-----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, LOedZKnXPtwTSEKJIchsTzxHCUXQod9lej7N/HmLkTp9BRT1GRAb0bpAJ2wyqRgl 3U4PjyYtiviXO/JvKBXdsA== 0001047469-99-021009.txt : 19990518 0001047469-99-021009.hdr.sgml : 19990518 ACCESSION NUMBER: 0001047469-99-021009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99626359 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 March 31, 1999 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 (I.R.S. Employer incorporation or organization) 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 March 31, 1999 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 MARCH 31, 1999 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Statements of Operations for the three and nine months ended March 31, 1999 and 1998................................................................ 3 Balance Sheets at March 31, 1999 and June 30, 1998.......................................... 4 Statements of Cash Flows for the nine months ended March 31, 1999 and 1998............................................................... 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 Nine Months Ended March 31, March 31, March 31, March 31, 1999 1998 (1) 1999 1998 (1) ----------------- ---------------- ---------------- ----------------- GROSS REVENUE $17,930,361 $16,398,434 $55,323,696 $53,012,559 Less subcontractor costs and direct charges 3,859,369 3,479,036 15,221,868 14,158,995 ----------------- ---------------- ---------------- ----------------- NET SERVICE REVENUE 14,070,992 12,919,398 40,101,828 38,853,564 ----------------- ---------------- ---------------- ----------------- OPERATING COSTS AND EXPENSES: Direct labor and fringe benefit costs 6,491,943 5,774,192 18,220,113 17,192,495 Indirect costs and expenses 5,267,626 5,310,645 15,312,415 16,151,958 General and administrative expenses 626,957 591,459 1,834,221 1,875,492 Depreciation and amortization 604,208 681,201 1,777,310 2,018,218 ----------------- ---------------- ---------------- ----------------- 12,990,734 12,357,497 37,144,059 37,238,163 ----------------- ---------------- ---------------- ----------------- INCOME FROM OPERATIONS 1,080,258 561,901 2,957,769 1,615,401 Interest expense 100,651 138,576 340,656 581,988 ----------------- ---------------- ---------------- ----------------- INCOME BEFORE TAXES 979,607 423,325 2,617,113 1,033,413 Federal and state income tax provision 372,000 161,000 994,000 393,000 ----------------- ---------------- ---------------- ----------------- NET INCOME $ 607,607 $ 262,325 $ 1,623,113 $ 640,413 ----------------- ---------------- ---------------- ----------------- ----------------- ---------------- ---------------- ----------------- EARNINGS PER SHARE - BASIC AND DILUTED $ .09 $ .04 $ .24 $ .10 ----------------- ---------------- ---------------- ----------------- ----------------- ---------------- ---------------- ----------------- AVERAGE SHARES OUTSTANDING: Basic 6,782,202 6,703,279 6,782,202 6,693,161 Diluted 6,873,799 6,719,741 6,821,914 6,699,081 ----------------- ---------------- ---------------- ----------------- ----------------- ---------------- ---------------- -----------------
(1) Includes 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)
March 31, June 30, 1999 1998 ------------------ ------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 746,913 $ 1,379,388 Accounts receivable, less allowance for doubtful accounts 27,688,789 27,775,396 Inventories 237,506 1,359,410 Deferred income tax benefits 917,019 950,000 Prepaid expenses and other current assets 923,727 588,965 ------------------ ------------------ 30,513,954 32,053,159 ------------------ ------------------ PROPERTY AND EQUIPMENT, AT COST 19,651,093 21,273,379 Less accumulated depreciation and amortization 16,222,466 17,267,575 ------------------ ------------------ 3,428,627 4,005,804 ------------------ ------------------ COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF ACCUMULATED AMORTIZATION 24,352,383 24,873,714 ------------------ ------------------ OTHER ASSETS 613,287 670,934 ------------------ ------------------ $58,908,251 $61,603,611 ------------------ ------------------ ------------------ ------------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of debt $ 5,100,000 $ 3,600,000 Accounts payable 2,376,487 4,133,321 Accrued compensation and benefits 2,379,609 2,684,642 Other accrued liabilities 1,477,770 1,159,570 ------------------ ------------------ 11,333,866 11,577,533 ------------------ ------------------ NONCURRENT LIABILITIES: Long-term debt 300,000 3,900,000 Deferred income taxes 1,196,194 1,671,000 ------------------ ------------------ 1,496,194 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 March 31, 1999 and June 30, 1998 741,085 741,085 Additional paid-in capital 38,634,234 38,634,234 Retained earnings 9,599,875 7,976,762 ------------------ ------------------ 48,975,194 47,352,081 Less treasury stock, at cost 2,897,003 2,897,003 ------------------ ------------------ 46,078,191 44,455,078 ------------------ ------------------ $58,908,251 $61,603,611 ------------------ ------------------ ------------------ ------------------
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, 1999 1998 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,623,113 $ 640,413 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,777,310 2,018,218 Change in deferred taxes and other non-cash items, net 24,997 129,000 Changes in assets and liabilities, excluding effects of acquisitions and disposition: Accounts receivable 1,298,607 2,360,097 Inventories (272,716) (295,298) Prepaid expenses and other current assets (301,791) 618,511 Accounts payable (2,264,867) (498,026) Accrued compensation and benefits (581,222) (921,624) Unearned revenue - 824,738 Income taxes 3,373 404,212 Other accrued liabilities (345,916) (721,866) ---------------- ---------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 960,888 4,558,375 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of instrumentation business 2,750,000 - Acquisition of businesses, net of cash received (1,561,873) (430,839) Additions to property and equipment, net (714,136) (763,005) Decrease in other assets, net 32,646 74,826 ---------------- ---------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 506,637 (1,119,018) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (3,600,000) - Net borrowings (repayments) under line of credit 1,500,000 (4,000,000) ---------------- ---------------- NET CASH USED IN FINANCING ACTIVITIES (2,100,000) (4,000,000) ---------------- ---------------- DECREASE IN CASH AND CASH EQUIVALENTS (632,475) (560,643) Cash and cash equivalents, beginning of period 1,379,388 1,020,065 ---------------- ---------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 746,913 $ 459,422 ---------------- ---------------- ---------------- ----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 5 TRC COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 1. The consolidated balance sheet at March 31, 1999 and the consolidated statements of operations for the three and nine months ended March 31, 1999 and 1998 and the consolidated statements of cash flows for the nine months ended March 31, 1999 and 1998 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. 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:
March 31, June 30, 1999 1998 ---------------- ---------------- Materials and supplies $237,506 $ 774,645 Work-in-progress - 155,443 Finished goods - 429,322 ---------------- ---------------- $237,506 $1,359,410 ---------------- ---------------- ---------------- ----------------
[OBJECT OMITTED] The reduction in inventories was directly related to the sale of the instrumentation business in July 1998. 4. In March, the Company completed the acquisition of the outstanding shares of Alton Geoscience, Inc., headquartered in Irvine, California. Alton's primary business activities include site investigations, remediation and monitoring services for major oil and pipeline companies, and has annual revenue of approximately $10 million. The purchase price included cash of approximately $1.6 million (net of cash received) and a $.5 million holdback payable in one year. The Company will make an additional payment equal to 75% of Alton's pre-tax profit for the twelve month period ending September 30, 1999. The acquisition has been accounted for using the purchase method of accounting. The cost of the acquisition in excess of the fair value of the net assets acquired was not significant. 6 TRC COMPANIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three and Nine Months Ended March 31, 1999 and 1998 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 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 nine months ended March 31, 1999, 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 nine months ended March 31, 1999 and the same periods of last year on a pro forma basis follow (dollars in thousands, except per share amounts):
Three Months Ended March 31, Nine Months Ended March 31, Pro forma Pro forma 1999 1998 1999 1998 ----------- ----------- ----------- ------------ GROSS REVENUE $17,930 $15,747 $55,324 $50,823 ----------- ----------- ----------- ------------ NET SERVICE REVENUE 14,071 12,268 40,102 36,664 ----------- ----------- ----------- ------------ OPERATING COSTS AND EXPENSES: Direct labor and fringe benefit costs 6,492 5,515 18,220 16,301 Indirect costs and expenses 5,268 4,995 15,313 15,245 General and administrative expenses 627 591 1,834 1,875 Depreciation and amortization 604 630 1,777 1,852 ----------- ----------- ----------- ------------ 12,991 11,731 37,144 35,273 ----------- ----------- ----------- ------------ INCOME FROM OPERATIONS 1,080 537 2,958 1,391 Interest expense 100 139 341 580 ----------- ----------- ----------- ------------ INCOME BEFORE TAXES 980 398 2,617 811 Federal and state income tax provision 372 151 994 309 ----------- ----------- ----------- ------------ Net income $ 608 $ 247 $ 1,623 $ 502 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------ Earnings per share $ .09 $ .04 $ .24 $ .07 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
7 On a pro forma basis, net service revenue increased by approximately 15% during the three months ended March 31, 1999 to $14.1 million. For the nine months ended March 31, 1999, net service revenue increased by approximately 9% to $40.1. These increases reflect initiation of management's growth plan described in the Company's 1998 annual report to shareholders and to a lesser extent, from the additional revenue from Alton Geoscience, Inc. which was acquired in March 1999. Direct labor and fringe benefit costs increased by approximately 18% and 12%, respectively, during the three and nine months ended March 31, 1999, primarily due to the increase in revenue. As a percentage of revenue, indirect costs and expenses decreased approximately 4% in both the three and nine 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 nine months ended March 31, 1999, 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 4%, during the three and nine months ended March 31, 1999. 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 $1.1 million and $3.0 million, respectively, for the three and nine months ended March 31, 1999, up from $.5 million and $1.4 million respectively, in the same periods last year. The continued improvement in operating performance was primarily due to the growth in revenue and reductions in operational overhead. Interest expense decreased by approximately 28% and 41%, respectively, during the three and nine months ended March 31, 1999, 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 nine months ended March 31, 1999 and 1998. The Company believes that there will be sufficient taxable income in future periods to enable utilization of the deferred tax benefits shown in 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. Operating activities are the principal source of cash flow for the Company. Operating activities provided approximately $1.0 million of cash flow during the nine months ended March 31, 1999, primarily comprised of cash generated by net income, the non-cash charges against income for depreciation and amortization and from accounts receivable, partially offset by the timing of payments to subcontractors. The decrease in net cash from operating activities for the nine months ended March 31, 1999, compared to the same period last year was primarily due to non-recurring reductions in accounts receivable last year, the prepayment received in fiscal 1998 on an Exit Strategies-TM- project resulting in unearned revenue and to the timing of the payments to subcontractors in early fiscal 1999 for work completed in the fourth quarter of fiscal 1998 on the same Exit Strategies-TM- project. Investing activities provided approximately $.5 million of cash flow during the nine months ended March 31, 1999. In July 1998, The Company received approximately $2.8 million from the sale of its instrumentation business. In March 1999, the Company completed the acquisition of Alton Geoscience, Inc., for approximately $1.6 million (net of cash received). The Company expects to use approximately $4 million of additional cash for proposed acquisitions during the remainder of fiscal 1999. For the nine months ended March 31, 1999, the Company had capital expenditures of approximately $.7 million for equipment to support business growth. The Company expects to make capital expenditures of approximately $.3 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. 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 March 31, 1999, outstanding borrowings pursuant to the agreement were $1.5 million, at an average interest rate of 7.1%. At March 31, 1999, the Company had outstanding a $3.5 million subordinated note due in July 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 March 31, 1999 a $.4 million 7 3/4% subordinated note due in March 2003, issued in connection with the acquisition of Hydro-Geo Consultants, Inc. in March 1998. This note is repayable in four equal annual installments. 9 The Company expects to increase cash flow from operating activities 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 March 31, 1999 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 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. Consistent with the Company's objective to have all critical systems operational by June 30, 1999, substantially all necessary replacements, upgrades and program modifications have been completed and successfully tested. 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. Based on current information 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, the Company cannot completely control its critical suppliers and customers failure to address this issue successfully. 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. 10 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. 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 - On April 8, 1999, the Company filed a Form 8-K relative to the completion of the acquisition of Alton Geoscience, Inc. 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. May 14, 1999 by: /s/Harold C. Elston, Jr. ---------------------------------------------- Harold C. Elston, Jr. Senior Vice President, Secretary and Treasurer (Chief Accounting Officer) 11 EX-27 2 EXHIBIT 27
5 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 746,913 0 30,276,789 (2,588,000) 237,506 30,153,954 19,651,093 (16,222,466) 58,908,251 11,333,866 0 0 0 741,085 45,337,106 58,908,251 0 55,323,696 0 52,365,927 0 0 340,656 2,617,113 994,000 1,623,113 0 0 0 1,623,113 .24 .24
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