-----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, VZYZznfZae9wHuKlX2wFhd2f2l8YqgZZWp8ItWvp6uIDjgsYEDaIuWGwLK+70Lw/ zMFe9pl0Ct4YmHjUmlSZ0A== 0001047469-99-037080.txt : 19991227 0001047469-99-037080.hdr.sgml : 19991227 ACCESSION NUMBER: 0001047469-99-037080 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 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: SEC FILE NUMBER: 001-09947 FILM NUMBER: 99718907 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 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 Commission file ended June 30, 1999 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 incorporation or organization) Identification No.) 5 WATERSIDE CROSSING WINDSOR, CONNECTICUT 06095 (Address of principal (Zip Code) executive offices) 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 8, 1999, was approximately $36,369,000. On September 8, 1999, there were 6,800,193 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 1999 Annual Report to Shareholders (Part II); and (2) registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held October 22, 1999 (Part III). - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS TRC Companies, Inc. (the Company) together with its wholly-owned subsidiaries provides 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 information technology. 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 in the following four business areas: - Environmental Services - Infrastructure - Information Management - Engineered Financial Solutions Environmental Services includes pollution control, waste management, auditing and assessment, permitting and compliance, design and engineering and natural and cultural resources management. This has been the Company's historic focus and the Company has an established niche in the high growth energy deregulation market. TRC's Infrastructure development business targets geographic areas where rehabilitation of existing systems and population growth lead to expansion opportunities and continued infrastructure development. The Company provides customized data management systems traditionally in the environmental area and serves its customers' needs to utilize data more cost effectively. Within the Engineered Financial Solutions business area, the Company combines financing and/or financial risk management with technology (e.g. Exit Strategies-TM-, Brownfields redevelopment) to optimize customer solutions. The Company is the leading supplier of environmental remediation outsourcing through its trademarked Exit Strategies-TM- program. This value-added outsourcing program provides added rewards to the Company by partnering with a customer to share site environmental risks or to transfer those risks to TRC entirely. The Company manages its own risks through innovative problem solving, the application of premium charges for the transfer of risks and administrative costs from the customer to TRC and, when appropriate, insurance policy partnerships with companies such as American International Group (AIG). 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 represent more than 50 percent of the Company's net service revenue: AES Enterprises Hanson PLC Southern Energy ASARCO Lockheed Martin Corporation Tosco Burlington Northern Santa Fe RR Meridian Gold The Trump Organization Connecticut Resources Recovery Mobil U.S. Generating Authority New York City U.S. Government Consolidated Edison of New York - School Construction Authority - EPA Duke Energy - Department of Transportation - DOD Express Pipeline - Department of Parks - FAA General Electric New York State Dept. of Transportation Unocal General Motors Orange County, CA Waste Management
2 For fiscal 1999, 1998 and 1997, the federal government (principally the U.S. Environmental Protection Agency and the U. S. Department of Defense) accounted for 19%, 20% and 22%, 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 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 offices 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, 1999, the Company's net contract backlog (excluding the estimated costs of pass-through charges) was approximately $58 million, as compared to approximately $36 million at June 30, 1998. The Company expects that approximately 75% of this backlog will be completed in fiscal 2000. 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. There can be no assurance that any work included in backlog will not be canceled or delayed. EMPLOYEES As of June 30, 1999, the Company had approximately 800 full and part-time employees. Approximately 85% of these employees are primarily engaged in performing environmental engineering and consulting, process and civil engineering, 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 registered professional engineers, geologists, hydrologists, hydrogeologists, meteorologists, toxicologists, chemists, industrial hygienists, archaeologists, biologists, construction specialists, computer programmers, systems analysts and others with degrees and experience that enables the Company 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. 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. The Company focuses on market areas where the Company 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 rapidly growing deregulated energy business. Further, the Company appears to be the market leader in providing complete outsourcing of site remediation services through its Exit Strategy-TM- program. 3 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 trademarks, service marks, copyrights and licenses, none of which are considered material to the Company's business as a whole. RESEARCH AND DEVELOPMENT Historically, research and development costs were charged to operations as incurred by the Company's instrumentation subsidiary, which was sold in July 1998, and amounted to approximately $187,000 and $190,000 in fiscal 1998 and 1997, respectively. 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. ITEM 2. PROPERTIES The Company provides its services through a network of 24 offices located nationwide and offices in Lima, Peru and Santiago, Chile. The Company does not own any real estate and leases approximately 248,000 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. 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. 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 20 of the Company's 1999 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 4 of the Company's 1999 Annual Report to Shareholders and such information is incorporated herein by reference. 4 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 6 through 8 of the Company's 1999 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 9 through 20 of the Company's 1999 Annual Report to Shareholders are incorporated herein by reference: Consolidated Statements of Operations, Cash Flows and Changes in Shareholders' Equity - Years ended June 30, 1999, 1998 and 1997 Consolidated Balance Sheets - June 30, 1999 and 1998 Notes to Consolidated Financial Statements Report of Independent Accountants, dated August 4, 1999 The supplementary data regarding quarterly results of operations is contained on page 5 of the Company's 1999 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. 5 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 1999 Annual Meeting of Shareholders to be held October 22, 1999, 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 Richard D. Ellison.........(60) Chairman, President and Chief Senior Vice President and Chief Engineer Executive Officer (April 1997) Richard J. McGuire, Jr.....(55) Director of the Company (April 1997) President, TRC Environmental Corporation and President, TRC Mariah Associates, Inc. (May 1994) John H. Claussen...........(50) Senior Vice President, TRC Companies, Senior Vice President and General Inc. and President, TRC Environmental Counsel Corporation (February 1997) Miro Knezevic..............(49) Senior Vice President, TRC Companies, Inc. (August 1998) Executive Vice President, TRC Environmental Solutions, Inc. (March 1994) Glenn E. Harkness..........(51) Senior Vice President, TRC Vice President, TRC Environmental Environmental Corporation Corporation (September 1997) Harold C. Elston, Jr.......(55) Senior Vice President (March 1998), Vice President and Treasurer Chief Financial Officer (May 1999) and Secretary (March 1998)
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 9 of the Company's Proxy Statement for its Annual Meeting of Shareholders to be held October 22, 1999, and such information is incorporated herein by reference. 6 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 22, 1999, 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 22, 1999 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 9 through 20 of the Company's 1999 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 10 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 of Form 8-K for the fourth quarter of fiscal 1999. (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 10.2.1 Termination Policy for Members of TRC Key Person Group, as adopted on December 1, 1998. 10.2.2 TRC Key Person Bonus Plan for Fiscal Years 1999 - 2003, as adopted on March 22, 1999. 10.3 Third Amended and Restated Revolving Credit Agreement, by and among TRC Companies, Inc. and its subsidiaries and BankBoston, N.A., dated July 10, 1998, incorporated by reference to the Company's Form 10-K for the year ended June 30, 1998.
7 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 BankBoston, N.A. dated July 1, 1999 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. 10.4.1 Amendment, dated July 1, 1997, to Subordinated Note, by and among TRC Companies, Inc., R & M Corporation, Richard D. Ellison and Miro Knezevic, incorporated by reference to the Form 10-K for the fiscal year ended June 30, 1997. 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. 13 Annual Report to Shareholders for the fiscal year ended June 30, 1999. (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. 8 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 28, 1999 By: /s/ Richard D. Ellison ------------------------------- Richard D. Ellison, Ph.D., P.E. Chairman, President 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/ Richard D. Ellison Chairman, President and September 28, 1999 - -------------------------------- Chief Executive Officer Richard D. Ellison /s/ Edward G. Jepsen Director September 28, 1999 - -------------------------------- Edward G. Jepsen /s/ Richard J. McGuire, Jr. Director September 28, 1999 - -------------------------------- Richard J. McGuire, Jr. /s/ Edward W. Large Director September 28, 1999 - -------------------------------- Edward W. Large /s/ J. Jeffrey McNealey Director September 28, 1999 - -------------------------------- J. Jeffrey McNealey /s/ Harold C. Elston, Jr. Senior Vice President, Chief Financial September 28, 1999 - -------------------------------- Officer and Secretary Harold C. Elston, Jr.
9 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors of TRC Companies, Inc. Our audits of the consolidated financial statements referred to in our report dated August 4, 1999, appearing in the 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 August 4, 1999 10 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 and 333-57463) of TRC Companies, Inc. of our report dated August 4, 1999 relating to the financial statements, which appear in 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 dated August 4, 1999 relating to the financial statement schedule, which appears in this Form 10-K. /s/PRICEWATERHOUSECOOPERS LLP Hartford, Connecticut September 28, 1999 11 TRC Companies, Inc. Schedule II - Valuation and Qualifying Accounts For the Years Ended June 30, 1999, 1998 and 1997 (in thousands)
Balance at Charged to Allowances Balance at beginning costs and from acquired end of Description of period expenses businesses Deductions* period - --------------------------------- ------------ ------------- --------------- --------------- ------------- 1999 Allowance for doubtful accounts $ 2,375 $ 725 $ 200 $ (754) $ 2,546 ------------ ------------- --------------- --------------- ------------- 1998 Allowance for doubtful accounts 2,300 1,129 25 (1,079) 2,375 ------------ ------------- --------------- --------------- ------------- 1997 Allowance for doubtful accounts 2,500 999 73 (1,272) 2,300 ------------ ------------- --------------- --------------- -------------
* Uncollectable accounts written off, net of recoveries. 12 TRC Companies, Inc. Form 10-K Exhibit Index Fiscal Year Ended June 30, 1999
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBER 10.2.1 Termination Policy for Members of TRC Key Person 14 Group, as adopted on December 1, 1998 10.2.2 TRC Key Person Bonus Plan for Fiscal Years 15-16 1999 - 2003, as adopted on March 22, 1999 10.3.1 Amendment No. 1 to Third Amended and Restated 17-23 Revolving Credit Agreement, by and among TRC Companies, Inc. and its subsidiaries and BankBoston, N.A., dated July 1, 1999 13 Annual Report to Shareholders for the fiscal year 24-46 ended June 30, 1999 21 Subsidiaries of the Registrant 47 27 Financial Data Schedule (for SEC purposes only)
13 EX-10.2(1) 2 EXHIBIT 10.2.1 EXHIBIT 10.2.1 TRC COMPANIES, INC. TERMINATION POLICY FOR MEMBERS TRC KEY PERSON GROUP (as adopted by the Company's Board of Directors on December 1, 1999) For Voluntary Terminations - No Salary Continuation, except Involuntary Provisions shall of Category 1 and 2 apply if the Termination is volunteered by the Category 1 or 2 Key Person Group Members Key Person Group Members to accommodate a "friendly" change of control. For Involuntary Terminations - One (1) year's salary for Category 1 Key Person Group Within One (1) Year After a Members Change of Control of TRC Six (6) months' salary for Category 2 Key Person Group Members For All Other - Three (3) month's salary Involuntary Terminations
Change of Control shall mean: (i) the acquisition, by an entity, person or group of beneficial ownership (as defined in rule 13d-3 under the Securities Exchange Act of 1934) of capital stock of TRC if, immediately after such acquisition, such entity, person or group is entitled to exercise more than 25% of the outstanding voting power of all capital stock of TRC entitled to vote at election of directors; (ii) or the election to the Board of Directors of TRC of candidates not previously recommended for election by the Board of Directors of TRC, if such candidates constitute a majority of the Board of Directors in office following such election; (iii) The involuntary termination of the Chairman of the Board of Directors; or (iv) the voluntary termination of the Chairman of the Board of Directors for the purpose of facilitating a "friendly" change of control. Involuntary Termination shall mean: any termination which is initiated by TRC without cause (i.e., without malfeasance or gross misconduct on the part of the Employee) or which is initiated by the Employee for good reason (i.e., as a consequence of action by TRC demoting the Employee in terms either of compensation or responsibilities or changing the conditions of employment in a manner the Employee reasonably finds warrants resignation). The determination of whether any termination is involuntary shall be made by the Chief Executive Officer. The Employee may appeal that determination to the Compensation Committee whose determination shall be final and conclusive. If the appeal involves a termination within one year following a change of control of TRC, the Compensation Committee determination shall be made by the directors who were members of the Compensation Committee immediately prior to such change of control. If there are no such directors remaining in office, the Employee shall be entitled to have a determination made in any court of competent jurisdiction. 14 EX-10.2(2) 3 EXHIBIT 10.2.2 Exhibit 10.2.2 TRC COMPANIES, INC. TRC KEY PERSON GROUP BONUS PLAN FISCAL YEARS 1999-2003 (as adopted by the Company's Board of Directors on March 22, 1999) Term Five (5) years from FY1999 through FY2003 Participants Members of Categories 1, 2 and 3 of the Key Person Group
Earnings Per Share After Taxes if Bonuses % of Earnings Before Were Not Allocated Taxes and Bonuses Bonus Pool Under This Plan Allocated to Bonuses --------------- -------------------- $ 0.00 0% 0.20 2% 0.40 4% 0.60 6% 0.80 8% 1.00 10% 1.20 12% 1.40 14% 1.60 16% 1.80 18% 2.00 20%
Earnings Per Share After Taxes if Bonuses Bonus Pool Split Were Not Allocated Between Categories Under This Plan Category 1 Category 2 Category 3 --------------- ---------- ---------- ---------- $ 0.00 0% 50% 50% 0.20 0% 53% 47% 0.40 10% 47% 43% 0.60 16% 44% 40% 0.80 22% 42% 36% 1.00 28% 39% 33% 1.20 35% 36% 29% 1.40 41% 33% 26% 1.60 47% 31% 22% 1.80 53% 28% 19% 2.00 60% 25% 15%
15 Bonus Pool Split Within Categories The Bonus Pool allocated to the three Categories shall be split between the members of the Category based upon their individual performance as determined by the Chief Executive Officer and approved by the Compensation Committee. Limitation There will be no Bonus Pool for any Fiscal Year unless the earnings per share (before bonuses under this Plan) are at least: 110% of the earnings per share (before bonuses) for the prior Fiscal Year; or 130% of the earnings per share (before bonuses) for the second preceding year; whichever is less. If the payment of the Bonus Pool in any Fiscal year would reduce earnings per share to less than the 110% or 130% of the prior or second preceding Fiscal Year (the controlling year), the Bonus Pool shall be reduced in the amount necessary to result in earnings per share of 110% or 130% for the controlling year. Note All references to earnings per share for purposes of computing the annual bonus amount shall mean earnings per share on a diluted basis.
16 EX-10.3(1) 4 EXHIBIT 10.3.1 Exhibit 10.3.1 AMENDMENT NO. 1 TO REVOLVING CREDIT AGREEMENT Amendment No. 1 (the "Amendment"), dated as of July 1, 1999, among TRC Companies, Inc., a Delaware corporation ("TRC"), its Subsidiaries (collectively with TRC, the "Borrowers") and BankBoston, N.A. (the "Bank"). Capitalized terms used herein unless otherwise defined shall have the respective meanings set forth in the Credit Agreement. WHEREAS, certain of the Borrowers and the Bank are parties to that certain Third Amended and Restated Revolving Credit Agreement dated as of July 10, 1998 (as amended and in effect from time to time, the "Credit Agreement"); and WHEREAS, the Borrowers have requested, and the Bank has agreed upon the terms and conditions described herein, to make certain amendments to the Credit Agreement; NOW, THEREFORE, in consideration of the foregoing premises, the parties hereby agree as follows: Section 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows: Section 1.1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. (a) The definition of "Commitment" is hereby amended by deleting the number "$10,000,000" and substituting in lieu thereof the number "$15,000,000". (b) The following new definition is inserted in Section 1 in the appropriate place in the alphabetical sequence: "FIRST AMENDMENT. The Amendment No. 1 to Revolving Credit Agreement dated as of July 1, 1999, among the Borrowers and the Bank." "NOTE. The third amended and restated promissory note of the Borrowers in favor of the Bank evidencing the Loans dated as of the date of the First Amendment, in substantially the form of Exhibit A hereto." Section 1.2. AMENDMENT TO SECTION 6 OF THE CREDIT AGREEMENT. (a) Section 6.4 of the Credit Agreement is hereby amended by (i) deleting the number "$2,000,000" and replacing it with the number "$5,000,000" and (ii) deleting the phrase "$6,000,000 in the aggregate for all mergers, consolidations and acquisitions" and replacing such phrase with the phrase "$7,500,000 in the aggregate for all mergers, consolidations and acquisitions during any fiscal year". (b) Section 6.7 of the Credit Agreement is hereby amended by inserting the phrase "the sum of (a) $3,500,000 and (b)" immediately prior to the phrase "seventy percent". Section 2. Conditions to Effectiveness. The effectiveness of this Amendment shall be conditioned upon the satisfaction of the following conditions precedent: 17 Section 2.1. DELIVERY OF DOCUMENTS. The Borrowers shall have delivered to the Bank, contemporaneously with the execution hereof, the following, in form and substance satisfactory to the Bank: (a) this Amendment signed by the Borrowers; (b) a Third Amended and Restated Note signed by the Borrowers and issued to the Bank in the amount of $15,000,000; and (c) certificates of an appropriate officer of each of the Borrowers, dated as of the date hereof, as to (i) the charter documents and by-laws, each as amended, of each of the Borrowers, (ii) the corporate actions taken by each of the Borrowers authorizing the execution, delivery, and performance hereof, and (iii) the names, titles, incumbency, and specimen signatures of the officers of each of the Borrowers authorized to sign this Amendment and the Note on behalf of each of the Borrowers. Section 2.2. PAYMENT OF FEES. The Borrowers shall have paid a fee of $15,000 to the Bank in connection with the closing of this Amendment. Section 2.3. LEGALITY OF TRANSACTION. No change in applicable law shall have occurred as a consequence of which it shall have become and continue to be unlawful on the date this Amendment is to become effective (a) for the Bank to perform any of its obligations under any of the Loan Documents or (b) for the Borrowers to perform any of their agreements or obligations under any of the Loan Documents. Section 2.4. PERFORMANCE. Each Borrower shall have duly and properly performed, complied with and observed in all material respects its covenants, agreements and obligations contained in the Loan Documents required to be performed, complied with or observed by it on or prior to the date this Amendment is to become effective. No event shall have occurred on or prior to the date this Amendment is to become effective and be continuing, and no condition shall exist on the date this Amendment is to become effective which constitutes a Default or Event of Default under any of the Loan Documents. Section 2.5. PROCEEDINGS AND DOCUMENTS. All corporate, governmental and other proceedings in connection with the transactions contemplated by this Amendment and all instruments and documents incidental thereto shall be in the form and substance reasonably satisfactory to the Bank and the Bank shall have received all such counterpart originals or certified or other copies of all such instruments and documents as the Bank shall have reasonably requested. Section 3. POST-CLOSING DELIVERY OF DOCUMENTS. The Borrowers shall deliver to the Bank within seven (7) days the following, in form and substance satisfactory to the Bank: (a) a favorable written legal opinion addressed to the Bank, dated as of the date hereof, from counsel to the Borrowers, with respect to such matters as to the Borrowers and the Loan Documents as the Bank may reasonably request, including (without limitation) opinions as to the corporate authority of each of the Borrowers to execute, deliver, and perform this Amendment, the Note, and the other documents contemplated hereby, and the enforceability thereof; (b) a perfection certificate for each new Borrower joining the Credit Agreement pursuant to Section 4, effective as of the date hereof, executed by an appropriate officer of such Borrower; 18 (c) UCC-1 financing statements in the appropriate jurisdictions executed by the new Borrowers who are joining the Credit Agreement pursuant to 4 hereof. Section 4. JOINDER OF NEW BORROWERS. By its signature hereto, each of Alton Geoscience, Inc. and Vectre Corporation agrees to become a Borrower under the Credit Agreement and agrees to be bound by the provisions thereof, including (but not limited to) provisions applicable to the Note and the Security Documents. Each of Alton Geoscience Inc. and Vectre Corporation hereby grants to the Bank to secure the payment and performance in full of all of the Obligations, a security interest all of such Borrower's accounts, contract rights, rights to the payment of money, and all general intangibles, books, records and other recorded data relating to any of the foregoing, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Section 5. AFFIRMATION AND ACKNOWLEDGMENT OF THE BORROWERS. Each Borrower hereby ratifies and confirms all of its Obligations to the Bank, and hereby affirms its absolute and unconditional promise to pay to the Bank the Loans, the Reimbursement Obligations, and all other amounts due under the Credit Agreement as amended hereby. Each Borrower hereby confirms that the Obligations are and remain secured pursuant to the Security Documents and pursuant to all other instruments and documents executed and delivered by the Borrowers as security for the Obligations. Section 6. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby represents and warrants to the Banks as follows: (a) The representations and warranties of the Borrowers contained in the Credit Agreement, as amended hereby, were true and correct in all material respects when made and continue to be true and correct in all material respects on the date hereof, except, in each case to the extent of changes resulting from transactions contemplated or permitted by the Loan Documents and this Amendment and changes occurring in the ordinary course of business which singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date. (b) The execution, delivery and performance by the Borrowers of this Amendment and the consummation of the transactions contemplated hereby; (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of such Borrower, (ii) do not require any approval, consent of, or filing with, any governmental agency or authority, or any other person, association or entity, which bears on the validity of this Amendment and which is required by law or the regulation or rule of any agency or authority, or other person, association or entity, (iii) do not violate any provisions of any order, writ, judgment, injunction, decree, determination or award presently in effect in which any Borrower is named, or any provision of the charter documents or by-laws of such Borrower, (iv) do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower is a party or to which it or any of its properties are bound, including without limitation any indenture, loan or credit agreement, lease, debt instrument or mortgage, except for such breaches and defaults which would not have a material adverse effect on any Borrower and its subsidiaries taken as a whole, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge or encumbrance of any nature upon any of the assets or properties of any Borrower. (c) This Amendment, the Credit Agreement as amended hereby, and the other Loan Documents constitute the legal, valid and binding obligations of the Borrowers, enforceable against the Borrower in accordance with their respective terms, provided that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, and (ii) enforcement may be subject to general principles of 19 equity, and the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceeding for such remedies may be brought. (d) No Default or Event of Default under any of the Loan Documents is existing as of the date hereof. Section 7. NO OTHER AMENDMENTS. Except as expressly provided in this Amendment, all of the terms and conditions of the Credit Agreement, the Note and the other Loan Documents shall remain in full force and effect. Section 8. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Amendment, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Section 9. EFFECTIVE DATE. Subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, this Amendment shall be deemed to be effective as of July 1, 1999. This Amendment also memorializes the waiver granted to the Borrowers by the Bank with respect to Section 6.4(vi) under the Credit Agreement in connection with the Borrowers' acquisition of A&H Engineers, P.C. 20 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement under seal as of the date first set forth above. TRC COMPANIES, INC. By: /s/ Harold C. Elston, Jr. ------------------------- Title: Senior Vice President and Chief Financial Officer MONITORING INSTRUMENTS FOR THE ENVIRONMENT, INC. By: /s/ Harold C. Elston, Jr. ------------------------- Title: Treasurer and Clerk TRC ENVIRONMENTAL CORPORATION By: /s/ Harold C. Elston, Jr. ------------------------- Title: Vice President, Secretary and Treasurer TRC ENGINEERS, INC. By: /s/ Harold C. Elston, Jr. ------------------------- Title: Secretary and Treasurer TRC INVESTMENT CORPORATION By: /s/ Harold C. Elston, Jr. ------------------------- Title: Secretary and Treasurer NORTH AMERICAN WEATHER CONSULTANTS By: /s/ Harold C. Elston, Jr. ------------------------- Title: Secretary and Treasurer 21 ENVIRONMENTAL SOLUTIONS, INC. By: /s/ Harold C. Elston, Jr. ------------------------- Title: Assistant Treasurer and Assistant Secretary TRC MARIAH ASSOCIATES, INC. By: /s/ Harold C. Elston, Jr. ------------------------- Title: Secretary and Treasurer TRC GARROW ASSOCIATES, INC. By: /s/ Harold C. Elston, Jr. ------------------------- Title: Assistant Secretary and Treasurer ALTON GEOSCIENCE, INC. By: /s/ Harold C. Elston, Jr. ------------------------- Title: Assistant Secretary and Assistant Treasurer VECTRE CORPORATION By: /s/ Harold C. Elston, Jr. ------------------------- Title: Assistant Secretary and Assistant Treasurer 22 BANKBOSTON, N.A. By: /s/ Lindsay W. McSweeney ------------------------- Title: Director 23 EX-13 5 EXHIBIT 13 EXHIBIT 13 PORTIONS OF TRC COMPANIES, INC. 1999 ANNUAL REPORT TO SHAREHOLDERS EXPRESSLY INCORPORATED BY REFERENCE INTO THIS FORM 10-K FINANCIAL HIGHLIGHTS TRC COMPANIES, INC. AND SUBSIDIARIES In thousands, except per share data
YEARS ENDED JUNE 30, 1999 1998 (1) 1997 (1) - ----------------------------------------------------------------------------------------------------------------------- Gross revenue $78,223 $69,568 $65,447 Net service revenue 57,333 49,708 47,729 Income from operations 4,330 2,217 37 Net income (loss) 2,447 925 (602) Earnings (loss) per share - basic and diluted $.36 $.14 $.09 Working capital $17,431 $20,475 $20,679 Current ratio 2.0 to 1 2.8 to 1 2.9 to 1 Percentage of debt to total capitalization 14.4% 14.4% 20.4% Shareholders' equity at year-end $46,988 $44,455 $42,844 Book value per share $6.91 $6.55 $6.41 Common shares outstanding 6,799 6,782 6,688
(1) Operating results presented above for fiscal 1998 and 1997 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 2 for results as reported for fiscal 1998 and 1997. 24 SELECTED FINANCIAL DATA TRC COMPANIES, INC. AND SUBSIDIARIES In thousands, except per share data
YEARS ENDED JUNE 30, 1999 1998(1) 1997(1) 1996(1) 1995(1) --------------------------------------------------------------------------------------------------------- Gross revenue $78,223 $72,570 $68,506 $76,999 $93,013 Less subcontractor costs and direct charges 20,890 19,861 17,718 16,981 21,200 ----------------------------------------------------- Net service revenue 57,333 52,709 50,788 60,018 71,813 ----------------------------------------------------- Operating costs and expenses: Direct labor and fringe benefit costs 26,075 23,324 22,680 26,470 29,903 Indirect costs and expenses 21,998 21,796 21,590 27,918(2) 26,450 General and administrative expenses 2,462 2,451 3,565 3,950 3,965 Depreciation and amortization 2,468 2,702 2,789 2,896 3,037 ----------------------------------------------------- 53,003 50,273 50,624 61,234 63,355 ----------------------------------------------------- Income (loss) from operations 4,330 2,436 164 (1,216) 8,458 Interest expense 507 725 829 906 1,399 Other income, net - - - - (15) ----------------------------------------------------- Income (loss) before taxes 3,823 1,711 (665) (2,122) 7,074 Federal and state income tax provision (benefit) 1,376 650 (160) (807) 2,653 ----------------------------------------------------- Net income (loss) $ 2,447 $ 1,061 $ (505) $(1,315) $ 4,421 ----------------------------------------------------- Earnings (loss) per share: Basic $.36 $.16 $(.07) $(.19) $.62 Diluted .36 .16 (.07) (.19) .61 ----------------------------------------------------- Average shares outstanding: Basic 6,782 6,715 6,741 7,067 7,081 Diluted 6,839 6,726 6,747 7,078 7,208 ----------------------------------------------------- Cash dividends declared None None None None None ----------------------------------------------------- Balance Sheet at June 30, Total assets $66,072 $61,604 $62,290 $64,235 $73,815 ----------------------------------------------------- Debt 7,900 7,500 11,000 12,200 17,200 ----------------------------------------------------- Shareholders' equity 46,988 44,455 42,844 44,748 46,538 -----------------------------------------------------
(1) Include results of Company's instrumentation business that was sold in July 1998. (2) Results for fiscal 1996 include operating charges of $4.4 million (approximately $2.8 million after taxes) related to staff reductions, excess lease capacity and increased allowances for receivables and inventories. 25 SUMMARIZED UNAUDITED QUARTERLY FINANCIAL DATA TRC COMPANIES, INC. AND SUBSIDIARIES
In thousands, except per share data - ------------------------------------------------------------------------------------------------------------ FISCAL 1999 (1) 1st 2nd 3rd 4th - ------------------------------------------------------------------------------------------------------------ Gross revenue $18,406 $18,987 $17,930 $22,900 Net service revenue 12,880 13,151 14,071 17,231 Income from operations 879 998 1,080 1,373 Income before taxes 760 877 980 1,206 Net income 471 544 608 824 Earnings per share - basic and diluted $.07 $.08 $.09 $.12 Market price per share: High $5.13 $5.63 $5.94 $6.25 Low 3.75 3.75 4.63 4.50
- ------------------------------------------------------------------------------------------------------------ FISCAL 1998 (2) 1st 2nd 3rd 4th - ------------------------------------------------------------------------------------------------------------ Gross revenue $17,560 $19,054 $16,398 $19,558 Net service revenue 12,990 12,944 12,919 13,856 Income from operations 417 636 562 821 Income before taxes 197 413 423 678 Net income 122 256 262 421 Earnings per share - basic and diluted $.02 $.04 $.04 $.06 Market price per share: High $4.50 $4.69 $5.13 $5.69 Low 3.13 3.56 3.81 4.38
(1) Results of operations for the third and fourth quarters of fiscal 1999 include acquisitions completed during those quarters. (2) Include results of the Company's instrumentation business that was sold in July 1998. 26 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 provides 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 information technology. RESULTS OF OPERATIONS The Company, in the course of providing its services, routinely subcontracts drilling, laboratory analyses, construction equipment and other 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 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, 1999 1998 1997 - ---------------------------------------------------------------------------------------- Net service revenue 100.0% 100.0% 100.0% --------------------------------- Operating costs and expenses: Direct labor and fringe benefit costs 45.5 44.2 44.7 Indirect costs and expenses 38.4 41.4 42.5 General and administrative expenses 4.3 4.7 7.0 Depreciation and amortization 4.3 5.1 5.5 --------------------------------- Income from operations 7.5 4.6 .3 Interest expense .8 1.4 1.6 --------------------------------- Income (loss) before taxes 6.7 3.2 (1.3) Federal and state income tax provision (benefit) 2.4 1.2 (.3) --------------------------------- Net income (loss) 4.3% 2.0% (1.0)% ---------------------------------
27 1999 COMPARED TO 1998 The revenue growth trend established in fiscal 1998 continued in fiscal 1999. Gross revenue increased from $72.6 million in fiscal 1998 to $78.2 million. Net service revenue increased from $52.7 million in fiscal 1998 to $57.3 million. The increase in revenue was primarily due to continued growth in the core businesses and from acquisitions completed during the year. Gross and net service revenue in fiscal 1998 were $69.6 and $49.7, respectively, without consideration of the Company's instrumentation business that was sold in July 1998, indicating growth in the core businesses of approximately 12% and 15%, respectively. Direct labor and fringe benefit costs increased by approximately 12% during fiscal 1999, as compared to fiscal 1998, primarily due to the increase in revenue. Indirect costs and expenses increased by only about 1% in fiscal 1999, as compared to fiscal 1998. As a percentage of net service revenue, indirect costs and expenses decreased to approximately 38%, from 41% in fiscal 1998. This improvement resulted from management's continuing program to increase staff utilization and reduce non-productive overhead, and to a lesser extent from cost savings resulting from the sale of the Company's instrumentation business in July 1998. General and administrative expenses remained relatively even in fiscal 1999, as compared to fiscal 1998. This continuing improvement with respect to revenue growth also reflects management's philosophy of maintaining a flat organizational structure with no non-productive overhead. Depreciation and amortization expense decreased by approximately 9% in fiscal 1999, as compared to fiscal 1998. This decrease was primarily due to the sale of the Company's instrumentation business in July 1998 and to the comparative reduction in capital expenditures over the past several years, combined with the effect of equipment that became fully depreciated. Income from operations was $4.3 million in fiscal 1999, compared to $2.4 million in fiscal 1998. The continuing improvement in operating performance was primarily due to the growth in revenue (without comparable increases in operating overhead) and acquisitions. Interest expense decreased by approximately 30% in fiscal 1999, as compared to fiscal 1998, resulting primarily from lower levels of debt outstanding. The provision for federal and state income taxes reflects an effective rate of 36% in fiscal 1999, compared to an effective rate of 38% in fiscal 1998. This decrease was due to lower state income taxes. The Company believes that there will be sufficient taxable income in future periods to enable utilization of deferred income tax benefits. 28 1998 COMPARED TO 1997 Fiscal 1998 reflected the first year of operating performance under the Company's new management team that was installed in April 1997. During fiscal 1998, the revenue declines of the prior two years were halted and a growth trend was established. Gross revenue increased by 6% from $68.5 million in fiscal 1997 to $72.6 million. Net service revenue increased by 4% from $50.8 million in fiscal 1997 to $52.7 million. The increase in revenue resulted primarily from growth in the core businesses. Direct labor and fringe benefit costs increased by 3% during fiscal 1998 as a result of the increase in revenue. Indirect costs and expenses increased by 1% in fiscal 1998, however, as a percentage of net service revenue, indirect costs and expenses decreased to 41% from 43% in fiscal 1997. This improvement was primarily due to new management's initiation of programs to increase staff utilization and reduce non-productive overhead. General and administrative expenses decreased by 31% in fiscal 1998, as compared to fiscal 1997, also reflecting the new management's philosophy of maximizing revenue without increasing overhead. Depreciation and amortization expense decreased by 3% in fiscal 1998, as compared to fiscal 1997. This decrease was due to the comparative reduction in expenditures for equipment in fiscal 1997 and 1996, combined with the effect of other equipment that became fully depreciated. The Company reported income from operations of $2.4 million in fiscal 1998, compared to $.2 million in fiscal 1997. This improvement was primarily due to a combination of the increase in revenue and overhead reductions. In fiscal 1998, the Company recorded charges aggregating approximately $.9 million to exit certain non-core businesses. The recording of these charges is consistent with the Company's objective to focus on its strategic market sectors. These charges were essentially offset by the inclusion of approximately $.9 million of non-recurring income related to the settlement agreements with the former Chairman and the former President. Interest expense decreased by 13% in fiscal 1998, as compared to fiscal 1997. The decrease resulted primarily from lower levels of debt outstanding, partially offset by higher interest rates. The provision for federal and state income taxes reflected an effective rate of approximately 38% in fiscal 1998, compared to the benefit in fiscal 1997 recorded at an effective rate of 24%. The benefit in fiscal 1997 was recorded at a lower effective rate because of foreign taxes paid for which a foreign tax credit was not available. 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. 29 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. Operating activities are the principal source of cash flow for the Company. Operating activities provided $3.8 million of cash flow during fiscal 1999, down from $5.7 million last year. Although operating performance improved significantly in fiscal 1999, the cash generated by net income and the non-cash charges against income for depreciation and amortization was reduced by several factors, principally higher income tax payments and payments to subcontractors in early fiscal 1999 for work completed in the fourth quarter of fiscal 1998 on an Exit Strategies-TM- project. Also, fiscal 1998 operating cash flow contained a non-recurring settlement recovery of approximately $.9 million from the former Chairman and the former President, as further described in Note 9 to the Consolidated Financial Statements. Investing activities used cash of approximately $3.3 million in fiscal 1999. The acquisition of businesses completed in fiscal 1999 required the use of approximately $4.8 million (net of cash acquired). Capital expenditures during fiscal 1999 for additional equipment and information systems to support business growth increased $1.3 million, up from $1 million last year. In July 1998, the Company completed the sale of its instrumentation business that provided approximately $2.8 million in cash. In fiscal 2000, the Company expects to make capital expenditures of approximately $2 million and also expects expenditures for acquisitions to continue at a pace similar to fiscal 1999. The Company relies on its bank financing arrangement to assist in funding various operating activities. The Company has available a $15 million revolving credit facility, secured by accounts receivable, which expires July 2001. Borrowings under the agreement bear interest at the bank's base rate or the Eurodollar rate plus 1-3/4%. At June 30, 1999, borrowings outstanding pursuant to the agreement were $4 million at an average interest rate of 6-3/4%. At June 30, 1999, the Company had outstanding a $3.5 million subordinated note issued in March 1994 in connection with the acquisition of Environmental Solutions, Inc. and subsequently amended in July 1997. Interest on the note accrued at the greater of the interest rate paid on the Company's bank debt or 7-3/4%. The outstanding balance at June 30, 1999 was repaid on July 1, 1999 with cash provided by the revolving credit facility. The Company also had outstanding at June 30, 1999 a $.4 million 7-3/4% subordinated note issued in connection with the March 1998 purchase of Hydro-Geo Consultants, Inc. The note is repayable in four remaining equal annual installments. The Company expects to increase its available cash flow over the next fiscal year, primarily from operations and 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, 1999 and available borrowings under the bank credit facility will be sufficient to meet the Company's cash requirements for fiscal 2000. 30 YEAR 2000 COMPLIANCE The Company recognizes the need to ensure that its critical management, financial and operating systems will recognize and process transactions for the year 2000 and beyond. As a result, all computer systems and applications have been reviewed and, where appropriate, detailed plans have been developed, implemented and tested. The costs specific to the Year 2000 issue are not expected to have a material impact on the Company's future operating results, financial condition or cash flows. Although the Company expects to be fully Year 2000 compliant on a timely basis, if system modifications and conversions are not effective, or if the Company's critical suppliers and customers do not address this issue successfully, the Year 2000 issue could possibly have a material impact on the Company's operations and financial condition. The Company is developing contingency plans to be implemented as part of its efforts to identify and mitigate any Year 2000 issues. The contingency plans will deal with the most likely worst-case scenarios and will be substantially complete by September 30, 1999, with follow-up to occur through December 31, 1999. 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. 31 CONSOLIDATED STATEMENTS OF OPERATIONS TRC COMPANIES, INC. AND SUBSIDIARIES IN THOUSANDS, EXCEPT PER SHARE DATA
YEARS ENDED JUNE 30, 1999 1998 1997 - ---------------------------------------------------------------------------------------------- GROSS REVENUE $78,223 $72,570 $68,506 Less subcontractor costs and direct charges 20,890 19,861 17,718 ----------------------------------------- NET SERVICE REVENUE 57,333 52,709 50,788 ----------------------------------------- OPERATING COSTS AND EXPENSES: Direct labor and fringe benefit costs 26,075 23,324 22,680 Indirect costs and expenses 21,998 21,796 21,590 General and administrative expenses 2,462 2,451 3,565 Depreciation and amortization 2,468 2,702 2,789 ----------------------------------------- 53,003 50,273 50,624 ----------------------------------------- Income from operations 4,330 2,436 164 Interest expense 507 725 829 ----------------------------------------- Income (loss) before taxes 3,823 1,711 (665) Federal and state income tax provision (benefit) 1,376 650 (160) ----------------------------------------- Net income (loss) $ 2,447 $ 1,061 $ (505) ----------------------------------------- Earnings (loss) per share - basic and diluted $.36 $.16 $ (.07) ----------------------------------------- AVERAGE SHARES OUTSTANDING: Basic 6,782 6,715 6,741 Diluted 6,839 6,726 6,747 -----------------------------------------
See accompanying notes to consolidated financial statements. 32 CONSOLIDATED BALANCE SHEETS TRC COMPANIES, INC. AND SUBSIDIARIES IN THOUSANDS, EXCEPT SHARE DATA
AS OF JUNE 30, 1999 1998 ---------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash $ 1,368 $ 1,379 Accounts receivable, less allowance for doubtful accounts 31,479 27,775 Inventories - 1,103 Deferred income tax benefits 1,231 950 Prepaid expenses and other current assets 1,096 846 ------- ------- 35,174 32,053 ------- -------- PROPERTY AND EQUIPMENT: Furniture and equipment 18,743 19,613 Leasehold improvements 1,634 1,660 ------- -------- 20,377 21,273 Less accumulated depreciation and amortization 16,603 17,267 ------- -------- 3,774 4,006 ------- -------- COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, net of accumulated amortization of $5,355 and $4,397, respectively 26,519 24,874 ------- -------- OTHER ASSETS 605 671 ------- -------- $66,072 $61,604 ------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of debt $ 7,600 $ 3,600 Accounts payable 4,152 4,133 Accrued compensation and benefits 3,433 2,685 Income taxes payable 1,399 578 Other accrued liabilities 1,159 582 ------- -------- 17,743 11,578 ------- -------- NON-CURRENT LIABILITIES: Long-term debt 300 3,900 Deferred income taxes 1,041 1,671 ------- -------- 1,341 5,571 ------- -------- 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, 7,427,846 and 7,410,855 shares issued at June 30, 1999 and 1998, respectively 743 741 Additional paid-in capital 38,719 38,635 Retained earnings 10,423 7,976 ------- -------- 49,885 47,352 Less treasury stock, at cost 2,897 2,897 ------- -------- 46,988 44,455 -------- -------- $66,072 $61,604 -------- --------
See accompanying notes to consolidated financial statements. 33 CONSOLIDATED STATEMENTS OF CASH FLOWS TRC COMPANIES, iNC. AND SUBSIDIARIES IN THOUSANDS
YEARS ENDED JUNE 30, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 2,447 $ 1,061 $ (505) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,468 2,702 2,789 Change in deferred taxes and other non-cash items (444) 609 368 Changes in assets and liabilities, net of effects from acquisitions and disposition: Accounts receivable 452 (661) 1,880 Inventories (292) (331) (136) Prepaid expenses and other current assets (135) 820 (833) Accounts payable (845) 1,384 398 Accrued compensation and benefits 30 (40) (119) Income taxes 549 1,177 (652) Other accrued liabilities (472) (999) 73 ----------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,758 5,722 3,263 ----------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of instrumentation business 2,750 -- -- Additions to property and equipment (1,270) (1,039) (643) Acquisition of businesses, net of cash acquired (4,784) (431) -- Decrease (increase) in other assets 33 98 (138) Disposal of equipment 7 9 20 ----------------------------- NET CASH USED IN INVESTING ACTIVITIES (3,264) (1,363) (761) ----------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of subordinated debt (3,600) -- -- Net borrowings (repayments) under credit facility 3,085 (4,000) (1,200) Proceeds from exercise of stock options 10 -- -- Purchase of treasury stock -- -- (1,603) ----------------------------- NET CASH USED IN FINANCING ACTIVITIES (505) (4,000) (2,803) ----------------------------- INCREASE (DECREASE) IN CASH (11) 359 (301) Cash, beginning of year 1,379 1,020 1,321 ----------------------------- CASH, END OF YEAR $ 1,368 $ 1,379 $ 1,020 ----------------------------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 435 $ 611 $ 757 Income taxes paid (refunded), net 1,018 (315) (119) -----------------------------
See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------- 34 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY TRC COMPANIES, INC. AND SUBSIDIARIES
Common stock issued Treasury stock --------------------- ---------------------- Additional IN THOUSANDS, EXCEPT SHARE DATA Number paid-in Retained Number YEARS ENDED JUNE 30, 1999, 1998 AND 1997 of shares Amount capital earnings of shares Amount - ---------------------------------------------------------------------------------------------------------------------- BALANCES, JUNE 30, 1996 7,265,755 $ 727 $ 37,895 $ 7,420 246,753 $ (1,294) Issuance of common stock in connection with business acquired 51,000 5 199 -- -- -- Purchase of treasury stock -- -- -- -- 381,900 (1,603) Net loss -- -- -- (505) -- -- ------------------------------------------------------------------------ BALANCES, JUNE 30, 1997 7,316,755 732 38,094 6,915 628,653 (2,897) Issuance of common stock and warrant in connection with business acquired 94,100 9 541 -- -- Net income -- -- -- 1,061 -- -- ------------------------------------------------------------------------ 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 2,250 -- 10 -- -- -- Net income -- -- -- 2,447 -- -- ------------------------------------------------------------------------ BALANCES, JUNE 30, 1999 7,427,846 $ 743 $ 38,719 $ 10,423 628,653 $ (2,897) ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 35 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. Certain financial statement items have been reclassified to conform to the current year's format. B. 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. C. At June 30, 1998, inventories totaling $1,103 related to the instrumentation business that was sold in July 1998 were stated at the lower of cost or market, cost being determined using the first-in, first-out (FIFO) method. D. Property and equipment are stated on the basis of 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 on the straight-line method using estimated useful lives of 3 to 10 years. Accelerated methods are used for income tax purposes. E. Leasehold improvements are amortized over the lives of the various leases or the useful lives of the improvements, whichever is shorter. F. 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 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. G. Revenue on engineering and remediation contracts is recognized as the services are performed and the related costs are incurred. Revenue from the sale of instruments in fiscal 1998 and 1997 was recognized when the products were 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. 36 H. Research and development costs related to the Company's instrumentation business that was sold in July 1998 were charged to operations as incurred and amounted to approximately $187 and $190 in fiscal 1998 and 1997, respectively. I. 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 J. 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 assets and liabilities are determined based on the difference between the carrying amounts and tax bases of assets and liabilities. K. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (FAS) No. 130, Reporting Comprehensive Income. FAS 130 established standards for reporting and displaying comprehensive income in a set of financial statements. The Company has no items of other comprehensive income. L. Earnings (loss) per share is computed in accordance with the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share. Basic earnings (loss) per share is based upon the weighted average common shares outstanding during the year. Diluted earnings (loss) per share reflect the potential dilutive effect of outstanding stock options and warrants. M. The Company has 401(k) savings plans covering substantially all employees. The Company's contributions to the plans were approximately $578, $562 and $543 in fiscal 1999, 1998 and 1997, respectively. The Company does not provide post-employment benefits. N. Cash, accounts receivable, accounts payable, accrued liabilities and the Company's subordinated notes 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 at June 30, 1999, approximates fair value because the interest rate on this instrument changes with market interest rates. 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 information technology. The Company's services and products are provided to commercial organizations and government agencies primarily in the U.S. market. In July 1998, the Company sold its instrumentation subsidiary that developed and manufactured air monitoring instrumentation. During fiscal 1998, the Company recorded charges aggregating approximately $890 to exit certain non-core businesses. The decision to exit these non-core businesses was consistent with the Company's objective to focus on its strategic market sectors. 37 Note 3. ACCOUNTS RECEIVABLE Accounts receivable at June 30, 1999 and 1998 are comprised of the following:
1999 1998 - ------------------------------------------------------------------------------------- Amounts billed $ 25,121 $ 22,803 Unbilled costs 7,976 6,767 Retainage 928 580 -------- --------- 34,025 30,150 Less allowance for doubtful accounts 2,546 2,375 -------- --------- $ 31,479 $ 27,775 -------- ---------
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 $9,407, $10,721 and $10,998 in fiscal 1999, 1998 and 1997, respectively. Note 4. ACQUISITIONS AND DIVESTITURE In March 1999, the Company acquired all of the outstanding shares 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 purchase price included cash of $1,562 (net of cash acquired) and a $500 holdback payable in one year. The Company will make an additional payment equal to 75% of Alton's pre-tax profit for the twelve-month period ending September 30, 1999. The acquisition has been accounted for using the purchase method of accounting. In April 1999, the Company acquired all of the outstanding shares of Vectre Corporation (Vectre), an environmental engineering and consulting firm located in Lafayette, New Jersey. The purchase price consisted of cash of $1,489 (net of cash acquired). The Company may also be required to make additional payments if certain profit objectives are achieved in each of the years in the four-year period ending June 30, 2003. The acquisition has been accounted for using the purchase method of accounting. In May 1999, A & H Engineers, P.C. (A & H), a transportation consulting and engineering firm located in New York City, merged into a subsidiary of the Company. The purchase price consisted of $1,733 (net of cash acquired). The Company will make additional payments based upon revenue objectives in each of the years in the four-year period ending April 30, 2003. The acquisition has been accounted for using the purchase method of accounting. The aggregate excess of purchase price over the fair values of the net assets acquired for these acquisitions was $2,528 (before contingent consideration), which is being amortized over 30 years on a straight-line basis. 38 In March 1998, a wholly-owned subsidiary of the Company acquired substantially all of the business assets, liabilities and obligations of Hydro-Geo Consultants, Inc., a Denver-based firm servicing principally the domestic and international mining and water resource sectors. The purchase price of approximately $1,500 consisted of a combination of cash, a $500 five-year 7 3/4% subordinated note, 94,100 shares of the Company's common stock and a warrant to purchase 75,000 shares of the Company's common stock exercisable at $4.25 per share and expiring in March 2003. The acquisition 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 $1,075, 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 current year acquisitions had occurred at the beginning of the years presented, after giving effect to certain adjustments, including amortization of costs in excess of the net assets acquired, increased interest expense on acquisition borrowings and related income tax effects.
Years ended June 30, 1999 1998 - ------------------------------------------------------------------------------- Net service revenue $67,203 $64,616 ------- ------- Net income 2,956 1,386 ------- ------- Earnings per share - diluted $.43 $.21 ------- -------
The pro forma financial information does not purport to be indicative of the results that would have occurred had the acquisitions taken place at the beginning of the periods presented, nor do they purport to be indicative of the results that will be obtained in the future. In July 1998, the Company sold its instrumentation business which had sales of approximately $3,000 in fiscal 1998, for $2,750 in cash resulting in a gain that was not significant. Note 5. DEBT Debt at June 30, 1999 and 1998 is comprised of the following:
1999 1998 - ---------------------------------------------------------------------------------------- Note payable - revolving credit agreement $ 4,000 $ - Subordinated note, due July 1999 3,500 7,000 7 3/4% subordinated note, due March 2003 400 500 --------- -------- 7,900 7,500 Less current portion 7,600 3,600 --------- -------- Long-term debt $ 300 $ 3,900 --------- --------
39 The Company has available a $15,000 credit facility, as amended July 1, 1999, secured by accounts receivable which extends through July 2001. Borrowings under the agreement bear interest at the bank's base rate or the Euro dollar rate plus 1 3/4%. The weighted average interest rate on outstanding borrowings at June 30, 1999 was 6 3/4%. The Company also pays a commitment fee of 1/4% on the unused portion of the facility. The Company was in compliance with all covenants contained in the agreement at all times during the year ended June 30, 1999. The subordinated note due July 1999 was issued in March 1994 in connection with the acquisition of Environmental Solutions, Inc. In exchange for an extension of the payment term, the note was amended in July 1997 to increase the interest rate to the greater of the interest paid on the bank debt or 7 3/4%. In addition, warrants to purchase 50,000 shares of the Company's common stock were issued to the noteholder, exercisable at $4.50 per share and expiring in July 2000. The outstanding balance at June 30, 1999 was repaid on July 1, 1999. The 7 3/4% subordinated note due March 2003 was issued in March 1998 in connection with the acquisition of Hydro-Geo Consultants, Inc. The balance outstanding at June 30, 1999 is payable in four equal annual installments. Note 6. FEDERAL AND STATE INCOME TAXES The federal and state income tax provision (benefit) for fiscal 1999, 1998 and 1997 consists of the following:
YEARS ENDED JUNE 30, 1999 1998 1997 - ------------------------------------------------------------------------------- Current: Federal $1,427 $679 $(798) State 103 34 10 Deferred: Federal (45) (116) 623 State (109) 53 5 ------- ----- ------ $1,376 $650 $(160) ------- ----- ------
40 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, 1999 1998 - ------------------------------------------------------------------------------------------ Deferred income tax benefits: Doubtful accounts and other accruals $ 767 $ 796 Vacation pay accrual 283 6 Adjustment of inventories and contracts to tax basis - 70 Other, net 181 78 -------- -------- $ 1,231 $ 950 -------- -------- Deferred income tax liabilities: Depreciation and amortization $(1,613) $(1,645) Loss carryforwards from acquisition 528 - Accrued lease obligations 68 74 Other, net (24) (100) -------- -------- $(1,041) $(1,671) -------- --------
A reconciliation of the federal statutory and the Company's effective income tax rates follows:
YEARS ENDED JUNE 30, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------- Statutory rate 34.0% 34.0% (34.0%) State taxes, net of federal tax benefit 1.8 4.4 1.7 Adjustment of deferred income taxes due to state tax rate changes (2.8) - - Foreign taxes for which a foreign tax credit was not available - - 10.1 Other, net 3.0 (.4) (1.8) ----- ----- ------- Effective income tax rate 36.0% 38.0% (24.0)% ----- ----- --------
At June 30, 1999, the Company had approximately $1,500 of operating loss carryforwards available to reduce future federal taxable income. These loss carryforwards relate to the March 1999 acquisition of Alton Geoscience, Inc. and expire in years 2008 through 2018. 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. 41 Note 7. LEASE COMMITMENTS The Company has commitments at June 30, 1999 under noncancelable operating leases primarily for office and warehouse space and for computer and office equipment. Rental payments, net of sublease receipts, charged to operations in fiscal 1999, 1998 and 1997 were approximately $4,189, $3,674 and $4,179, respectively. Certain leases for office and warehouse space require payments for expenses under escalation clauses. Minimum future lease obligations payable in future fiscal years are as follows:
Years ending June 30, - --------------------------------------------------------------------- 2000 $ 4,014 2001 3,108 2002 3,013 2003 2,750 2004 2,349 2005 and thereafter 6,316 -------- $ 21,550 --------
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 exercisable option period 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 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. The Company had a separate stock option plan for directors who were not employees. In fiscal 1997, the stock option plan for directors was terminated and the stock option plan for employees was amended to include directors. 42 A summary of stock option activity for the three years ended June 30, 1999 follows:
1999 1998 1997 -------------------------------------------------------------------- Average Average Average Options Price Options Price Options Price - -------------------------------------------------------------------------------------------------------------- Outstanding options, beginning of year 688,677 $5.04 738,352 $4.38 577,959 $6.86 Granted 254,000 4.29 497,000 4.50 736,600 3.66 Exercised (2,250) 4.33 - - - - Canceled (54,197) 6.99 (547,175) 3.67 (588,207) 6.00 Transfer from directors' plan - - - - 12,000 8.88 ------------------------------------------------------------- Outstanding options, end of year 886,230 $4.71 688,677 $5.04 738,352 $4.38 ------------------------------------------------------------- Options exercisable at end of year 457,333 $4.99 120,519 $6.91 80,536 $7.52 ------------------------------------------------------------- Options available for future grants 649,689 849,492 799,817 ------- ------- -------
The following table summarizes information about outstanding stock options at June 30, 1999:
Options Outstanding Options Exercisable ---------------------------------------------- ----------------------------- Average Average Average Exercise Price Shares Price Term (Years) Shares Price ------------------- ------------- -------------- ----------------- -------------- --------------- $3.50 - $ 4.50 727,125 $4.36 8.6 342,062 $4.38 4.63 - 6.00 59,500 4.95 8.5 15,666 5.04 6.63 - 10.00 99,605 7.09 1.4 99,605 7.09
Grants in fiscal 1998 include 485,000 options granted to certain senior managers in exchange for a reduction in cash compensation to the grantees over the next two years, with individuals receiving one option for every two dollars in aggregate salary reduction over such two-year period. Cancellations in fiscal 1998 include 516,600 options granted in fiscal 1997 that were contingent upon the attainment of certain performance goals. In fiscal 1997, 497,770 options held by the former Chairman and the former President were cancelled in connection with their resignations. In connection with the acquisition of Environmental Solutions, Inc. (ESI) in fiscal 1994, the Company issued warrants to employees of ESI to purchase shares of common stock, under the same terms and conditions as the employee stock option plan. At June 30, 1999, warrants to purchase 19,400 shares of common stock at $6.63 per share were outstanding and expire in February 2001. 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 (loss) and earnings 43 (loss) per share for the years ended June 30, 1999, 1998 and 1997 would have been as follows:
Years ended June 30, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Net income (loss), as reported $ 2,447 $ 1,061 $ (505) Net income (loss), pro forma 1,647 903 (601) Earnings (loss) per share - basic and diluted, as reported $.36 $.16 $(.07) Earnings (loss) per share - basic and diluted, pro forma .24 .13 (.09)
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, 1999 1998 1997 - ------------------------------------------------------------------------ Risk-free interest rate 4.7% 5.4% 6.5% Expected life 7.5 years 7.4 years 3.8 years Expected volatility 49% 63% 52% Expected dividend yield None None None
The weighted average fair value of options and warrants granted during fiscal 1999, 1998 and 1997 was $2.50, $3.42 and $2.19, respectively. Note 9. 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 operating results, financial condition or cash flows. In 1997, the Board of Directors created a Special Committee of outside board members of the Company to investigate the exercise of stock options by the former Chairman and the former President, as well as other matters. The Special Committee conducted its investigation with the assistance of outside counsel and accountants who had no prior affiliation with the Company, and also consulted with the Company's independent accountants. The investigation revealed no circumstances that had any material effect on the Company's historical audited financial statements. In December 1997, the Company entered into settlement agreements with those former executive officers. The Company was fully reimbursed for costs of the investigation and damages incurred. As a result, the Company recorded income in fiscal 1998 of approximately $900 related to the settlement. 44 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999 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. /s/ PricewaterhouseCoopers LLP Hartford, Connecticut August 4, 1999 45 TRC COMPANIES, INC. DIRECTORS Richard D. Ellison Chairman, President and Chief Executive Officer 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 Richard J. McGuire, Jr. * Formerly President of TRC Environmental Corporation and TRC Mariah Associates, Inc. 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 Martin H. Dodd Vice President and General Counsel 46 SHAREHOLDER INFORMATION EXECUTIVE OFFICES TRC Companies, Inc. 5 Waterside Crossing Windsor, CT 06095 (860) 289-8631 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Financial Plaza Hartford, CT 06103 ANNUAL MEETING The 1999 annual meeting of shareholders will be held on Friday, October 22, 1999, 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. REGISTRAR AND TRANSFER AGENT FOR COMMON STOCK American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, NY 10005 Shareholders may call the agent's Shareholder Services Department directly concerning stock certificates and address changes at (800) 937-5449. 47 EX-21 6 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 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 North American Weather Consultants (incorporated in Utah), 100% a subsidiary of TRC Environmental Corporation TRC Vectre Corporation (incorporated in New Jersey) 100%
47 EX-27 7 EXHIBIT 27
5 1,000 U.S. DOLLARS YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 1 1,368 0 34,025 2,546 0 35,174 20,377 16,603 66,072 17,743 0 0 0 743 46,245 66,072 78,223 78,223 0 73,893 0 0 507 3,823 1,376 2,447 0 0 0 2,447 .36 .36
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