NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(Unaudited)
Note 1. Company Background and Basis of Presentation
TRC Companies, Inc., through its subsidiaries (collectively, the "Company"), provides integrated engineering, consulting, and construction management services. Its project teams help its commercial and governmental clients implement environmental, energy, infrastructure and pipeline projects from initial concept to delivery and operation. The Company provides its services almost entirely in the United States of America.
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to those rules and regulations, but the Company's management believes that the disclosures included herein are adequate to make the information presented not misleading. The condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2015
.
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. In the second quarter of fiscal 2016, the Company concluded that it was appropriate to separately present intangible assets and intangible asset amortization on its condensed consolidated balance sheets and condensed consolidated statements of operations, respectively. Previously, intangible assets were classified as other assets on the condensed consolidated balance sheets whereas intangible asset amortization was classified as depreciation and amortization on the condensed consolidated statements of operations.
Note 2. New Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update which simplifies employee share-based payment accounting. This standard will simplify the income tax consequences, accounting for forfeitures and classification on the statement of cash flows. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. This standard will be effective for the Company's fiscal year beginning July 1, 2017. The Company is currently in the process of evaluating the effects of this standard on its condensed consolidated financial statements, including potential early adoption.
In February 2016, the FASB issued an accounting standards update which will replace most existing lease accounting guidance. This standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. This standard will be effective for the Company's fiscal year beginning July 1, 2019. Early adoption is permitted and should be applied using a modified retrospective approach. The Company is in the process of evaluating the potential impacts of this standard on its condensed consolidated financial statements and related disclosures, including potential early adoption.
In November 2015, the FASB issued an accounting standards update which simplifies the balance sheet classification of deferred taxes. This standard requires that all deferred tax assets and liabilities be classified as non-current in the classified balance sheet, rather than separating such deferred taxes into current and non-current amounts, as is required
under current guidance. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period with early application permitted. This standard can be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This standard will be effective for the Company's fiscal year beginning July 1, 2017. The Company is currently in the process of evaluating the effects of this standard on its condensed consolidated financial statements, including potential early adoption.
In September 2015, the FASB issued an accounting standards update simplifying the accounting for measurement-period adjustments in business combinations. This standard eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period with early application permitted. The standard is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the standard. The Company adopted this standard effective for its first quarter of fiscal 2016. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
In April 2015, the FASB issued an accounting standards update requiring that debt issuance costs related to a recognized debt liability be reported in the balance sheet as a direct deduction from the carrying amount of that debt liability. The standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period with early application permitted for financial statements that have not been previously issued. In August 2015, the FASB issued an accounting standards update which provides additional guidance related to the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. An entity may present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings. The Company adopted these standards effective for its first quarter of fiscal 2016. The adoption of these standards did not have a material impact on the Company's condensed consolidated financial statements.
In May 2014, the FASB issued an accounting standards update that replaces existing revenue recognition guidance. The updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, the FASB further clarified the implementation guidance on principal versus agent considerations. The new standard will be effective for the Company's fiscal year beginning July 1, 2018. No early adoption is permitted under this standard, and it is to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yet selected a transition method and is currently evaluating the effect the standard will have on its condensed consolidated financial statements.
Note 3. Fair Value Measurements
The Company's financial assets or liabilities are measured using inputs from the three levels of the fair value hierarchy. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:
Level 1 Inputs
- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Generally, this includes debt and equity securities and derivative contracts that are traded on an active exchange market (e.g., the New York Stock Exchange) as well as certain U.S. Treasury and U.S. Government and agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.
Level 2 Inputs
- Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, credit risks) or can be corroborated by observable market data.
Level 3 Inputs
- Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company's own assumptions about the assumptions that market participants would use.
The following tables present the level within the fair value hierarchy at which the Company's financial assets and certain liabilities were measured on a recurring basis as of
March 25, 2016
and
June 30, 2015
:
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of
March 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
Restricted investments:
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68
|
|
Certificates of deposit
|
—
|
|
|
106
|
|
|
—
|
|
|
106
|
|
Municipal bonds
|
—
|
|
|
547
|
|
|
—
|
|
|
547
|
|
Corporate bonds
|
—
|
|
|
500
|
|
|
—
|
|
|
500
|
|
U.S. government bonds
|
—
|
|
|
218
|
|
|
—
|
|
|
218
|
|
Money market accounts and cash deposits
|
4,456
|
|
|
—
|
|
|
—
|
|
|
4,456
|
|
Total assets
|
$
|
4,524
|
|
|
$
|
1,371
|
|
|
$
|
—
|
|
|
$
|
5,895
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
283
|
|
|
$
|
283
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
283
|
|
|
$
|
283
|
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Restricted investments:
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
Certificates of deposit
|
—
|
|
|
106
|
|
|
—
|
|
|
106
|
|
Municipal bonds
|
—
|
|
|
548
|
|
|
—
|
|
|
548
|
|
Corporate bonds
|
—
|
|
|
228
|
|
|
—
|
|
|
228
|
|
U.S. government bonds
|
—
|
|
|
216
|
|
|
—
|
|
|
216
|
|
Money market accounts and cash deposits
|
4,896
|
|
|
—
|
|
|
—
|
|
|
4,896
|
|
Total assets
|
$
|
4,996
|
|
|
$
|
1,098
|
|
|
$
|
—
|
|
|
$
|
6,094
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
693
|
|
|
$
|
693
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
693
|
|
|
$
|
693
|
|
A majority of the Company's investments are priced by pricing vendors and are generally Level 1 or Level 2 investments, as these vendors either provide a quoted market price in an active market or use observable input for their pricing without applying significant adjustments. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by the pricing vendors, or when a broker price is more reflective of fair value in the market in which the investment trades. The Company's broker priced investments are classified as Level 2 investments because the broker prices the investment based on similar assets without applying significant adjustments. The Company's restricted investment financial assets as of
March 25, 2016
and
June 30, 2015
are included within current and long-term restricted investments on the condensed consolidated balance sheets.
The Company's long-term debt is not measured at fair value in the condensed consolidated balance sheets. The fair value of debt is the estimated amount the Company would have to pay to transfer its debt, including any premium or discount attributable to the difference between the stated interest rate and market rate of interest at the balance sheet
date. Fair values are based on valuations of similar debt at the balance sheet date and supported by observable market transactions when available: Level 2 of the fair value hierarchy. At
March 25, 2016
and
June 30, 2015
the fair value of the Company's debt was not materially different than its carrying value.
Reclassification adjustments for realized gains or losses from available for sale restricted investment securities out of accumulated other comprehensive income are included in the condensed consolidated statements of operations within the insurance recoverables and other income line item.
The Company's contingent consideration liabilities, included in other accrued liabilities on the condensed consolidated balance sheets, are associated with the acquisitions made in the fiscal year ended
June 30, 2015
. The liabilities are measured at fair value using a probability weighted average of the potential payment outcomes that would occur should certain contract metrics be reached. There is no market data available to use in valuing the contingent consideration; therefore, the Company developed its own assumptions related to the achievement of the metrics to evaluate the fair value of these liabilities. As such, the contingent consideration is classified within Level 3 as described below.
Items classified as Level 3 within the valuation hierarchy, consisting of contingent consideration liabilities related to recent acquisitions, were valued based on various estimates, including probability of success, discount rates and amount of time until the conditions of the contingent payments are achieved. The table below presents a roll-forward of the contingent consideration liabilities valued using Level 3 inputs:
|
|
|
|
|
Contingent consideration balance at July 1, 2015
|
$
|
693
|
|
Reduction of liability for payments made
|
(806
|
)
|
Increase of liability related to re-measurement of fair value
|
396
|
|
Contingent consideration balance at March 25, 2016
|
$
|
283
|
|
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis as of
March 25, 2016
Certain assets were measured at fair value on a non-recurring basis and are not included in the tables above. During the quarter ended
March 25, 2016
, the Company recorded an impairment charge of
$24.5 million
. In determining the fair value of goodwill, the Company utilized valuation methods, including the discounted cash flow method and the guideline company approach as the best evidence of fair value. These fair value methods are classified within Level 3 of the fair value hierarchy. See Note 8 - Business Acquisitions, Goodwill and Other Intangibles Assets for further information.
Note 4. Stock-Based Compensation
The Company has
two
plans under which outstanding stock-based awards have been issued: the TRC Companies, Inc. Restated Stock Option Plan (the "Restated Plan"), and the Amended and Restated 2007 Equity Incentive Plan (the "2007 Plan"), (collectively "the Plans"). The Company issues new shares or may utilize treasury shares, when available, to satisfy awards under the Plans. Awards are made by the Compensation Committee of the Board of Directors; however, the Compensation Committee has delegated to the Chief Executive Officer ("CEO") the authority to grant awards for up to
10
shares to employees subject to a limitation of
100
shares in any
12
month period.
Stock-based awards under the Plans consist of stock options, restricted stock awards ("RSA's"), restricted stock units ("RSU's") and performance stock units ("PSU's"). As of
March 25, 2016
,
2,767
shares remained available for grants under the 2007 Plan.
Stock-Based Compensation
The Company measures stock-based compensation cost at the grant date based on the fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company's condensed consolidated statements of operations. Stock-based compensation expense
includes the estimated effects of forfeitures, and estimates of forfeitures will be adjusted over the requisite service period to the extent actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of expense to be recognized in future periods.
During the
three
and
nine
months ended
March 25, 2016
and
March 27, 2015
, the Company recognized stock-based compensation expense in cost of services ("COS") and general and administrative expenses within the condensed consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 25,
2016
|
|
March 27,
2015
|
|
March 25,
2016
|
|
March 27,
2015
|
Cost of services
|
$
|
794
|
|
|
$
|
670
|
|
|
$
|
2,243
|
|
|
$
|
1,799
|
|
General and administrative expenses
|
704
|
|
|
700
|
|
|
2,035
|
|
|
1,947
|
|
|
Total stock-based compensation expense
|
$
|
1,498
|
|
|
$
|
1,370
|
|
|
$
|
4,278
|
|
|
$
|
3,746
|
|
The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as financing activities in the condensed consolidated statements of cash flows. This reduces reported operating cash flows and increases reported financing cash flows. As a result, net financing cash flows included
$1,473
and
$251
for the
nine
months ended
March 25, 2016
and
March 27, 2015
, respectively, from the benefits of tax deductions in excess of recognized compensation cost. The tax benefit of any resulting excess tax deduction increases the additional paid-in capital ("APIC") pool. Any resulting tax deficiency is deducted from the APIC pool.
Stock Options
The Company uses the Black-Scholes option pricing model for determining the estimated grant date fair value for stock options. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the employee stock options. The average expected life is based on the contractual term of the option and expected employee exercise and historical post-vesting employment termination experience. The Company estimates the volatility of its stock using historical volatility in accordance with current accounting guidance. Management determined that historical volatility of TRC common stock is most reflective of market conditions and the best indicator of expected volatility. The dividend yield assumption is based on the Company's historical and expected dividend payouts. There were no stock options granted during the
nine
months ended
March 25, 2016
and
March 27, 2015
.
A summary of stock option activity for the
nine
months ended
March 25, 2016
under the Plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Aggregate
|
|
|
|
Exercise
|
|
Term
|
|
Intrinsic
|
|
Options
|
|
Price
|
|
(in years)
|
|
Value
|
Outstanding options as of June 30, 2015 (214 exercisable)
|
215
|
|
|
$
|
8.46
|
|
|
|
|
|
Options exercised
|
(31
|
)
|
|
$
|
6.74
|
|
|
|
|
|
Options expired
|
(83
|
)
|
|
$
|
9.07
|
|
|
|
|
|
Outstanding options as of March 25, 2016
|
101
|
|
|
$
|
8.49
|
|
|
0.9
|
|
$
|
45
|
|
Options exercisable as of March 25, 2016
|
100
|
|
|
$
|
8.50
|
|
|
0.9
|
|
$
|
44
|
|
Options vested and expected to vest as of March 25, 2016
|
101
|
|
|
$
|
8.49
|
|
|
0.9
|
|
$
|
45
|
|
The aggregate intrinsic value is measured using the fair market value at the date of exercise (for options exercised) or as of
March 25, 2016
(for outstanding options), less the applicable exercise price. The closing price of the Company's common stock on the New York Stock Exchange was
$6.63
as of
March 25, 2016
. The total intrinsic value of options exercised for the
nine
months ended
March 25, 2016
and
March 27, 2015
was
$124
and
$134
, respectively. The total proceeds received from option exercises for the
nine
months ended
March 25, 2016
and
March 27, 2015
was
$212
and
$327
, respectively.
As of
March 25, 2016
, there was
$0
of total unrecognized compensation expense related to unvested stock option grants under the Plans, and this expense is expected to be recognized over a weighted-average period of
0.1
years.
Restricted Stock Awards
Compensation expense for RSA's is recognized ratably over the vesting term, which is generally
four years
. The fair value of the RSA's is determined based on the closing market price of the Company's common stock on the grant date. There were
2
non-vested RSA's as of
March 25, 2016
. There were
no
RSA's granted during the
nine
months ended
March 25, 2016
. As of
March 25, 2016
, there was
$8
of total unrecognized compensation expense related to unvested RSA's under the Plans, and this expense is expected to be recognized over a weighted-average period of
0.6
years.
Restricted Stock Units
Compensation expense for RSU's is recognized ratably over the vesting term, which is generally
four years
. The fair value of RSU's is determined based on the closing market price of the Company's common stock on the grant date.
A summary of non-vested RSU activity for the
nine
months ended
March 25, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Restricted
|
|
Average
|
|
Stock
|
|
Grant Date
|
|
Units
|
|
Fair Value
|
Non-vested units as of June 30, 2015
|
890
|
|
|
$
|
6.92
|
|
Units granted
|
440
|
|
|
$
|
9.33
|
|
Units vested
|
(413
|
)
|
|
$
|
6.59
|
|
Units forfeited
|
(7
|
)
|
|
$
|
7.69
|
|
Non-vested units as of March 25, 2016
|
910
|
|
|
$
|
8.23
|
|
RSU grants totaled
170
and
440
shares with a total weighted-average grant date fair value of
$1,086
and
$4,112
during the
three
and
nine
months ended
March 25, 2016
, respectively. RSU grants totaled
26
and
403
shares with a total weighted-average grant date fair value of
$203
and
$2,781
during the
three
and
nine
months ended
March 27, 2015
. The total fair value of RSU's vested during the
three
and
nine
months ended
March 25, 2016
was
$112
and
$4,058
, respectively. The total fair value of RSU's vested during the
three
and
nine
months ended
March 27, 2015
was
$202
and
$2,797
, respectively.
As of
March 25, 2016
, there was
$6,235
of total unrecognized compensation expense related to unvested RSU's under the Plans, and this expense is expected to be recognized over a weighted-average period of
2.8
years.
Performance Stock Units
Compensation expense for PSU's is recognized ratably over the vesting term, which is generally
four years
, if and when the Company concludes that it is probable that the performance condition will be achieved. The Company reassesses the probability of vesting at each reporting period for awards with performance conditions and adjusts compensation expense based on its probability assessment. The fair value of the PSU's is determined based on the closing market price of the Company's common stock on the grant date.
The number of PSU's earned is determined based on the Company's performance against predefined targets. The range of payout is
zero
to
150%
of the number of granted PSU's. The number of PSU's earned is determined based on actual performance at the end of the performance period. PSU grants totaled
413
and
464
with a total weighted-average grant date fair value of
$3,697
and
$2,986
during the
nine
months ended
March 25, 2016
and
March 27, 2015
, respectively. The total fair value of PSU's vested during the
nine
months ended
March 25, 2016
, was
$4,097
. The total fair value of PSU's vested during the
nine
months ended
March 27, 2015
, was
$1,977
.
At
March 25, 2016
, there was
$7,297
of total unrecognized compensation expense related to non-vested PSU's; this expense is expected to be recognized over a weighted-average period of
2.5
years.
A summary of non-vested PSU activity for the
nine
months ended
March 25, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
PSU
|
|
|
|
Total
|
|
Average
|
|
Original
|
|
PSU
|
|
PSU
|
|
Grant Date
|
|
Awards
|
|
Adjustments (1)
|
|
Awards
|
|
Fair Value
|
Non-vested units as of June 30, 2015
|
932
|
|
|
—
|
|
|
932
|
|
|
$
|
7.10
|
|
Units granted
|
327
|
|
|
86
|
|
|
413
|
|
|
$
|
11.28
|
|
Units vested
|
(321
|
)
|
|
(86
|
)
|
|
(407
|
)
|
|
$
|
6.54
|
|
Units forfeited
|
(35
|
)
|
|
—
|
|
|
(35
|
)
|
|
$
|
7.44
|
|
Non-vested units as of March 25, 2016
|
903
|
|
|
—
|
|
|
903
|
|
|
$
|
8.73
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the additional number of PSU's issued based on the final performance condition achieved at the end of the respective performance period.
|
Note 5. Earnings per Share
Basic earnings per share ("EPS") is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed using the treasury stock method for stock options, warrants, non-vested restricted stock awards and units, and non-vested performance stock units. The treasury stock method assumes conversion of all potentially dilutive shares of common stock with the proceeds from assumed exercises used to hypothetically repurchase stock at the average market price for the period. Diluted EPS is computed by dividing net income applicable to the Company by the weighted-average common shares and potentially dilutive common shares that were outstanding during the period. For the
three
and
nine
months ended
March 25, 2016
, the Company reported a net loss applicable to common shareholders; therefore, the potentially dilutive shares are anti-dilutive and are excluded from the calculation of diluted (loss) earnings per share in accordance with ASC Topic 260,
Earnings per Share
.
The following table sets forth the computations of basic and diluted EPS for the
three
and
nine
months ended
March 25, 2016
and
March 27, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 25,
2016
|
|
March 27,
2015
|
|
March 25,
2016
|
|
March 27,
2015
|
Net (loss) income applicable to TRC Companies, Inc.
|
$
|
(14,297
|
)
|
|
$
|
5,165
|
|
|
$
|
(5,868
|
)
|
|
$
|
12,652
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
31,045
|
|
|
30,382
|
|
|
30,886
|
|
|
30,233
|
|
Effect of dilutive stock options, RSA's, RSU's and PSU's
|
—
|
|
|
355
|
|
|
—
|
|
|
318
|
|
Diluted weighted-average common shares outstanding
|
31,045
|
|
|
30,737
|
|
|
30,886
|
|
|
30,551
|
|
|
|
|
|
|
|
|
|
Earnings per common share applicable to TRC Companies, Inc.
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
$
|
(0.46
|
)
|
|
$
|
0.17
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.42
|
|
Diluted (loss) earnings per common share
|
$
|
(0.46
|
)
|
|
$
|
0.17
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.41
|
|
Anti-dilutive stock options, RSA's, RSU's and PSU's, excluded from the calculation
|
1,916
|
|
|
1,832
|
|
|
1,916
|
|
|
1,868
|
|
Note 6. Accounts Receivable
The current portion of accounts receivable as of
March 25, 2016
and
June 30, 2015
, were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 25,
2016
|
|
June 30,
2015
|
Billed
|
$
|
92,644
|
|
|
$
|
80,932
|
|
Unbilled
|
59,317
|
|
|
62,528
|
|
Retainage
|
2,266
|
|
|
3,478
|
|
|
Total accounts receivable - gross
|
154,227
|
|
|
146,938
|
|
Less allowance for doubtful accounts
|
(8,438
|
)
|
|
(8,592
|
)
|
|
Total accounts receivable, less allowance for doubtful accounts
|
$
|
145,789
|
|
|
$
|
138,346
|
|
Note 7. Other Accrued Liabilities
As of
March 25, 2016
and
June 30, 2015
, other accrued liabilities were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 25,
2016
|
|
June 30,
2015
|
Contract costs
|
$
|
29,205
|
|
|
$
|
27,980
|
|
Legal accruals
|
6,766
|
|
|
5,224
|
|
Lease obligations
|
3,725
|
|
|
3,354
|
|
Other
|
5,909
|
|
|
5,612
|
|
|
Total other accrued liabilities
|
$
|
45,605
|
|
|
$
|
42,170
|
|
Note 8. Business Acquisitions, Goodwill and Other Intangible Assets
Fiscal 2016 Acquisition
On
November 30, 2015
, the Company acquired the Professional Services business ("Pipeline Services") of Willbros Group ("Willbros") in an all cash transaction. The
$125,715
purchase price consisted of (i) an initial cash payment of
$119,955
paid at closing, and, (ii) a second cash payment due of
$7,500
payable at the earlier of certain Willbros contract novations (or written approval of a subcontract) and Willbros obtaining certain consents, or March 15, 2016, net of a preliminary estimate working capital adjustment due from Willbros. Goodwill of
$62,778
, all of which is expected to be tax deductible, and other intangible assets of
$44,500
were recorded as a result of this acquisition.
The following summarizes the estimated fair values of the Pipeline Services assets acquired and liabilities assumed at the acquisition date, as well as measurement period adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2015
(As Initially Reported)
|
|
Measurement
Period
Adjustments
|
|
November 30, 2015
(As Adjusted)
|
Cash and cash equivalents
|
$
|
355
|
|
|
$
|
—
|
|
|
$
|
355
|
|
Accounts receivable
|
26,406
|
|
|
620
|
|
|
27,026
|
|
Prepaid expenses and other current assets
|
7,276
|
|
|
(24
|
)
|
|
7,252
|
|
Property and equipment
|
3,552
|
|
|
—
|
|
|
3,552
|
|
Identifiable intangible assets:
|
|
|
|
|
|
|
Customer relationships and backlog
|
43,500
|
|
|
—
|
|
|
43,500
|
|
|
Internally developed software
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|
|
Total identifiable intangible assets
|
44,500
|
|
|
—
|
|
|
44,500
|
|
Goodwill
|
64,673
|
|
|
(1,895
|
)
|
|
62,778
|
|
Other non-current assets
|
20,683
|
|
|
—
|
|
|
20,683
|
|
Accounts payable
|
(2,587
|
)
|
|
53
|
|
|
(2,534
|
)
|
Accrued compensation and benefits
|
(7,199
|
)
|
|
(16
|
)
|
|
(7,215
|
)
|
Other accrued liabilities
|
(5,210
|
)
|
|
50
|
|
|
(5,160
|
)
|
Current portion of long-term debt
|
(6,447
|
)
|
|
(38
|
)
|
|
(6,485
|
)
|
Long-term debt, net of current portion
|
(18,547
|
)
|
|
—
|
|
|
(18,547
|
)
|
Non-controlling interest
|
$
|
—
|
|
|
$
|
(490
|
)
|
|
$
|
(490
|
)
|
|
Net assets acquired
|
$
|
127,455
|
|
|
$
|
(1,740
|
)
|
|
$
|
125,715
|
|
Customer relationships and backlog represent the fair value of existing contracts and the underlying customer relationships. The customer relationships and backlog have lives ranging from
1
to
15 years
(weighted average lives of
6 years
). The internally developed software has a life of approximately
5 years
(weighted average life of
3 years
).
The purchase price allocation is based upon preliminary information and is subject to change when additional information becomes available. The goodwill recognized is attributable to the future strategic growth opportunities arising from the acquisition, Pipeline Service's highly skilled assembled workforce, which does not qualify for separate recognition, and the expected cost synergies of the combined operations. The Company has not completed its final assessment of the fair values of purchased receivables, liabilities, contingent liabilities, or acquired contracts. The final fair value of the net assets acquired may result in adjustments to certain assets and liabilities, including goodwill.
The unaudited pro forma financial information summarized in the following table gives effect to the Pipeline Services acquisition assuming it occurred on July 1, 2014, the earliest period presented. These unaudited pro forma operating results do not assume any impact from revenue, cost or other operating synergies that are expected as a result of the acquisition. Pro forma adjustments have been made to reflect amortization of the identified intangible assets for the
related periods, as well as the amortization of deferred debt issuance costs incurred. Identifiable intangible assets are being amortized on a basis approximating the economic value derived from those assets. These unaudited pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the acquisition occurred on July 1, 2014, nor does the information project results for any future period.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
March 25, 2016
|
|
March 27, 2015
|
Gross revenue
|
$
|
526,384
|
|
|
$
|
559,079
|
|
Net service revenue
|
383,374
|
|
|
406,712
|
|
Net (loss) income applicable to TRC Companies, Inc.
|
(8,368
|
)
|
|
6,483
|
|
|
|
|
|
Basic earnings per common share
|
$
|
(0.27
|
)
|
|
$
|
0.21
|
|
Diluted earnings per common share
|
$
|
(0.27
|
)
|
|
$
|
0.21
|
|
Since the acquisition date, the Pipeline Services operating segment has contributed
$34,543
in gross revenue,
$27,546
in net service revenue, and an operating loss of
$(4,289)
for the period from November 30, 2015 through
March 25, 2016
.
Acquisition and integration expenses in the accompanying condensed consolidated statements of operations were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 25, 2016
|
|
March 25, 2016
|
Severance and personnel costs
|
|
$
|
914
|
|
|
$
|
1,600
|
|
Professional services and other expenses
|
|
692
|
|
|
2,124
|
|
Total
|
|
$
|
1,606
|
|
|
$
|
3,724
|
|
Fiscal 2015 Acquisition
On September 29, 2014, the Company acquired all of the outstanding stock of NOVA Training Inc. and all of the outstanding membership interests of NOVA Earthworks, LLC (collectively "NOVA") based in Midland, Texas. NOVA provides safety training and environmental services as well as oil spill response, remediation and general oil field construction services to customers in the oil and gas industry. The initial purchase price consisted of (i) a cash payment of
$7,198
payable at closing, (ii) a second cash payment of
$2,600
placed into escrow, of which
$508
was paid in
six
months and the remaining
$2,092
was due
18
months from the acquisition date subject to withholding for various contractual issues, (iii)
50
shares of the Company's common stock valued at
$323
on the closing date, and (iv) a
$560
net working capital adjustment. The sellers are also entitled to up to
$1,500
in contingent cash consideration through an earn-out provision based on the NSR performance of the acquired firm over the
24
month period following closing. The Company estimated the fair value of the contingent earn-out liability to be
$893
based on the projections and probabilities of reaching the performance goals through September 2016. Goodwill of
$3,683
, none of which is expected to be tax deductible, and other intangible assets of
$3,622
were recorded as a result of this acquisition. The goodwill is primarily attributable to the synergies and ancillary growth opportunities expected to arise after the acquisition. The fair values of assets and liabilities of the NOVA acquisition have been recorded in the Environmental operating segment. The impact of this acquisition was not material to the Company's condensed consolidated balance sheets and results of operations.
Goodwill and Goodwill Impairment
The Company assesses goodwill for impairment on an annual basis as of each fiscal April period end, or at an interim date when events or changes in the business environment would more likely than not reduce the fair value of a reporting unit below its carrying value. As of
March 25, 2016
, the Company had
$75,337
of goodwill, subsequent to the
impairment as further discussed below. Due to the current economic conditions in the oil and gas commodity markets, current actual operating performance, and revised projected financial performance, we assessed the recoverability of goodwill within the two reporting units within Pipeline Services operating segment during the
three
months ended
March 25, 2016
.
The impairment test for goodwill is a two-step process involving the comparison of the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. The Company estimates the fair value of reporting units based on a comparison and weighting of the income approach, specifically the discounted cash flow method, and the guideline company approach. If the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered impaired; therefore, the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure the amount of impairment loss to be recorded. If goodwill is impaired, the Company is required to record a non-cash charge to reduce the carrying value of goodwill to its implied fair value.
The Company performed the first step of the impairment test for the two reporting units within the Pipeline Services operating segment, and in each case determined that the carrying value of the reporting unit exceeded its fair value indicating potential goodwill impairment. The significant change to the assumptions used in the interim impairment test during the
three
months ended
March 25, 2016
compared to the assumptions utilized in the Pipeline Services operating segments initial November 2015 valuation were the projected net service revenue, operating income, and cash flows for each reporting unit tested, which were impacted by the continued market uncertainty in the oil and gas commodity markets and current actual operating performance compared to the originally projected results.
The Company performed the second step of the goodwill impairment test to measure the amount of the impairment loss, if any, of the applicable reporting units. The second step of the test requires the allocation of the reporting unit’s fair value to its assets and liabilities, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill is less than the carrying value, the difference is recorded as an impairment loss. Based on the results of the step two analysis, the Company recorded a preliminary goodwill impairment charge of
$24,465
during the
three
months ended
March 25, 2016
. Significant management judgments are necessary to evaluate the impact of operating and macroeconomic changes. Critical assumptions include projected net service revenue growth, profit margins, general and administrative expenses, working capital fluctuations, capital expenditures, discount rates and terminal growth rates. Due to the timing and complexity of the second step of the impairment test, which is required to determine the actual impairment of goodwill, the Company recorded its best estimate of impairment for the
three
and
nine
months ended
March 25, 2016
. The second step of the goodwill test will be completed during the fourth quarter of fiscal
2016
, and any adjustment to the amount recorded, which could differ materially from the Company's current best estimate, will be recorded in the fourth quarter of fiscal
2016
. Further, the measurement period for purchase price allocation related to the Pipeline Services acquisition remains open, as the initial allocation remains preliminary. Any future adjustments to purchase price allocation could impact the final charge for goodwill impairment.
The carrying amount of goodwill for the
nine
months ended
March 25, 2016
by operating segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Balance,
|
|
Accumulated
|
|
Balance,
|
|
|
|
Balance,
|
|
Accumulated
|
|
Balance,
|
|
|
July 1,
|
|
Impairment
|
|
July 1,
|
|
Additions /
|
|
March 25,
|
|
Impairment
|
|
March 25,
|
Operating Segment
|
|
2015
|
|
Losses
|
|
2015
|
|
Adjustments
|
|
2016
|
|
Losses
|
|
2016
|
Energy
|
|
$
|
28,506
|
|
|
$
|
(14,506
|
)
|
|
$
|
14,000
|
|
|
$
|
—
|
|
|
$
|
28,506
|
|
|
$
|
(14,506
|
)
|
|
$
|
14,000
|
|
Environmental
|
|
40,889
|
|
|
(17,865
|
)
|
|
23,024
|
|
|
—
|
|
|
40,889
|
|
|
(17,865
|
)
|
|
23,024
|
|
Infrastructure
|
|
7,224
|
|
|
(7,224
|
)
|
|
—
|
|
|
—
|
|
|
7,224
|
|
|
(7,224
|
)
|
|
—
|
|
Pipeline Services
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62,778
|
|
|
62,778
|
|
|
(24,465
|
)
|
|
38,313
|
|
|
|
$
|
76,619
|
|
|
$
|
(39,595
|
)
|
|
$
|
37,024
|
|
|
$
|
62,778
|
|
|
$
|
139,397
|
|
|
$
|
(64,060
|
)
|
|
$
|
75,337
|
|
Other Intangible Assets
Identifiable intangible assets as of
March 25, 2016
and
June 30, 2015
are included in other assets on the condensed consolidated balance sheets and were comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25, 2016
|
|
June 30, 2015
|
|
|
Gross
|
|
|
|
Net
|
|
Gross
|
|
|
|
Net
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
Identifiable intangible assets
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
With determinable lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
59,218
|
|
|
$
|
(12,451
|
)
|
|
$
|
46,767
|
|
|
$
|
16,618
|
|
|
$
|
(7,740
|
)
|
|
$
|
8,878
|
|
Contract backlog
|
|
900
|
|
|
(300
|
)
|
|
600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Technology
|
|
1,000
|
|
|
(67
|
)
|
|
933
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
61,118
|
|
|
(12,818
|
)
|
|
48,300
|
|
|
16,618
|
|
|
(7,740
|
)
|
|
8,878
|
|
With indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering licenses
|
|
426
|
|
|
—
|
|
|
426
|
|
|
426
|
|
|
—
|
|
|
426
|
|
|
|
$
|
61,544
|
|
|
$
|
(12,818
|
)
|
|
$
|
48,726
|
|
|
$
|
17,044
|
|
|
$
|
(7,740
|
)
|
|
$
|
9,304
|
|
Identifiable intangible assets with determinable lives are amortized over their estimated useful lives and are also reviewed for impairment if events or changes in circumstances indicate that their carrying amount may not be realizable.
Identifiable intangible assets with determinable lives are being amortized over a weighted-average period of approximately
6
years. The weighted-average period of amortization is approximately
6
years for customer relationship assets. The amortization of intangible assets for the
three
and
nine
months ended
March 25, 2016
was
$3,162
and
$5,078
. The amortization of intangible assets for the
three
and
nine
months ended
March 27, 2015
was
$905
and
$2,633
.
Estimated amortization expense of intangible assets for the remainder of fiscal year 2016 and succeeding fiscal years is as follows:
|
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2016
|
|
$
|
2,759
|
|
2017
|
|
10,159
|
|
2018
|
|
9,182
|
|
2019
|
|
8,367
|
|
2020
|
|
7,821
|
|
2021 and Thereafter
|
|
10,012
|
|
|
Total
|
|
$
|
48,300
|
|
On an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired, the fair value of the indefinite-lived intangible assets is evaluated by the Company to determine if an impairment charge is required. The Company performed an interim impairment assessment as of
March 25, 2016
, which resulted in no impairments to intangible assets.
Note 9. Long-Term Debt and Capital Lease Obligations
Revolving Credit Facility
Previously, the Company and substantially all of its subsidiaries, were party to a secured credit agreement (the "Prior Credit Agreement") and related security documentation with Citizens Commercial Banking as lender, administrative agent, sole lead arranger, and sole book runner and JP Morgan Chase Bank, N.A. as lender and syndication agent. The Prior Credit Agreement provided the Company with a
$75,000
five
-year secured revolving credit facility with a sublimit of
$15,000
available for the issuance of letters of credit. Pursuant to the terms of the Prior Credit Agreement, the Company could request an increase in the amount of the credit facility up to
$95,000
. The expiration date of the Prior Credit Agreement was April 16, 2018.
Amounts outstanding under the Prior Credit Agreement bore interest at the Base Rate (as defined, generally the prime rate) plus a margin of
1.00%
to
1.50%
or at LIBOR plus a margin of
2.00%
to
2.50%
, based on the ratio (measured over a trailing four-quarter period) of consolidated total debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), as defined. The Company's obligations under the Prior Credit Agreement were secured by a pledge of substantially all of its assets and guaranteed by its principal operating subsidiaries. The Prior Credit Agreement also contained cross-default provisions which became effective if the Company defaulted on other indebtedness.
Under the Prior Credit Agreement the Company was required to maintain a fixed charge coverage ratio of no less than
1.25
to
1.00
and to not permit its leverage ratio to exceed
2.00
to
1.00
. The Prior Credit Agreement also required the Company to achieve minimum levels of Consolidated Adjusted EBITDA of
$20,000
for the twelve-month periods ending
June 30, 2015
and thereafter. The Prior Credit Agreement also limited the payment of cash dividends to
$10,000
in aggregate during its term. The Company was in compliance with the financial covenants under the Prior Credit Agreement through its termination date.
As of
June 30, 2015
, the Company had
no
borrowings outstanding under the Prior Credit Agreement. Letters of credit outstanding were
$2,048
as of
June 30, 2015
. Based upon the leverage covenant, the maximum availability under the Prior Credit Agreement was
$75,000
as of
June 30, 2015
. Funds available to borrow under the Prior Credit Agreement, after consideration of the letters of credit outstanding and other indebtedness outstanding of
$166
, were
$72,786
at
June 30, 2015
.
On November 30, 2015, the Company entered into a
five
-year credit agreement (the “New Credit Agreement”) with Citizens Bank, N.A. as lender, LC issuer, administrative agent, sole lead arranger, and sole book runner; BMO Harris Bank, N.A. as lender, LC issuer and syndication agent; KeyBank, N.A. as lender and document agent, and
five
other banks as lenders . The New Credit Agreement provides the Company with an aggregate borrowing capacity of
$175,000
, consisting of a
$100,000
five
-year secured revolving credit facility (“Revolving Facility”) with a sub-limit of
$15,000
available for the issuance of letters of credit, as well as a
five
-year secured
$75,000
term loan (“Term Loan”). The New Credit Agreement replaced the Company’s Prior Credit Agreement.
The proceeds of the Term Loan, together with cash on hand and proceeds from borrowing under the Revolving Facility, were used to pay the purchase price for Willbros Professional Services and to fund transaction costs incurred in connection with the Willbros Professional Services acquisition. The Revolving Facility will also be available for working capital and general corporate purposes. The Revolving Facility includes borrowing capacity for letters of credit and for borrowings on same-day notice, referred to as “swingline loans.” Borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including absence of defaults and accuracy of representations and warranties. The Company may request an increase in the amount of the Credit Agreement up to an additional
$75,000
, which may be through additional term or revolving loans.
Borrowings outstanding under the Revolving Facility will mature on November 30, 2020. The Term Loan amortizes in quarterly installments payable on the last day of each March, June, September, and December, commencing on March 31, 2016 in amounts equal to
1.875%
of the term loan made or outstanding, with the balance payable on
November 30, 2020 (the "Term Loan Maturity Date.") In addition, the Company is required, subject to certain exceptions, to make payments on the Term Loan (a) based on a stated percentage of Excess Cash Flow, either
50%
or
0%
depending on whether the the Company's consolidated leverage ratio is above or below 2 times adjusted EBITDA as defined in the New Credit Agreement, (b) in an amount of
100%
of net cash proceeds from asset sales subject to certain reinvestment rights, (c) in an amount of
100%
of net cash proceeds of any issuance of debt other than debt permitted to be incurred under the New Credit Agreement, and (d) in an amount of
100%
of net cash proceeds from events of loss subject to certain reinvestment rights. The borrowings under the New Credit Agreement may be reduced, in whole or in part, without premium or penalty.
Amounts outstanding under the New Credit Agreement bear interest at the Base Rate (as defined, generally the prime rate) plus a margin of
0.50%
to
1.25%
, or at the Eurodollar Rate (as defined, generally the LIBOR rate) plus a margin of
1.50%
to
2.25%
, based on the Company's Leverage Ratio (as defined). In addition to these borrowing rates, there is a commitment fee which ranges from
0.20%
to
0.375%
on any unused commitments. The applicable fees for issuance of letters of credit under the Revolving Facility is a range from
1.50%
to
2.25%
.
The Company’s obligations under the New Credit Agreement are secured by a pledge of substantially all of its assets and guaranteed by its principal operating subsidiaries. The New Credit Agreement also contains cross-default provisions which become effective if the Company defaults on other indebtedness.
The New Credit Agreement contains various customary restrictive covenants that limit our ability to, among other things: incur additional indebtedness including guarantees; enter into sale/leaseback transactions; make investments, loans or acquisitions; grant or incur liens on our assets; sell our assets; engage in mergers, consolidations, liquidations or dissolutions; engage in transactions with affiliates; and make restricted payments. Under the New Credit Agreement the Company is required to maintain a fixed charge coverage ratio of no less than
1.25
to
1.00
and to not permit its leverage ratio to exceed
3.00
to
1.00
. Additionally, the New Credit Agreement also limits the payment of cash dividends to
$10,000
in aggregate during its term.
On November 30, 2015 the Company borrowed
$102,000
under the New Credit Agreement to partially fund the aforementioned Willbros Professional Services acquisition. The borrowing was comprised of a full borrowing of the
$75,000
term loan and a
$27,000
borrowing under the Revolving Facility. Borrowings under the Term Loan bear interest at a stated rate of
2.32%
and have an effective interest rate of
2.74%
at
March 25, 2016
. As of
March 25, 2016
the Company had
no
borrowings outstanding under the New Credit Agreement's Revolving Facility. Funds available to borrow under the New Credit Agreement, after consideration of the letters of credit outstanding, were
$97,221
at
March 25, 2016
.
In accounting for the transaction costs incurred in conjunction with the New Credit Agreement, the Company allocated the total costs incurred based on the relative fair values of the Revolving Facility and Term Loan. A total of
$1,916
and
$1,332
were allocated to the Revolving Facility and Term Loan, respectively.
As of
March 25, 2016
, the Term Loan consisted of the following:
|
|
|
|
|
|
Current portion of Term Loan
|
|
$
|
5,469
|
|
|
|
|
Long-term portion of Term Loan
|
|
$
|
69,531
|
|
Less: Debt issuance costs
|
|
(1,227
|
)
|
Net carrying amount
|
|
$
|
68,304
|
|
The scheduled principal amounts due under the Company’s Term Loan obligations as of
March 25, 2016
for the remainder of fiscal year 2016 and succeeding fiscal years are as follows:
|
|
|
|
|
|
|
2016
|
|
$
|
2,786
|
|
2017
|
|
5,265
|
|
2018
|
|
4,882
|
|
2019
|
|
4,526
|
|
2020
|
|
4,196
|
|
2021
|
|
53,345
|
|
|
Total
|
|
$
|
75,000
|
|
Contractor-owned, contractor-operated facility debt
As of
March 25, 2016
, the Company recorded approximately
$22,817
of debt obligations related to the Pipeline Services acquisition, of which
$7,407
was current. A third party finance company had provided financing to Pipeline Services in conjunction with the construction of fueling facilities for the federal government. Upon acceptance of the constructed facilities, the federal government pays Pipeline Services in equal monthly installments over the subsequent
five years
pursuant to a contract. Therefore, as of
March 25, 2016
, the Company also recorded approximately
$24,562
of receivables which were acquired in the transaction, of which
$7,407
was current. These amounts were recorded within other assets and represent the amount due from the federal government for the construction of the fueling facilities.
As of
March 25, 2016
, the government has provided acceptance on all three contracts and final funding has been received on one contract.
The principal amounts due under the Company’s remaining debt obligations as of
March 25, 2016
for the remainder of fiscal year 2016 and succeeding fiscal years is as follows:
|
|
|
|
|
|
|
2016
|
|
$
|
2,127
|
|
2017
|
|
7,551
|
|
2018
|
|
5,734
|
|
2019
|
|
3,717
|
|
2020
|
|
3,688
|
|
|
Total
|
|
$
|
22,817
|
|
Other Notes Payable
In July 2015, the Company financed
$5,632
of insurance premiums payable in
eleven
equal monthly installments of
$517
each, including a finance charge of
1.99%
. In December 2015, an additional
$891
was financed in conjunction with the Willbros Professional Services acquisition, resulting in six remaining payments of
$667
. As of
March 25, 2016
, the balance outstanding under this agreement was
$1,993
.
In conjunction with the Pipeline Services acquisition, the Company was required to remit a second cash payment of
$7,500
payable at the earlier of certain Willbros contract novations (or written approval of a subcontract) and Willbros obtaining certain consents, or March 15, 2016.
Capital Lease Obligations
During fiscal years
2013
and
2012
, the Company financed
$1,160
and
$756
, respectively, of furniture, office equipment, and computer equipment under capital lease agreements expiring in fiscal years
2015
and
2016
. The assets and liabilities under capital lease agreements are recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are amortized over the shorter of their related lease terms or their estimated useful lives. Amortization of assets under capital leases is included in depreciation and amortization in the condensed consolidated statements of operations. The final lease payments were made in the fiscal quarter ended
March 25, 2016
, with no future capital lease obligation remaining, and the underlying assets having been fully depreciated.
Note 10. Variable Interest Entity
The Company acquired the non-controlling interest in Center Avenue Holdings ("CAH") a limited liability company, in its third fiscal quarter of 2016 for
$90
. Prior to CAH becoming a wholly owned subsidiary, the Company's condensed consolidated financial statements included the financial results of CAH as a variable interest entity in which it was the primary beneficiary. In determining whether the Company is the primary beneficiary of an entity, it considers a number of factors, including its ability to direct the activities that most significantly affect the entity's economic success, the Company's contractual rights and responsibilities under the arrangement and the significance of the arrangement to each party. These considerations impact the way the Company accounts for its existing collaborative and joint venture relationships and determines the consolidation of companies or entities with which the Company has collaborative or other arrangements.
The Company previously consolidated the operations of CAH as it retained the contractual power to direct the activities of CAH which most significantly and directly impact its economic performance. The activity of CAH is not significant to the overall performance of the Company. Prior to CAH becoming a wholly owned subsidiary, its assets were restricted, from the standpoint of the Company, in that they were not available for the Company's general business use outside the context of CAH.
The following table sets forth the assets and liabilities of CAH included in the condensed consolidated balance sheets of the Company:
|
|
|
|
|
|
|
|
|
|
March 25,
2016
|
|
June 30,
2015
|
Current assets:
|
|
|
|
Restricted investments
|
$
|
63
|
|
|
$
|
63
|
|
Total current assets
|
63
|
|
|
63
|
|
Property and equipment
|
4,344
|
|
|
—
|
|
Other assets
|
—
|
|
|
4,344
|
|
Total assets
|
$
|
4,407
|
|
|
$
|
4,407
|
|
Long-term environmental remediation liabilities
|
22
|
|
|
21
|
|
Total liabilities
|
$
|
22
|
|
|
$
|
21
|
|
Prior to CAH becoming a wholly owned subsidiary, the Company did not generally have an obligation to make additional capital contributions to CAH. However, through the end of the second fiscal quarter of 2016 the Company had provided
$4,086
of support it was not contractually obligated to provide. The additional support was primarily for debt service payments on a note payable. CAH repaid this loan balance in the amount of
$2,448
in full on October 1, 2013. The Company intends to continue funding CAH's obligations as they become due.
Note 11. Income Taxes
The Company's effective tax rate was approximately
41.1%
and
27.1%
for the
three
months ended
March 25, 2016
and
March 27, 2015
respectively. The primary reconciling items between the federal statutory rate of
35.0%
and the Company's overall effective tax rate for the
three
months ended
March 25, 2016
were the effect of state income taxes offset by discrete tax benefits related to the U.S. Research and Development credit and U.S. Domestic Production Activities deduction. The discrete impact of research and development credits and U.S. Domestic Production Activities deduction is the result of a change in estimate resulting from the finalization of a new research and development credit
study and U.S. Domestic Production Activities deduction study during the
three
months ended
March 25, 2016
; the tax benefit for the change in estimate was reflected in its entirety in the
three
months ended
March 25, 2016
. The primary reconciling items between the federal statutory rate of
35.0%
and the Company's overall effective tax rate for the
three
months ended
March 27, 2015
were the effect of state income taxes offset by discrete tax benefits related to the U.S. Research and Development credit. The discrete impact of research and development credits is the result of a change in estimate resulting from the finalization of a new research and development credit study during the
three
months ended
March 27, 2015
. A tax benefit for the change in estimate was reflected in its entirety in the
three
months ended
March 27, 2015
.
The Company's effective tax rate was
42.6%
and
36.4%
for the
nine
months ended
March 25, 2016
and
March 27, 2015
, respectively. The primary reconciling items between the federal statutory rate of
35.0%
and the Company's overall effective tax rate for the
nine
months ended
March 25, 2016
and
March 27, 2015
, respectively, were the effect of state income taxes offset by discrete tax benefits related to the U.S. Research and Development credit and U.S. Domestic Production Activities deduction in the current year, as well as the discrete tax benefits related to research and development tax credits in the prior year period.
As of
March 25, 2016
, the recorded liability for uncertain tax positions under the measurement criteria of Accounting Standards Codification ("ASC") Topic 740, Income Taxes, was
$2,067
. The Company does not expect the amount of unrecognized tax benefits to materially change within the next twelve months.
As of
March 25, 2016
, the Company had a tax benefit of
$4,111
related to excess tax benefits from stock compensation. Pursuant to ASC Topic 718, a benefit of
$1,473
was recorded to increase APIC as it reduced income taxes payable during the
nine
months ended
March 25, 2016
. In addition, a tax deficiency of
$147
related to the expiration of vested stock options was recorded during the period to decrease APIC as it reduced deferred tax assets.
Note 12. Operating Segments
In connection with the acquisition of Pipeline Services, the Company's reportable segments increased from three to four to reflect how the Company currently manages its business. The Company manages its business under the following
four
operating segments:
Energy:
The Energy operating segment provides services to a range of clients including energy companies, utilities, other commercial entities, and state and federal government agencies. The Company's Energy services include program management, engineer/procure/construct projects, design, and consulting. The Company's typical Energy projects involve upgrades, design and new construction for electric transmission and distribution systems and substations; energy efficiency program design and management; and renewable energy development and power generation.
Environmental:
The Environmental operating segment provides services to a range of clients including industrial, transportation, energy and natural resource companies, as well as federal, state and municipal agencies. The Environmental operating segment is organized to focus on key areas of demand including: environmental management of buildings and facilities; air quality measurements and modeling of potential air pollution impacts; water quality and water resource management; assessment and remediation of contaminated sites and buildings; hazardous waste management; construction monitoring, inspection and management; environmental, health and safety management and sustainability advisory services; compliance auditing and strategic due diligence; environmental licensing and permitting of a wide variety of projects; and natural and cultural resource assessment, protection and management.
Infrastructure:
The Infrastructure operating segment provides services related to the expansion of infrastructure capacity, the rehabilitation of overburdened and deteriorating infrastructure systems, and the management of risks related to security of public and private facilities. The Company's client base is predominantly state and municipal governments as well as select commercial developers. In addition, the Company provides infrastructure services on projects originating in its other operating segments. Primary
services include: roadway, bridge and related surface transportation design; structural design and inspection of bridges; program management; construction engineering inspection and construction management for roads and bridges; civil engineering for municipalities and public works departments; geotechnical engineering services; and security assessments, design and construction management.
Pipeline Services:
The Pipeline Services operating segment provides pipeline and facilities engineering, EPC/EPCM, field services and integrity services to the oil and gas transmission and midstream markets as well as at government facilities. The Company specializes in providing engineering services to assist clients in designing, engineering and constructing or expanding pipeline systems, compressor stations, pump stations, fuel storage facilities, terminals, gas processing, and field gathering and production facilities. The Company's expertise extends to the engineering of a wide range of project peripherals, including various types of support buildings and utility systems, power generation and electrical transmission systems, communications systems, fire protection, water and sewage treatment, water transmission, roads and railroad sidings. The Company also provides project management, engineering and material procurement services to the refining industry and government agencies, including chemical/process, mechanical, civil, structural, electrical instrumentation/controls and environmental engineering. The Company provides full-service integrity management program offerings including program development, data services, risk analysis, corrosion evaluation, integrity engineering and integrity construction services. The Company partnered with Google to provide a cloud-based pipeline life-cycle integrity management solution, Integra Link™, which utilizes Google’s geospatial technology platform to help oil and gas pipeline companies visualize and utilize their data and information.
The Company's chief operating decision maker ("CODM") is its CEO. The Company's CEO manages the business by evaluating the financial results of the four operating segments focusing primarily on segment revenue and segment profit. The Company utilizes segment revenue and segment profit because it believes they provide useful information for effectively allocating resources among operating segments; evaluating the health of its operating segments based on metrics that management can actively influence; and gauging its investments and its ability to service, incur or pay down debt. Specifically, the Company's CEO evaluates segment revenue and segment profit and assesses the performance of each operating segment based on these measures, as well as, among other things, the prospects of each of the operating segments and how they fit into the Company's overall strategy. The Company's CEO then decides how resources should be allocated among its operating segments. The Company does not track its assets by operating segment, and consequently, it is not practical to show assets by operating segment. Segment profit includes all operating expenses except the following: costs associated with providing corporate shared services (including certain depreciation and amortization), goodwill and intangible asset write-offs, and stock-based compensation expense. Depreciation expense is primarily allocated to operating segments based upon their respective use of total operating segment office space. Assets solely used at the Corporate level are not allocated to the operating segments. Inter-segment balances and transactions are not material. The accounting policies of the operating segments are the same as those for the Company as a whole, except as discussed herein.
On July 1, 2015 the Company made certain changes to its management reporting structure which resulted in a change to the composition of its Energy and Infrastructure operating segments. In addition, certain corporate employees were transfered to the Energy operating segment. As a result, beginning in fiscal year 2016 the Company reports its financial performance based on the current reporting structure. The Company has recast certain prior period amounts to conform to the way it internally manages and monitors segment performance. These changes had no impact on consolidated net income or cash flows and were not material to the segment measurements presented.
The following tables present summarized financial information for the Company's operating segments (for the periods noted below):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
Environmental
|
|
Infrastructure
|
|
Pipeline
Services
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 25, 2016:
|
|
|
|
|
|
|
|
|
|
|
Gross revenue
|
|
$
|
46,280
|
|
|
$
|
65,465
|
|
|
$
|
18,721
|
|
|
$
|
26,526
|
|
|
$
|
156,992
|
|
Net service revenue
|
|
35,974
|
|
|
50,023
|
|
|
13,036
|
|
|
21,560
|
|
|
120,593
|
|
Segment profit (loss)
|
|
8,048
|
|
|
7,922
|
|
|
2,561
|
|
|
(3,128
|
)
|
|
15,403
|
|
Acquisition and integration expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,171
|
|
|
1,171
|
|
Depreciation
|
|
473
|
|
|
615
|
|
|
119
|
|
|
519
|
|
|
1,726
|
|
Amortization
|
|
260
|
|
|
279
|
|
|
—
|
|
|
2,454
|
|
|
2,993
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 27, 2015:
|
|
|
|
|
|
|
|
|
|
|
Gross revenue
|
|
$
|
42,404
|
|
|
$
|
70,711
|
|
|
$
|
16,037
|
|
|
$
|
—
|
|
|
$
|
129,152
|
|
Net service revenue
|
|
37,056
|
|
|
51,172
|
|
|
11,865
|
|
|
—
|
|
|
100,093
|
|
Segment profit
|
|
8,796
|
|
|
9,942
|
|
|
2,673
|
|
|
—
|
|
|
21,411
|
|
Acquisition and integration expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Depreciation
|
|
455
|
|
|
542
|
|
|
94
|
|
|
—
|
|
|
1,091
|
|
Amortization
|
|
282
|
|
|
399
|
|
|
—
|
|
|
—
|
|
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
Environmental
|
|
Infrastructure
|
|
Pipeline
Services
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 25, 2016:
|
|
|
|
|
|
|
|
|
|
|
Gross revenue
|
|
$
|
134,526
|
|
|
$
|
220,721
|
|
|
$
|
61,365
|
|
|
$
|
34,543
|
|
|
$
|
451,155
|
|
Net service revenue
|
|
111,065
|
|
|
154,497
|
|
|
40,673
|
|
|
27,546
|
|
|
333,781
|
|
Segment profit (loss)
|
|
25,020
|
|
|
27,760
|
|
|
8,173
|
|
|
(4,289
|
)
|
|
56,664
|
|
Acquisition and integration expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,171
|
|
|
1,171
|
|
Depreciation
|
|
1,431
|
|
|
1,877
|
|
|
341
|
|
|
786
|
|
|
4,435
|
|
Amortization
|
|
858
|
|
|
944
|
|
|
—
|
|
|
2,756
|
|
|
4,558
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 27, 2015:
|
|
|
|
|
|
|
|
|
|
|
Gross revenue
|
|
$
|
124,325
|
|
|
$
|
219,960
|
|
|
$
|
51,330
|
|
|
$
|
—
|
|
|
$
|
395,615
|
|
Net service revenue
|
|
106,621
|
|
|
151,384
|
|
|
35,493
|
|
|
—
|
|
|
293,498
|
|
Segment profit
|
|
22,575
|
|
|
30,252
|
|
|
6,203
|
|
|
—
|
|
|
59,030
|
|
Acquisition and integration expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Depreciation
|
|
1,478
|
|
|
1,728
|
|
|
319
|
|
|
—
|
|
|
3,525
|
|
Amortization
|
|
909
|
|
|
1,036
|
|
|
—
|
|
|
—
|
|
|
1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
Gross revenue
|
|
March 25, 2016
|
|
March 27, 2015
|
|
March 25, 2016
|
|
March 27, 2015
|
Gross revenue from reportable operating segments
|
|
$
|
156,992
|
|
|
$
|
129,152
|
|
|
$
|
451,155
|
|
|
$
|
395,615
|
|
Reconciling items (1)
|
|
1,138
|
|
|
1,625
|
|
|
177
|
|
|
1,415
|
|
Total consolidated gross revenue
|
|
$
|
158,130
|
|
|
$
|
130,777
|
|
|
$
|
451,332
|
|
|
$
|
397,030
|
|
|
|
|
|
|
|
|
|
|
Net service revenue
|
|
|
|
|
|
|
|
|
Net service revenue from reportable operating segments
|
|
$
|
120,593
|
|
|
$
|
100,093
|
|
|
$
|
333,781
|
|
|
$
|
293,498
|
|
Reconciling items (1)
|
|
660
|
|
|
901
|
|
|
(983
|
)
|
|
(47
|
)
|
Total consolidated net service revenue
|
|
$
|
121,253
|
|
|
$
|
100,994
|
|
|
$
|
332,798
|
|
|
$
|
293,451
|
|
|
|
|
|
|
|
|
|
|
Income from operations before taxes
|
|
|
|
|
|
|
|
|
Segment profit from reportable operating segments
|
|
$
|
15,403
|
|
|
$
|
21,411
|
|
|
$
|
56,664
|
|
|
$
|
59,030
|
|
Corporate shared services (2)
|
|
(11,922
|
)
|
|
(12,456
|
)
|
|
(33,144
|
)
|
|
(33,633
|
)
|
Goodwill impairment
|
|
(24,465
|
)
|
|
—
|
|
|
(24,465
|
)
|
|
—
|
|
Stock-based compensation expense
|
|
(1,498
|
)
|
|
(1,370
|
)
|
|
(4,278
|
)
|
|
(3,746
|
)
|
Unallocated acquisition and integration expenses
|
|
(435
|
)
|
|
—
|
|
|
(2,553
|
)
|
|
—
|
|
Unallocated depreciation and amortization
|
|
(385
|
)
|
|
(436
|
)
|
|
(1,155
|
)
|
|
(1,644
|
)
|
Interest income
|
|
189
|
|
|
—
|
|
|
326
|
|
|
—
|
|
Interest expense
|
|
(1,073
|
)
|
|
(73
|
)
|
|
(1,562
|
)
|
|
(125
|
)
|
Total consolidated (loss) income from operations before taxes
|
|
$
|
(24,186
|
)
|
|
$
|
7,076
|
|
|
$
|
(10,167
|
)
|
|
$
|
19,882
|
|
|
|
|
|
|
|
|
|
|
Acquisition and integration expenses
|
|
|
|
|
|
|
|
|
Acquisition and integration expenses from reportable operating segments
|
|
$
|
1,171
|
|
|
$
|
—
|
|
|
$
|
1,171
|
|
|
$
|
—
|
|
Unallocated acquisition and integration expenses
|
|
435
|
|
|
—
|
|
|
2,553
|
|
|
—
|
|
Total consolidated acquisition and integration expenses
|
|
$
|
1,606
|
|
|
$
|
—
|
|
|
$
|
3,724
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Depreciation and amortization from reportable operating segments
|
|
$
|
4,719
|
|
|
$
|
1,772
|
|
|
$
|
8,993
|
|
|
$
|
5,470
|
|
Unallocated depreciation and amortization
|
|
385
|
|
|
436
|
|
|
1,155
|
|
|
1,644
|
|
Total consolidated depreciation and amortization
|
|
$
|
5,104
|
|
|
$
|
2,208
|
|
|
$
|
10,148
|
|
|
$
|
7,114
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts represent certain unallocated corporate amounts not considered in the CODM's evaluation of operating segment performance.
|
|
|
(2)
|
Corporate shared services consist of centrally managed functions in the following areas: accounting, treasury, information technology, legal, human resources, marketing, internal audit and executive management such as the CEO and various executives. These costs and other items of a general corporate nature are not allocated to the Company’s four operating segments.
|
Note 13. Commitments and Contingencies
Exit Strategy Contracts
The Company has entered into a number of long-term contracts pursuant to its Exit Strategy program under which it is obligated to complete the remediation of environmental conditions at covered sites. The Company assumes the risk for remediation costs for pre-existing environmental conditions and believes that through in-depth technical analysis, comprehensive cost estimation and creative remedial approaches it is able to execute strategies which protect the Company's return on these projects. The Company's client pays a fixed price and, as additional protection, for a majority of the contracts the client also pays for a cleanup cost cap insurance policy. The policy, which includes the Company as a named or additional named insured party, provides coverage for cost increases from unknown or changed conditions up to a specified maximum amount significantly in excess of the estimated cost of remediation. The Company believes that it is adequately protected from risk on these projects and that it is not likely that it will incur material losses in excess of applicable insurance. However, because several projects are near or beyond the term or financial limits of the insurance, the Company believes it is reasonably possible that events could occur under certain circumstances which could be material to the Company's condensed consolidated financial statements. With respect to these projects, there is a wide range of potential outcomes that may result in material costs being incurred beyond the limits or term of insurance, such as: (i) greater than expected volumes of contaminants requiring remediation; (ii) treatment systems requiring operation beyond the insurance term; (iii) agency requirement for implementation of a more expansive remedy that currently required; and, (iv) greater than expected allocable share of the ultimate remedy. The Company does not believe these outcomes are likely, and the exact nature, impact and duration of any such occurrence could vary due to a number of factors. Accordingly, the Company is unable to provide an estimate of potential loss with a reasonable degree of accuracy. Nevertheless, if these events were to occur, the Company believes that it is reasonably possible that the amount of costs currently accrued, which represents the Company's best estimate, could increase by as much as
$38,200
, of which
$12,400
would be covered by insurance.
With respect to one of the projects noted above, the regulatory agency charged with oversight of the project approved a remedial plan that is more expensive than the remedy that had been proposed by the Company. A cost allocation among the potentially responsible parties has not been finalized. However, the Company (and the party from whom it assumed site responsibility) did not contribute in any way to the site contamination, and the Company believes that it has meritorious defenses to liability and that it will not ultimately be responsible for any material remedial costs attributable to the more costly selected remedy. Nevertheless, due to uncertainty over the cost allocation process, it is reasonably possible that the Company's recorded estimate could change. With respect to another one of these projects, the regulatory agency charged with oversight of the project selected a remedy that is consistent with regulatory guidance and the Company’s estimates. However, until the final remedy is actually implemented, it remains reasonably possible that the volumes associated with the selected remedial alternative could change and the related costs could increase. The Company's estimated share of the potential remedial cost changes related to these two projects range from
$0
to
$18,700
.
The Company adjusts all of its recorded liabilities as further information develops or circumstances change. The Company is unable to accurately project the time period over which these amounts would ultimately be paid out, however the Company estimates that any potential payments could be made over a
1
to
5
year period.
Contract Damages
The Company has entered into contracts which, among other things, require completion of the specified scope of work within a defined period of time or a defined budget. Certain of those contracts provide for the assessment of liquidated or other damages if certain project objectives are not met pursuant to the terms of the contract. At present, the Company does not believe a material assessment of such damages is reasonably possible.
Government Contracts
The Company's indirect cost rates applied to contracts with the U.S. Government and various state agencies are subject to examination and renegotiation. Contracts and other records of the Company with respect to federal contracts have been examined through June 30, 2008. The Company believes that adjustments resulting from such examination or renegotiation proceedings, if any, will not likely have a material impact on the Company's business, operating results, financial position and cash flows.
Legal Matters
The Company and its subsidiaries are subject to claims and lawsuits typical of those filed against engineering and consulting companies. The Company carries liability insurance, including professional liability insurance, against such claims subject to certain deductibles and policy limits. Except as described herein, management is of the opinion that the resolution of these claims and lawsuits will not likely have a material effect on the Company's operating results, financial position and cash flows.
TRC Environmental Corporation v. LVI Group Services, Inc., United States District Court for the Western District of Texas, Austin Division 2014.
TRC was the prime contractor on a project to demolish and decommission a power plant in Austin, Texas. LVI was a subcontractor on that project, and TRC sued LVI for approximately
$3,000
for breaches in connection with LVI’s work. LVI filed a number of responsive pleadings in this lawsuit including a counterclaim for approximately
$9,900
. TRC believes that its claims against LVI are meritorious and that LVI’s counterclaim is without merit. Nevertheless, an adverse determination on LVI’s counterclaim could have a material adverse effect on the Company’s business, operating results, financial position and cash flows.
The Company records actual or potential litigation-related losses in accordance with ASC Topic 450 "Contingencies". As of
March 25, 2016
and
June 30, 2015
, the Company had recorded litigation accruals of
$6,295
and
$4,479
, respectively. The Company also had insurance recovery receivables related to the aforementioned litigation-related accruals of
$4,062
and
$1,918
as of
March 25, 2016
and
June 30, 2015
, respectively.
The Company periodically adjusts the amount of such liabilities when such actual or potential liabilities are paid or otherwise discharged, new claims arise, or additional relevant information about existing or potential claims becomes available. The Company believes that it is reasonably possible that the amount of potential litigation-related liabilities could increase by as much as
$10,900
, of which
$2,400
would be covered by insurance.