TRC COMPANIES INC /DE/ - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the quarterly period ended September 30, 2002

OR

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from ________________ to ________________

COMMISSION FILE NUMBER 1-9947

TRC COMPANIES, INC.
(Exact name of registrant as specified in its charter)

Delaware 06-0853807
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5 Waterside Crossing
Windsor, Connecticut 06095
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (860) 298-9692

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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [ ]

On November 13, 2002 there were 13,002,957 shares of the registrant's common
stock, $.10 par value, outstanding.

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TRC COMPANIES, INC.

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2002

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PART I: FINANCIAL INFORMATION

TRC COMPANIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

The accompanying notes are an integral part of the condensed
consolidated financial statements.

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TRC COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

The accompanying notes are an integral part of the condensed
consolidated financial statements.

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TRC COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

The accompanying notes are an integral part of the condensed
consolidated financial statements.

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TRC COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2002
(in thousands, except per share amounts)

1. The condensed consolidated balance sheet at September 30, 2002, the
consolidated statements of operations for the three months ended
September 30, 2002 and 2001 and the condensed consolidated statements
of cash flows for the three months ended September 30, 2002 and 2001
are unaudited, but in the opinion of the Company, include all
adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the results for the interim periods. The
June 30, 2002 condensed consolidated balance sheet information was
derived from the audited financial statements but does not include all
disclosures required by accounting principles generally accepted in
the United States of America. Certain footnote disclosures usually
included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been omitted. These financial statements should be read
in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended June 30, 2002.

2. The Company conducts its activities under one business segment which
involves providing engineering and consulting services primarily in the
areas of infrastructure improvements and expansions, environmental
management and power development and conservation. The Company does not
track its financial performance by these areas, and therefore it is not
practicable for the Company to report net service revenue by these
areas. The Company's services and products are provided to commercial
organizations and government agencies primarily in the United States of
America market.

3. The Company has entered into several long-term contracts under its
Exit Strategy program under which the Company is obligated to complete
the remediation of environmental conditions at a site for a fixed fee.
The Company assumes the risk for all remediation costs for
pre-existing site environmental conditions and believes that through
in-depth technical analysis, comprehensive cost estimation and
creative remedial approaches it is able to execute pricing strategies
which protect the Company's return on these projects. As additional
protection, the Company obtains remediation cost cap insurance from
rated insurance companies (e.g., American International Group) which
provides coverage for cost increases arising from unknown or changed
conditions up to a specified maximum amount significantly in excess of
the estimated cost of remediation. Upon signing of the contract, the
Company receives the fixed fee contract price which is deposited in a
restricted account held by the insurance company and the Company is
reimbursed as it performs under the contract. The Company believes
that it is adequately protected from risks on these projects and that
adverse developments, if any, will not have a material impact on its
consolidated operating results, financial condition or cash flows.

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One Exit Strategy contract entered into by the Company also involved
the Company entering into a consent decree with government authorities
and assuming the obligation for the settling responsible parties'
environmental remediation liability for the site. The Company's
expected remediation cost is fully funded by the contract price
received and is fully insured by an environmental remediation cost cap
policy.

4. During the three months ended September 30, 2002, the Company
completed the acquisition of Novak Engineering, Inc. The gross
purchase price for this acquisition was $3,318 (before contingent
consideration) consisting of a combination of cash and common stock of
the Company. As a result of this acquisition, goodwill of $2,566 was
recorded in accordance with Statement of Financial Accounting
Standards (SFAS) No. 142. Additionally, intangible assets acquired
were recorded which are immaterial to the Company's financial
position. The acquisition has been accounted for using the purchase
method of accounting in accordance with SFAS No. 141. The initial
purchase price allocation has been completed, however, it is
anticipated that there will be changes to the initial allocation as
fair values are finalized, which changes are not expected to have a
material impact on the results of operations or financial condition of
the Company in future periods. The impact of this acquisition on
operating results is not material; therefore, no pro forma information
is presented.

Because certain financial objectives were achieved, the Company also
recorded additional purchase price payments during the three months
ended September 30, 2002 related to acquisitions completed in fiscal
2002, resulting in additional Goodwill of $156 being recorded in
accordance with SFAS No. 142.

At September 30, 2002, the Company had approximately $84.2 million of
goodwill, representing the cost of acquisitions in excess of fair
values assigned to the underlying net assets of acquired companies. In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets",
goodwill and intangible assets deemed to have indefinite lives are not
amortized, but are subject to annual impairment testing. The assessment
of goodwill involves the estimation of the fair value of the Company's
"reporting unit," as defined by SFAS No. 142. Management completed this
assessment during the second quarter of fiscal 2002 based on the best
information available as of the date of assessment and determined that
no impairment existed.

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5. For purposes of computing Diluted Earnings per Share the Company uses
the treasury stock method. Additionally, when computing dilution, if
any, related to the Preferred Stock, conversion is assumed as of the
beginning of the period. For the three months ended September 30, 2002,
the assumed conversion of the Preferred Stock was anti-dilutive, and
therefore conversion was not assumed for purposes of computing Diluted
Earnings per Share. The following table sets forth the computations of
Basic and Diluted Earnings per Share:

6. The current portion of Accounts Receivable at September 30, 2002 and
June 30, 2002 is comprised of the following:

Unbilled Costs generally represent billable amounts recognized as
revenue primarily in the last month of the period. Management expects
that substantially all Unbilled Costs will be billed and collected
within one year. The majority of Amounts Billed are expected to be
collected within 60 days from the invoice date. Retainage represents
amounts billed but not paid by the customer which, pursuant to the
contract, are due at completion.

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Long-Term Insurance Receivable at September 30, 2002 and June 30, 2002
of $3,021 and $3,627, respectively, relate to unbilled costs on Exit
Strategy contracts and represent amounts held by the insurance company
until completion of certain milestones.

7. Billings in Advance of Revenue Earned represents amounts collected in
accordance with contractual terms in advance of when the work is
performed. These advance payments primarily relate to the Company's
Exit Strategy program.

8. The Company maintains a bank financing arrangement which currently
provides a $40,000 revolving credit facility to assist in funding
various operating and investing activities. Borrowings under the
agreement bear interest at the agent bank's base rate or the Eurodollar
rate plus or minus applicable margins, are collateralized by all
Accounts Receivable of the Company and are due and payable in March
2005 when the agreement expires. The agreement contains various
covenants including, but not limited to, restrictions related to net
worth, EBITDA, leverage, asset sales, mergers and acquisitions,
creation of liens and dividends on common stock (other than stock
dividends).

9. In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No.
143 addresses accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement costs. Under SFAS No. 143, the Company will report, as
appropriate, all legal obligations associated with the retirement of
long-lived assets that result from acquisition, construction,
development, and the normal operation of long-lived assets. The
standard was effective July 1, 2002 for the Company. Adoption of this
standard did not have a material impact on the Company's financial
statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
accounting and reporting for the impairment or disposal of long-lived
assets. This standard supersedes SFAS No. 121, but retains the
fundamental provisions of SFAS No. 121, as well as sets new criteria
for asset classifications and establishes a broader definition with
respect to presentation of discontinued operations. The standard was
effective July 1, 2002 for the Company. Adoption of this standard did
not have a material impact on the Company's financial statements.

In April 2002, the FASB issued SFAS No. 145, "Recission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections as of April 2002". The purpose of this standard
is to rescind previously issued SFAS Nos. 4, 44 and 64, and to amend
SFAS No. 13. SFAS Nos. 4 and 64 relate to reporting gains and losses
from extinguishment of debt, SFAS No. 44 concerns accounting of
intangible assets of motor carriers, and SFAS No. 13, "Accounting for
Leases" was amended to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. The provisions related to SFAS
No. 13 are effective for transactions occurring after May 15, 2002, and
the remaining provisions of the standard are effective for fiscal years
beginning after May 15, 2002. The standard

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was effective July 1, 2002 for the Company. Adoption of this standard
did not have a material impact on the Company's financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This standard addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)". The provisions of this standard are
effective for exit or disposal activities that are initiated after
December 31, 2002. The impact of adoption is not expected to have a
material impact on the Company's financial statements.

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TRC COMPANIES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

Management's Discussion and Analysis contains statements that are
forward-looking. These statements are based upon current expectations and
assumptions that are subject to risks and uncertainties. Actual results could
differ materially due to a number of factors. See the discussion in
"Forward-Looking Statements" below.

CRITICAL ACCOUNTING POLICIES

The Company's condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. These principles require the use of estimates and assumptions that
affect amounts reported and disclosed in the financial statements and related
notes. Actual results could differ from these estimates and assumptions.
Management uses its best judgment in the assumptions used to value these
estimates; which are based on current facts and circumstances, prior experience
and other assumptions that are believed to be reasonable. The Company's
accounting policies are described in Note 1 of the Notes to Consolidated
Financial Statements contained in the Company's Annual Report on Form 10-K for
the year ended June 30, 2002. Management believes the following critical
accounting policies reflect the more significant judgments and estimates used in
preparation of the Company's condensed consolidated financial statements and are
the policies which are most critical in the portrayal of the Company's financial
position and results of operations:

LONG-TERM CONTRACTS: Revenue on long-term fixed price contracts is recognized
using the efforts expended percentage-of-completion method of accounting. This
method of revenue recognition requires the Company to prepare estimates of costs
to complete for contracts in progress. In making such estimates, judgments are
required to evaluate contingencies, such as potential variances in schedule and
labor and other contract costs, liability claims, contract disputes or
achievement of contractual performance standards. Changes in total estimated
contract costs and losses, if any, are recognized in the period they are
determined.

ALLOWANCE FOR DOUBTFUL ACCOUNTS: Allowances for doubtful accounts are maintained
for estimated losses resulting from the inability of our customers to make
required payments. If the financial condition of customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

INCOME TAXES: At September 30, 2002, the Company had approximately $2.9 million
of deferred income tax benefits. The realization of a portion of these benefits
is dependent on the Company's estimates of future taxable income and its tax
planning strategies. Management believes that sufficient taxable income will be
earned in the future to realize deferred income tax benefits; accordingly, no
valuation allowance has been recorded. Additionally, the realization of

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these deferred income tax benefits can be impacted by changes to tax codes,
statutory tax rates and future taxable income levels.

BUSINESS ACQUISITIONS: Assets and liabilities acquired in business combinations
are recorded at their estimated fair values at the acquisition date. At
September 30, 2002, the Company had approximately $84.2 million of goodwill,
representing the cost of acquisitions in excess of fair values assigned to the
underlying net assets of acquired companies. In accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets", goodwill and intangible assets deemed to
have indefinite lives are not amortized, but are subject to annual impairment
testing. The assessment of goodwill involves the estimation of the fair value of
the Company's "reporting unit," as defined by SFAS No. 142. Management completed
this assessment during the second quarter of fiscal 2002 based on the best
information available as of the date of assessment and determined that no
impairment existed. There can be no assurance that future events will not result
in impairments of goodwill or other assets.

RESULTS OF OPERATIONS

The Company derives its revenue from fees for providing engineering and
consulting services. The types of contracts with our customers and the
approximate percentage of net service revenue for the quarter ended September
30, 2002 from each contract type are as follows:

o Time and material 49%
o Fixed price or lump sum 32%
o Cost-type with various fee arrangements 19%

In the course of providing its services, the Company routinely subcontracts
drilling, laboratory analyses, construction equipment and other services. These
costs are passed directly through to customers and, in accordance with industry
practice, are included in gross revenue. Because subcontractor costs and direct
charges can vary significantly from project to project, the Company considers
net service revenue (NSR), which is gross revenue less subcontractor costs and
direct charges, as its primary measure of revenue growth.

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The following table presents the percentage relationships of items in the
consolidated statements of operations to NSR:

The revenue growth trend established in fiscal 1998 has continued. Gross revenue
increased $21.2 million, or by 37%, to $78.7 million during the three months
ended September 30, 2002, from $57.6 million in the same period last year. NSR
increased $14.9 million, or by 41%, to $51.4 million during the three months
ended September 30, 2002, from $36.5 million in the same period last year. These
increases were primarily due to additional revenue from acquisitions made in
fiscal 2002. NSR growth from organic higher-margin business areas was
essentially flat during the three months ended September 30, 2002. The less than
expected revenue growth from organic activities was primarily the result of the
challenging economic conditions affecting several of our operating centers. This
shortfall in expected NSR contributed directly to the decrease in operating
margin discussed below.

NSR from acquired companies is considered part of acquisition growth during the
twelve months following the date acquired. Approximately 95% of the NSR growth
for the quarter ended September 30, 2002 was from acquisitions and the remaining
5% growth was organic. Management's goal continues to be to have a reasonable
balance between organic and acquisition growth over a several year period.

Cost of services increased $13.2 million, or by 45% during the three months
ended September 30, 2002, from $29.2 million in the same period last year,
primarily due to the increase in NSR. However, as a percentage of NSR, cost of
services increased to 82.6% during the three months ended September 30, 2002
from 80.1% in the same period last year. This increase was primarily due to: (1)
the SITE acquisition, which currently requires a larger percentage of cost of
services for each NSR dollar generated, when compared to the Company as a whole,
and (2) operating inefficiencies which are discussed below.

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General and administrative expenses (G&A) increased approximately 44% during the
three months ended September 30, 2002 when compared to the same period last
year. This increase was primarily from additional costs necessary to support the
Company's internal and acquisition growth which included increased personnel,
audit and legal fees. As a percentage of NSR, G&A expenses increased modestly
from 3.0% during the three months ended September 30, 2001, to 3.1% for the
three months ended September 30, 2002. Some of the G&A costs incurred during the
three months ended September 30, 2002 are of a non-recurring nature. It is
expected that G&A costs, as a percentage of NSR, will decrease in the future as
the Company increases NSR without adding a proportional amount of overhead.

Depreciation and amortization expense increased approximately 72% during the
three months ended September 30, 2002, as compared to the same period last year.
This increase was primarily due to an increase in depreciation expense
associated with acquisitions completed in fiscal 2002.

Income from operations increased approximately 13% to $6.2 million during the
three months ended September 30, 2002, from $5.5 million in the same period last
year. The Company's operating income margin decreased to 12.1% from 15.1% during
the same period last year. The operating income growth attributable to
acquisitions was approximately $1.0 million while organic income fell by
approximately $0.3 million in the same period. The decline in the overall
operating margin percentage and decrease in organic income during the quarter
are primarily attributable to a fall in utilization of the Company's billable
staff. The decrease in utilization is primarily due to three main factors.
First, challenging economic conditions have affected some of the Company's
operating centers which, until this quarter, were mitigated by increases in
higher-margin business. Additionally, a second factor partially attributable to
economic conditions were management issues occurring at a variety of operations
during the quarter, including the underestimation of resources necessary to
complete tasks or projects and the pursuit of opportunities with limited
potential for near-term returns. A final factor contributing to the decrease in
operating margin was a delay of several months in the realization of earnings
from substantial hiring investments the Company has made in key growing markets
which are developing significant backlog which should produce positive earnings
in the future and create a stronger foundation for long-term growth.

Interest expense decreased by approximately 11.8% during the three months ended
September 30, 2002, as compared to the same period last year, primarily due to
lower average interest rates. The Company's percentage of debt to capitalization
ratio of 19% continues to remain relatively low reflecting management's
conservative debt philosophy.

The provision for federal and state income taxes reflects an effective rate of
39% for the three months ended September 30, 2002 compared to an effective rate
of 38.3% in the same period last year. The Company believes that there will be
sufficient taxable income in future periods to enable utilization of available
deferred income tax benefits.

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IMPACT OF INFLATION

The Company's operations have not been materially affected by inflation or
changing prices because of the short-term nature of many of its contracts and
the fact that most contracts of a longer term are subject to adjustment or have
been priced to cover anticipated increases in labor and other costs.

LIQUIDITY AND CAPITAL RESOURCES

The Company primarily relies on cash from operations and financing activities,
including borrowings based upon the strength of its balance sheet, to fund
operations. As discussed below, the cash generated from operations, the cash on
hand at September 30, 2002 and available borrowings under the credit facility
will be sufficient to meet the Company's cash requirements for currently
anticipated activities. The Company's liquidity is assessed in terms of its
overall ability to generate cash to fund its operating and investing activities
and to reduce debt. Of particular importance in the management of liquidity are
cash flows generated from operating activities, acquisitions, capital
expenditure levels and an adequate bank line of credit.

As evidenced in prior years, operating cash flows for the Company are impacted
by the timing of certain transactions, such as the receipt of up-front cash from
new Exit Strategy contracts and the timing of working capital investments and
returns. Given the sporadic nature of such events it is more practical to
evaluate cash flows from operations over a twelve-month period as opposed to
quarter over quarter. It is expected that operating cash flow will increase
during the course of fiscal 2003 as it did in fiscal 2002, where cash provided
by operations was approximately $6.3 million even though cash of $0.7 million
was used in the first quarter of fiscal 2002.

Cash flows used in operating activities for the three months ended September
30, 2002 were approximately $2.0 million, compared to $0.7 million in the
same period last year. The decrease in year over year operating cash flows
was primarily due to larger working capital investments and income tax
payments. The cash provided by: (1) the $3.6 million of net income, (2) the
$1.1 million non-cash charges for depreciation and amortization, and (3) the
$2.9 million increase in accounts payable was primarily offset by: (1) the
$1.8 million decrease in income taxes payable resulting from tax payments
made during the three months ended September 30, 2002, and (2) the $8.0
million increase in accounts receivable as a result of the Company's revenue
growth. As the Company continues to sustain double-digit revenue growth,
additional working capital investments are required to fund such growth, the
effect of which is illustrated by the increase in accounts receivable.
Despite the increase in accounts receivable, day's sales outstanding (DSO),
which measures the collections turnover of both billed and unbilled
receivables, has remained relatively constant at 115 days.

Investing activities used cash of approximately $5.3 million during the three
months ended September 30, 2002, primarily consisting of $3.4 million for
acquisitions and additional purchase price payments and approximately $1.4
million in capital expenditures for additional information technology and other
equipment to support business growth.

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Financing activities provided cash of approximately $7.5 million during the
three months ended September 30, 2002, primarily provided by net borrowings from
the Company's credit facility to support operating and investing activities.

The Company maintains a banking arrangement with Wachovia Bank, N.A. that
provides a revolving credit facility of up to $40 million to support various
short-term operating and investing activities. Borrowings under the agreement
bear interest at the bank's base rate or the Eurodollar rate plus or minus
applicable margins and are due and payable in March 2005 when the agreement
expires. Borrowings under the agreement are collateralized by accounts
receivable. The agreement contains various covenants including, but not limited
to, restrictions related to net worth, EBITDA, leverage, asset sales, mergers
and acquisitions, creation of liens and dividends on common stock (other than
stock dividends). At September 30, 2002, outstanding borrowings pursuant to the
agreement were $30.4 million, at an average interest rate of 3.4%.

We expect that the cash generated from operations, the cash on hand at September
30, 2002 and available borrowings under the revolving credit facility will be
sufficient to meet the Company's cash requirements for currently anticipated
activities. If in the future the Company pursues acquisitions in which the
potential cash consideration approaches or exceeds the availability of current
sources, the Company would either increase its lending facility or pursue
additional financing.

NEW ACCOUNTING GUIDANCE

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This standard addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". The provisions
of this standard are effective for exit or disposal activities that are
initiated after December 31, 2002. The impact of adoption is not expected to
have a material impact on the Company's financial statements.

FORWARD-LOOKING STATEMENTS

Certain statements in this report 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

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availability and adequacy of insurance, including remediation cost cap
insurance, the uncertainty of our operational and growth strategies, our ability
to appropriately select and manage our acquisitions, continued regulatory
enforcement, funding for and/or possible renegotiation of government projects,
the level of demand for the Company's services, product acceptance, our ability
to properly design and build remediation systems at environmental clean-up
sites, our ability to complete projects in our backlog in a timely manner,
industry-wide competitive factors, the ability to continue to attract and retain
highly skilled and qualified personnel, and political, economic, or other
conditions. Furthermore, market trends are subject to changes, which could
adversely affect future results. Your special attention is drawn to the sections
of the Company's other filings with the Securities and Exchange Commission
relating to forward-looking statements. The Company does not undertake to update
the results discussed herein as a result of changes in risks or operating
results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk for changes in interest rates relates
primarily to borrowings under the Company's revolving credit agreement. These
borrowings bear interest at variable rates and the fair value of this
indebtedness is not significantly affected by changes in market interest rates.
An effective increase or decrease of 10% in the current effective interest rate
under the revolving credit facility would not have a material effect on the
Company's operating results, financial condition or cash flows.

RISK FACTORS

As noted above, some of the information in this Quarterly Report on Form 10-Q
contains forward-looking statements that involve substantial risks and
uncertainties. The risk factors listed in this section, as well as any
cautionary language in this Quarterly Report on Form 10-Q, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we described in our forward-looking statements.
You should be aware that the occurrence of any of the events described in these
risks factors and elsewhere in this Quarterly Report on Form 10-Q could have a
material adverse effect on our business, financial condition and results of
operation and that upon the occurrence of any of these events, the trading price
of our common stock could decline.

WE ARE DEPENDENT ON OUR CORE BUSINESSES TO FINANCE OUR GROWTH. Our strategic
objectives include continued expansion into value-added services. We must
successfully manage our growth and will continue to depend on our core business
to provide a significant portion of the necessary revenue. Our core businesses
are highly concentrated across a spectrum of industries, particularly energy. A
downturn in any of these industries could affect our core businesses. Failure to
properly manage growth or our inability to rely on our core businesses could
materially affect our business.

WE ARE DEPENDENT ON GOVERNMENT CONTRACTS. We are dependent on various contracts
with agencies of the U.S. government and various state and local governmental
agencies. Companies engaged in government contracting are subject to certain
unique business risks. Among these risks are dependence on appropriations and
administrative allotment of funds, and changing policies and regulations. These
contracts may also be subject to renegotiation of profits or

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termination at the option of the government. The stability and continuity of
that portion of our business depends on the periodic exercise by the government
of contract renewal options, our continued ability to negotiate terms favorable
to us and the awarding of task orders.

WE ARE DEPENDENT ON THE AVAILABILITY OF INSURANCE. The growth of our Exit
Strategy market is partially dependent on our ability to obtain remediation cost
cap and other insurance which we currently procure primarily from companies
within the American International Group. We cannot be assured that the necessary
insurance will continue to be available to us on competitive terms.

WE COULD FACE EXPOSURE FOR FAILURE TO PROPERLY ESTIMATE COSTS IN OUR EXIT
STRATEGY MARKET. Our ability to be profitable in our Exit Strategy market
depends on our ability to properly estimate the costs of clean-up involved in a
particular project. While we engage in in-depth engineering and cost analysis
and generally insure these projects for several times the expected value of
remediation costs, if we were to materially underestimate the required costs of
clean-up, and failed to be appropriately insured for such failure, our business
could be materially affected.

OUR GROWTH IS DEPENDENT ON STRATEGIC ACQUISITIONS. Our growth plan depends on
our ability to choose strategic acquisition targets that meet our objectives and
can be effectively transitioned into our business. Our failure to carefully
select and manage these acquisitions may have a material adverse effect on our
business.

WE ARE DEPENDENT ON CONTINUED REGULATORY ENFORCEMENT. While we increasingly
pursue economically driven markets, our business is materially dependent on the
continued enforcement by federal, state and local governments of various
environmental regulations. In a period of relaxed environmental standards or
enforcement, private industry may be less willing to allocate funds to
consulting services designed to prevent or correct environmental problems.

WE ARE SUBJECT TO RULES AND REGULATIONS. Our businesses are subject to various
rules and regulations at the federal, state and local government levels. Our
failure to remain in compliance with these rules and regulations could have a
material adverse effect on our business. The Company is subject to licensing,
bonding and/or insurance requirements in certain jurisdictions which may impact
its ability to bid on projects in those jurisdictions.

WE COULD FACE POTENTIAL LIABILITY FOR FAILURE TO PROPERLY DESIGN REMEDIATION.
Our business involves the design and implementation of remediation at
environmental clean-up sites. If we fail to properly design and build a
remediation system or if someone claims that we did, we could face expensive
litigation and settlement costs. While we believe we are adequately insured, our
inability to successfully defend against such a lawsuit could materially affect
our business.

WE OPERATE WITH A NET CONTRACT BACKLOG. At September 30, 2002, our net contract
backlog (excluding the estimated costs of pass-through charges) was
approximately $215 million, as compared to approximately $215 million at June
30, 2002. If, for unforeseen reasons, we are unable to complete projects in our
backlog in a timely manner, customers may exercise their cancellation
provisions. The loss of these customers could have a material adverse effect on
our business.

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WE OPERATE IN HIGHLY COMPETITIVE INDUSTRIES. The markets for many of our
services are highly competitive. There are numerous professional architectural,
engineering and consulting firms and other organizations which offer many of the
services offered by us. We compete with many companies, some of which have
greater resources than us and we cannot assure you that such competitors will
not substantially increase the resources devoted to their business in a manner
competitive with the services provided by us. Competitive factors include
reputation, performance, price, geographic location and availability of
technically skilled personnel. In addition, we face competition from the use by
our clients of in-house environmental and other staff.

WE ARE HIGHLY DEPENDENT ON KEY PERSONNEL. Our business is managed by a
relatively small number of key management, operating and professional personnel,
the loss of certain of whom could have a material adverse effect on us. We
believe that our ability to manage planned growth successfully will depend in
large part on our continued ability to attract and retain highly skilled and
qualified personnel.

ITEM 4. CONTROLS AND PROCEDURES

The Company's management, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.

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PART II: OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

15 Letter re: unaudited interim financial information

99 Independent Accountants' Report

(b) Reports on Form 8-K

On September 4, 2002, the Company filed a Form 8-K reporting that the
Company had adjusted its previously reported first, second and third
quarter fiscal 2002 results.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

TRC COMPANIES, INC.

November 14, 2002 by: /s/ John W. Hohener
----------------------------------------
John W. Hohener
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer)

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CERTIFICATION
OF CHIEF EXECUTIVE OFFICER

TRC COMPANIES, INC.

Pursuant to section 302 of the Sarbanes-Oxley Act
of 2002 (Chapter 63, Title 18 U.S.C.SS.1350(A) and (B))

I, Richard D. Ellison, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period
ended September 30, 2002 of TRC Companies, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002

/s/ Richard D. Ellison
- --------------------------
Richard D. Ellison
Chief Executive Officer

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CERTIFICATION
OF CHIEF FINANCIAL OFFICER

TRC COMPANIES, INC.

Pursuant to section 302 of the Sarbanes-Oxley Act
of 2002 (Chapter 63, Title 18 U.S.C.SS.1350(A) and (B))

I, John W. Hohener, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period
ended September 30, 2002 of TRC Companies, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002

/s/ John W. Hohener
- ---------------------
John W. Hohener
Senior Vice President and Chief Financial Officer

-22-

CERTIFICATION
ACCOMPANYING FORM 10-Q REPORT

of

TRC COMPANIES, INC.

Pursuant to section 906 of the Sarbanes-Oxley Act
of 2002 (Chapter 63, Title 18 U.S.C.SS.1350(A) and (B))

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18
U.S.C. ss.1350(a) and (b)), each of the undersigned hereby certifies that the
Quarterly Report on Form 10-Q for the period ended September 30, 2002 of TRC
Companies, Inc. ("Company") fully complies with the requirements of Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the
information contained in such Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.

Date: November 14, 2002 /s/ Richard D. Ellison
------------------------
Richard D. Ellison
Chief Executive Officer

Date: November 14, 2002 /s/ John W. Hohener
------------------------
John W. Hohener
Senior Vice President and Chief Financial Officer

-23-