0000912057-01-534972.txt : 20011018
0000912057-01-534972.hdr.sgml : 20011018
ACCESSION NUMBER: 0000912057-01-534972
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20011010
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TRC COMPANIES INC /DE/
CENTRAL INDEX KEY: 0000103096
STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955]
IRS NUMBER: 060853807
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-09947
FILM NUMBER: 1755930
BUSINESS ADDRESS:
STREET 1: 5 WATERSIDE CROSSING
CITY: WINDSOR
STATE: CT
ZIP: 06095
BUSINESS PHONE: 2032898631
FORMER COMPANY:
FORMER CONFORMED NAME: VAST INC /DE/
DATE OF NAME CHANGE: 19761201
10-K
1
a2060814z10-k.txt
FORM 10-K
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 1-9947
TRC COMPANIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0853807
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 WATERSIDE CROSSING
WINDSOR, CONNECTICUT 06095
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 298-9692
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------------------- -----------------------
COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of the registrant's common stock held by
non-affiliates on September 10, 2001, was approximately $227,500,000.
On September 10, 2001, there were 7,504,341 shares of Common Stock of
the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference into
this Report: (1) registrant's 2001 Annual Report to Shareholders (Part II); and
(2) registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held November 15, 2001 (Part III).
================================================================================
PART I
ITEM 1. BUSINESS
TRC Companies, Inc. (the Company), together with its wholly-owned subsidiaries
and equity investments, provides technical, financial risk management and
construction services to industry and government primarily in the United States
market. Traditionally much of the Company's work was derived from the
environmental service business and was related to satisfying local, state and
federal regulatory requirements. In early 1998, new TRC management initiated a
growth plan directed toward maintaining the traditional business while
increasing growth by also focusing on economically driven markets. The Company
provides services to its customers in the following business areas:
TECHNICAL SERVICES - This business sector encompasses the Company's engineering,
scientific and technical services to its traditional markets and customers for
environmental management, infrastructure development and information management.
These areas have been the Company's historic focus and they serve as the
foundation for the Company's higher growth markets of Energy (Power) and Exit
Strategy(R) discussed below.
Environmental services provided by the Company include pollution control, waste
management, auditing and assessment, permitting and compliance, design and
engineering and natural and cultural resources management. The Company has
particular expertise in air quality, emissions control and monitoring and in the
investigation and cleanup of environmentally impaired sites. While these
services are generally required by the Company's customers for compliance with
federal, state and local environmental laws, the Company is experiencing an
increase in its business due to the rehabilitation of older business processes
to increase efficiency and productivity and the redevelopment of former
industrial properties to meet changing urban demographic patterns. The Company
believes these economically motivated projects will continue to provide
opportunities to expand and grow its traditional environmental business.
The Company's infrastructure development business targets: (1) growing
geographic areas where new infrastructure improvements are required to keep pace
with population growth; and (2) older areas where rehabilitation of aging or
inadequate infrastructure elements remain a primary focus of public spending for
both community improvement and economic stimulus. These improvements include
public infrastructure elements such as roads, bridges, water resources and waste
water treatment and to a lesser degree, private real estate development projects
for industrial, commercial and residential uses.
The Company's services in the environmental and infrastructure market generate
large amounts of useful data which require customized information management
systems. To meet this need, the Company assists its customers in analyzing its
data management requirements and designing and building software and hardware
solutions for cost effective information management systems. This includes the
use of both private intranets and the public Internet to provide the information
across customer and non-customer locations.
ENERGY (POWER) - Building upon its experience in providing environmental
services to the power generation industry, the Company has developed into a
leading provider of power plant siting and environmental permitting services to
the growing market of independent power producers (IPPs) who have emerged in the
wake of energy deregulation. These services are also provided to the owners and
operators of the natural gas and other fossil fuel pipelines that will supply
these new power plants. The Company believes the need for both power plants and
energy supply pipelines will continue to grow in the next several years and that
the Company is well positioned to provide the services needed to site and
support their construction.
In recognition that power demand will continue to outpace supply, causing the
cost of power to increase and the reliability of the grid during critical
periods to decrease, the Company has expanded its power market services from the
supply side of power generation and distribution to the demand side by
developing capabilities in energy conservation engineering, consulting and
construction and in on-site power generation. As the availability of cheap,
reliable electrical power diminishes, industrial and commercial users are
implementing changes to their facilities to maximize their energy efficiencies.
In addition, because the peak power demands of these facilities, which occur
over relatively shorter periods of time, drive the cost of all of their power
usage, customers are looking to meet these peak requirements with small, on-site
generators. The Company helps its customers
1
determine the need for and the proper application of these units and in
obtaining the land use (zoning) and environmental (air emissions) approvals to
build them.
EXIT STRATEGY(R) - In 1996, the Company developed an exclusive, innovative
method for its customers to outsource their environmental compliance obligations
to the Company. The Company's Exit Strategy program provides its customers with
a cost effective alternative to managing their non-core business activities.
This is especially attractive to customers in the following situations:
o MERGERS, ACQUISITIONS AND DIVESTITURES - In many instances,
the risk associated with prior environmental contamination at
a facility can seriously erode the market price for that
facility because neither the buyer nor seller wish to assume
that risk. By conducting thorough due diligence to quantify
the risk and by structuring comprehensive insurance coverage,
the Company is able to step in, assume the cleanup obligations
and thereby facilitate the sale of the property or business.
In this manner, the seller is able to obtain market price and
the buyer can protect itself against future costs for
environmental issues associated with past ownership practices.
More importantly, the transaction, which is often of far
greater value to both parties than the eventual cost of the
environmental issue, is completed.
o DISCONTINUED OPERATIONS - Many times when a customer closes a
facility, it must spend significant time and effort in
managing the environmental cleanup. This activity not only
serves as a distraction away from the customer's on-going
business, but it is also in a highly complex technical field
that few customers can support or perform with their own
employees. By turning these sites over to the Company, its
customers are able to free up management resources to focus on
core business activities and recognize a fixed, liquidated
liability amount for the closure. This latter benefit is
important because the company must recognize the total
expected cost of closure but, in many instances, it cannot
estimate its future environmental liability.
o MULTI-PARTY SUPERFUND SITES - When an owner/operator of a
waste disposal facility becomes insolvent, its customers must
pay for the costs of cleanup. The federal statute that assigns
this liability is known as "Superfund," and many states have
similar laws. Under the Exit Strategy program, the Company
provides these customers with an expedited method to fix their
estimated cost of liability by the Company's assumption of the
cleanup risk responsibility. This is a far cheaper alternative
for the Company's customers because it avoids the legal and
administrative cost of forming and managing the collective
group of the facility's former customers. (The government has
estimated that these expenses can add up to 40% of the cost of
the cleanup.) This also benefits the public because the
Company is able to complete the cleanup faster by avoiding the
legal and management entanglements that characterize
traditional Superfund projects.
o BROWNFIELDS REAL ESTATE DEVELOPMENT - The redevelopment of
environmentally contaminated property is commonly referred to
as "brownfields" redevelopment. The Company has, on occasion,
purchased contaminated property from its customers and is in
the process of cleaning up these properties to increase their
market value for eventual sale or redevelopment. The Company
does not actively pursue these sites on its own because of the
high capital demands and the longer investment cycle necessary
to recognize profit. Instead, the Company generally teams with
a developer or real estate partner who brings the capital and
real estate expertise necessary to realize the property's
economic potential. Because the Company brings it expertise in
managing the cleanup to the venture, both parties contribute
and profit according to their relative strengths.
The Company is recognized as a leader in the Exit Strategy market and the
Company expects the market for these projects to continue to grow at a rapid
pace. Accordingly, the Company is building its staff and capabilities to meet
the expected increased demand.
2
CUSTOMERS
The Company's customers include companies in the chemical, automotive,
petroleum, construction, transportation, mining, waste management and other
industries, financial institutions, public utilities, and local, state and
federal government agencies. Many of the Company's commercial customers are
major multinational corporations. The following customers are representative of
the Company's customers:
AES Enterprises General Motors Southern Energy
ASARCO Hanson PLC Tosco
Burlington Northern Santa Fe RR Lockheed Martin Corporation The Trump Organization
Cisco Systems Meridian Gold U. S. Government
City of Frisco, Texas New York City - EPA
Connecticut Resources Recovery - School Construction Authority - DOD
Authority - Department of Parks - FAA
Consolidated Edison - Department of Transportation Unocal
Duke Energy New York State Dept. of Transportation Waste Management
Exxon/Mobil Orange County, CA
Express Pipeline PG & E National Energy Group
General Electric Sentex Corporation
For fiscal 2001, 2000 and 1999, the federal government (principally the U.S.
Environmental Protection Agency and the U. S. Department of Defense) accounted
for 7%, 9% and 19%, respectively, of the Company's net service revenue. No other
customer represented 10% or more of the Company's net service revenue in any of
those years.
MARKETING AND SALES
The Company believes that it attracts customers primarily on the basis of its
reputation for providing value-added and cost-effective solutions to customer
needs and its ability to respond to meet customer schedules. The marketing
activities for the Company's services are generally conducted by senior
professional staff members and executives (seller-doers) who are recognized
experts in our business areas and regularly meet with existing and potential
customers to obtain new business. These activities are typically conducted
through the Company's network of regional resource centers for local customers
and by business sector leaders for national customers. In addition, corporate
and subsidiary marketing departments coordinate representation at trade shows,
prepare sales literature and develop and place advertising.
BACKLOG
At June 30, 2001, the Company's net contract backlog (excluding the estimated
costs of pass-through charges) was approximately $160 million, as compared to
approximately $80 million at June 30, 2000. The Company expects that
approximately 60% of this backlog will be completed in fiscal 2002. In addition
to this net contract backlog, the Company holds open order contracts from
various customers and government agencies. As work under these contracts is
authorized and funded, the Company includes this portion in its net contract
backlog. While most contracts contain cancellation provisions, the Company is
unaware of any material work included in backlog which will be canceled or
delayed.
EMPLOYEES
As of June 30, 2001, the Company had approximately 1,200 full and part-time
employees. Approximately 85% of these employees are primarily engaged in
performing environmental and infrastructure engineering and consulting,
financial risk management, construction management and information management
services for customers. Many of these employees have master's degrees or their
equivalent and a number have Ph.D. degrees. The Company's professional staff
includes program managers, professional engineers and scientists, construction
specialists, computer programmers, systems analysts, attorneys and others with
degrees and experience that enables the Company to provide a diverse range of
services. The balance of the Company's employees are engaged primarily in
executive, administrative and support activities. None of the Company's
employees are represented by a union. The Company considers its relations with
its employees to be very good.
3
COMPETITION
The markets for many of the Company's services are highly competitive. There are
numerous professional architectural, engineering and consulting firms and other
organizations which offer many of the services offered by the Company. The
Company is subject to direct competition with respect to the services it
provides from many other firms, ranging from small local firms to large national
firms having substantially greater financial, management and marketing resources
than the Company. Competitive factors include reputation, performance, price,
geographic location and availability of technically skilled personnel.
However, the majority of the Company's work is repeat orders from long-term
customers because the Company focuses on market areas where it can be a leading
provider due to staff skills, reputation, financial strength and/or geographic
presence. For example, the Company believes that it is one of the top 2 or 3
providers of permitting services for the large deregulated energy business.
Further, the Company appears to be the market leader in providing complete
outsourcing of site remediation services through its Exit Strategy program.
GOVERNMENT CONTRACTS
The Company has contracts with the U.S. Government which are subject to
examination and renegotiation. Contracts and other records of the Company have
been examined through June 30, 1996. The Company believes that adjustments
resulting from such examination or renegotiation proceedings, if any, will not
have a material impact on the Company's operating results, financial condition
or cash flows.
REGULATORY MATTERS
The Company's businesses are subject to various rules and regulations at the
federal, state and local government levels. The Company believes that it is in
compliance with these rules and regulations. The Company has the appropriate
licenses to bid and perform work in the locations in which it operates. The
Company has not experienced any significant limitations on its business as a
result of regulatory, bonding or insurance requirements. The Company does not
believe any changes in law or changes in industry practice would impose
conditions to bidding on future projects.
PATENTS, TRADEMARKS AND LICENSES
The Company has a number of trademarks, service marks, copyrights and licenses,
none of which are considered material to the Company's business as a whole.
ENVIRONMENTAL AND OTHER CONSIDERATIONS
The Company does not believe that its compliance with federal, state and local
laws and regulations relating to the protection of the environment will have any
material effect on capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
The Company provides its services through a network of 42 offices located
nationwide and an office in Lima, Peru. The Company does not own any real estate
and leases approximately 320,000 square feet of office and laboratory space to
support these operations. These leased properties are adequately maintained and
are suitable and adequate for the business activities conducted therein.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not a party to any pending legal
proceedings in which an adverse decision, in the opinion of the Company, would
have a material adverse effect upon the Company.
4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information on "Market for the Registrant's Common Equity and Related
Stockholder Matters" is contained on pages 8 and 25 of the Company's 2001 Annual
Report to Shareholders and such information is incorporated herein by reference.
On September 10, 2001, there were approximately 4,400 holders of the Company's
common stock, of which 328 were shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
The following table provides summarized information with respect to the
operations of the Company.
Statements of Operations, years ended June 30, 2001 2000 1999 1998 (1) 1997 (1)
------------------------------------------------------------------------------------------------------------------------
Gross revenue $181,473 $117,131 $78,223 $72,570 $68,506
Less subcontractor costs and direct charges 57,271 32,323 20,890 19,861 17,718
-------- -------- ------- ------- -------
Net service revenue 124,202 84,808 57,333 52,709 50,788
-------- -------- ------- ------- -------
Operating costs and expenses:
Cost of services 100,587 70,619 48,073 45,120 44,270
General and administrative expenses 3,909 2,991 2,462 2,451 3,565
Depreciation and amortization 3,771 2,917 2,468 2,702 2,789
-------- -------- ------- ------- -------
108,267 76,527 53,003 50,273 50,624
-------- -------- ------- ------- -------
Income from operations 15,935 8,281 4,330 2,436 164
Interest expense 1,541 1,024 507 725 829
-------- -------- ------- ------- -------
Income (loss) before taxes 14,394 7,257 3,823 1,711 (665)
Federal and state income tax provision (benefit) 5,409 2,613 1,376 650 (160)
-------- -------- ------- ------- -------
Net income (loss) $ 8,985 $ 4,644 $ 2,447 $ 1,061 $ (505)
======== ======== ======= ======= =======
Earnings (loss) per share:
Basic $ 1.24 $ 0.68 $ 0.36 $ 0.16 $ (0.07)
Diluted 1.13 0.65 0.36 0.16 (0.07)
======== ======== ======= ======= =======
Average shares outstanding:
Basic 7,236 6,845 6,782 6,715 6,741
Diluted 7,956 7,190 6,839 6,726 6,747
======== ======== ======= ======= =======
Cash dividends declared None None None None None
======== ======== ======= ======= =======
Balance Sheets at June 30,
Total assets $127,672 $ 94,208 $66,072 $61,604 $62,290
-------- -------- ------- ------- -------
Debt 15,005 21,300 7,900 7,500 11,000
-------- -------- ------- ------- -------
Shareholders' equity 69,975 54,448 46,988 44,455 42,844
======== ======== ======= ======= =======
(1) Includes results of Company's instrumentation business that was sold in
July 1998. The sale resulted in a gain that was not material.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" is contained on pages 9 through 11 of the Company's 2001 Annual
Report to Shareholders and such information is incorporated herein by reference.
5
ITEM 7A. 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 with a
commercial bank. 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 agreement would not have a
material effect on the Company's operating results, financial condition or cash
flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of TRC Companies, Inc. and
Report of Independent Accountants set forth on pages 12 through 23 of the
Company's 2001 Annual Report to Shareholders are incorporated herein by
reference:
Consolidated Statements of Operations, Cash Flows and Changes in
Shareholders' Equity - Years ended June 30, 2001, 2000 and 1999
Consolidated Balance Sheets - June 30, 2001 and 2000
Notes to Consolidated Financial Statements
Report of Independent Accountants
The supplementary data regarding quarterly results of operations is contained on
page 8 of the Company's 2001 Annual Report to Shareholders and such information
is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
6
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the Company's Directors and Executive Officers is contained on
pages 3 through 9 of the Company's Proxy Statement for its 2001 Annual Meeting
of Shareholders to be held November 14, 2001, and such information is
incorporated herein by reference.
The following table presents the name and age of each of the Company's executive
officers, their present positions with the Company and date of appointment
thereto, and other positions held during the past five years, including
positions held with other companies and with subsidiaries of the Company:
PRESENT POSITION AND OTHER POSITIONS HELD
NAME AND AGE DATE OF APPOINTMENT DURING LAST FIVE YEARS
------------ -------------------- ----------------------
John H. Claussen..........(52) Senior Vice President, TRC Senior Vice President and General
Companies, Inc. and President, TRC Counsel
Environmental Corporation (February
1997)
Martin H. Dodd............(48) Vice President, General Counsel and Vice President and Deputy General
Secretary (February 1997) Counsel
Richard D. Ellison........(62) Chairman, President and Chief Senior Vice President and Chief Engineer
Executive Officer (April 1997)
Harold C. Elston, Jr......(57) Senior Vice President (March 1998), Vice President and Treasurer
Chief Financial Officer (May 1999)
Glenn E. Harkness.........(53) Senior Vice President, TRC Vice President, TRC Environmental
Environmental Corporation Corporation
(September 1997)
Miro Knezevic.............(52) Senior Vice President, TRC
Companies, Inc. (August 1998),
Executive Vice President, TRC
Environmental Solutions, Inc.
(March 1994)
Michael C. Salmon.........(46) Senior Vice President, TRC General Manager, Southern California
Companies, Inc. (June 2000), Senior Region, IT Corporation
Vice President, TRC Environmental
Solutions, Inc. (April 1997)
NO FAMILY RELATIONSHIP EXISTS BETWEEN ANY OF THE INDIVIDUALS NAMED ABOVE.
7
ITEM 11. EXECUTIVE COMPENSATION
Information on "Executive Compensation" is contained on pages 6 through 9 of the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held
November 14, 2001, and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on "Security Ownership of Certain Beneficial Owners and Management"
is contained on pages 2 through 5 of the Company's Proxy Statement for its
Annual Meeting of Shareholders to be held November 14, 2001, and such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on "Certain Relationships and Related Transactions" is contained on
page 13 of the Company's Proxy Statement for its Annual Meeting of Shareholders
to be held November 14, 2001 and such information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULE
1. The Consolidated Financial Statements and Report of Independent
Accountants set forth on pages 12 through 23 of the Company's 2001
Annual Report to Shareholders are incorporated by reference into
this report by Item 8 herein.
2. The Consolidated Financial Statement Schedule and Report of
Independent Accountants on such schedule are included in this
report on the pages indicated.
PAGE
Report of Independent Accountants on Financial
Statement Schedule 11
Schedule II - Valuation and Qualifying Accounts 12
All other schedules are omitted because they are not applicable,
not required or the information required is included in the
financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 2001.
(c) EXHIBITS
3.1 Restated Certificate of Incorporation, dated November 18,
1994, incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1995.
3.2 Bylaws of the Company, as amended, incorporated by reference
to the Company's Form S-1 as filed on April 16, 1986,
Registration No. 33-4896.
10.1 Restated Stock Option Plan, dated May 6, 1998, incorporated by
reference to the Company's Form 10-K for the year ended June
30, 1998.
8
10.2.1 Termination Policy for Members of TRC Key Person Group, as
adopted on December 1, 1998, incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1999.
10.2.2 TRC Key Person Bonus Plan for Fiscal Years 1999 - 2003, as
adopted on March 22, 1999, incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1999.
10.3 Third Amended and Restated Revolving Credit Agreement, by and
among TRC Companies, Inc. and its subsidiaries and Fleet
National Bank (formerly BankBoston, N.A.) dated July 10, 1998,
incorporated by reference to the Company's Form 10-K for the
year ended June 30, 1998.
10.3.1 Amendment No. 1 to the Third Amended and Restated Revolving
Credit Agreement, by and among TRC Companies, Inc. and its
subsidiaries and Fleet National Bank (formerly BankBoston,
N.A.) dated July 1, 1999 incorporated by reference to the
Company's Form 10-K for the year ended June 30, 1999.
10.3.2 Amendment Nos. 2 and 3 to the Third Amended and Restated
Revolving Credit Agreement by and among TRC Companies, Inc and
its subsidiaries and Fleet National Bank, dated March 14, 2000
and May 19, 2000, respectively, incorporated by reference to
the Company's Form 10-K for the fiscal year ended June 30,
2000.
13 Annual Report to Shareholders for the fiscal year ended June
30, 2001. (Only those portions expressly incorporated by
reference are deemed to be filed herewith.)
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
As to any security holder requesting a copy of this Form 10-K, the Company will
furnish any exhibit indicated above as being filed with the Form 10-K.
9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRC COMPANIES, INC.
Dated: October 9, 2001 By: /s/ RICHARD D. ELLISON
-------------------------------
Richard D. Ellison, Ph.D., P.E.
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
/s/ Richard D. Ellison Chairman, President and October 9, 2001
-------------------------------------- Chief Executive Officer
Richard D. Ellison
/s/ Edward G. Jepsen Director October 9, 2001
--------------------------------------
Edward G. Jepsen
/s/ Edward W. Large Director October 9, 2001
--------------------------------------
Edward W. Large
/s/ J. Jeffrey McNealey Director October 9, 2001
--------------------------------------
J. Jeffrey McNealey
/s/ Harold. C. Elston, Jr. Senior Vice President and October 9, 2001
-------------------------------------- Chief Financial Officer
Harold C. Elston, Jr.
10
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors
of TRC Companies, Inc.
Our audits of the consolidated financial statements referred to in our report
dated October 9, 2001, appearing on page 23 of the 2001 Annual Report to
Shareholders of TRC Companies, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
Hartford, Connecticut
October 9, 2001
11
TRC COMPANIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(IN THOUSANDS)
Additions
-------------------------------
Balance at Charged to Charged to Balance at
beginning costs and Other end of
Description of period expenses accounts* Deductions** period
---------------------------------- ----------- ------------ --------------- -------------- ----------
2001
Allowance for doubtful accounts $3,205 $2,312 $231 $(1,464) $4,284
------ ------ ---- ------- ------
2000
Allowance for doubtful accounts $2,546 $2,934 $223 $(2,498) $3,205
------ ------ ---- ------- ------
1999
Allowance for doubtful accounts $2,375 $ 725 $200 $ (754) $2,546
------ ------ ---- ------- ------
* Allowances from acquired businesses.
** Uncollectable accounts written off, net of recoveries.
12
TRC COMPANIES, INC.
Form 10-K Exhibit Index
Fiscal Year Ended June 30, 2001
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
13 Annual Report to Shareholders for the fiscal year 14
ended June 30, 2001
21 Subsidiaries of the Registrant 40
23 Consent of Independent Accountants 41
13
EX-13
3
a2060814zex-13.txt
EXHIBIT 13
EXHIBIT 13
Annual Report to Shareholders for the fiscal year ended June 30, 2001. (Only
those portions expressly incorporated by reference are deemed to be filed
herewith).
14
FINANCIAL HIGHLIGHTS
TRC COMPANIES, INC. AND SUBSIDIARIES
IN THOUSANDS, EXCEPT PER SHARE DATA
June 30, 2001 2000 1999 1998 (1)
------------------------------------------------------------------------------------------------------------------
Gross revenue $ 181,473 $ 117,131 $ 78,223 $ 69,568
Net service revenue 124,202 84,808 57,333 49,708
Income from operations 15,935 8,281 4,330 2,217
Net income 8,985 4,644 2,447 925
Earnings per share - diluted $ 1.13 $ 0.65 $ 0.36 $ 0.14
Working capital $ 32,008 $ 36,128 $ 17,431 $ 20,475
Current ratio 1.9 to 1 3.2 to 1 2.0 to 1 2.8 to 1
Percentage of debt to total capitalization 18% 28% 14% 14%
Shareholders' equity $ 69,975 $ 54,448 $ 46,988 $ 44,455
Book value per share $ 9.39 $ 7.73 $ 6.91 $ 6.55
Common shares outstanding 7,453 7,046 6,799 6,782
(1) Operating results presented above for fiscal 1998 do not include the
results of the Company's instrumentation business that was sold in July
1998. The sale resulted in a gain that was not material. See Selected
Financial Data on page 5 for results as reported for fiscal 1998.
[TABULAR REPRESENTATION OF BAR CHART]
NET SERVICE INCOME FROM EARNINGS
REVENUE OPERATIONS PER SHARE
(in thousands) (in thousands)
$49,708 $57,333 $84,808 $124,202 $2,217 $4,330 $8,281 $15,935 $.014 $0.36 $0.65 $1.13
98 99 00 01 98 99 00 01 98 99 00 01
15
SELECTED FINANCIAL DATA
TRC COMPANIES, INC. AND SUBSIDIARIES
IN THOUSANDS, EXCEPT PER SHARE DATA
STATEMENTS OF OPERATIONS, YEARS ENDED JUNE 30, 2001 2000 1999 1998 (1) 1997 (1)
--------------------------------------------------------------------------------------------------------------------------
GROSS REVENUE $181,473 $117,131 $78,223 $72,570 $68,506
Less subcontractor costs and direct charges 57,271 32,323 20,890 19,861 17,718
-------- -------- ------- ------- -------
NET SERVICE REVENUE 124,202 84,808 57,333 52,709 50,788
-------- -------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Cost of services 100,587 70,619 48,073 45,120 44,270
General and administrative expenses 3,909 2,991 2,462 2,451 3,565
Depreciation and amortization 3,771 2,917 2,468 2,702 2,789
-------- -------- ------- ------- -------
108,267 76,527 53,003 50,273 50,624
-------- -------- ------- ------- -------
INCOME FROM OPERATIONS 15,935 8,281 4,330 2,436 164
Interest expense 1,541 1,024 507 725 829
-------- -------- ------- ------- -------
INCOME (LOSS) BEFORE TAXES 14,394 7,257 3,823 1,711 (665)
Federal and state income tax provision (benefit) 5,409 2,613 1,376 650 (160)
-------- -------- ------- ------- -------
NET INCOME (LOSS) $ 8,985 $ 4,644 $ 2,447 $ 1,061 $ (505)
======== ======== ======= ======= =======
EARNINGS (LOSS) PER SHARE:
Basic $ 1.24 $ 0.68 $ 0.36 $ 0.16 $ (0.07)
Diluted 1.13 0.65 0.36 0.16 (0.07)
======== ======== ======= ======= =======
AVERAGE SHARES OUTSTANDING:
Basic 7,236 6,845 6,782 6,715 6,741
Diluted 7,956 7,190 6,839 6,726 6,747
======== ======== ======= ======= =======
CASH DIVIDENDS DECLARED None None None None None
======== ======== ======= ======= =======
BALANCE SHEETS AT JUNE 30,
Total assets $127,672 $ 94,208 $66,072 $61,604 $62,290
-------- -------- ------- ------- -------
Debt 15,005 21,300 7,900 7,500 11,000
-------- -------- ------- ------- -------
Shareholders' equity 69,975 54,448 46,988 44,455 42,844
======== ======== ======= ======= =======
(1) Includes results of Company's instrumentation business that was sold in
July 1998. The sale resulted in a gain that was not material.
16
SUMMARIZED UNAUDITED QUARTERLY FINANCIAL DATA
TRC COMPANIES, INC. AND SUBSIDIARIES
IN THOUSANDS, EXCEPT PER SHARE DATA
Fiscal 2001 1st 2nd 3rd 4th Total
-------------------------------------------------------------------------------------------------------------
Gross revenue $36,887 $44,642 $47,305 $52,639 $181,473
Net service revenue 26,703 29,134 32,062 36,303 124,202
Income from operations 3,277 3,684 4,125 4,849 15,935
Income before taxes 2,792 3,275 3,782 4,545 14,394
Net income 1,759 2,063 2,345 2,818 8,985
Earnings per share (1):
Basic $ 0.25 $ 0.29 $ 0.32 $ 0.38 $ 1.24
Diluted 0.23 0.26 0.29 0.34 1.13
Market price per share:
High $ 17.75 $ 19.38 $ 33.39 $ 56.50 $ 56.50
Low 10.63 14.88 18.50 25.90 10.63
Fiscal 2000 (2) 1st 2nd 3rd 4th (3) Total
-------------------------------------------------------------------------------------------------------------
Gross revenue $25,306 $27,939 $30,348 $33,538 $117,131
Net service revenue 18,290 19,562 22,297 24,659 84,808
Income from operations 1,774 2,470 3,057 980 8,281
Income before taxes 1,579 2,242 2,794 642 7,257
Net income 1,010 1,435 1,788 411 4,644
Earnings per share:
Basic $ 0.15 $ 0.21 $ 0.26 $ 0.06 $ 0.68
Diluted 0.14 0.20 0.25 0.06 0.65
Market price per share:
High $ 7.69 $ 8.19 $ 13.25 $ 11.94 $ 13.25
Low 6.00 6.19 7.63 9.00 6.00
(1) Quarterly results may not agree to the total for the year due to
rounding.
(2) Fiscal 2000 quarterly results have been adjusted to properly reflect
the quarterly revenue recognized under the Company's Exit Strategy(R)
contracts. The impact of the adjustment for the first quarter was to
increase gross and net service revenue by $177, income before taxes by
$149, net income by $95, and diluted earnings per share by $.01. The
impact of the adjustment for the second quarter was to increase gross
and net service revenue by $809, income before taxes by $602, net
income by $385, and diluted earnings per share by $.05. The impact of
the adjustment for the third quarter was to increase gross and net
service revenue by $972, income before taxes by $894, net income by
$572, and diluted earnings per share by $.08. The impact of the
adjustment for the fourth quarter was to decrease gross and net
service revenue by $1,958, income before taxes by $1,645, net income
by $1,052, and diluted earnings per share by $.14. The full year 2000
totals of gross and net service revenue, income before taxes, net
income and diluted earnings per share did not change.
(3) Results for the fourth quarter of fiscal 2000 included additional
allowances for doubtful accounts of approximately $1.4 million.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the Selected
Financial Data, the Consolidated Financial Statements and related Notes to
Consolidated Financial Statements.
OVERVIEW
The Company is a leading provider of technical, financial risk management and
construction services to industry and government primarily in the United States
market. The Company's main focus is in the areas of infrastructure improvements
and expansions, environmental management and power development and conservation.
RESULTS OF OPERATIONS
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, which is gross revenue less subcontractor costs and direct
charges, as its primary measure of revenue growth.
The following table presents the percentage relationships of items in the
consolidated statements of operations to net service revenue:
Years ended June 30, 2001 2000 1999
--------------------------------------------------------------------------------------------
NET SERVICE REVENUE 100.0% 100.0% 100.0%
------ ------ ------
OPERATING COSTS AND EXPENSES:
Cost of services 81.0 83.3 83.9
General and administrative expenses 3.2 3.5 4.3
Depreciation and amortization 3.0 3.4 4.3
------ ------ ------
INCOME FROM OPERATIONS 12.8 9.8 7.5
Interest expense 1.2 1.2 .8
------ ------ ------
INCOME BEFORE TAXES 11.6 8.6 6.7
Federal and state income tax provision 4.4 3.1 2.4
------ ------ ------
NET INCOME 7.2% 5.5% 4.3%
====== ====== ======
2001 COMPARED TO 2000
The revenue growth trend established in fiscal 1998 continued for the fourth
consecutive year. Gross revenue increased $64.3 million, or 55%, to an all time
high of $181.5 million in fiscal 2001, from $117.1 million in fiscal 2000. Net
service revenue increased $39.4 million, or 47%, to an all time high of $124.2
million in fiscal 2001, from $84.8 million in fiscal 2000. These increases were
due to a combination of internal growth arising out of increased revenue from
the Company's services including, as expected, revenue from the Exit Strategy(R)
and power markets, and the additional revenue from acquisitions made in fiscal
2001 and 2000.
18
As a percentage of net service revenue, cost of services decreased to 81% in
fiscal 2001, from 83.3% in fiscal 2000. This decrease contributed directly to an
increase in income from operations as a percentage of net service revenue
(operating margin), which increased from 9.8% last year to 12.8%. The increase
in cost of services of approximately 42% in fiscal 2001 was primarily due to
additional operating costs incurred to support the increase in net service
revenue and additional operating costs associated with the businesses acquired
in fiscal 2001 and 2000.
As a percentage of net service revenue, general and administrative expenses
decreased from 3.5% in fiscal 2000, to 3.2% in fiscal 2001. This is a result of
controlling overhead at a growth rate below that of revenue, and also
contributes directly to an increase in income from operations as a percentage of
net service revenue. The increase in general and administrative expenses of
approximately 31% in fiscal 2001 was primarily from additional costs necessary
to support the Company's internal and acquisition growth.
The decrease in depreciation and amortization expense as a percentage of net
service revenue in fiscal 2001, as compared to fiscal 2000 also contributed to a
higher operating margin. The increase in depreciation and amortization expense
of approximately 29% in fiscal 2001, as compared to fiscal 2000 was primarily
due to the additional goodwill amortization associated with businesses acquired
in fiscal 2000 and the related additional purchase price payments comprised of
cash and stock recorded in fiscal 2001 associated with those acquisitions, and
to a lesser extent, the additional depreciation expense on equipment acquired
through acquisitions.
Income from operations increased approximately 92% to $15.9 million in fiscal
2001, from $8.3 million in fiscal 2000. The continued improvement in operating
performance was primarily due to the Company's focus toward higher margin,
economically driven markets such as the Exit Strategy(R) and power sectors; and
the growth in revenue, without comparable increases in operating overhead.
Interest expense increased approximately 51% in fiscal 2001, as compared to
fiscal 2000. This increase was primarily due to higher levels of average debt
outstanding during the year to finance acquisitions completed in fiscal 2001 and
2000. The Company's percentage of debt to capitalization ratio continues to
remain low, reflecting management's conservative philosophy.
The provision for federal and state income taxes reflects an effective rate of
37.6% in fiscal 2001, compared to 36% in fiscal 2000. This increase was
primarily due to nondeductible goodwill amortization resulting from the
acquisitions completed in fiscal 2001 and 2000. The Company believes that there
will be sufficient taxable income in future periods to enable utilization of
available deferred income tax benefits.
2000 COMPARED TO 1999
The revenue growth trend established in fiscal 1998 continued. Gross revenue
increased $38.9 million, or 50%, to an all time high of $117.1 million in fiscal
2000, from $78.2 million in fiscal 1999. Net service revenue increased $27.5
million, or 48%, to an all time high of $84.8 million in fiscal 2000, from $57.3
million in fiscal 1999. These increases were due to a combination of internal
growth arising out of increased demand for the Company's services including, as
expected, revenue from the Exit Strategy program, and the additional revenue
from the acquisitions completed in fiscal 2000 and 1999.
19
Cost of services increased by 47% in fiscal 2000, as compared to fiscal 1999. As
a percentage of net service revenue, cost of services decreased to approximately
83%, from 84% in fiscal 1999. The increase in cost of services was primarily
attributable to the increase in revenue, higher costs for professional
compensation, the additional costs associated with acquired businesses, and
increased allowances for doubtful accounts as a result of the significant
increase in revenue year over year.
General and administrative expenses increased by 21.5% in fiscal 2000, as
compared to fiscal 1999. This increase was primarily due to additional costs to
support the Company's growth. However, as a percentage of net service revenue,
these costs decreased to approximately 3.5%, from 4.3% in fiscal 1999.
Depreciation and amortization expense increased by 18% in fiscal 2000, as
compared to fiscal 1999. This increase was primarily attributable to the
additional amortization expense of costs in excess of the net assets of acquired
businesses in fiscal 2000 and 1999 and to a lesser extent the additional
depreciation expense on equipment acquired through acquisitions.
Income from operations increased by approximately $4.0 million, or 91%, to $8.3
million in fiscal 2000, from $4.3 million in fiscal 1999. As a percentage of net
service revenue, operating income increased to approximately 10%, up from 7.5%
in fiscal 1999. The continued improvement in operating performance was primarily
attributable to the Company's focus toward higher margin, economically driven
markets largely related to the Exit Strategy (R) program; and the growth in
revenue without comparable increases in operating overhead.
Interest expense increased by approximately 102% during fiscal 2000, as compared
to fiscal 1999. This increase was primarily attributable to higher levels of
debt outstanding at higher interest rates to finance acquisitions completed
during the year and capital expenditures to support the Company's growth.
The provision for federal and state income taxes reflects an effective income
tax rate of 36% in both fiscal 2000 and fiscal 1999. The Company believes that
there will be sufficient taxable income in future periods to enable utilization
of the deferred income tax benefits.
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 relies on cash provided by operations and borrowings based upon the
strength of its balance sheet to fund operations. The Company's liquidity is
assessed in terms of its overall ability to generate cash to fund its operating
and investing activities and to reduce debt. Of particular importance in the
management of liquidity are cash flows generated from operating activities,
capital expenditure levels and an adequate bank line of credit.
20
Operating activities are the principal source of cash flow for the Company,
generating approximately $19.8 million of cash flow during fiscal 2001, as
compared to using $1.4 million of cash flow last year. The increase in operating
cash flow was primarily driven by improved operating performance, the increase
in billings in advance of revenue earned and continued aggressive working
capital management, including a substantial reduction in accounts receivable in
relationship to the Company's revenue growth. The Company's operating cash flow
was also positively impacted by the income tax benefit resulting from the
exercise of employee stock options and warrants.
Investing activities used cash of approximately $14.8 million in fiscal 2001.
The acquisition of businesses completed in fiscal 2001 and additional purchase
price payments on acquisitions completed in fiscal 2000 required the use of
approximately $5 million. Expenditures during fiscal 2001 for additional
equipment and information technology systems to support business growth
increased to $5.4 million, from $3.3 million in fiscal 2000. The Company also
invested approximately $4.5 million during fiscal 2001 primarily in
unconsolidated affiliates that provide services in the demand side of the power
market. In fiscal 2002, the Company expects to make expenditures for equipment
to support continuing business growth of approximately $4 million and expects
expenditures for acquisitions to increase at a stronger pace than to fiscal
2001.
The Company relies on its bank financing arrangement to assist in funding
various operating and investing activities. The Company has a $25 million
revolving credit agreement, collateralized by accounts receivable, which expires
March 2003. Depending on the timing of the expenditures for investing activities
in fiscal 2002, the Company may request an increase in the amount available
pursuant to the revolving credit facility. Borrowings under the agreement bear
interest at the bank's base rate or the Eurodollar rate plus applicable margins.
At June 30, 2001, borrowings outstanding pursuant to the agreement were $14
million at an average interest rate of 5.6%. This level of borrowings is down
from $21 million a year earlier.
The Company expects to increase its available cash flow over the next fiscal
year, primarily from operations and further reductions in working capital
derived mainly from the collection of accounts receivable. The Company believes
that cash generated from operations, the cash on hand at June 30, 2001 and
available borrowings under the revolving credit agreement will be sufficient to
meet the Company's cash requirements for fiscal 2002.
MARKET RISKS
The Company's exposure to market risk for changes in interest rates relates
primarily to borrowings under the Company's revolving credit agreement with a
commercial bank. 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 agreement would not have a
material effect on the Company's operating results, financial condition or cash
flows.
NEW ACCOUNTING GUIDANCE
In June 2001, the Financial Accounting Standards Board approved Statements of
Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and
No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") which are effective
for years beginning after December 15, 2001. The Company expects to early adopt
SFAS 142 for the fiscal year beginning July 1, 2001 and will implement the
provisions of SFAS 141 for acquisitions occurring after June 30, 2001. SFAS 141
requires that the purchase method of accounting be
21
used for all business combinations. Under SFAS 142, amortization of goodwill,
including goodwill recorded in past business combinations, will discontinue upon
adoption of this standard and goodwill and intangible assets will be tested for
impairment in accordance with the provisions of the Statement. The Company is
currently reviewing the provisions of SFAS 141 and SFAS 142 and assessing their
impact.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that describe the Company's
business prospects. These statements involve risks and uncertainties including,
but not limited to, regulatory uncertainty, government funding, level of demand
for the Company's services, industry-wide competitive factors and political,
economic or other conditions. Furthermore, market trends are subject to changes
that could adversely affect future results.
22
CONSOLIDATED STATEMENTS OF OPERATIONS
TRC COMPANIES, INC. AND SUBSIDIARIES
IN THOUSANDS, EXCEPT PER SHARE DATA
YEARS ENDED JUNE 30, 2001 2000 1999
--------------------------------------------------------------------------------------------------
GROSS REVENUE $181,473 $117,131 $78,223
Less subcontractor costs and direct charges 57,271 32,323 20,890
-------- -------- -------
NET SERVICE REVENUE 124,202 84,808 57,333
-------- -------- -------
OPERATING COSTS AND EXPENSES:
Cost of services 100,587 70,619 48,073
General and administrative expenses 3,909 2,991 2,462
Depreciation and amortization 3,771 2,917 2,468
-------- -------- -------
108,267 76,527 53,003
-------- -------- -------
INCOME FROM OPERATIONS 15,935 8,281 4,330
Interest expense 1,541 1,024 507
-------- -------- -------
INCOME BEFORE TAXES 14,394 7,257 3,823
Federal and state income tax provision 5,409 2,613 1,376
-------- -------- -------
NET INCOME $ 8,985 $ 4,644 $ 2,447
======== ======== =======
EARNINGS PER SHARE:
Basic $ 1.24 $ 0.68 $ 0.36
Diluted 1.13 0.65 0.36
======== ======== =======
AVERAGE SHARES OUTSTANDING:
Basic 7,236 6,845 6,782
Diluted 7,956 7,190 6,839
======== ======== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
CONSOLIDATED BALANCE SHEETS
TRC COMPANIES, INC. AND SUBSIDIARIES
IN THOUSANDS, EXCEPT PER SHARE DATA
AS OF JUNE 30, 2001 2000
-------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 851 $ 1,566
Accounts receivable, less allowance for doubtful accounts 61,090 48,855
Insurance recoverable - environmental remediation 4,055 --
Deferred income tax benefits 1,882 1,208
Prepaid expenses and other current assets 1,353 1,053
-------- -------
69,231 52,682
-------- -------
PROPERTY AND EQUIPMENT:
Furniture and equipment 26,041 21,833
Leasehold improvements 2,872 1,784
-------- -------
28,913 23,617
Less accumulated depreciation and amortization 19,075 17,361
-------- -------
9,838 6,256
-------- -------
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $8,031 AND
$6,512, RESPECTIVELY 38,943 33,512
-------- -------
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 5,134 1,046
-------- -------
LONG-TERM ACCOUNTS RECEIVABLE 2,046 140
-------- -------
LONG-TERM INSURANCE RECOVERABLE - ENVIRONMENTAL REMEDIATION 2,011 --
-------- -------
OTHER ASSETS 469 572
-------- -------
$127,672 $94,208
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt $ 368 $ 100
Accounts payable 7,821 6,216
Accrued compensation and benefits 7,734 4,308
Income taxes payable 3,647 1,782
Billings in excess of revenue earned 10,752 3,160
Environmental remediation liability 5,635 --
Other accrued liabilities 1,266 988
-------- -------
37,223 16,554
-------- -------
NON-CURRENT LIABILITIES:
Long-term debt 14,637 21,200
Deferred income taxes 3,826 2,006
Long-term environmental remediation liabilty 2,011 --
-------- -------
20,474 23,206
-------- -------
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 9)
SHAREHOLDERS' EQUITY:
Capital stock:
Preferred, $.10 par value; 500,000 shares authorized, none issued -- --
Common, $.10 par value; 30,000,000 shares authorized,
8,081,978 and 7,674,329 shares issued at June 30, 2001 and
2000, respectively 808 767
Additional paid-in capital 48,012 41,511
Retained earnings 24,052 15,067
-------- -------
72,872 57,345
Less treasury stock, at cost 2,897 2,897
-------- -------
69,975 54,448
-------- -------
$127,672 $94,208
======== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
TRC COMPANIES, INC. AND SUBSIDIARIES
IN THOUSANDS
YEARS ENDED JUNE 30, 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,985 $ 4,644 $ 2,447
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,771 2,917 2,468
Change in deferred taxes and other non-cash items 898 119 (444)
Changes in assets and liabilities, net of effects from
acquisitions and disposition:
Accounts receivable (current and long-term) (9,433) (13,155) 277
Billings in advance of revenue earned 7,553 2,135 175
Inventories -- -- (292)
Insurance recoverable (current and long-term) 4,153 -- --
Prepaid expenses and other current assets (198) (92) (135)
Accounts payable 956 1,933 (845)
Accrued compensation and benefits 2,853 365 30
Environmental remediation liability
(current and long-term) (2,573) -- --
Income taxes payable 3,335 160 549
Other accrued liabilities (530) (391) (472)
-------- -------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 19,770 (1,365) 3,758
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,440) (3,323) (1,270)
Acquisition of businesses, net of cash acquired (5,038) (8,156) (4,784)
Proceeds from sale of instrumentation business -- -- 2,750
Investments in and advances to unconsolidated affiliates (4,454) (796) --
Proceeds from sale of equipment 26 252 7
Decrease in other assets, net 96 42 33
-------- -------- -------
NET CASH USED IN INVESTING ACTIVITIES (14,810) (11,981) (3,264)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (100) (3,600) (3,600)
Net borrowings (repayments) under revolving credit agreement (7,482) 17,000 3,085
Proceeds from exercise of stock options and warrants 1,907 144 10
-------- -------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,675) 13,544 (505)
-------- -------- -------
INCREASE (DECREASE) IN CASH (715) 198 (11)
Cash, beginning of year 1,566 1,368 1,379
-------- -------- -------
CASH, END OF YEAR $ 851 $ 1,566 $ 1,368
======== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,582 $ 1,238 $ 435
Income taxes (net of refunds) 1,690 2,156 1,018
======== ======== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
TRC COMPANIES, INC. AND SUBSIDIARIES
IN THOUSANDS, EXCEPT SHARE DATA
Common stock issued Treasury stock
----------------------- ----------------------
Additional
Number paid-in Retained Number
YEARS ENDED JUNE 30, 2001, 2000 AND 1999 of shares Amount capital earnings of shares Amount
-----------------------------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1998 7,410,855 $741 $38,635 $ 7,976 628,653 $(2,897)
Issuance of common stock in connection
with business acquired 14,741 2 74 -- -- --
Exercise of stock options (including tax benefits) 2,250 -- 10 -- -- --
Net income -- -- -- 2,447 -- --
--------- ---- ------- ------- ------- -------
BALANCES, JUNE 30, 1999 7,427,846 743 38,719 10,423 628,653 (2,897)
Issuance of common stock and warrants in connection
with businesses acquired 222,000 22 2,611 -- -- --
Exercise of stock options and warrants (including
tax benefits) 24,483 2 181 -- -- --
Net income -- -- -- 4,644 -- --
--------- ---- ------- ------- ------- -------
BALANCES, JUNE 30, 2000 7,674,329 767 41,511 15,067 628,653 (2,897)
Issuance of common stock and warrants in connection
with businesses acquired 95,912 9 2,277 -- -- --
Exercise of stock options and warrants (including
tax benefits) 311,737 32 4,224 -- -- --
Net income -- -- -- 8,985 -- --
--------- ---- ------- ------- ------- -------
BALANCES, JUNE 30, 2001 8,081,978 $808 $48,012 $24,052 628,653 $(2,897)
========= ==== ======= ======= ======= =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TRC COMPANIES, INC. AND SUBSIDIARIES
IN THOUSANDS, EXCEPT SHARE DATA
Note 1. ACCOUNTING POLICIES
A. The consolidated financial statements include the Company and its
wholly-owned subsidiaries, after elimination of intercompany accounts and
transactions. Investments in affiliates in which the Company has the ability to
exercise significant influence, but not control, are accounted for by the equity
method. Certain financial statement items have been reclassified to conform to
the current year's format.
B. The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual results
could differ from those estimates.
C. Property and equipment are recorded at cost, including costs to
bring the equipment into operation. Major improvements and betterments to
existing equipment are capitalized. Maintenance and repairs are charged to
expense as incurred. The Company provides for depreciation of property and
equipment utilizing the straight-line method using estimated useful lives of 3
to 10 years. Accelerated methods are used for income tax purposes.
D. Leasehold improvements are amortized over the shorter of the lives
of the various leases or the useful lives of the improvements.
E. Goodwill resulting from acquired businesses is amortized on a
straight-line basis over periods ranging from 20 to 30 years. When events and
circumstances indicate, the Company reassesses the appropriateness of both the
carrying value and remaining life of these costs. Such reassessments are
computed using forecasted cash flows on an undiscounted basis and other factors.
F. The Company records revenue on its cost type and time and material
contracts based upon direct labor costs and other direct contract costs
incurred. Revenue from fixed fee contracts is recorded using the
percentage-of-completion method of accounting. Revenue is recognized primarily
based on the ratio of labor costs incurred to total estimated labor costs. Third
party direct costs are included in revenue and contract costs in the period
incurred. Contract costs include direct labor costs, subcontractor costs and
other direct costs. Indirect costs are expensed as incurred. Exit Strategy(R)
contracts are generally segmented into two profit centers: (1) remediation and
(2) operation, maintenance and monitoring (OM&M). Costs and revenue on long-term
contracts are subject to revision throughout the lives of the contracts and any
required adjustments are made in
27
the period in which the revisions become known. Losses on contracts are recorded
in the period in which they are identified.
On contracts where billings are in advance of revenue earned, the
excess is presented on the balance sheet as a current liability.
G. Effective June 1, 1996, the Company adopted the disclosure
provisions of Statement of Financial Accounting Standards No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION ("SFAS 123"). In accordance with the provisions of
SFAS 123, the Company applies the provisions of Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and related
interpretations in accounting for stock options.
H. In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVES
AND HEDGING ACTIVITIES. The Company adopted this statement effective July 1,
2001. Since the Company does not have any derivative instruments, the adoption
of this statement did not impact the Company's consolidated operating results,
financial condition or cash flows.
I. Earnings per share is computed in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE. Basic
earnings per share is based upon the weighted average common shares outstanding
during the year. Diluted earnings per share reflects the potential dilutive
effect of outstanding stock options and warrants.
There are no adjustments to net income for purposes of computing
earnings per common share for the years ended June 30, 2001, 2000 and 1999. For
purposes of computing diluted earnings per share, the weighted average number of
shares outstanding was increased by 720,137 shares, 344,946 shares and 56,278
shares in fiscal 2001, 2000 and 1999, respectively, representing the potential
dilutive effects of outstanding stock options and warrants.
J. The Company has 401(k) savings plans covering substantially all
employees. The Company's contributions to the plans were approximately $1,203,
$816 and $578 in fiscal 2001, 2000 and 1999, respectively. The Company does not
provide post-employment or other post-retirement benefits.
K. Cash, accounts receivable, accounts payable, accrued liabilities and
the Company's subordinated note as reflected in the financial statements
approximate their fair values because of the short-term maturity of those
instruments. The carrying amount of the Company's note payable pursuant to its
revolving credit agreement at June 30, 2001, approximates fair value as the
interest rate on this instrument changes with market interest rates.
L. Financial instruments which subject the Company to credit risk
consist primarily of cash, accounts receivable and unbilled costs. The Company
performs on-going credit evaluations of its customers and maintains an allowance
for potential credit losses.
28
Note 2. BUSINESS ACTIVITIES
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's services and products are provided
to commercial organizations and government agencies primarily in the United
States market.
Note 3. ACCOUNTS RECEIVABLE
The current portion of accounts receivable at June 30, 2001 and 2000 is
comprised of the following:
2001 2000
-------------------------------------------------------------------------
Amounts billed $35,758 $27,863
Unbilled costs 27,677 23,111
Retainage 1,939 1,086
------- -------
65,374 52,060
Less allowance for doubtful accounts 4,284 3,205
------- -------
$61,090 $48,855
======= =======
Unbilled costs represent billable amounts recognized as revenue
primarily in the last month of the fiscal year. Management expects that
substantially all unbilled costs will be billed and collected in the subsequent
year. Retainage represents amounts billed but not paid by the customer which,
pursuant to the contract, are due at completion.
The long-term portion of accounts receivable at June 30, 2001 and 2000
of $2,046 and $140, respectively, relates to unbilled costs on Exit Strategy
contracts and represent amounts, which are not collectible within one year.
Net service revenue from contracts with U.S. Government agencies
amounted to approximately $8,758, $7,728 and $9,407 in fiscal 2001, 2000 and
1999, respectively.
Note 4. ACQUISITIONS AND DIVESTITURE
In December 2000, the Company acquired 100% of the outstanding stock of
Omni Environmental Corporation, a water quality and water resources consultant
headquartered in Princeton, New Jersey. The purchase price of $1,287 consisted
of cash of $54 (net of cash acquired), 36,000 shares of the Company's common
stock and a $400 three-year promissory note. The Company may make additional
payments if certain financial objectives are achieved in each of the years in
the three-year period ending October 31, 2003. The acquisition has been
accounted for using the purchase method of accounting.
In January 2001, the Company acquired 100% of the outstanding stock of
Imbsen & Associates, Inc., a transportation and bridge design firm headquartered
in Sacramento, California. The purchase price of $1,375 consisted of cash of
$568 (net of cash acquired), 14,032 shares of the Company's common stock and a
$405 three-year
29
promissory note. The Company may make additional payments if certain financial
objectives are achieved in each of the years in the three-year period ending
December 31, 2003. The acquisition has been accounted for using the purchase
method of accounting.
In June 2001, the Company acquired 100% of the outstanding stock of
Engineered Automation Systems, Inc., an energy and infrastructure firm
headquartered in Tustin, California. The purchase price of $2,303 consisted of
cash of $1,493 (net of cash acquired) and 12,024 shares of the Company's common
stock. The Company may make additional payments if certain financial objectives
are achieved in each of the years in the four-year period ending June 30, 2005.
The acquisition has been accounted for using the purchase method of accounting.
As a result of acquisitions completed in fiscal 2001, goodwill of
$2,821 (before contingent consideration) was recorded, which is being amortized
over 20 years on a straight-line basis.
In January 2000, the Company acquired 100% of the outstanding stock and
partnership interest of Hunter Associates, a civil engineering firm
headquartered in Dallas, Texas. The initial purchase price of $3,107 consisted
of cash of $2,775 (net of cash acquired), 25,000 shares of the Company's common
stock and a five-year warrant to purchase 20,000 shares of the Company's common
stock at $7.81 per share. Additionally, in accordance with the terms of the
agreement, the Company made an additional purchase price payment of
approximately $977 in fiscal 2001 consisting of $492 in cash and 25,000 shares
of the Company's common stock. The Company may make additional payments if
certain financial objectives are achieved in each of the years in the two-year
period ending December 31, 2002. The acquisition has been accounted for using
the purchase method of accounting.
In April 2000, the Company acquired substantially all of the business
assets and assumed certain liabilities and obligations of Triangle
Environmental, Inc., a civil engineering and environmental services firm
headquartered in Raleigh, North Carolina. The initial purchase price of $1,141
consisted of $500 in cash, 32,000 shares of the Company's common stock and a
five-year warrant to purchase 50,000 shares of the Company's common stock at
$11.25 per share. Additionally, in accordance with the terms of the agreement,
an additional purchase price payment of approximately $249 was recorded in
fiscal 2001. The Company may make additional payments if certain financial
objectives are achieved in each of the years in the three-year period ending
June 30, 2004. The acquisition has been accounted for using the purchase method
of accounting.
In May 2000, the Company acquired 100% of the outstanding stock of
Lowney Associates, a geotechnical and environmental services firm headquartered
in Mountain View, California. The initial purchase price of $5,566 consisted of
cash of $3,478 (net of cash acquired) and 165,000 shares of the Company's common
stock. Additionally, in accordance with the terms of the agreement, the Company
made an additional purchase price payment of approximately $1,931 in fiscal
2001. The Company may make additional payments if certain financial objectives
are achieved in each of the years in the two-year period ending March 31, 2003.
The acquisition has been accounted for using the purchase method of accounting.
30
As a result of the acquisitions completed in fiscal 2000, goodwill of
$6,743 (before contingent consideration) was recorded, which is being amortized
over 20 years on a straight-line basis. Additional purchase price payments are
recorded as goodwill.
In March 1999, the Company acquired 100% of the outstanding stock of
Alton Geoscience, Inc. (Alton), headquartered in Irvine, California. Alton's
primary business activities include site investigations, remediation and
monitoring services for major oil and pipeline companies. The initial purchase
price included cash of $1,562 (net of cash acquired) and a $500 holdback which
was paid in March 2000. Additionally, in accordance with the terms of the
agreement, the Company made an additional purchase price payment of
approximately $860 in fiscal 2000. The acquisition has been accounted for using
the purchase method of accounting.
In April 1999, the Company acquired 100% of the outstanding stock of
Vectre Corporation, an environmental engineering and consulting firm located in
Lafayette, New Jersey. The initial purchase price consisted of cash of $1,489
(net of cash acquired). In accordance with the terms of the agreement, the
Company may make additional purchase price payments if certain financial
objectives are achieved in each of the years in the two-year period ending June
30, 2003. No payment was made for the year ended June 30, 2001. The Company made
an additional purchase price payment of $45 in fiscal 2000. The acquisition has
been accounted for using the purchase method of accounting.
In May 1999, A & H Engineers, P.C., a transportation consulting and
engineering firm located in New York City, merged into a subsidiary of the
Company. The initial purchase price consisted of $1,733 (net of cash acquired).
In accordance with the terms of the agreement, the Company made an additional
purchase price payment of approximately $500 in fiscal 2001. The Company
recorded an adjustment to purchase price allocation in fiscal 2000 of $725
related to the final valuation of assets acquired. The acquisition has been
accounted for using the purchase method of accounting.
As a result of acquisitions completed in fiscal 1999, goodwill of
$2,528 (before contingent consideration) was recorded, which is being amortized
over 30 years on a straight-line basis. Additional purchase price payments are
recorded as goodwill.
In July 1998, the Company sold its instrumentation business for $2,750
in cash resulting in a gain that was not material.
Note 5. DEBT
Debt at June 30, 2001 and 2000 is comprised of the following:
2001 2000
-----------------------------------------------------------------------------
Note payable - revolving credit agreement $14,000 $21,000
6 3/4% - 7 3/4% subordinated notes 1,005 300
------- -------
15,005 21,300
Less current portion 368 100
------- -------
Long-term debt $14,637 $21,200
======= =======
31
The Company has a $25,000 revolving credit agreement with a bank to
support its working capital and acquisition needs. Borrowings under the
agreement are collateralized by accounts receivable and are due and payable in
March 2003 when the credit agreement expires. Borrowings under the agreement
bear interest at the bank's base rate or the Eurodollar rate plus applicable
margins. The weighted average interest rate on outstanding borrowings at June
30, 2001 was 5.6%. The Company also pays a commitment fee of 1/4% on the unused
portion of the agreement. During the year ended June 30, 2001, the Company did
not meet certain financial and non-financial covenants contained in the
agreement, which were subsequently waived by the bank.
Maturities of the subordinated notes during each of the fiscal years
ending June 30, 2002 through June 30, 2004 are $368, $368 and $269,
respectively.
Note 6. FEDERAL AND STATE INCOME TAXES
The federal and state income tax provision for fiscal 2001, 2000 and
1999 consists of the following:
YEARS ENDED JUNE 30, 2001 2000 1999
-----------------------------------------------------------------------------------
Current:
Federal $4,484 $2,359 $1,427
State 609 226 103
Deferred:
Federal 302 24 (45)
State 14 4 (109)
------ ------ ------
$5,409 $2,613 $1,376
====== ====== ======
Deferred income taxes represent the tax effect of transactions that are
reported in different periods for financial and tax reporting purposes.
Temporary differences and carryforwards that give rise to a significant portion
of deferred income tax benefits (liabilities) are as follows:
AS OF JUNE 30, 2001 2000
----------------------------------------------------------------------------------
Current deferred income tax benefits:
Doubtful accounts and other accruals $ 1,426 $ 920
Vacation pay accrual 450 307
Other, net 6 (19)
------- -------
$ 1,882 $ 1,208
------- -------
Long-term deferred income tax liabilities:
Depreciation and amortization $(2,693) $(1,880)
Cash to accrual from acquisitions (1,717) (742)
Loss carryforwards from acquisitions 509 459
Other, net 75 157
------- -------
$(3,826) $(2,006)
======= =======
32
A reconciliation of the U. S. federal statutory income tax rate and the
Company's consolidated effective income tax rate follows:
YEARS ENDED JUNE 30, 2001 2000 1999
-------------------------------------------------------------------
U.S. federal statutory income tax rate 34.0% 34.0% 34.0%
State income taxes (net of federal benefit) 2.9 2.1 1.8
Adjustment of deferred income taxes due to
state income tax rate changes - - (2.8)
Other, net 0.7 (0.1) 3.0
---- ---- ----
Effective income tax rate 37.6% 36.0% 36.0%
==== ==== ====
At June 30, 2001, the Company had approximately $1,497 of operating
loss carryforwards available to reduce future federal taxable income. These loss
carryforwards relate to certain acquisitions and expire in years 2008 through
2020. Although utilization of these carryforwards is subject to certain
limitations, the Company believes that all of the carryforwards will be utilized
prior to their expiration. In fiscal 2000, the Company received a tax benefit of
$226 as a result of the utilization of previously limited acquired operating
loss carryforwards. The benefit was recorded as a reduction to goodwill.
Note 7. LEASE COMMITMENTS
The Company has commitments at June 30, 2001 under noncancelable
operating leases for office facilities and equipment. Rental payments, net of
sublease receipts, charged to operations in fiscal 2001, 2000 and 1999 were
approximately $5,900, $4,887 and $4,189, respectively. Certain leases for office
facilities require payments for expenses under escalation clauses.
Minimum future operating lease obligations payable in future fiscal
years are as follows:
YEARS ENDING JUNE 30,
----------------------------------------------------
2002 $ 5,761
2003 5,268
2004 4,628
2005 3,102
2006 2,680
2007 and thereafter 5,772
--------
$ 27,211
========
Note 8. STOCK OPTIONS
The Company's non-qualified stock option plan for employees and
directors, as amended, authorizes the granting of options, including
performance-based options, with exercise prices at no less than the fair market
value of the common stock on the date such options are granted. The option term
is fixed by the Board of Directors at the time of grant, but cannot exceed ten
years and generally begins within a specified period after the
33
date of grant. No accounting recognition is given to stock options until they
are exercised, at which time the proceeds are credited to the capital accounts.
The Company receives a tax benefit upon exercise of these options in an amount
equal to the difference between the option price and the fair market value of
the common stock at that date. Tax benefits related to the exercise of stock
options are credited to additional paid-in capital when realized for financial
reporting purposes.
A summary of stock option activity for the three years ended June 30,
2001 follows:
2001 2000 1999
------------------------------------------------------------------------------
Average Average Average
Options Price Options Price Options Price
--------------------------------------------------------------------------------------------------------------------------
Outstanding options, beginning of year 1,334,988 $ 6.03 886,230 $ 4.71 688,677 $ 5.04
Granted 364,650 16.12 484,684 8.45 254,000 4.29
Exercised (296,637) 6.11 (22,283) 5.83 (2,250) 4.33
Canceled (40,910) 9.38 (13,643) 6.36 (54,197) 6.99
------------------------------------------------------------------------------
Outstanding options, end of year 1,362,091 $ 8.61 1,334,988 $ 6.03 886,230 $ 4.71
==============================================================================
Options exercisable at end of year 1,028,917 $ 6.97 887,874 $ 5.02 457,333 $ 4.99
==============================================================================
Options available for future grants 604,908 178,648 649,689
================ ================= ============
The following table summarizes information about outstanding stock
options at June 30, 2001:
Options Outstanding Options Exercisable
------------------------------------------ ------------------------------
Average
Average Term Average
Exercise price Shares Price (Years) Shares Price
----------------------------------------------------------------------------------------------------------------
$3.50 - $4.25 195,892 $ 4.11 6.1 195,892 $ 4.11
$4.50 - $6.00 408,792 4.53 6.9 408,792 4.53
$6.25 - $9.56 233,140 6.62 8.1 168,010 6.71
$10.13 - $11.56 200,133 10.69 8.9 148,911 10.81
$13.19 - $46.10 324,134 16.64 9.3 107,312 16.61
------------------------- ------------------------------
1,362,091 $ 8.61 1,028,917 $ 6.97
========================= ==============================
Grants in fiscal 2000 include 141,334 options granted to certain senior
managers in exchange for a reduction in cash compensation to the grantees over a
one-year period, with the individual's receiving one option for every $3.75 of
salary reduction.
Since the Company applies the provisions of APB 25 and related
interpretations in accounting for stock options and warrants, no compensation
cost has been recognized in the Company's consolidated statements of operations
for the stock option and warrant plans. Had compensation cost for the stock
option and warrant plans been determined based on the fair value at the grant
date for awards under those plans, consistent with the requirements of Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's pro forma net income and earnings per share for the
years ended June 30, 2001, 2000 and 1999 would have been as follows:
34
YEARS ENDED JUNE 30, 2001 2000 1999
----------------------------------------------------------------------------------------------------------
Net income, as reported $ 8,985 $ 4,644 $ 2,447
Net income, pro forma 7,363 3,507 1,647
Earnings per share, as reported:
Basic $ 1.24 $ 0.68 $ 0.36
Diluted 1.13 0.65 0.36
Earnings per share, pro forma:
Basic $ 1.02 $ 0.51 $ 0.24
Diluted 0.93 0.49 0.24
In arriving at the pro forma amounts, the fair value of each option and
warrant grant was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
YEARS ENDED JUNE 30, 2001 2000 1999
---------------------------------------------------------------------------------------------------------
Risk-free interest rate 5.8% 6.4% 4.7%
Expected life 5 years 7.5 years 7.5 years
Expected volatility 45% 47% 49%
Expected dividend yield None None None
The weighted average fair value of options and warrants granted during
fiscal 2001, 2000 and 1999 was $7.61, $5.06 and $2.50, respectively.
Note 9. CONTINGENCIES
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 preexisting 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. The
Company receives the fixed fee contract price upon signing of the contract 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 the Company's
consolidated operating results, financial condition or cash flows.
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
35
received and is fully insured by an environmental remediation cost cap
policy. The Company recorded as a non-cash transaction the environmental
remediation liability it had assumed and a corresponding insurance
recoverable.
The Company's contracts with the U.S. Government are subject to
examination and renegotiation. Contracts and other records of the Company have
been examined through June 30, 1996. The Company believes that adjustments
resulting from such examination or renegotiation proceedings, if any, will not
have a material impact on the Company's operating results, financial condition
or cash flows.
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of TRC Companies, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity, and
of cash flows present fairly, in all material respects, the financial position
of TRC Companies, Inc. and its subsidiaries at June 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
October 9, 2001
37
DIRECTORS AND OFFICERS
DIRECTORS
Richard D. Ellison
Chairman, President and Chief Executive Officer
TRC Companies, Inc.
Edward W. Large *
Formerly Executive Vice President and Director of
United Technologies Corporation
J. Jeffrey McNealey *
Partner in the law firm of
Porter, Wright, Morris & Arthur
Edward G. Jepsen *
Executive Vice President and
Chief Financial Officer of
Amphenol Corporation
* Audit Committee Member
OFFICERS
Richard D. Ellison
Chairman, President and Chief Executive Officer
Harold C. Elston, Jr.
Senior Vice President and Chief Financial Officer
John H. Claussen
Senior Vice President
Miro Knezevic
Senior Vice President
Michael C. Salmon
Senior Vice President
Catharine M. deLacy
Senior Vice President
Martin H. Dodd
Vice President and General Counsel
Ronald D. Reed
Vice President
38
CORPORATE INFORMATION
EXECUTIVE OFFICES
TRC Companies, Inc.
5 Waterside Crossing
Windsor, CT 06095
(860) 298-9692
Fax: (860) 298-6291
www.trcsolutions.com
--------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 Pearl Street
Hartford, CT 06103
ANNUAL MEETING
The 2001 annual meeting of shareholders will be held on Wednesday,
November 14, 2001, at 10:00 a.m., at the Company's executive offices.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission, Washington, D.C., is available without
charge by writing to:
TRC Companies, Inc.
5 Waterside Crossing
Windsor, CT 06095
Attn: Investor Relations
STOCK EXCHANGE, DIVIDEND AND MARKET INFORMATION
The Company's common stock is traded on the New York Stock Exchange
under the symbol "TRR".
To date the Company has not paid any cash dividends. The payment of
dividends in the future will be subject to the financial condition, capital
requirements and earnings of the Company. However, future earnings are expected
to be used for expansion of the Company's operations, and cash dividends are not
likely for the foreseeable future.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10005
Shareholders may call the agent's Shareholder Services Department directly
concerning stock certificates and address changes at (800) 937-5449.
39
EX-21
4
a2060814zex-21.txt
EXHIBIT 21
Exhibit 21
SUBSIDIARIES OF TRC COMPANIES, INC.
Listed below are the subsidiaries which are included in the consolidated
financial statements of TRC Companies, Inc. Inactive and minor subsidiaries are
excluded.
Percent of
Voting Stock
Name of Subsidiary and Jurisdiction in which Incorporated or Organized Owned by Registrant
---------------------------------------------------------------------- -------------------
TRC Alton Geoscience, Inc. (incorporated in California) 100%
TRC Environmental Corporation (incorporated in Connecticut) 100%
TRC Environmental Solutions, Inc. (incorporated in California) 100%
TRC Mariah Associates, Inc. (incorporated in Wyoming) 100%
TRC Engineers, Inc. (incorporated in New Jersey) 100%
TRC Garrow Associates, Inc. (incorporated in Georgia) 100%
TRC Vectre Corporation (incorporated in New Jersey) 100%
Hunter Associates, Inc. (incorporated in Nevada) 100%
Lowney Associates (incorporated in California) 100%
Omni Environmental Corporation (incorporated in New Jersey) 100%
Imbsen & Associates, Inc. (incorporated in California) 100%
Engineering Automation Systems, Inc. (incorporated in California) 100%
Metuchen Realty Acquisition, LLC (formed in New Jersey) 50%
Co-Energy Group, LLC (formed in Nevada) 50%
eNERGYSOLVE, LLC (formed in New Jersey) 60%
EX-23
5
a2060814zex-23.txt
EXHIBIT 23
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 33-84660) and in the Registration Statements on Form
S-8 (Nos. 2-66247, 2-77690, 33-18771, 33-26748, 33-38810, 33-45169, 33-70662,
33-87446, 33-87448, 33-97332 and 333-57463) of TRC Companies, Inc. of our report
dated October 9, 2001 relating to the financial statements, which appears in the
Annual Report to Shareholders, which is incorporated by reference in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report, dated October 9, 2001 relating to the financial statement schedule,
which appears in this Form 10-K.
/s/PricewaterhouseCoopers LLP
Hartford, Connecticut
October 9, 2001