TRC Announces First- and Second-Quarter Fiscal 2008 Financial Results

TRC (NYSE: TRR), a recognized leader in engineering, consulting and construction management, today announced financial results for the first and second quarters of fiscal 2008. First-Quarter Results For the three months ended September 28, 2007, gross revenue increased 21% to $123.7 million from $101.8 million for the three months ended September 30, 2006. Net service revenue for the first quarter of fiscal 2008 grew 13% to $71.3 million from $63.1 million for the first quarter of fiscal 2007. The Company believes net service revenue rather than gross revenue best reflects the value of services provided to its customers. As of June 30, 2007, TRC’s goodwill totaled $131 million, mostly related to companies acquired during the prior ten years. The Company evaluates goodwill on an annual basis and more often if indicators of impairment are present. The Company recorded an impairment charge of $76.7 million in the first quarter of fiscal 2008 primarily based on an evaluation of its market capitalization and discounted projected cash flows. In addition, due to losses over the past three years and current year performance, TRC also recorded as a component of its tax provision a full valuation allowance against its deferred tax assets in the amount of $12.1 million. Accordingly, the Company’s results for the first half of fiscal 2008 reflect the effect of the $88.8 million in non-cash charges related to the goodwill impairment charge and valuation allowance on deferred tax assets that were not previously reserved. Net loss applicable to common shareholders for the three months ended September 28, 2007 was $87.7 million, or $4.75 per share, compared with net income applicable to common shareholders of $0.2 million, or $0.01 per diluted share, for the comparable period in fiscal 2007. Net loss for the first quarter of fiscal 2008 includes the aforementioned $88.8 million in non-cash charges for goodwill impairment and provision of a full valuation allowance against net deferred tax assets. Excluding the effect of those items, TRC would have generated net income of $1.1 million for the first quarter of fiscal 2008. Second-Quarter Results For the three months ended December 28, 2007, gross revenue was $110.9 million, compared with $113.4 million for the second quarter of fiscal 2007. Net service revenue for the second quarter of fiscal 2008 grew 2% to $66.3 million from $64.9 million for the same period in fiscal 2007. Net loss applicable to common shareholders for the three months ended December 28, 2007 was $0.4 million, or $0.02 per share, compared with a net loss applicable to common shareholders of $1.1 million, or $0.06 per share, for the comparable period a year earlier. Six Months Ended December 28, 2007 For the six months ended December 28, 2007, gross revenue increased 9% to $234.6 million from $215.2 million for the six months ended December 31, 2006. Net service revenue for the six months ended December 28, 2007 grew 7.5% to $137.6 million from $128.0 million for the comparable period in 2006. Net loss applicable to common shareholders for the first six months of fiscal 2008 was $88.1 million, or $4.74 per share, compared with a net loss applicable to common shareholders of $0.9 million, or $0.05 per share, for the comparable year-earlier period. Net loss for the first six months of fiscal 2008 included $88.8 million related to the previously mentioned goodwill impairment charge and a tax provision to provide a full valuation allowance against net deferred tax assets. Excluding the effect of those non-cash charges, TRC would have generated net income of $0.7 million for the first six months of fiscal 2008. Comments on Results "Our results in the first half of fiscal 2008 reflect the ongoing effects of a company in transition,” said Chris Vincze, TRC’s Chairman and Chief Executive Officer. "While we continue to make considerable progress, our financial results were hampered by the implementation of turnaround activities and compounded by a company-wide system conversion. Excluding the two non-cash charges, TRC’s operations were at breakeven for the first half of fiscal 2008.” "Net service revenue increased 7.5% from the first half of fiscal 2007 – a strong rate of growth given our internal focus on improving the results of operations,” Vincze said. "Equally as important, we continued to work on reducing our cost structure across the organization. Our ability to produce substantial revenue gains while extensively restructuring the Company’s operations demonstrates the strength of the TRC brand and the vibrancy of the markets in which we compete.” Carl Paschetag, TRC’s Chief Financial Officer said, "In the first half of fiscal 2008, we incurred approximately $1 million in restructuring expense primarily related to severance and small office closings. We expect to record additional restructuring charges in future quarters as we continue to rationalize our cost structure. During the first half of fiscal 2008, we transitioned to a new healthcare provider. This transition will be beneficial to the Company long-term, but it resulted in nearly $1.5 million in unanticipated costs for the six-month period that are not expected to recur. In addition, our results for the first six months of the fiscal year included nearly $1 million in unanticipated costs related to implementing Vision – our new enterprise-wide accounting software system – that we also do not expect to recur.” "With Vision, the Company now has, for the first time, a unified platform from which to operate,” Paschetag said. "While the protracted Vision implementation significantly delayed our financial reporting in recent quarters, the system’s encouraging early results suggest that our start-up issues are essentially behind us. With the Vision system almost fully implemented, we will be able to report on a timelier basis, further decrease our cost structure, improve pricing and increase employee utilization.” Outlook "As we reach the mid-point of our three-year turnaround plan, industry trends continue to work in our favor,” said Vincze. "Despite the slower U.S. economy, the majority of our target markets, particularly energy, remain well-funded and afford us numerous opportunities. During recent months, it has been encouraging that TRC has won major contracts across several business lines. We continue to expand our team of top-quality engineers to accommodate demand.” "While the third quarter is typically our weakest due to seasonality, our backlog remains strong,” Vincze said. "We also will continue working aggressively to achieve further reductions in our cost structure. Our goal for fiscal 2008 is to permanently eliminate costs totaling $7 million on an annualized basis. We appreciate the continued patience and support of our shareholders as we move toward completion of TRC’s turnaround in fiscal 2009.” Reporting Schedule The Company changed to a fiscal quarter end from a calendar quarter end financial reporting schedule beginning with the fiscal period ended September 28, 2007. The Company is changing its financial quarter end to the last Friday of each quarter. The Company will continue to close its fiscal year end on June 30. The Company believes that reporting on a quarterly fiscal period basis is more consistent with its operating cycle and will improve the efficiency of the financial close process. The Company believes that the change to a fiscal quarter end did not materially impact the reported results of operations. Conference Call Information The Company will broadcast its first-quarter and second-quarter financial results conference call this morning at 9:00 a.m. ET. Those who wish to listen to the conference call should visit the "Investor Center” section of TRC’s website at www.TRCsolutions.com. The call also may be accessed by dialing (877) 407-5790 or (201) 689-8328 prior to the start of the call. For interested individuals unable to join the live conference call, a webcast replay will be available on the Company’s website. About TRC TRC creates and implements sophisticated and innovative solutions to the challenges facing America's real estate, environmental, energy, and infrastructure markets. The Company also is a leading provider of technical, financial, risk management, and construction services to commercial and government customers across the country. For more information, visit TRC's website at www.TRCsolutions.com. Forward-Looking Statements Certain statements in this press release may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these statements by forward-looking words such as "may," "expects," "plans," "anticipates," "believes," "estimates," or other words of similar import. You should consider statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition, or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to, the availability and adequacy of insurance; the uncertainty of our operational and growth strategies; regulatory uncertainty; the availability of funding for government projects; the level of demand for our services; product acceptance; industry-wide competitive factors; the ability to continue to attract and retain highly skilled and qualified personnel; recent changes in our senior management; the results of outstanding litigation; risks arising from either failure to identify, or from identified material weaknesses in our internal controls over financial reporting or our inability to effectively remedy such weaknesses; our inability to comply with the terms of our credit facility and our lenders' future unwillingness to waive our noncompliance; and general political or economic conditions. Furthermore, market trends are subject to changes, which could adversely affect future results. See additional discussion in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007, and other factors detailed from time to time in our other filings with the Securities and Exchange Commission. TRC COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited)     Three Months Ended September 28,   September 30, 2007 2006 Gross revenue $ 123,654 $ 101,794 Less subcontractor costs and other direct reimbursable charges   52,331     38,741   Net service revenue   71,323     63,053     Interest income from contractual arrangements 1,071 1,201 Insurance recoverables and other income 1,528 4,745   Operating costs and expenses: Cost of services 59,921 57,274 General and administrative expenses 8,821 6,892 Provision for doubtful accounts 810 885 Goodwill impairment charge 76,678 - Depreciation and amortization   2,102     1,999     148,332     67,050   Operating (loss) income (74,410 ) 1,949 Interest expense   1,023     1,133   (Loss) income from continuing operations before taxes, minority interest and equity (losses) earnings (75,433 ) 816 Federal and state income tax provision 12,237 414 Minority interest   27     -   (Loss) income from continuing operations before equity (losses) earnings (87,643 ) 402 Equity in (losses) earnings from unconsolidated affiliates   (12 )   19   (Loss) income from continuing operations (87,655 ) 421 Discontinued operations, net of taxes   -     (77 ) Net (loss) income (87,655 ) 344 Dividends and accretion charges on preferred stock   -     147   Net (loss) income applicable to common shareholders $ (87,655 ) $ 197     Basic and diluted (loss) earnings per common share: Continuing operations $ (4.75 ) $ 0.02 Discontinued operations, net of taxes   -     (0.01 ) $ (4.75 ) $ 0.01     Average shares outstanding: Basic   18,447     16,729   Diluted   18,447     17,194   TRC COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (Unaudited)     September 28,   June 30, 2007 2007 ASSETS Current assets: Cash and cash equivalents $ 239 $ 430 Accounts receivable, less allowances for doubtful accounts 149,149 132,879 Insurance recoverable - environmental remediation 7,843 6,381 Deferred income tax assets - 13,894 Income taxes refundable 548 587 Restricted investment 19,706 20,830 Prepaid expenses and other current assets   8,687     11,911   Total current assets   186,172     186,912     Property and equipment, at cost 57,672 57,569 Less accumulated depreciation and amortization   36,918     36,126   20,754 21,443 Goodwill 54,265 130,935 Investments in and advances to unconsolidated affiliates and construction joint ventures 1,423 5,245 Long-term restricted investment 67,762 72,651 Long-term prepaid insurance 53,567 54,395 Other assets   14,601     14,401   Total assets $ 398,544   $ 485,982     LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 30,669 $ 31,618 Accounts payable 65,821 54,976 Accrued compensation and benefits 24,174 22,134 Deferred revenue 26,585 31,494 Environmental remediation liabilities 3,402 4,629 Other accrued liabilities   22,075     24,007   Total current liabilities   172,726     168,858   Non-current liabilities: Long-term debt, net of current portion 11,450 11,052 Long-term income taxes payable 698 - Deferred income tax liabilities - 1,519 Long-term deferred revenue 129,016 134,901 Long-term environmental remediation liabilities   8,186     7,861   Total liabilities   322,076     324,191     Minority interest in subsidiary 35 62 Commitments and contingencies Shareholders' equity: Capital stock: Preferred, $.10 par value; 500,000 shares authorized, no shares issued and outstanding - - Common, $.10 par value; 30,000,000 shares authorized, 18,676,535 and 18,673,053 shares issued and outstanding, respectively, at September 30, 2007, and 18,240,509 and 18,237,027 shares issued and outstanding, respectively, at June 30, 2007 1,868 1,824 Additional paid-in capital 150,402 147,229 (Accumulated deficit) retained earnings (76,032 ) 12,453 Accumulated other comprehensive income 228 256 Treasury stock, at cost   (33 )   (33 ) Total shareholders' equity   76,433     161,729   Total liabilities and shareholders' equity $ 398,544   $ 485,982   TRC COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited)     Three Months Ended   Six Months Ended December 28,   December 31, December 28,   December 31, 2007 2006 2007 2006 (As restated) (As restated) Gross revenue $ 110,932 $ 113,412 $ 234,586 $ 215,206 Less subcontractor costs and other direct reimbursable charges   44,675     48,515     97,006     87,256   Net service revenue   66,257     64,897     137,580     127,950     Interest income from contractual arrangements 1,007 1,250 2,078 2,451 Insurance recoverables and other income 17 71 1,545 4,816   Operating costs and expenses: Cost of services 56,137 55,626 116,058 112,900 General and administrative expenses 7,830 4,624 16,651 11,516 Provision for doubtful accounts 695 925 1,505 1,810 Goodwill impairment charge - - 76,678 - Depreciation and amortization   2,024     2,023     4,126     4,022     66,686     63,198     215,018     130,248   Operating income (loss) 595 3,020 (73,815 ) 4,969 Interest expense   971     1,147     1,994     2,280   (Loss) income from continuing operations before taxes, minority interest and equity earnings (losses) (376 ) 1,873 (75,809 ) 2,689 Federal and state income tax provision 101 947 12,338 1,361 Minority interest   30     -     57     -   (Loss) income from continuing operations before equity earnings (losses) (447 ) 926 (88,090 ) 1,328 Equity in earnings (losses) from unconsolidated affiliates   -     18     (12 )   37   (Loss) income from continuing operations (447 ) 944 (88,102 ) 1,365 Discontinued operations, net of taxes   -     47     -     (30 ) Net (loss) income (447 ) 991 (88,102 ) 1,335 Dividends and accretion charges on preferred stock   -     2,086     -     2,233   Net loss applicable to common shareholders $ (447 ) $ (1,095 ) $ (88,102 ) $ (898 )   Basic and diluted (loss) earnings per common share: Continuing operations $ (0.02 ) $ (0.07 ) $ (4.74 ) $ (0.05 ) Discontinued operations, net of taxes   -     0.01     -     -   $ (0.02 ) $ (0.06 ) $ (4.74 ) $ (0.05 )   Average shares outstanding: Basic   18,706     17,117     18,577     16,923   Diluted   18,706     17,117     18,577     16,923   TRC COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (Unaudited)     December 28,   June 30, 2007 2007 ASSETS Current assets: Cash and cash equivalents $ 212 $ 430 Accounts receivable, less allowances for doubtful accounts 136,946 132,879 Insurance recoverable - environmental remediation 7,779 6,381 Deferred income tax assets - 13,894 Income taxes refundable 383 587 Restricted investment 14,654 20,830 Prepaid expenses and other current assets   8,069     11,911   Total current assets   168,043     186,912     Property and equipment, at cost 58,563 57,569 Less accumulated depreciation and amortization   38,361     36,126   20,202 21,443 Goodwill 54,452 130,935 Investments in and advances to unconsolidated affiliates and construction joint ventures 1,545 5,245 Long-term restricted investment 67,644 72,651 Long-term prepaid insurance 52,738 54,395 Other assets   15,032     14,401   Total assets $ 379,656   $ 485,982     LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 26,357 $ 31,618 Accounts payable 60,139 54,976 Accrued compensation and benefits 22,211 22,134 Income taxes payable - - Deferred revenue 22,648 31,494 Environmental remediation liabilities 1,919 4,629 Other accrued liabilities   18,364     24,007   Total current liabilities   151,638     168,858   Non-current liabilities: Long-term debt, net of current portion 11,414 11,052 Long-term income taxes payable 698 - Deferred income tax liabilities - 1,519 Long-term deferred revenue 130,853 134,901 Long-term environmental remediation liabilities   8,204     7,861   Total liabilities   302,807     324,191     Minority interest in subsidiary   5     62   Commitments and contingencies Shareholders' equity: Capital stock: Preferred, $.10 par value; 500,000 shares authorized, no shares issued and outstanding - - Common, $.10 par value; 30,000,000 shares authorized, 18,772,957 and 18,769,475 shares issued and outstanding, respectively, at December 31, 2007, and 18,240,509 and 18,237,027 shares issued and   outstanding, respectively, at June 30, 2007 1,877 1,824 Additional paid-in capital 151,271 147,229 (Accumulated deficit) retained earnings (76,479 ) 12,453 Accumulated other comprehensive income 208 256 Treasury stock, at cost   (33 )   (33 ) Total shareholders' equity   76,844     161,729   Total liabilities and shareholders' equity $ 379,656   $ 485,982