-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ODP07WnB1nNh3yz1HISg8dmbQCkU/sk7Ic5/8WkFQ1uK+G8JdrEfiLvKdOJrPZv3 xQB/2GfKO82rWXG1VlgpzA== 0001047469-99-006002.txt : 19990217 0001047469-99-006002.hdr.sgml : 19990217 ACCESSION NUMBER: 0001047469-99-006002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRC COMPANIES INC /DE/ CENTRAL INDEX KEY: 0000103096 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 060853807 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09947 FILM NUMBER: 99540595 BUSINESS ADDRESS: STREET 1: 5 WATERSIDE CROSSING CITY: WINDSOR STATE: CT ZIP: 06095 BUSINESS PHONE: 2032898631 FORMER COMPANY: FORMER CONFORMED NAME: VAST INC /DE/ DATE OF NAME CHANGE: 19761201 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1998 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 1-9947 TRC COMPANIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 06-0853807 -------------------------------------------------------------- --------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5 Waterside Crossing WINDSOR, CONNECTICUT 06095 --------------------------------------------------- ---------------------- (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, 1998 there were 6,782,202 shares of the registrant's common stock, $.10 par value, outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRC COMPANIES, INC. CONTENTS OF QUARTERLY REPORT ON FORM 10-Q QUARTER ENDED DECEMBER 31, 1998 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Statements of Operations for the three and six months ended December 31, 1998 and 1997............................................................. 3 Balance Sheets at December 31, 1998 and June 30, 1998....................................... 4 Statements of Cash Flows for the six months ended December 31, 1998 and 1997............................................................ 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.................................................................................................... 11
-2- PART I: FINANCIAL INFORMATION TRC COMPANIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended December 31, December 31, 1998 1997 (1) 1998 1997 (1) ---------------- ----------------- ---------------- ---------------- GROSS REVENUE $ 18,987,137 $ 19,053,815 $ 37,393,335 $ 36,614,125 Less subcontractor costs and direct charges 5,836,595 6,109,816 11,362,499 10,679,959 ---------------- ----------------- ---------------- ---------------- NET SERVICE REVENUE 13,150,542 12,943,999 26,030,836 25,934,166 ---------------- ----------------- ---------------- ---------------- OPERATING COSTS AND EXPENSES: Direct labor and fringe benefit costs 5,889,130 5,737,332 11,728,170 11,418,303 Indirect costs and expenses 5,062,628 5,297,530 10,044,789 10,841,313 General and administrative expenses 606,506 604,655 1,207,264 1,284,033 Depreciation and amortization 593,779 668,496 1,173,102 1,337,017 ---------------- ----------------- ---------------- ---------------- 12,152,043 12,308,013 24,153,325 24,880,666 ---------------- ----------------- ---------------- ---------------- INCOME FROM OPERATIONS 998,499 635,986 1,877,511 1,053,500 Interest expense 121,187 223,161 240,005 443,412 ---------------- ----------------- ---------------- ---------------- INCOME BEFORE TAXES 877,312 412,825 1,637,506 610,088 Federal and state income tax provision 333,000 157,000 622,000 232,000 ---------------- ----------------- ---------------- ---------------- NET INCOME $ 544,312 $ 255,825 $ 1,015,506 $ 378,088 ---------------- ----------------- ---------------- ---------------- ---------------- ----------------- ---------------- ---------------- EARNINGS PER SHARE - basic and diluted $ .08 $ .04 $ .15 $ .06 ---------------- ----------------- ---------------- ---------------- ---------------- ----------------- ---------------- ---------------- AVERAGE SHARES OUTSTANDING: Basic 6,782,202 6,688,102 6,782,202 6,688,102 Diluted 6,804,393 6,688,902 6,795,972 6,688,752 ---------------- ----------------- ---------------- ----------------
(1) Include operating results of instrumentation business which was sold in July 1998. See page 7 for comparative results without instrumentation business. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. -3- TRC COMPANIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
December 31, June 30, 1998 1998 ------------------ ------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 573,266 $ 1,379,388 Accounts receivable, less allowance for doubtful accounts 27,580,078 27,775,396 Inventories 269,015 1,359,410 Deferred income tax benefits 870,000 950,000 Prepaid expenses and other current assets 895,214 588,965 ------------------ ------------------ 30,187,573 32,053,159 ------------------ ------------------ PROPERTY AND EQUIPMENT, AT COST 18,956,265 21,273,379 Less accumulated depreciation and amortization 15,864,146 17,267,575 ------------------ ------------------ 3,092,119 4,005,804 ------------------ ------------------ COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF ACCUMULATED AMORTIZATION 24,404,383 24,873,714 ------------------ ------------------ OTHER ASSETS 661,434 670,934 ------------------ ------------------ $ 58,345,509 $ 61,603,611 ------------------ ------------------ ------------------ ------------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of debt $ 5,000,000 $ 3,600,000 Accounts payable 2,746,609 4,133,321 Accrued compensation and benefits 2,115,161 2,684,642 Other accrued liabilities 892,155 1,159,570 ------------------ ------------------ 10,753,925 11,577,533 ------------------ ------------------ NONCURRENT LIABILITIES: Long-term debt 400,000 3,900,000 Deferred income taxes 1,721,000 1,671,000 ------------------ ------------------ 2,121,000 5,571,000 ------------------ ------------------ SHAREHOLDERS' EQUITY: Capital stock: Preferred, $.10 par value; 500,000 shares authorized, none issued - - Common, $.10 par value; 30,000,000 shares authorized, 7,410,855 shares issued at December 31, 1998 and June 30, 1998 741,085 741,085 Additional paid-in capital 38,634,234 38,634,234 Retained earnings 8,992,268 7,976,762 ------------------ ------------------ 48,367,587 47,352,081 Less treasury stock, at cost 2,897,003 2,897,003 ------------------ ------------------ 45,470,584 44,455,078 ------------------ ------------------ $ 58,345,509 $ 61,603,611 ------------------ ------------------ ------------------ ------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. -4- TRC COMPANIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended December 31, 1998 1997 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,015,506 $ 378,088 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,173,102 1,337,017 Change in deferred taxes and other non-cash items, net 5,001 81,000 Changes in assets and liabilities, excluding effects of disposition of instrumentation business: Accounts receivable (468,313) 763,574 Inventories (304,225) (141,428) Prepaid expenses and other current assets (312,228) 372,215 Accounts payable (1,232,877) (319,971) Accrued compensation and benefits (638,335) (948,883) Unearned revenue - 997,038 Income taxes (132,427) 291,964 Other accrued liabilities (119,730) (591,564) ---------------- ---------------- NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES (1,014,526) 2,219,050 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of instrumentation business 2,750,000 - Additions to property and equipment, net (434,428) (322,459) Decrease (increase) in other assets, net (7,168) 60,317 ---------------- ---------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,308,404 (262,142) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (3,500,000) - Net borrowings (repayments) under line of credit 1,400,000 (2,100,000) ---------------- ---------------- NET CASH USED IN FINANCING ACTIVITIES (2,100,000) (2,100,000) ---------------- ---------------- DECREASE IN CASH AND CASH EQUIVALENTS (806,122) (143,092) Cash and cash equivalents, beginning of period 1,379,388 1,020,065 ---------------- ---------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 573,266 $ 876,973 ---------------- ---------------- ---------------- ----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. -5- TRC COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998 1. The consolidated balance sheet at December 31, 1998 and the consolidated statements of operations and cash flows for the three and six months ended December 31, 1998 and 1997 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, 1998 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, 1998. 2. Earnings per share is computed in accordance with the provisions of Statement of Financial Standards No. 128, Earnings per Share. Basic earnings per share is based upon the weighted average common shares outstanding. Diluted earnings per share reflect the potential dilutive effect of outstanding stock options and warrants. 3. The components of inventories were as follows:
December 31, June 30, 1998 1998 ----------------- ----------------- Materials and supplies $ 269,015 $ 774,645 Work-in-progress - 155,443 Finished goods - 429,322 ----------------- ----------------- $ 269,015 $ 1,359,410 ----------------- ----------------- ----------------- -----------------
The reduction in inventories was directly related to the sale of the instrumentation business in July 1998. -6- TRC COMPANIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three and Six Months Ended December 31, 1998 and 1997 OVERVIEW TRC Companies, Inc. (the "Company") is an environmental engineering and remediation, water resource and infrastructure company. The Company's key business sectors include: energy, mining, petrochemical, waste management and local and federal government. RESULTS OF OPERATIONS The Company, in the course of providing its services, routinely subcontracts drilling, laboratory analyses, construction equipment 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 Company also considers net service revenue as a measure of performance. In July 1998, the Company completed the sale of its instrumentation business which resulted in a gain that was not material. Management's discussion and analysis of revenue and operating costs and expenses for the three and six months ended December 31, 1998, are compared to the same periods last year on a pro forma basis, with the results of the instrumentation business excluded. Statements of operations for the three and six months ended December 31, 1998 and the same periods of last year on a pro forma basis follow (dollars in thousands, except per share amounts):
Three Months Ended December 31, Six Months Ended December 31, Pro forma Pro forma 1998 1997 1998 1997 ----------- ----------- ----------- ------------ GROSS REVENUE $18,987 $18,314 $37,399 $35,076 ----------- ----------- ----------- ------------ NET SERVICE REVENUE 13,151 12,204 26,031 24,396 ----------- ----------- ----------- ------------ OPERATING COSTS AND EXPENSES: Direct labor and fringe benefit costs 5,889 5,434 11,728 10,786 Indirect costs and expenses 5,063 5,024 10,045 10,250 General and administrative expenses 607 605 1,208 1,284 Depreciation and amortization 594 610 1,173 1,222 ----------- ----------- ----------- ------------ 12,153 11,673 24,154 23,542 ----------- ----------- ----------- ------------ INCOME FROM OPERATIONS 998 531 1,877 854 Interest expense 121 223 240 443 ----------- ----------- ----------- ------------ INCOME BEFORE TAXES 877 308 1,637 411 Federal and state income tax provision 333 117 622 156 ----------- ----------- ----------- ------------ NET INCOME $ 544 $ 191 $ 1,015 $ 255 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------ EARNINGS PER SHARE $ 0.08 $ 0.03 $ 0.15 $ 0.04 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
-7- On a pro forma basis, net service revenue increased by approximately 8% during the three months ended December 31, 1998 to $13.2 million. For the six months ended December 31, 1998, net service revenue increased by approximately 7% to $26.0 million. These increases reflect initiation of management's growth plan described in the Company's 1998 annual report to shareholders. Direct labor and fringe benefit costs increased by approximately 8% during both the three and six months ended December 31, 1998, primarily due to the increase in revenue. As a percentage of revenue, indirect costs and expenses decreased approximately 2% in both the three and six month periods. These improvements resulted from management's continuing program to increase staff utilization and reduce operational overhead. General and administrative expenses remained relatively even for the three and six months ended December 31, 1998, indicating a reduction relative to revenue. This continuing improvement also reflects management's intent to eliminate non-productive overhead costs. Depreciation and amortization expense decreased approximately 3% and 4%, respectively, during the three and six months ended December 31, 1998. These decreases were due to the comparative reduction in capital expenditures over the last several years, combined with the effect of equipment which became fully depreciated. The Company reported income from operations of $1.0 million and $1.9 million, respectfully, for the three and six months ended December 31, 1998, up from $.5 million and $.9 million respectively, in the same periods last year. The continued improvement in operating performance was primarily due to the increase in revenue and reductions in operational overhead. Interest expense decreased by approximately 46% during both the three and six month periods ended December 31, 1998, resulting from management's debt reduction program. The provisions for federal and state income taxes reflect an effective rate of approximately 38% for the three and six months ended December 31, 1998 and 1997. The Company believes that there will be sufficient taxable income in future periods to enable utilization of the deferred tax benefits shown on the Company's consolidated balance sheet on page 4. 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 the fact that most contracts of a longer term are subject to adjustment or have been priced to cover anticipated increases in labor and other costs. -8- LIQUIDITY AND CAPITAL RESOURCES The Company relies on cash provided by operations and borrowings based upon the strength of its balance sheet to fund operations. The Company's liquidity is assessed in terms of its overall ability to generate cash to fund its operating and investing activities, and to reduce debt. Of particular importance in the management of liquidity are cash flows generated from operating activities, acquisitions, capital expenditure levels and an adequate bank line of credit. Cash flows used in operating activities during the six months ended December 31, 1998 were approximately $1.0 million. The cash generated by net income and the non-cash charges against income for depreciation and amortization were offset primarily by the acceleration of accounts payable and the timing of the payments of payroll costs relative to the end of the quarter. Investing activities provided approximately $2.3 million during the six months ended December 31, 1998 consisting of approximately $2.8 million from the sale of the Company's instrumentation business in July 1998, partially offset by capital expenditures for equipment to support business growth of approximately $.4 million. In connection with proposed business acquisitions during the remainder of fiscal 1999, the Company expects to use approximately $4 million in cash. The Company also expects to make capital expenditures of approximately $.5 million during the remainder of fiscal 1999. The Company maintains a bank financing arrangement to assist in funding various operating and financing activities. The Company has available a $10 million revolving credit facility secured by accounts receivable which expires July 2001. Borrowings under the agreement bear interest at the bank's base rate or the Eurodollar rate plus 1 3/4% The agreement requires the Company to meet certain financial ratios. At December 31, 1998, outstanding borrowings pursuant to the agreement were $1.4 million, at an average interest rate of 7.2%. At December 31, 1998, the Company had outstanding a $3,500,000 subordinated note due July 1, 1999, issued in March 1994 in connection with the acquisition of Environmental Solutions, Inc. and subsequently amended in July 1997. Interest on the note accrues at the greater of the interest rate paid on the Company's bank debt or 7 3/4%. The Company also had outstanding at December 31, 1998 a $.5 million 7 3/4% subordinated note issued in connection with the purchase of Hydro-Geo Consultants, Inc. in March 1998. This note is repayable in five equal annual installments beginning in March 1999. The Company expects to increase its available cash flow over the remainder of fiscal 1999, primarily from continued growth in operating profits and from a recent management program to significantly accelerate collections of accounts receivable. The cash generated from operations, the cash on hand at December 31, 1998 and available borrowings under the bank line of credit will be sufficient to meet the Company's operating and investing cash requirements for the remainder of fiscal 1999. YEAR 2000 COMPLIANCE The Company recognizes the need to ensure that its critical management, financial and operating systems will recognize and process transactions for the year 2000 and beyond. As a result, all computer systems and applications are being reviewed and, where appropriate, detailed plans have -9- been, or are being, developed and implemented on a schedule intended to permit the Company's systems to be fully compliant with year 2000 requirements. Systems critical to our business operations which have been identified as non-year 2000 compliant are either being replaced or upgraded through program modifications. Our objective is to have upgraded and replaced systems operational by June 30, 1999. In addition to our in-house efforts, we are asking certain vendors, major customers, service suppliers, communication providers, banks and other financial institutions whose systems failures could have a significant impact on our business operations to verify their year 2000 readiness. The costs specific to the year 2000 issue are not expected to have a material impact on the Company's future operating results, financial condition or cash flows. Although the Company expects to be fully year 2000 compliant on a timely basis, if the Company's critical suppliers and customers do not address this issue successfully, year 2000 issues could potentially have a material impact on the Company's operations and financial condition. The Company is currently developing contingency plans to be implemented as part of its efforts to identify and mitigate any year 2000 issues. These plans will be completed by June 30, 1999. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes new standards for reporting information about operating segments in annual and interim financial statements. The standard also requires descriptive information about the way the operating segments are determined, the products and services provided by the segments and the nature of differences between reportable segment measurements and those used for the consolidated enterprise. This standard is effective for the Company in fiscal 1999. Adoption in interim financial statements is not required until the year after initial adoption; however, comparative prior period information is required. Adoption is not expected to have a material impact on the financial position or results of operations of the Company. 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, government funding, level of demand for the Company's services, industry-wide competitive factors and political, economic or other conditions. Furthermore, market trends are subject to changes which could adversely affect future results. -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, 1998, for a description of existing litigation against the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 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, 1998. 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 16, 1999 by: /s/Harold C. Elston, Jr. ------------------------------------------ Harold C. Elston, Jr. Senior Vice President, Secretary and Treasurer (Chief Accounting Officer) -11- EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 573,266 0 30,170,078 (2,590,000) 269,015 30,187,573 18,956,265 15,864,146 58,345,509 10,753,925 0 0 0 741,085 44,729,499 58,345,509 0 37,393,335 0 35,515,824 0 0 240,005 1,637,506 622,000 1,015,506 0 0 0 1,015,506 .08 .08
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