-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D9oOl094DHLzxT8u7Hel3h+NkG4f7ZgTWShPueBnKHYahe9wUD5BXcleNiUTDorc IwJhvWac8xQVy2h678Fzdw== 0000950109-96-006237.txt : 19960927 0000950109-96-006237.hdr.sgml : 19960927 ACCESSION NUMBER: 0000950109-96-006237 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960926 SROS: NYSE 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09947 FILM NUMBER: 96634822 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-K405 1 FORM 10-K =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 1996 Commission file number 1-5170 TRC COMPANIES, INC. (Exact name of registrant as specified in its charter) Delaware 06-0853807 - ----------------------------------- ------------------------------- (State or other jurisdiction of incorporation (I.R.S. Employer Identification or organization) No.) 5 Waterside Crossing Windsor, Connecticut 06095 - -------------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (860) 289-8631 -------------- 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 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 registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months and has been subject to such filing requirements for the past ninety (90) days. The aggregate market value of the registrant's voting stock held by non- affiliates on September 6, 1996, was approximately $23,138,000. On September 6, 1996, there were 6,860,702 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 1996 Annual Report to Shareholders (Part II); and (2) registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held October 25, 1996 (Part III). ================================================================================ 1 PART I Item 1. BUSINESS TRC Companies, Inc. (the Company) together with its wholly-owned subsidiaries, provides a full range of environmental engineering and consulting services and specialized pollution control measurement instrumentation to industry and government. Significant recent events in the development of the Company's business include: (i) the acquisition in March 1994 of the business assets, liabilities and obligations of Environmental Solutions, Inc. of Irvine, California, a firm providing a broad range of solid and hazardous waste engineering and consulting services, specializing in remedial design and construction management; and (ii) the acquisition in May 1994 of the capital stock of Mariah Associates, Inc. (Mariah) of Laramie, Wyoming, a full-service environmental consulting firm serving primarily the western United States with a focus on cultural resource consulting and environmental impact statements. The acquisition of Environmental Solutions, Inc. was treated as a purchase for accounting purposes and Mariah was accounted for as a pooling-of-interests. Accordingly, the Company's consolidated financial statements have been restated to include the financial results of Mariah. Environmental Engineering and Consulting Services Environmental engineering and consulting services are provided by the Company's wholly-owned subsidiaries, TRC Environmental Corporation, TRC Environmental Solutions, Inc., TRC Mariah Associates, Inc. and TRC Process Engineering Inc., through a network of offices across the United States. TRC Environmental Corporation is an international environmental services company with expertise in all areas of air quality and hazardous waste management, regulatory compliance and permitting, environmental consulting and pollution control engineering. The company's air quality services incorporate all technical aspects of facility permitting, control engineering, regulatory compliance and air quality analyses and measurement. Hazardous waste management services include all aspects of site evaluation, permitting, and soil and groundwater remediation engineering. The company also provides risk management services that assess toxicological, exposure and clinical data to protect human health and determine risk-based controls. Additionally, the company's industrial hygienists and asbestos engineers address indoor environment problems and assist in managing workplace risks. The company also develops, organizes and assesses major databases used by government agencies and industry to make strategic decisions. A subsidiary of the company provides weather modification services to water districts, municipalities, irrigation companies and other organizations that utilize water. TRC Environmental Solutions, Inc. provides a broad range of solid and hazardous waste engineering and management services, specializing in all aspects of planning, design, permitting and construction for all classes of landfills and solid waste disposal facilities, including RI/FS investigations, risk assessments, remedial designs and construction management of on-site remediation facilities. TRC Mariah Associates, Inc. is a full-service environmental services company with a unique focus on cultural and natural resource management, permitting and environmental impact statements. TRC Process Engineering Inc. is a multi-disciplinary engineering firm assisting industrial, utility and public sector clients to maximize the performance and minimize the cost of manufacturing, energy generation and waste treatment processes through pollution prevention and engineered solutions. A division of the company also provides site/civil and transportation/traffic engineering services that include the analyses of traffic conditions and development of highway improvements. 2 Specialized Air Pollution Measurement Instruments The Company's wholly-owned subsidiary, MIE, Inc. (MIE), develops, manufactures and markets a line of specialized pollution control measurement instruments that provide real-time measurement of airborne dust, smoke, fumes and asbestos fibers. These instruments have diverse applications including worker's health protection, asbestos remediation monitoring, energy conservation and hazardous waste site dust monitoring. Clients The Company's clients include companies in the chemical, automotive, petroleum, construction, transportation, mining, waste management and other industries, financial institutions, public utilities, and state and federal government agencies. Over 80% of the Company's annual revenue in fiscal 1996 was derived from repeat business with existing clients. For fiscal 1996, 1995 and 1994, the federal government (principally the U.S. Environmental Protection Agency) accounted for 17%, 15% and 31%, respectively, of the Company's net service revenue. No other client 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 clients primarily on the basis of its reputation for quality work and the ability to respond quickly to client needs. The marketing activities for the Company's service businesses are conducted by senior professional staff members and executives who regularly meet with existing and potential clients to solicit new business. These activities are typically conducted through the Company's network of offices. In addition, corporate and subsidiary marketing departments coordinate representation at trade shows, prepare sales literature and develop and place advertising. MIE sells its instruments through its direct sales force and a network of manufacturer's representatives in the United States, Europe and Asia. Backlog At June 30, 1996, the Company's net contract backlog (excluding the estimated costs of pass-through charges) was approximately $70 million, as compared to approximately $75 million at June 30, 1995. The Company expects that approximately 70% of this backlog will be completed in fiscal 1997. In addition to this net contract backlog, the Company holds open order contracts from various clients and government agencies. As work under these contracts is authorized and funded, the Company includes this portion in its net contract backlog. There can be no assurance that any work included in backlog will not be canceled or delayed. Employees As of June 30, 1996, the Company had a total of 665 full and part-time employees. Approximately 80% of these employees are engaged primarily in performing environmental engineering and consulting, and process and civil engineering services for clients. Many of these employees have master's degrees or their equivalent and a number have Ph.D. degrees. The Company's professional staff includes registered professional engineers, civil, environmental and chemical engineers, meteorologists, geologists, hydrologists, hydrogeologists, toxicologists, chemists, industrial hygienists, archaeologists, biologists and others with degrees and experience that enable them to provide a full 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 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. MIE's products have few direct competitors; however, MIE often competes with firms which offer alternative technologies. Such competition is based on price, performance and regulatory requirements. 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. On occasion, the Company has not bid on projects in certain jurisdictions due to licensing requirements. In addition, some projects are not bid due to bonding or insurance requirements which the Company elects not to meet. While the Company has not experienced any significant limitations on its business as a result of regulatory, bonding or insurance requirements, there can be no assurance that future changes in law or changes in industry practice will not impose conditions to bidding on certain projects which the Company may not be able to satisfy. Patents, Trademarks and Licenses The Company has a number of patents, trademarks, service marks, copyrights and licenses, none of which are considered material to the Company's business as a whole. Research and Development During the past year the Company continued work both on programs relating to its hazardous and toxic waste services and on development of new products for monitoring airborne contaminants. Research and development costs are charged to operations as incurred and amounted to approximately $283,000 in fiscal 1996, as compared to approximately $204,000 in fiscal 1995 and $338,000 in fiscal 1994. Environmental and Other Considerations The Company does not believe that its own 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. The Company's business is not seasonal to any significant extent. Item 2. Properties The Company provides its services through a network of twenty offices located nationwide. The Company does not own any real estate and leases approximately 245,000 square feet of office and laboratory space to support these operations. The Company owns substantially all of the analytical, chemical monitoring, emissions testing and other specialized equipment required to render its various services. In addition, the Company leases certain computers and office equipment. The Company also leases approximately 15,000 square feet of space in Billerica, Massachusetts for MIE's manufacturing operation. 4 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. Item 4. Submission of Matters to a Vote of Security Holders None. 5 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 page 28 of the Company's 1996 Annual Report to Shareholders and such information is incorporated herein by reference. Item 6. Selected Financial Data Information on "Selected Financial Data" is contained on page 14 of the Company's 1996 Annual Report to Shareholders and such information is incorporated herein by reference. 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 15 through 17 of the Company's 1996 Annual Report to Shareholders and such information is incorporated herein by reference. 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 18 through 27 of the Company's 1996 Annual Report to Shareholders are incorporated herein by reference: Consolidated Statements of Operations, Cash Flows and Changes in Shareholders' Equity - Years ended June 30, 1996, 1995 and 1994 Consolidated Balance Sheets - June 30, 1996 and 1995 Notes to Consolidated Financial Statements Report of Independent Accountants, dated August 6, 1996 The supplementary data regarding quarterly results of operations is contained on page 14 of the Company's 1996 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 10 of the Company's Proxy Statement for its 1996 Annual Meeting of Shareholders to be held October 25, 1996, and such information is incorporated herein by reference. The following table sets forth the name, age and capacity of the executive officers of the Company and its subsidiaries:
Name Capacity Age Since ---- -------- --- ----- Vincent A. Rocco........... Chairman, Chief Executive Officer and 51 1979 Director Bruce D. Cowen............. President and Director 43 1979 John H. Claussen........... Senior Vice President, General Counsel 47 1992 and Secretary, formerly Managing Environmental Counsel and Manager - Remediation Programs for General Electric Company Richard D. Ellison......... Senior Vice President and Chief 57 1994 Engineer, President of TRC Environmental Solutions, Inc. Miro Knezevic.............. Executive Vice President of 46 1994 TRC Environmental Solutions, Inc. Richard J. McGuire, Jr..... President of 52 1994 TRC Environmental Corporation, formerly President of Mariah Associates, Inc. Peter J. Russo............. Senior Vice President and Chief 50 1993 Financial Officer, formerly Treasurer and Corporate Controller for Gerber Scientific, Inc.
No family relationship exists between any of the individuals named above. Item 11. Executive Compensation Information on "Executive Compensation" is contained on pages 6 through 10 of the Company's Proxy Statement for its Annual Meeting of Shareholders to be held October 25, 1996, and such information is incorporated herein by reference. 7 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 October 25, 1996, 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 12 of the Company's Proxy Statement for its Annual Meeting of Shareholders to be held October 25, 1996 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 Schedules 1. The Consolidated Financial Statements and Report of Independent Accountants set forth on pages 18 through 27 of the Company's 1996 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 13
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 1996. (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 Stock Option Plan for Key Employees 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. 8 10.1.1 Amendment, dated June 23, 1994, to the Stock Option Plan for Key Employees of the Company, incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1994. 10.2 Outside Directors Stock Option Plan, as adopted May 29, 1992, incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1992. 10.3 Amended and Restated Revolving Credit and Term Loan Agreement, by and among TRC Companies, Inc. and its subsidiaries and The First National Bank of Boston, dated March 15, 1995, incorporated by reference to the Company's Form 10-Q for the quarterly period ended March 31, 1995. 10.3.1 Amendment, dated August 6, 1996, to the Amended and Restated Revolving Credit and Term Loan Agreement, by and among TRC Companies, Inc. and its subsidiaries, The First National Bank of Boston and BayBank, N.A. 10.4 Asset Purchase Agreement, dated March 21, 1994, by and among TRC Companies, Inc., Environmental Solutions, Inc., Richard D. Ellison and Miro Knezevic; Registration Rights Agreement among TRC Companies, Inc. and Environmental Solutions, Inc., dated March 21, 1994; and 5.75% Subordinated Note, due March 21, 1997, incorporated by reference to the Company's Form 8-K, dated April 1, 1994. 10.5 Stock Purchase Agreement, dated May 27, 1994, by and among TRC Companies, Inc., Richard J. McGuire, Jr., W. Thomas Turner and Stephen B. Goppert; Registration Rights Agreement, dated May 27, 1994, by and among TRC Companies, Inc., Richard J. McGuire, Jr., W. Thomas Turner and Stephen B. Goppert, incorporated by reference to the Company's Form 8-K, dated June 10, 1994. 10.6 Severance Agreements between the Company and Vincent A. Rocco and Bruce D. Cowen, dated August 19, 1994, incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1994. 10.7 Employment Agreement between Environmental Solutions, Inc. and Richard D. Ellison, dated March 21, 1994, incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1994. 10.8 Executive Incentive Compensation Plan, as adopted June 20, 1988, incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1988. 10.8.1 Amendment, dated June 19, 1996, to the Executive Incentive Compensation Plan. 13 Annual Report to Shareholders for the fiscal year ended June 30, 1996. (Only those portions expressly incorporated by reference are deemed to be filed herewith.) 21 Subsidiaries of the Registrant. 27 Financial Data Schedule (for SEC purposes only). 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 upon payment to the Company of its expenses in furnishing such exhibit. 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: September 25, 1996 By: /s/Vincent A. Rocco ---------------------------------- Vincent A. Rocco Chairman and Chief Executive Officer (Principal 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/ Vincent A. Rocco Chairman, Chief Executive September 25, 1996 - ----------------------------------------------- Officer and Director Vincent A. Rocco /s/ Bruce D. Cowen President and Director September 25, 1996 - ----------------------------------------------- Bruce D. Cowen /s/ Peter J. Russo Senior Vice President and Chief September 25, 1996 - ----------------------------------------------- Financial Officer (Principal Peter J. Russo Financial and Accounting Officer) /s/ Edward G. Jepsen Director September 25, 1996 - ----------------------------------------------- Edward G. Jepsen /s/ Edward W. Large Director September 25, 1996 - ----------------------------------------------- Edward W. Large /s/ J. Jeffrey McNealey Director September 25, 1996 - ----------------------------------------------- J. Jeffrey McNealey
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 August 6, 1996, appearing on page 27 of the 1996 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) 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. PRICE WATERHOUSE LLP Hartford, Connecticut August 6, 1996 11 Consent of Independent Accountants We hereby consent to the incorporation by reference 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 and 33-87448) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-84660) of TRC Companies, Inc. and its subsidiaries of our report dated August 6, 1996 appearing on page 27 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 11 of this Form 10-K. PRICE WATERHOUSE LLP Hartford, Connecticut September 25, 1996 12 TRC Companies, Inc. Schedule II - Valuation and Qualifying Accounts For the Years Ended June 30, 1996, 1995 and 1994
Balance at Charged to Allowances Reclassification Balance at beginning costs and from acquired from other end of Description of period expenses businesses accruals Deductions * period - ----------------------------- ------------ ------------ --------------- ------------------ -------------- ------------- 1996 Allowance for doubtful accounts $ 1,700,000 $ 2,660,000 $ - $ - $ (1,860,000) $ 2,500,000 ------------ ------------ --------------- ------------------ -------------- ------------- 1995 Allowance for doubtful accounts $ 1,788,000 $ 824,000 $ - $ 1,332,000 $ (2,244,000) $ 1,700,000 ------------ ------------ --------------- ------------------ -------------- ------------- 1994 Allowance for doubtful accounts $ 1,247,000 $ 802,000 $ 255,000 $ 200,000 $ (716,000) $ 1,788,000 ------------ ------------ --------------- ------------------ -------------- -------------
* Uncollectible accounts written off, net of recoveries. 13 TRC Companies, Inc. Form 10-K Exhibit Index Fiscal Year Ended June 30, 1996
Exhibit Sequential Page Number Description Number - ----------- ------------------------------------ --------------------- 10.3.1 Amendment, dated August 6, 1996, 15-21 to the Amended and Restated Revolving Credit and Term Loan Agreement, by and among TRC Companies, Inc. and its subsidiaries, The First National Bank of Boston and BayBank, N.A. 10.8.1 Amendment, dated June 19, 1996, to the Executive Incentive Compensation Plan. 22 13 Annual Report to Shareholders for 23-47 the Fiscal Year Ended June 30, 1996. 21 Subsidiaries of the Registrant. 48 27 Financial Data Schedule. 49
14 EX-10.3.1 2 CREDIT AGREEMENT AMENDMENT EXHIBIT 10.3.1 Amendment, dated August 6, 1996, to the Amended and Restated Revolving Credit and Term Loan Agreement, by and among TRC Companies, Inc. and its subsidiaries, The First National Bank of Boston and BayBank, N.A. 15 THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT (the "Third Amendment") is made and entered into as of the 6th day of August, 1996, by and among TRC COMPANIES, INC., a Delaware corporation ("TRC"), the subsidiaries of TRC identified on the signature pages hereto (the "Subsidiaries" and together with TRC, the "Borrowers"), THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association having its principal place of business at 100 Federal Street, Boston, Massachusetts 02110, BAYBANK, N.A. ("BayBank", together with FNBB, the "Banks"), a national banking association having its principal place of business at 175 Federal Street, Boston, Massachusetts 02110, and FNBB as agent for the Banks (the "Agent"). WHEREAS, the Borrowers, the Agent and the Banks are parties to an Amended and Restated Revolving Credit and Term Loan Agreement dated as of March 15, 1995, as amended August 30, 1995 and March 26, 1996 (the "Credit Agreement"); WHEREAS, the Agent, the Banks and the Borrowers have agreed to amend the Credit Agreement as hereinafter set forth; NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein without definition ----------- have the meanings ascribed to them in the Credit Agreement. 2. Amendment to (S)1 of Credit Agreement. The definition of -------------------------------------- "Consolidated Earnings Before Interest and Taxes" appearing in (S)1 the Credit Agreement is amended by adding the following section (e) at the end thereof: "and (e) up to $1,100,000 of special charges incurred in the quarter ending March 31, 1996 relating to expenses for staff reductions, selected office closures, excess lease costs and allowances for government receivables and commercial inventories." 3. Amendment to (S)6.9 of the Credit Agreement. Section 6.9 of the ------------------------------------------- Credit Agreement is hereby deleted in its entirety and the following substituted in place thereof: "(S)6.9. Interest Coverage. As at the end of any fiscal quarter, the -------- -------- Borrowers will not permit the ratio of (a) Consolidated Earnings Before Interest and Taxes for the four fiscal quarters ending on such date to (b) Interest Expense for such period to be less than the stated ratio for the respective periods set forth below:
Period Ratio ------ ----- 4/1/96 through 6/30/96 3.00:1 7/1/96 through 3/30/97 2.00:1 3/31/97 to 6/29/97 2.25:1 6/30/97 to 9/29/97 2.50:1 Thereafter 3.00:1."
16 4. Addition of (S)6.12 of the Credit Agreement. Section 6.12 of the ------------------------------------------- Credit Agreement is hereby added to the Credit Agreement immediately following (S)6.11 thereof, which (S)6.12 reads as follows: "(S)6.12. Profitable Operations. Commencing with the fiscal quarter --------------------- ending June 30, 1996, the Borrowers will not permit consolidated net income of the Borrowers (determined in accordance with GAAP) to be less than $0 for any two consecutive fiscal quarters." 5. Ratification, etc. Except as expressly amended hereby, the ------------------ Credit Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. This Third Amendment and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by the Third Amendment. 6. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND -------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS. 7. Counterparts. This Third Amendment may be executed in any number ------------ of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument. Complete sets of counterparts shall be lodged with the Banks. 8. Representations and Warranties. The Borrowers hereby represent ------------------------------ and warrant to the Banks and the Agent that each of the representations and warranties of the Borrowers contained in the Credit Agreement, the other Loan Documents and in all other documents or instruments delivered pursuant to or in connection with the Credit Agreement were true as of the date as of which they were made and continue to be true at and as of the date hereof (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement as amended hereby and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate have not been materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date). 9. Effectiveness. This Third Amendment shall become effective upon -------------- satisfaction of each of the following conditions precedent: (a) this Third Amendment shall have been executed and delivered by the respective parties hereto; and (b) the Agent shall have received from the Borrowers an amendment fee of $5,000, such amendment fee to be shared pro rata by the Banks in accordance with their respective Commitment Percentages. 10. ENTIRE AGREEMENT. THIS THIRD AMENDMENT AND THE CREDIT AGREEMENT ----------------- REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 17 IN WITNESS WHEREOF, each of the undersigned has duly executed this Amendment under seal as of the date set forth above. TRC COMPANIES, INC. By: /s/ Peter J. Russo -------------------------------- Senior Vice President Chief Financial Officer MONITORING INSTRUMENTS FOR THE ENVIRONMENT, INC. By: /s/ Harold C. Elston, Jr. -------------------------------- Treasurer TRC ENVIRONMENTAL CORPORATION By: /s/ Peter J. Russo -------------------------------- Senior Vice President Chief Financial Officer TRC PROCESS ENGINEERING, INC. By: /s/ Peter J. Russo -------------------------------- Senior Vice President Chief Financial Officer TRC INVESTMENT CORPORATION By: /s/ Harold C. Elston, Jr. -------------------------------- Secretary and Treasurer 18 NORTH AMERICAN WEATHER CONSULTANTS By: /s/ Peter J. Russo -------------------------------- Senior Vice President Chief Financial Officer ENVIRONMENTAL SOLUTIONS, INC. By: /s/ Harold C. Elston, Jr. -------------------------------- Assistant Treasurer TRC-MARIAH ASSOCIATES, INC. By: /s/ Harold C. Elston, Jr. -------------------------------- Assistant Treasurer THE FIRST NATIONAL BANK OF BOSTON, as Agent and individually By: /s/ Arthur J. Oberheim -------------------------------- Vice President BAYBANK, N.A. By: /s/ Kathleen S. Dobens -------------------------------- Assistant Vice President 19 EX-10.8.1 3 EXECUTIVE INCENTIVE COMP PLAN AMENDMENT EXHIBIT 10.8.1 TRC COMPANIES, INC. EXECUTIVE INCENTIVE COMPENSATION PLAN FOR FISCAL 1997 AS ADOPTED JUNE 19, 1996 At the meeting of the Company's Board of Directors held June 19, 1996, the following amendment to the Executive Incentive Compensation Plan regarding the Incentive Pool for fiscal 1997 was adopted: The amount of the fiscal 1997 Incentive Pool shall depend on the extent to which the Company's consolidated operating income for fiscal 1996 exceeds 60% of targeted operating income, as set forth in the Company's fiscal 1997 business plan. The Incentive Pool shall equal the sum of (a) up to $250,000 if actual operating income exceeds 60%, but is not greater than 100% of targeted operating income, (b) 30% of the amount by which actual operating income exceeds 100% of targeted operating income, but not by more than 125% of targeted operating income, and 12% of the amount by which actual operating income exceeds 125% of targeted operating income. To the extent that an Incentive Pool is established for fiscal 1996, it will be calculated in connection with the audit of the Company's fiscal 1997 consolidated financial statements and distributed by the Board of Directors' Compensation Committee in accordance with the terms of the plan. 20 EX-13 4 ANNUAL REPORT EXHIBIT 13 Annual Report to Shareholders for the fiscal year ended June 30, 1996. (Only those portions expressly incorporated by reference are deemed to be filed herewith). 21
TRC COMPANIES, INC. 1996 ANNUAL REPORT Revision - 8/28/96 FINANCIAL HIGHLIGHTS For the years ended June 30, 1996 1995 1994 - ----------------------------------------------------------------------------------------- Gross revenue $76,999,021 $93,013,053 $81,657,681 Net service revenue 60,018,195 71,812,673 61,002,579 Income (loss) from operations (1,216,198) 8,457,540 3,791,660 Net income (loss) $(1,315,053) $ 4,421,065 $ 2,143,463 Earnings (loss) per common share $ (.19) $ .61 $ .32 Working capital $19,003,211 $24,968,251 $25,963,093 Current ratio 2.5 to 1 2.9 to 1 3.1 to 1 Debt to total capitalization 21.4% 27.1% 34.7% Return on equity (2.9)% 10.0% 5.7% Book value per share $ 6.38 $ 6.56 $ 5.94 Common shareholders 2,500 2,600 2,500 Common shares outstanding 7,019,002 7,089,552 7,071,636 Employees 665 823 830 -----------------------------------------------
22
SELECTED FINANCIAL DATA TRC Companies, Inc. and subsidiaries In thousands (except per share data) For the years ended June 30, 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------- Gross revenue $76,999 $93,013 $81,658 $67,827 $60,332 Less subcontractor costs and direct charges 16,981 21,200 20,655 15,928 14,265 ----------------------------------------------------------------- Net service revenue 60,018 71,813 61,003 51,899 46,067 ----------------------------------------------------------------- Operating costs and expenses: Salaries and other direct costs of services 54,388 56,353 51,039 46,554 36,539 General and administrative expenses 3,950 3,965 3,738 3,292 2,656 Depreciation and amortization 2,896 3,037 2,434 1,901 1,405 Costs related to disposed business -- -- -- 4,149 -- ----------------------------------------------------------------- 61,234 63,355 57,211 55,896 40,600 ----------------------------------------------------------------- Income (loss) from operations (1,216) 8,458 3,792 (3,997) 5,467 Interest expense 906 1,399 466 71 92 Other income, net -- (15) (58) (86) (221) ----------------------------------------------------------------- Income (loss) before taxes (2,122) 7,074 3,384 (3,982) 5,596 Federal and state income tax provision (benefit) (807) 2,653 1,241 (1,084) 1,620 ----------------------------------------------------------------- Net income (loss) $(1,315) $ 4,421 $ 2,143 $(2,898) $ 3,976 ================================================================= Earnings (loss) per common share $(.19) $.61 $.32 $(.45) $.62 ================================================================= Weighted average number of common and common equivalent shares outstanding 7,078 7,208 6,789 6,462 6,365 ================================================================= Cash dividends declared None None None None None ----------------------------------------------------------------- Balance Sheet at June 30, Total assets $64,235 $73,815 $75,951 $46,477 $43,623 ----------------------------------------------------------------- Long-term debt $12,200 $17,200 $22,080 $ 140 $ 420 ----------------------------------------------------------------- Shareholders' equity $44,748 $46,538 $41,984 $33,607 $34,771 -----------------------------------------------------------------
Revenue and Earnings by Quarter (Unaudited) In thousands (except per share data) 1st 2nd 3rd 4th - --------------------------------------------------------------------------------------------------------- 1996 /(1)/ Gross revenue $20,019 $19,960 $19,422 $17,598 Net service revenue 16,247 15,380 14,809 13,582 Income (loss) from operations (1,453) 1,102 (529) (336) Income (loss) before taxes (1,708) 869 (741) (542) Net income (loss) $(1,059) $ 539 $ (455) $ (340) Earnings (loss) per common share $(.15) $.08 $(.06) $(.05) ---------------------------------------------------- 1995 Gross revenue $23,093 $25,203 $22,381 $22,337 Net service revenue 18,365 18,050 17,601 17,797 Income from operations 2,130 2,249 2,001 2,078 Income before taxes 1,740 1,884 1,677 1,773 Net income $ 1,061 $ 1,149 $ 1,077 $ 1,134 Earnings per common share $.15 $.16 $.15 $.16 ----------------------------------------------------
/(1)/ Results for first and third quarters of fiscal 1996 include operating charges of $3.3 million (approximately $2.1 million after taxes) and $1.1 million (approximately $.7 million after taxes), respectively . 23 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 TRC Companies, Inc. is an international environmental engineering and consulting company with a premier reputation for expertise in all areas of air pollution control, solid and hazardous waste management, risk assessment and process engineering. The Company is one of the largest air pollution engineering companies in the nation and provides innovative approaches to solid and hazardous waste management. Significant recent events in the development of the Company's business include: (i) the acquisition in March 1994 of the assets of Environmental Solutions, Inc. of Irvine, California, a firm providing a broad range of solid and hazardous waste engineering and consulting services, specializing in remedial design and construction management; and (ii) the acquisition in May 1994 of the capital stock of Mariah Associates, Inc. of Laramie, Wyoming, a full-service environmental consulting firm serving primarily the western United States with a focus on cultural resource consulting and environmental impact statements. The acquisition of Environmental Solutions, Inc. was treated as a purchase for accounting purposes and Mariah was accounted for as a pooling-of-interests. Accordingly, the Company's consolidated financial statements have been restated to include the financial results of Mariah. The Company believes that it is strongly positioned as a provider of air pollution control, pollution prevention and solid and hazardous waste engineering and consulting services. Historically, the Company has realized a significant amount of its revenue from federal government agencies. However, future levels of government business will be dependent upon the Company's selectivity in bidding on government projects coupled with the strategy to reduce its dependence on government contracts, and its success in procuring contract awards. 24 Results of Operations The Company, in the course of providing its services, routinely subcontracts drilling, laboratory analyses and other specialized services. These costs are passed directly through to clients and, in accordance with industry practice, are included in gross revenue. Because subcontractor costs and direct charges can vary significantly from project to project, the change in gross revenue is not necessarily a true indication of business trends. Accordingly, 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 certain items in the consolidated statements of operations to net service revenue:
Years ended June 30, 1996 1995 1994 - ------------------------------------------------------------------------- Net service revenue 100.0% 100.0% 100.0% --------------------------------- Operating costs and expenses: Salaries and other direct costs of services 90.6/1/ 78.5 83.7 General and administrative expenses 6.6 5.5 6.1 Depreciation and amortization 4.8 4.2 4.0 --------------------------------- Income (loss) from operations (2.0)/1/ 11.8 6.2 Interest expense 1.5 1.9 .8 Other income, net -- -- (.1) --------------------------------- Income (loss) before taxes (3.5) 9.9 5.5 Federal and state income tax provision (benefit) (1.3) 3.7 2.0 --------------------------------- Net income (loss) (2.2)% 6.2% 3.5% =================================
/(1)/ 83.3% and 5.3%, respectively, before operating charges. - -------------------------------------------------------------------------------- 1996 Compared to 1995 The Company reported a net loss in fiscal 1996 of $1.3 million or $.19 per share, compared to net income of $4.4 million or $.61 per share in fiscal 1995. The loss includes charges of $4.4 million (approximately $2.8 million after taxes) related to reductions in staff, the closing of certain offices, excess lease costs and increased allowances for receivables and inventories. These charges were necessary because of the continued weak environmental engineering/consulting market resulting from regulatory uncertainty and anticipated reductions in federal enforcement spending, which has led to overall lower levels of expenditures by industry for environmental engineering and remedial services, coupled with greater competition and capacity for available work. Net service revenue decreased by 16.4% in fiscal 1996 to $60 million, from $71.8 million in fiscal 1995. The decrease was primarily due to the weak commercial hazardous waste engineering market resulting from regulatory uncertainty and anticipated reductions in federal enforcement spending and the reduction in services to the federal government. Salaries and other direct costs of services decreased by 3.5% or $2.0 million in fiscal 1996, as compared to fiscal 1995. Although partially offset by the $4.4 million charges recorded during 25 the year, this decrease was the direct result of continued cost reduction efforts taken to align resources with current business conditions . General and administrative expenses decreased by .4% in fiscal 1996, as compared to fiscal 1995, primarily due to continued cost reduction efforts. Depreciation and amortization expense decreased by 4.6% in fiscal 1996, as compared to fiscal 1995. This decrease was due to the comparative reduction in expenditures for equipment in fiscal 1996 and 1995, combined with the effect of other equipment which became fully depreciated. The Company reported a loss from operations of $1.2 million in fiscal 1996, compared to income from operations of $8.5 million in fiscal 1995. The loss was the direct result of the operating charges recorded during fiscal 1996 and to the reduction in net service revenue. Interest expense decreased in fiscal 1996 to $.9 million, from $1.4 million last year. The decrease resulted from lower levels of long-term debt outstanding at lower rates of interest. The provision (benefit) for federal and state income taxes for fiscal 1996 is recorded at an effective rate of approximately 38%. The Company provides for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, and believes that there will be sufficient taxable income in the carryforward periods to enable utilization of the deferred tax benefits. 1995 Compared to 1994 Net service revenue increased by 17.7% in fiscal 1995 to $71.8 million, from $61 million in fiscal 1994. This increase resulted primarily from the additional revenue from TRC Environmental Solutions, Inc. which was acquired in March 1994, and to an increase in revenue from commercial air pollution engineering services, significantly offset by lower revenue from contracts with the U.S. Environmental Protection Agency and other federal government agencies. Revenue derived from contracts with the federal government decreased in fiscal 1995 by 41.6% or $7.9 million, as compared to fiscal 1994, as the Company implemented its strategy to reduce the federal government component of its business. As a result, the percentage of net service revenue from the federal government decreased to 15% in fiscal 1995, compared to 31% in fiscal 1994. Salaries and other direct costs of services increased by 10.4% or $5.3 million in fiscal 1995, as compared to fiscal 1994, primarily due to the inclusion of the additional costs from TRC Environmental Solutions, Inc. However, as a percentage of net service revenue, these costs decreased to 78.5% from 83.7% last year. This improvement was primarily due to achieving higher net revenue per labor dollar and lower operating expenses resulting from cost reduction efforts. General and administrative expenses increased by 6.1% in fiscal 1995, as compared to fiscal 1994. This increase was primarily due to the additional costs from TRC Environmental Solutions, Inc., offset by cost reductions. 26 Depreciation and amortization expense increased by 24.8% in fiscal 1995, as compared to fiscal 1994. This increase was primarily due to the additional amortization of costs in excess of the net assets acquired in connection with the acquisition of Environmental Solutions, Inc. Income from operations increased by 123.1% to $8.5 million, from $3.8 million in fiscal 1994. The increase in income from operations resulted primarily from the inclusion of the results of TRC Environmental Solutions, Inc. for the entire fiscal year, improved operating performance from air pollution and other services, and the reduction in operating costs as a percentage of net service revenue. Interest expense increased in fiscal 1995 to $1.4 million, from $.5 million last year, primarily due to the interest expense on the long-term debt issued in connection with the acquisition of Environmental Solutions, Inc. The federal and state income tax provision was 37.5% of income before taxes, as compared to 36.7% in fiscal 1994. The higher rate in fiscal 1995 results primarily from higher state income taxes. The Company provides for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, and believes that there will be sufficient taxable income in the carryforward 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 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 Working capital was $19 million at June 30, 1996, as compared to $25 million at June 30, 1995. The decrease is primarily due to the repayment of long-term debt, the $2 million increase in the current portion of long-term debt, the net loss for the year and the repurchase of the Company's stock. The Company has available a $35 million, unsecured revolving credit agreement with a group of commercial banks through December 31, 2001. At June 30, 1996, outstanding borrowings under this agreement were $5.2 million. The amount outstanding has been classified as long-term in accordance with the Company's intention and ability to refinance the obligation on a long-term basis. In addition, the Company had standby letters of credit outstanding totaling $1 million which reduce available borrowings under the agreement. In conjunction with the acquisition of Environmental Solutions, Inc. in March 1994, the Company issued a $14 million three-year 5.75% subordinated note, of which $7 million remained outstanding at June 30, 1996. In fiscal 1996, the Board of Directors' authorized the repurchase of up to 500,000 shares of the Company's outstanding common stock as, in the opinion of management, market conditions may warrant. In fiscal 1996, the Company acquired 77,100 shares for $.5 million, at an average price of $6.69 per share. The Company made capital expenditures of $.6 million in fiscal 1996, and 27 expects to make capital expenditures of approximately $1.5 million in fiscal 1997. The Company believes that cash generated from operations, the cash on hand at June 30, 1996 and available borrowings under the revolving credit agreement will be sufficient to meet the Company's cash requirements in fiscal 1997. 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, funding for government projects, level of demand for the Company's services, product acceptance, industry-wide competitive factors and political, economic or other conditions. Furthermore, market trends are subject to changes which could adversely affect future results. 28
CONSOLIDATED STATEMENTS OF OPERATIONS TRC Companies, Inc. and subsidiaries For the years ended June 30, 1996 1995 1994 - ------------------------------------------------------------------------------- Gross revenue $76,999,021 $93,013,053 $81,657,681 Less subcontractor costs and direct charges 16,980,826 21,200,380 20,655,102 ----------------------------------------- Net service revenue 60,018,195 71,812,673 61,002,579 ----------------------------------------- Operating costs and expenses: Salaries and other direct costs of services 54,388,351 56,353,248 51,038,769 General and administrative expenses 3,949,996 3,964,625 3,738,434 Depreciation and amortization 2,896,046 3,037,260 2,433,716 ----------------------------------------- 61,234,393 63,355,133 57,210,919 ----------------------------------------- Income (loss) from operations (1,216,198) 8,457,540 3,791,660 Interest expense 905,855 1,399,288 466,157 Other income, net --- (15,813) (58,842) --------------------------------------- Income (loss) before taxes (2,122,053) 7,074,065 3,384,345 Federal and state income tax provision (benefit) (807,000) 2,653,000 1,240,882 --------------------------------------- Net income (loss) $(1,315,053) $ 4,421,065 $ 2,143,463 ======================================= Earnings (loss) per common share $(.19) $.61 $.32 ======================================= Weighted average number of common and common equivalent shares outstanding 7,077,845 7,207,650 6,789,355 =======================================
See accompanying notes to consolidated financial statements. 29
CONSOLIDATED BALANCE SHEETS TRC Companies, Inc. and subsidiaries As of June 30, 1996 1995 - ---------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 1,321,524 $ 2,180,764 Accounts receivable, less allowance for doubtful accounts 27,977,190 32,306,865 Inventories 915,336 1,930,379 Deferred income tax benefits 1,219,000 1,164,702 Prepaid expenses and other current assets 444,583 398,187 -------------------------- 31,877,633 37,980,897 -------------------------- Property and equipment: Furniture and equipment 18,304,956 17,778,808 Leasehold improvements 1,362,378 1,321,944 Construction in progress -- 339,419 -------------------------- 19,667,334 19,440,171 Less accumulated depreciation and amortization 13,802,300 12,093,880 -------------------------- 5,865,034 7,346,291 -------------------------- Costs in excess of net assets of acquired businesses, net of accumulated amortization of $2,648,246 and $1,719,652, respectively 25,903,615 27,752,208 -------------------------- Other assets 588,407 735,232 -------------------------- $ 64,234,689 $ 73,814,628 ========================== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 7,000,000 $ 5,000,000 Accounts payable 2,209,401 2,989,020 Accrued compensation and benefits 2,542,809 2,930,930 Income taxes payable 53,431 591,145 Current maturities of capitalized lease obligations -- 64,649 Other accrued liabilities 1,068,781 1,436,902 -------------------------- 12,874,422 13,012,646 -------------------------- Non-current liabilities: Long-term debt 5,200,000 12,200,000 Capitalized lease obligations, less current maturities -- 15,798 Accrued lease obligations 96,480 234,491 Deferred income taxes 1,316,000 1,813,610 -------------------------- 6,612,480 14,263,899 -------------------------- Commitments and contingencies (Notes 4, 7 and 10) Shareholders' equity: Capital stock: Preferred, $.10 par value; 500,000 shares authorized, none issued -- -- Common, $.10 par value; 30,000,000 shares authorized, 7,265,755 and 7,259,205 shares issued at June 30, 1996 and 1995, respectively 726,575 725,920 Additional paid-in capital 37,894,744 37,855,092 Retained earnings 7,420,244 8,735,297 -------------------------- 46,041,563 47,316,309 Less treasury stock, at cost 1,293,776 778,226 -------------------------- 44,747,787 46,538,083 -------------------------- $ 64,234,689 $ 73,814,628 ==========================
See accompanying notes to consolidated financial statements. 30
CONSOLIDATED STATEMENTS OF CASH FLOWS TRC Companies, Inc. and subsidiaries For the years ended June 30, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $(1,315,053) $ 4,421,065 $ 2,143,463 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,896,046 3,037,260 2,433,716 Change in deferred taxes and other non-cash items (689,922) 927,446 271,826 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable 4,329,675 88,148 (5,867,871) Inventories 1,015,043 (212,249) 1,836 Prepaid expenses and other current assets (46,396) 263,780 78,662 Accounts payable (779,619) 129,480 (677,748) Accrued compensation and benefits (388,121) (500,511) (244,149) Income taxes (535,888) (172,957) 1,703,719 Accrued costs related to disposed business (37,492) (937,471) (1,820,697) Other accrued liabilities 589,371 (833,228) (1,367,163) --------------------------------------- Net cash provided by (used in) operating activities 5,037,644 6,210,763 (3,344,406) --------------------------------------- Cash flows from investing activities: Additions to property and equipment (585,304) (1,283,547) (2,140,396) Acquisition of businesses, net of cash acquired -- (100,000) (4,847,871) Disposal of equipment, net 165,089 148,440 54,199 Decrease (increase) in other assets 80,847 (76,840) 20,340 --------------------------------------- Net cash used in investing activities (339,368) (1,311,947) (6,913,728) --------------------------------------- Cash flows from financing activities: Net borrowings (repayments) on long-term debt (5,000,000) (4,880,000) 7,730,000 Purchase of treasury stock (515,550) -- -- Proceeds from exercise of stock options 38,481 94,453 251,662 Principal repayments under capitalized lease obligations (80,447) (176,649) (149,188) --------------------------------------- Net cash provided by (used in) financing activities (5,557,516) (4,962,196) 7,832,474 --------------------------------------- Decrease in cash and cash equivalents (859,240) (63,380) (2,425,660) Cash and cash equivalents, beginning of year 2,180,764 2,244,144 4,669,804 --------------------------------------- Cash and cash equivalents, end of year $ 1,321,524 $ 2,180,764 $ 2,244,144 ======================================= Supplemental cash flow information: Interest paid $ 867,467 $ 1,384,156 $ 414,413 Income taxes paid (refunded) 276,933 1,807,279 (631,773) =======================================
See accompanying notes to consolidated financial statements. 31
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY TRC Companies, Inc. and subsidiaries For the years ended June 30, 1996, 1995 and 1994 Common stock issued Treasury stock ---------------------- ------------------------- Additional Number paid-in Retained Number of shares Amount capital earnings of shares Amount - ------------------------------------------------------------------------------------------------------------------ Balances, June 30, 1993 6,666,618 $666,662 $31,547,714 $ 2,170,769 169,653 $ (778,226) Exercise of stock options 40,238 4,024 247,638 -- -- -- Income tax benefit from stock option transactions -- -- 35,325 -- -- -- Issuance of common stock in connection with businesses acquired 506,265 50,626 5,419,084 -- -- -- Conversion of 9.95% convertible subordinated promissory notes into common stock 28,168 2,817 137,183 -- -- -- Compensation related to stock incentive plan -- -- 336,486 -- -- -- Net income -- -- -- 2,143,463 -- -- -------------------------------------------------------------------------- Balances, June 30, 1994 7,241,289 724,129 37,723,430 4,314,232 169,653 (778,226) Exercise of stock options 15,582 1,558 92,895 -- -- -- Income tax benefit from stock option transactions -- -- 14,000 -- -- -- Issuance of common stock in connection with businesses acquired 2,334 233 24,767 -- -- -- Net income -- -- -- 4,421,065 -- -- -------------------------------------------------------------------------- Balances, June 30, 1995 7,259,205 725,920 37,855,092 8,735,297 169,653 (778,226) Purchase of treasury stock -- -- -- -- 77,100 (515,550) Exercise of stock options 6,550 655 37,826 -- -- -- Income tax benefit from stock option transactions -- -- 1,826 -- -- -- Net income (loss) -- -- -- (1,315,053) -- -- --------------------------------------------------------------------------- Balances, June 30, 1996 7,265,755 $726,575 $37,894,744 $ 7,420,244 246,753 $(1,293,776) ==========================================================================
See accompanying notes to consolidated financial statements. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TRC Companies, Inc. and subsidiaries 1. ACCOUNTING POLICIES A. The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. B. The consolidated financial statements include the Company and its wholly-owned subsidiaries, after elimination of intercompany accounts and transactions. Certain prior year financial statement items have been reclassified to conform to the current year's format. C. Property and equipment are stated on the basis of cost, including costs which 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 on 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 lives of the various leases or the useful lives of the improvements, whichever is shorter. E. Revenue on engineering and consulting contracts is recognized as the services are performed and the related costs are incurred. Revenue is recognized from sales of instruments when the product is shipped. The Company makes revisions in its cost estimates as required during the course of performing contracts; the impact of such revisions is reflected in the accounting periods in which the relevant facts become known. F. The Company provides for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under this method, deferred tax liabilities and assets are determined based on the difference between the carrying amounts and tax bases of assets and liabilities. G. Earnings per common share are based upon the weighted average number of common shares outstanding and, when dilutive, outstanding warrants and stock options are included as common share equivalents using the treasury stock method. H. Research and development costs are charged to operations as incurred and amounted to approximately $283,000, $204,000 and $338,000 in fiscal 1996, 1995 and 1994, respectively. I. Costs in excess of the fair value of net assets of acquired businesses are primarily amortized over 30 years on a straight-line basis. On a periodic basis, the Company reassesses the 33 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. J. Inventories, other than inventoried costs relating to fixed price contracts, are stated at the lower of cost or market, cost being determined using the first-in, first-out (FIFO) method. The components of inventories at June 30, 1996 and 1995 were as follows:
1996 1995 - ------------------------------------------------------------------ Materials and supplies $ 539,054 $ 896,161 Work-in-process 60,787 332,206 Finished goods 315,495 702,012 ----------------------- $ 915,336 $ 1,930,379 =======================
K. The Company has 401(k) savings plans covering substantially all employees. The Company's contributions to the plans were approximately $661,000, $721,000 and $634,000 in fiscal 1996, 1995, and 1994, respectively. The Company does not have any employee benefit plans that provide post-retirement or post- employment benefits. L. Cash, accounts receivable, accounts payable, accrued liabilities and the Company's subordinated note as reflected in the financial statements are reasonable estimates of their fair value because of the short-term maturity of those instruments. The carrying amount of the Company's note payable pursuant to its revolving credit agreement approximates fair value because the interest rate on this instrument changes with market interest rates. M. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. FAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company is required to estimate the future cash flows expected to result from the use of these assets and, if appropriate, their eventual disposition, and recognize an impairment loss for any difference between the fair value and carrying amount of these assets. FAS 121 must be adopted for years beginning after December 15, 1995. The effect, if any, on the Company's financial position or results of operations from adoption of FAS 121 is not expected to be material. N. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, effective for years beginning after December 15, 1995. Under the provisions of this accounting standard, the Company is not required to change its method of accounting for stock-based compensation and expects to retain its current method of accounting. 34 2. BUSINESS ACTIVITIES The Company conducts its activities under one business segment which involves providing engineering and consulting services in all areas of air pollution control, solid and hazardous waste management, risk assessment, process engineering and related services to commercial and governmental organizations throughout the United States and internationally. 3. ACCOUNTS RECEIVABLE Accounts receivable at June 30, 1996 and 1995 are comprised of the following:
1996 1995 - ----------------------------------------------------------------- Amounts billed $ 22,320,356 $ 25,263,291 Unbilled costs 7,402,002 8,068,797 Retainage 754,832 674,777 --------------------------- 30,477,190 34,006,865 Less allowance for doubtful accounts 2,500,000 1,700,000 --------------------------- $ 27,977,190 $ 32,306,865 ===========================
Unbilled costs represent revenue which is not currently billable to the client under the terms of the contract. 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 client which, pursuant to the contract, are due upon completion and acceptance by the client. Net service revenue from contracts with U.S. Government agencies amounted to approximately $10,418,000, $11,135,000 and $19,062,000 in fiscal 1996, 1995 and 1994, respectively 4. ACQUISITIONS In March 1994, a wholly-owned subsidiary of the Company completed the acquisition of substantially all of the business assets, liabilities and obligations of Environmental Solutions, Inc., an environmental engineering and consulting business. The purchase price included cash of $4,848,000 (net of cash acquired), a $14,000,000 three-year 5.75% subordinated note and 459,770 shares of the Company's common stock valued at $5,000,000. The acquisition, which was effective as of the close of business on February 28, 1994, has been accounted for using the purchase method of accounting. The purchase price and expenses associated with the acquisition resulted in costs in excess of the fair value of the net assets acquired of approximately $23,287,000, which is being amortized over 30 years on a straight-line basis. The following unaudited pro forma summary presents the consolidated results of operations as if the acquisition occurred at the beginning of fiscal 1994 after giving effect to certain adjustments, 35 including amortization of costs in excess of the net assets acquired, increased interest expense on acquisition debt, income tax effects and the increase in common shares outstanding. Net service revenue $ 75,042,000 ------------- Net income 2,793,000 ------------- Earnings per common share $.39 ------------- 5. LONG-TERM DEBT Long-term debt at June 30, 1996 and 1995 is comprised of the following:
1996 1995 - ----------------------------------------------------------------------- Note payable - revolving credit agreement $ 5,200,000 $ 5,200,000 5.75% subordinated note 7,000,000 12,000,000 ---------------------------- 12,200,000 17,200,000 Less current portion 7,000,000 5,000,000 ---------------------------- $ 5,200,000 $ 12,200,000 ============================
The Company has a revolving credit agreement, as amended, with a group of commercial banks which provides an unsecured line of credit of up to $35,000,000 through December 31, 2001, with interest at the lower of the bank's base rate or the Eurodollar rate plus .75%. The Company pays a commitment fee of .25% on the unused portion of the line. The agreement provides that, at the option of the Company, the principal outstanding on December 31, 1997 may be converted into a four-year term loan payable in sixteen equal quarterly installments. The agreement requires the Company to meet certain financial ratios and levels of tangible net worth. The Company was in compliance with these covenants at June 30, 1996. The agreement also requires the Company to have income in at least one of any two consecutive fiscal quarters beginning with the quarter ended June 30, 1996. At June 30, 1996, borrowings outstanding under this agreement were $5,200,000 at an average interest rate of 6.3%. The amount outstanding has been classified as long-term debt in accordance with the Company's intention and ability to refinance such obligation on a long-term basis. At June 30, 1996, the Company had outstanding standby letters of credit related to contract performance totaling $1,000,000 which reduce available borrowings under the agreement. The 5.75% subordinated note was issued in March 1994 in connection with the Company's acquisition of Environmental Solutions, Inc. The remaining principal on the note of $7,000,000 is payable in fiscal 1997. 36 6. FEDERAL AND STATE INCOME TAXES The federal and state income tax provision (benefit) for fiscal 1996, 1995 and 1994 consists of the following:
1996 1995 1994 - ------------------------------------------------------------------------------ Current: Federal $(375,000) $1,116,480 $328,550 State 18,000 410,520 180,332 Foreign 102,000 -- -- Deferred: Federal (555,000) 987,000 801,000 State 3,000 139,000 (69,000) ----------------------------------------- $(807,000) $2,653,000 $1,240,882 =========================================
Deferred income taxes represent the tax effect of transactions which are reported in different periods for financial and tax reporting purposes. Temporary differences and carryforwards which give rise to a significant portion of deferred income tax benefits (liabilities) are as follows:
1996 1995 1994 - ------------------------------------------------------------------------------ Deferred income tax benefits: Doubtful accounts and other accruals $1,026,000 $619,875 $901,620 Costs related to disposed business -- 14,250 331,500 Adjustment of inventories and contracts to tax basis 79,000 171,750 203,320 Other, net 114,000 358,827 (38,738) ----------------------------------------- $1,219,000 $1,164,702 $1,397,702 ========================================= Deferred income tax liabilities: Depreciation and amortization $(1,422,000) $(1,265,250) $(1,040,400) Accrued lease obligations 254,000 122,625 175,100 Other, net (148,000) (670,985) (161,310) ----------------------------------------- $(1,316,000) $(1,813,610) $(1,026,610) =========================================
A reconciliation of the federal statutory and the effective income tax rates follows:
1996 1995 1994 - ------------------------------------------------------------------------------ Statutory rate (34.0)% 34.0% 34.0% Other current provision (benefit) (3.5) -- -- State taxes, net of federal tax benefit .6 5.2 3.3 Other, net (1.1) (1.7) (.6) ----------------------------------------- Effective income tax rate (38.0)% 37.5% 36.7% =========================================
37 7. LEASE COMMITMENTS The Company has commitments at June 30, 1996 under noncancelable operating leases primarily for office and warehouse space and for computer and office equipment. Rental payments charged to operations in fiscal 1996, 1995 and 1994 were approximately $4,526,000, $4,517,000 and $4,157,000, respectively. Certain leases for office and warehouse space require payments for expenses under escalation clauses. In addition, the Company subleases space in certain of its offices. Sublease receipts credited to operations in fiscal 1996 amounted to $325,000 and future sublease receipts as of June 30, 1996 are approximately $1,942,000 in the aggregate. Minimum future lease obligations payable in future fiscal years are as follows:
Year Ending June 30, - ------------------------------------------------------------- 1997 $ 4,663,000 1998 4,127,000 1999 2,871,000 2000 2,277,000 2001 1,164,000 2002 and thereafter 362,000 ----------- $15,464,000 ===========
8. CAPITAL STOCK The authorized capital of the Company consists of 30,000,000 shares of common stock, $.10 par value, and 500,000 shares of preferred stock, $.10 par value. In fiscal 1996, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company's common stock. At June 30, 1996, the Company had repurchased 77,100 shares for $515,500. In connection with the issuance of convertible subordinated promissory notes in 1986, the Company issued warrants to purchase 78,750 shares of the Company's common stock at $4.97 per share. The warrants are exercisable on or before June 30, 1997. The convertible notes were repaid or converted into shares of the Company's common stock before the end of fiscal 1994. 38 9. STOCK OPTIONS The Company's non-qualified stock option plan for employees, as amended, authorizes the granting of options to purchase 1,743,500 common shares at no less than the fair market value of the stock on the date such options are granted. The exercisable option period is fixed by the Compensation Committee of the Board of Directors at the time of grant, but does not exceed five years and generally begins one year after the 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. Tax benefits related to stock options are credited to additional paid-in capital when realized for financial reporting purposes.
For the years ended June 30, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- Outstanding options, beginning of year 772,311 693,424 545,717 Granted 401,139 129,600 218,500 Exercised (6,550) (15,582) (40,238) Canceled (588,941) (35,131) (30,555) ---------------------------------------------------- Outstanding options, end of year 577,959 772,311 693,424 ==================================================== Average price of options exercised during the year $5.88 $6.06 $6.25 At end of year: Exercise prices of outstanding options $5.88-$13.75 $5.75-$13.75 $5.75-$13.75 Average exercise price per share $6.86 $9.36 $9.20 Options exercisable at end of year 226,817 459,409 342,703 Options available for future grants 496,984 309,182 103,652 ====================================================
In connection with the acquisition of Environmental Solutions, Inc. in fiscal 1994, the Company authorized the issuance of warrants to the employees to purchase 100,000 shares of common stock, under the same terms and conditions as the employee stock option plan. At June 30, 1996, warrants to purchase 50,000 shares of common stock at $6.63 per share were outstanding. In fiscal 1996, the Company gave existing option holders the right to cancel their existing options and be issued new options at a ratio of two existing option shares in exchange for one new option share. The new non- qualified options were issued at the fair market value of the stock on the date such options were granted and have terms and conditions consistent with the Company's stock option plan. The Company canceled 525,178 options and issued 262,589 new options under the program. The Company also has an Outside Directors Stock Option Plan that provides for the granting of options to directors of the Company who are not employees. The plan currently authorizes the granting of options to purchase 50,000 shares of the Company's common stock in accordance with a formula based upon Company performance. During fiscal 1996, the Company granted options to purchase 6,000 shares exercisable during the next three years at an option price of $7.75 per share. At June 30, 1996, a total of 12,000 options to purchase shares of the Company's common stock were outstanding pursuant to the Plan. 39 10. CONTINGENCIES 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, 1992. The Company believes that adjustments resulting from such examinations or renegotiation proceedings, if any, will not have a significant impact on the Company's financial condition or results of operations. 40 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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 the opinion expressed above. Hartford, Connecticut Price Waterhouse LLP August 6, 1996 41 TRC COMPANIES, INC. DIRECTORS Vincent A. Rocco Chairman and Chief Executive Officer TRC Companies, Inc. Bruce D. Cowen President TRC Companies, Inc. Edward W. Large* Counsel to the law firms of Crowell & Moring and Day, Berry & Howard; 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, Chief Financial Officer and Director of Amphenol Corporation * Audit Committee Member OFFICERS Vincent A. Rocco Chairman and Chief Executive Officer Bruce D. Cowen President John H. Claussen Senior Vice President and General Counsel Richard D. Ellison Senior Vice President and Chief Engineer Peter J. Russo Senior Vice President and Chief Financial Officer 42 Martin H. Dodd Vice President and Deputy General Counsel Harold C. Elston, Jr. Vice President and Treasurer SUBSIDIARY OPERATING OFFICERS Richard J. McGuire, Jr. President TRC Environmental Corporation Richard D. Ellison President TRC Environmental Solutions, Inc. Miro Knezevic Executive Vice President TRC Environmental Solutions, Inc. Daniel S. Tedone President TRC Process Engineering Inc. Pedro Lilienfeld President MIE, Inc. SHAREHOLDER INFORMATION EXECUTIVE OFFICES TRC Companies, Inc. 5 Waterside Crossing Windsor, Connecticut 06095 (860) 289-8631 43 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP One Financial Plaza Hartford, Connecticut 06103 ANNUAL MEETING The 1996 annual meeting of shareholders will be held on Friday, October 25, 1996, 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". On August 20, 1996, the last reported sale price of the common stock on the exchange was $4.125 per share. 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. 44 The following table provides quarterly price ranges of the common stock:
High Low --------- ------ Fiscal 1996: First Quarter $ 8 3/4 $ 7 Second Quarter 7 7/8 5 1/2 Third Quarter 7 1/4 6 Fourth Quarter 6 5/8 5 5/8 Fiscal 1995: First Quarter $11 $ 9 Second Quarter 10 5/8 7 7/8 Third Quarter 9 1/8 7 1/2 Fourth Quarter 8 3/8 7 1/8
REGISTRAR AND TRANSFER AGENT FOR COMMON STOCK American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 Shareholders may call the agent's Shareholder Services Department directly concerning stock certificates and address changes at (718) 921-8200. 45 EX-21 5 SUBSIDIARIES OF THE REGISTRANT 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 subsidiaries are excluded.
Percent of Voting Stock Name of Subsidiary and Jurisdiction in which Incorporated or Organized Owned by Registrant - ---------------------------------------------------------------------- ------------------- TRC Environmental Corporation (incorporated in Connecticut) 100% TRC Investment Corporation (incorporated in Delaware) 100% TRC Environmental Solutions, Inc. (incorporated in California) 100% TRC Mariah Associates, Inc. (incorporated in Wyoming) 100% TRC Process Engineering Inc. (incorporated in New Jersey) 100% Monitoring Instruments for the Environment, Inc. (incorporated in Massachusetts), a subsidiary of TRC Environmental Corporation 100% TRC North American Weather Consultants (incorporated in Utah), a subsidiary of TRC Environmental Corporation 100% PAKTO, S.A. (incorporated in Poland) 48%
46 EX-27 6 FINANCIAL DATA SCHEDULE
5 0000103096 TRC Companies Inc. YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 1,321,524 0 27,977,190 0 915,336 31,877,633 19,667,334 13,802,300 64,234,689 12,874,422 0 0 0 726,575 44,021,212 64,234,689 76,999,021 76,999,021 0 78,215,219 0 0 905,855 (2,122,053) (807,000) (1,315,053) 0 0 0 (1,315,053) (.19) 0
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