxes payable 104,210 53,431
Other accrued liabilities 794,291 1,068,781
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12,173,001 12,874,422
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Noncurrent liabilities:
Long-term debt 5,000,000 5,200,000
Accrued lease obligations 27,585 96,480
Deferred income taxes 1,459,000 1,316,000
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6,486,585 6,612,480
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Shareholders' equity:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued - -
Common, $.10 par value; 30,000,000 shares authorized, 7,265,755
shares issued at December 31, 1996 and June 30, 1996 726,575 726,575
Additional paid-in capital 37,894,744 37,894,744
Retained earnings 7,749,495 7,420,244
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46,370,814 46,041,563
Less treasury stock, at cost 2,789,878 1,293,766
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43,580,936 44,747,787
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$ 62,240,522 $ 64,234,689
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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,
1996 1995
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Cash flows from operating activities:
Net income (loss) $ 329,251 $ (519,579)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,372,738 1,428,473
Change in deferred taxes and other non-cash items 42,105 (353,113)
Changes in assets and liabilities:
Accounts receivable 1,318,394 1,907,433
Inventories (134,673) 176,566
Prepaid expenses and other current assets (332,555) (552,254)
Accounts payable (183,451) (134,574)
Accrued compensation and benefits (294,259) (169,271)
Income taxes 50,779 (271,277)
Other accrued liabilities (274,490) 625,540
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Net cash provided by operating activities 1,893,839 2,137,944
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Cash flows from investing activities:
Additions to property and equipment, net (190,470) (193,369)
Decrease (increase) in other assets, net (166,337) 45,695
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Net cash used in investing activities (356,807) (147,674)
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Cash flows from financing activities:
Repayment of long-term debt (200,000) (3,000,000)
Purchase of treasury stock (1,496,102) --
Principal repayments under capitalized lease obligations -- (39,108)
Proceeds from exercise of stock options -- 38,481
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Net cash used in financing activities (1,696,102) (3,000,627)
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Decrease in cash and cash equivalents (159,070) (1,010,357)
Cash and cash equivalents, beginning of period 1,321,524 2,180,764
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Cash and cash equivalents, end of period $ 1,162,454 $ 1,170,407
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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, 1996
1. The consolidated balance sheet at December 31, 1996 and the consolidated
statements of operations for the three and six months ended December 31,
1996 and 1995 and the consolidated statements of cash flows for the six
months ended December 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 six months ended
December 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, 1996.
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.
3. The components of inventories were as follows:
December 31, June 30,
1996 1996
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Materials and supplies $ 408,072 $ 539,054
Work-in-progress 216,373 60,787
Finished goods 425,564 315,495
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$ 1,050,009 $ 915,336
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4. The results the six months ended December 31, 1995 reflect an operating
charge of approximately $2,112,000 after taxes 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
Six Months Ended December 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 pollution
control, solid and hazardous waste management, risk assessment and process
engineering. 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. In November 1996, the Company introduced
a new service, Environmental Exit Strategies, under which TRC will take over
long-term management of a client's environmental cleanup and closure
responsibilities. This service is an additional offering within the emerging
environmental outsourcing market. 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,
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 84.3 82.1 84.2 90.7/1/
General and administrative expenses 7.2 6.0 7.0 5.9
Depreciation and amortization 5.4 4.7 5.3 4.5
----- ----- ----- -----
Income (loss) from operations 3.1 7.2 3.5 (1.1)/2/
Interest expense 1.6 1.5 1.5 1.5
----- ----- ----- -----
Income (loss) before taxes 1.5 5.7 2.0 (2.6)
Federal and state income tax provision (benefit) .6 2.2 .7 (1.0)
----- ----- ----- -----
Net income (loss) .9% 3.5% 1.3% (1.6)%
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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, 1996
decreased by 13.8% and 17.4%, respectively, as compared to the same periods last
year. These decreases were primarily due to the continued weak environmental
services market resulting from regulatory uncertainty and budget reductions in
federal enforcement spending, which has led to overall lower levels of
expenditures by industry for environmental engineering and remedial services,
coupled with greater competition and capacity for available work.
Salaries and other direct costs of services decreased by 15.1% during the three
months ended December 31, 1996, as compared to the same period last year. This
decrease was the direct result of the cost reduction efforts taken in the
previous year to align resources with current business conditions. For the six
months ended December 31, 1996, salaries and other direct costs of services
decreased by 23.4%, as compared to the same period last year. This decrease was
primarily related to the $3.3 million operating charge reflected in the same
period last year and to the results of the cost reduction efforts taken
throughout last year. The operating charge recorded in the prior year related
to staff reductions, excess lease capacity costs and increased allowances for
government receivables.
General and administrative expenses decreased by 1.4% and 1.6%, respectively,
during the three and six months ended December 31, 1996, as compared to the same
periods last year, primarily due to continued cost reduction efforts.
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Depreciation and amortization expense decreased by 4.1% and 3.9%, respectively,
during the three and six months ended December 31, 1996, as compared to the same
periods last year. These decreases were due to the comparative reduction in
capital expenditures during fiscal 1996 and during the first six months of the
current fiscal year, combined with the effect of other equipment which became
fully depreciated.
For the three months ended December 31, 1996, the Company reported income from
operations of $394,980, down from $1,101,702 in the same period last year. The
decrease was primarily due to the reduction in net service revenue, partially
offset by the decrease in operating expenses. For the six months ended December
31, 1996, the Company reported income from operations of $930,278, compared to a
loss from operations of $351,542 in the same period last year. The loss in the
prior year was the direct result of the operating charge, while the results for
current period continue to be adversely affected by the reduction in net service
revenue.
Interest expense decreased by 13.1% and 18.1%, respectively, during the three
and six months ended December 31, 1996 as compared to the same periods last
year. These decreases resulted from lower levels of long-term debt outstanding.
The provision (benefit) for federal and state income taxes was 38% of income
(loss) before taxes for the three and six months ended December 31, 1996 and
1995. The Company believes that there will be sufficient taxable income in the
carryforward periods to enable utilization of the deferred tax benefits.
As a result of the aforementioned, the Company reported net income of $119,708
or $.02 per share for the three months ended December 31, 1996, compared to
$539,070 or $.08 per share in the same period last year. For the six months
ended December 31, 1996, the Company reported net income of $329,251 or $.05 per
share, compared to a net loss of $519,579 or $.07 per share in the same period
last year.
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 $18.7 million at December 31, 1996, from $19
million at June 30, 1996. This decrease resulted primarily from the repurchase
of the Company's common stock, partially offset by the working capital provided
by operations.
In November 1996 the Company's reduced its available line of credit, pursuant to
a revolving credit agreement, from $35 million to $25 million. At December 31,
1996, outstanding borrowings under the agreement were $5 million. Pursuant to
the agreement, the Company is
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currently negotiating a four-year term loan to repay the outstanding principal
of $7,000,000 on its subordinated note.
At its February 2, 1996 meeting, the Board of Directors authorized the
repurchase of up to 500,000 shares of the Company's common stock, as in the
opinion of management, market condition may warrant. During the six months ended
December 31, 1996, the Company acquired an additional 356,900 shares for $1.5
million at an average price of $4.19 per share, bringing the total shares
repurchased pursuant to the program to 434,000 shares. At its October 25, 1996
meeting, the Board of Directors authorized the repurchase of up to an additional
500,000 shares of the Company's common stock. The actual number of additional
shares repurchased will depend upon prevailing market conditions.
The Company expects to make capital expenditures of approximately $.5 million
during the remainder of fiscal 1996. The Company believes that cash generated
from operations, the cash on hand at December 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 1997.
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, funding for government projects,
level of demand for the Company's services, product acceptance, industry-wide
competitive factors, and political, economic or other conditions. Furthermore,
market trends are subject to changes which could adversely affect future
results.
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, 1996, 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 December 31, 1996.
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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.
February 13, 1997 by: /s/ Peter J. Russo
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Peter J. Russo
Senior Vice President and
Chief Financial Officer
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