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

FORM 10-K

Commission file number 1-9947

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

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        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)

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2. Yes ý    No o

        The aggregate market value of the registrant's common stock held by non-affiliates on October 10, 2003 was approximately $153,300,000.

        On October 10, 2003, there were 13,518,991 shares of common stock of the registrant outstanding.

Documents incorporated by reference:

        Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held November 21, 2003 are incorporated by reference into Part III of this Report.

TRC Companies, Inc.

Index to Annual Report on Form 10-K
Fiscal Year Ended June 30, 2003

Part I

Part I

Item 1.    Business

        TRC Companies, Inc., incorporated in 1971, is a customer-focused company that creates and implements innovative solutions to the challenges facing America's environmental, energy, infrastructure and security markets. The Company is a leading provider of technical, financial, risk management and construction services to industry and government customers across the country. Traditionally, the Company's work was focused primarily on providing conventional technical services to commercial and government customers. In early 1998, new Company management initiated a growth plan focused on two key areas. First, while maintaining the traditional business, the Company embarked on a plan to increase growth in economically driven markets. Secondly, it would provide higher value, "problem solving" services and elevate purchasing decisions in customer organizations from middle to senior management. This approach has resulted in a superior growth rate and has allowed the Company to continuously transform its services to suit the evolving needs of its customers. The Company currently provides services in the following areas:

        Environmental—The Company provides engineering, scientific and technical environmental services to customers through a national network of over 85 offices. These services have been one of the Company's historic core strengths and serve as the foundation for the Company's Exit Strategy® program.

        Environmental services provided by the Company include pollution control, waste management, auditing and assessment, permitting and compliance, design and engineering, and natural and cultural resource management. The Company has particular expertise in air quality, emissions control and monitoring; in licensing new and expanded facilities; and in investigating and cleaning up environmentally impaired sites. While these services are generally required by the Company's customers for compliance with federal, state and local environmental laws, the Company is experiencing an increase in its business due to (i) the rehabilitation of older business processes to increase efficiency and productivity, (ii) mergers, acquisitions and divestitures and the identification, quantification and resolution of environmental liabilities associated with past practices, and (iii) the redevelopment of former industrial properties to meet changing urban demographic patterns. The Company believes these economically motivated projects, as well as enforcement of environmental laws and regulations, will continue to provide opportunities to expand and grow its traditional environmental business. In addition, the Company has an information management group that assists its customers by analyzing their data management requirements and creating software and hardware solutions for cost-effective information management systems.

        The Company has developed a unique, innovative method for its customers to outsource their environmental remediation activities to the Company. The Company's Exit Strategy program provides its customers with a cost-effective alternative to managing their non-core environmental remediation activities. This is especially attractive to customers in the following situations:

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Mergers, Acquisitions and Divestitures—In typical transactions, neither buyer nor seller wishes to be responsible for existing environmental conditions of transferred assets. The Company solves this dilemma by identifying and quantifying the risk and then entering into a contract with both buyer and seller to complete the remediation.



•

Discontinued Operations—When the Company's customers close facilities or purchase redundant facilities as part of a business transaction, they are faced with the environmental legacy of the property. By outsourcing the management of these responsibilities to the Company, our customers can re-allocate resources to ongoing business operations.



•

Multi-Party Superfund Sites—By law, the cleanup of abandoned, environmentally impaired sites is the responsibility of those businesses that sent waste materials to the site during its period of

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operation. The typically inefficient and lengthy process of negotiating and managing these cleanups drives up the legal and administrative cost burden for the responsible parties. By taking sole responsibility for the site, the Company essentially eliminates the additional cost and expedites the schedule for cleanup.

•

Brownfields Real Estate Development—The redevelopment of commercially viable but environmentally contaminated property is commonly referred to as "brownfields" redevelopment. The Company has, on occasion, purchased contaminated property from its customers and is in the process of cleaning up these properties to increase their market value for eventual sale or redevelopment. The Company does not actively pursue these sites on its own but generally seeks a real estate development partner with experience in the local or regional real estate market.

        Regardless of the type of Exit Strategy project undertaken, the Company completes a thorough due diligence process to understand and quantify the environmental condition of the property. The Company then designs a specific risk management plan to address the known and unknown risks. This plan includes insurance to adequately protect the Company and its customers from future risks. The Company's insurer on these projects is the American International Group (AIG).

        Through its Exit Strategy program, the Company is recognized as a leader in the environmental remediation outsourcing market, and expects the market for these projects will continue to grow. The Company has an experienced team of technical and management personnel to continue to develop these opportunities.

        Energy / Power—The Company has traditionally provided a variety of technical services to energy and electrical power customers from offices across the country. In 1998, the Company determined that changes in the energy industry would create substantial new demand for high quality, responsive services. Since that time, the Company has established a leadership position in supporting the licensing of large electric generating facilities and re-powering older plants in areas of the country with the highest demand for additional power. In addition, the Company is providing a variety of technical services in support of large scale wind-powered electric generating projects and hydroelectric facilities.

        The Company has substantially expanded its energy and power services to meet the growing demand and need for reliable energy. As discussed below, the Company has established a national capability for permitting, engineering and construction management services for the natural gas and electric transmission and distribution markets.

        The proven long-term supply of natural gas is enabling industry to expand its use of this cleaner fuel source. This increased demand is in turn fostering expansion of the country's gas pipeline transmission system. The Company has one of the leading practices supporting this infrastructure expansion. The Company is also assisting customers who are developing a new generation of liquid natural gas (LNG) facilities that will provide needed capacity to meet peak demand cycles.

        As the 2003 blackouts in the upper midwest and northeast U.S. demonstrated, the electric transmission system serving the country has aged and is in need of upgrade. The federal government initiative to balance power supply and demand more effectively through the multi-state regional transmission organizations is also creating a need for permitting and engineering services to upgrade the transmission and distribution grid. The Company's power delivery engineering and environmental groups are assisting the owners of the transmission grid with upgrading system capabilities to meet increases in demand, improve reliability, and integrate new sources of electric generation.

        Recognizing that the needs of electrical users in high load demand areas cannot be met solely by new major generating plants or capital upgrades to the transmission grid, the Company has also expanded services into development and oversight of distributed generation projects and energy capacity management consulting. The Company is currently co-developing a number of distributed generation facilities located at host commercial office and manufacturing operations. In addition to

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maintaining a going-forward equity ownership position, the Company provides licensing, engineering and development management services for the facilities. This contribution of turn key services is aimed toward solving special customer problems, allowing the Company to expand its ability to provide higher value services.

        The Company's financial transaction management group is assisting customers interested in purchasing or selling energy assets. These transactions are becoming increasingly more frequent because of the benefits of having securitized assets and the need for capital in segments of the energy industry. The Company's services for these transactions include identifying available assets for transfer as well as site-related due diligence and environmental compliance services. These evolving activities continually allow the Company to increase the overall value of its services.

        Infrastructure—The Company's infrastructure development markets are primarily targeted at: (1) the expanding need for capacity in geographic areas where the population is growing rapidly; and, (2) rehabilitative improvements of overburdened and deteriorating infrastructure systems. Investing in infrastructure projects continues to be a primary focus of government and industry due to these drivers. The Company's infrastructure market focus areas include:

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Transportation—Planning, design and construction management of road and bridge projects for public customers.



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Land Development—Planning, design and construction management of development projects for municipal and private customers.



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Water/Wastewater Treatment—Planning, design and construction management for potable water and wastewater treatment facilities.



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Building Systems—Building automation systems design, central plant design, construction management and commissioning, and facility energy management program implementation.



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Security—Vulnerability assessment, engineering and structural improvements for public and private infrastructure facilities, and design and implementation of security and surveillance systems.



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Information Management—Technology strategy and planning, systems design and implementation for public and private sector customers.

        Currently, much of the Company's infrastructure work is accomplished through conventional contracting. There is an increasing trend for customers to prefer design/build or privatization (outsourcing) contracts, and the Company is pursuing value-added contracting approaches. The Company's objective is to combine its technical, financial, and risk management capabilities as a suite of higher-margin, value-added services that enable the Company to capture larger projects with the potential for greater profitability.

        At this time, it is not practicable to report revenue by the environmental, energy/power and infrastructure areas.

Customers

        The Company's customers include companies in the energy, 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

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customers are major multinational corporations. The following are representative of the Company's customers:

        For fiscal 2003, 2002 and 2001, agencies of the U. S. Government (principally the U.S. Environmental Protection Agency and the U.S. Department of Defense) accounted for 6%, 5% and 7%, respectively, of the Company's net service revenue. No customer represented 10% or more of the Company's net service revenue in any of those years.

Marketing and Sales

        The Company believes that it attracts customers primarily on the basis of its reputation for providing value-added and cost-effective solutions to customer needs and its ability to respond to meet customer schedules. The marketing activities for the Company's services are generally conducted by senior professional staff members and executives (seller-doers) who are recognized experts in our business areas and regularly meet with existing and potential customers to obtain new business. These activities are typically conducted through the Company's network of regional resource centers for local customers and by market program leaders for national customers. In addition, corporate and subsidiary marketing departments coordinate representation at trade shows, prepare sales literature and develop and place advertising.

        During the past three years a key element of the Company's marketing and sales activities has been to focus on the highest level managers and decision makers (e.g. CEOs, CFOs) of our customers. This approach has been successful in allowing the Company to demonstrate its special value-added services to buyers who are prepared to pay higher margins on larger projects, when the Company can assist them in accomplishing their most important objectives. This approach will be a continuing and expanding strategy to assist the Company in achieving greater growth and higher margins than the norm.

Backlog

        At June 30, 2003, the Company's net contract backlog (excluding the estimated costs of pass-through charges) was approximately $240 million, as compared to approximately $215 million at

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June 30, 2002. The Company expects that approximately 60% of this backlog will be completed in fiscal 2004. In addition to this net contract backlog, the Company holds open order contracts from various customers and government agencies. As work under these contracts is authorized and funded, the Company includes this portion in its net contract backlog. While most contracts contain cancellation provisions, the Company is unaware of any material work included in backlog which will be canceled or delayed.

Employees

        As of June 30, 2003, the Company had approximately 2,200 full- and part-time employees. Approximately 85% of these employees are primarily engaged in performing environmental, power and infrastructure engineering and consulting, financial, risk management, construction management and information management services for customers. Many of these employees have master's degrees or their equivalent and a number have Ph.D. degrees. The Company's professional staff includes program managers, professional engineers and scientists, construction specialists, computer programmers, systems analysts, attorneys and others with degrees and experience that enables the Company to provide a diverse range of services. The balance of the Company's employees are engaged primarily in executive, administrative and support activities. None of the Company's employees are represented by a union. The Company considers its relations with its employees to be very good.

Competition

        The markets for many of the Company's services are highly competitive. There are numerous professional architectural, engineering and consulting firms and other organizations which offer many of the services offered by the Company. The Company is subject to direct competition with respect to the services it provides from many other firms, ranging from small local firms to large national firms having substantially greater financial, management and marketing resources than the Company. Competitive factors include reputation, performance, price, geographic location and availability of technically skilled personnel.

        However, the majority of the Company's work represents repeat orders from long-term customers because the Company focuses on market areas where it can be a leading provider due to staff skills, reputation, financial strength and/or geographic presence. For example, the Company believes that it is one of the top two or three providers of licensing services for the large energy business. Further, the Company believes that it is the market leader in providing complete outsourcing of site remediation services through its Exit Strategy program. In general, competition is reduced when the Company can provide value-added, high-level, problem-solving services to senior management incorporating a combination of technical, risk management and financial support services.

Government Contracts

        The Company has contracts with agencies of the U.S. Government which are subject to examination and renegotiation. Contracts and other records of the Company have been examined through June 30, 1998. The Company believes that adjustments resulting from such examination or renegotiation proceedings, if any, will not have a material impact on the Company's operating results, financial condition or cash flows.

Regulatory Matters

        The Company's businesses are subject to various rules and regulations at the federal, state and local government levels. The Company believes that it is in compliance with these rules and regulations. The Company has the appropriate licenses to bid and perform work in the locations in which it operates. The Company has not experienced any significant limitations on its business as a result of

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regulatory, bonding or insurance requirements. The Company does not believe any changes in law or changes in industry practice would limit bidding on future projects.

Patents, Trademarks and Licenses

        The Company has a number of trademarks, service marks, copyrights and licenses, none of which are considered material to the Company's business as a whole.

Environmental and Other Considerations

        The Company does not believe that its compliance with federal, state and local laws and regulations relating to the protection of the environment will have any material effect on capital expenditures, earnings or competitive position.

Item 2.    Properties

        The Company provides its services through a network of over 85 offices located nationwide. The Company leases approximately 675,000 square feet of office and commercial space to support these operations. In addition, a subsidiary of the Company owns a 26,000 square foot office/warehouse building in Austin, TX. These properties are adequately maintained and are suitable and adequate for the business activities conducted therein. In connection with the performance of certain Exit Strategy projects, affiliates of the Company have taken title to sites on which those activities are being performed.

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.

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Part II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

        The Company's common stock is traded on the New York Stock Exchange under the symbol "TRR". The following table sets forth the high and low per share prices for the common stock for the fiscal years ended June 30, 2003 and 2002 as reported on the New York Stock Exchange.

        On October 10, 2003, there were approximately 4,000 holders of the Company's common stock, of which 302 were shareholders of record.

        To date the Company has not paid any cash dividends on its common stock. 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.

Equity Compensation Plan Information

        The following table provides information as of June 30, 2003 for compensation plans under which equity securities of the Company are authorized for issuance:

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Item 6.    Selected Financial Data

        The following table provides summarized information with respect to the operations of the Company.

(1)

See Note 2 of the Notes to Consolidated Financial Statements.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        Management's Discussion and Analysis contains statements that are forward-looking. These statements are based upon current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially due to a number of factors. See the discussion in "Forward-Looking Statements" on page 16.

Critical Accounting Policies

        The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in the assumptions used to value these estimates, which are based on current facts and circumstances, prior experience and other assumptions that are believed to be reasonable. The Company's accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. Management believes the following critical accounting policies reflect the more significant judgments and estimates used in preparation of the Company's consolidated financial statements and are the policies which are most critical in the portrayal of the Company's financial position and results of operations:

        Long-term contracts:    The Company recognizes contract revenue in accordance with American Institute of Certified Public Accountants Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". The Company records revenue on its cost-type and time and material contracts based upon direct labor costs and other direct contract costs incurred. The Company has fixed price Exit Strategy contracts to remediate environmental conditions at contaminated sites under which the Company and its customers are protected against cost overruns by insurance policies. Revenue (and related costs) from these fixed price contracts is recognized using the efforts expended, percentage-of-completion method of accounting based on total costs incurred to date as compared to total costs estimated at completion. Contract costs include direct labor costs, subcontractor costs, other direct costs and indirect costs. Prior to fiscal 2003, the Company used the efforts-expended, percentage-of-completion method based on direct labor costs, but for contracts where subcontractor costs resulted in a more meaningful measure of progress towards completion, they were considered for inclusion in labor costs. The Company's method of revenue recognition requires the Company to prepare estimates of costs to complete for contracts in progress. In making such estimates, judgments are required to evaluate contingencies, such as potential variances in schedule and labor and other contract costs, liability claims, contract disputes or achievement of contractual performance standards. Changes in total estimated contract costs and losses, if any, are recognized in the period they are determined.

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

        Income taxes:    At June 30, 2003, the Company had approximately $1.8 million of deferred income tax benefits. The realization of a portion of these benefits is dependent on the Company's estimates of future taxable income and its tax planning strategies. Management believes that sufficient taxable income will be earned in the future to realize deferred income tax benefits; accordingly, no valuation allowance has been recorded. Additionally, the realization of these deferred income tax benefits can be impacted by changes to tax codes, statutory tax rates and future taxable income levels.

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        Business acquisitions:    Assets and liabilities acquired in business combinations are recorded at their estimated fair values at the acquisition date. At June 30, 2003, the Company had approximately $102.8 million of goodwill, representing the cost of acquisitions in excess of fair values assigned to the underlying net assets of acquired companies. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing. The assessment of goodwill involves the estimation of the fair value of the Company's "reporting unit," as defined by SFAS No. 142. Management completed this assessment during the second quarter of fiscal 2003 based on the best information available as of the date of assessment and determined that no impairment existed. There can be no assurance that future events will not result in impairments of goodwill or other assets.

Results of Operations

        The Company derives its revenue from fees for providing engineering and consulting services. The types of contracts with our customers and the approximate percentage of net service revenue for the year ended June 30, 2003 from each contract type are as follows:

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

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

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2003 Compared to 2002

        The revenue growth trend established in fiscal 1998 continued for the sixth consecutive year. Gross revenue increased $46.1 million, or 17.1%, to $315.6 million in fiscal 2003, from $269.5 million in fiscal 2002. NSR increased $37.3 million, or 20.7%, to $217.3 million in fiscal 2003, from $180.1 million in fiscal 2002. The fiscal 2003 NSR growth was entirely attributable to acquisitions. Approximately 104% of NSR growth for fiscal 2003 was from acquisitions while organic (existing business) NSR decreased by 4% compared to last year. Management's goal continues to be to provide a reasonable balance between organic and acquisition growth over a several-year period.

        Income from operations decreased by $5.0 million to $21.2 million in fiscal 2003 compared to $26.2 million last year. Acquisitions provided approximately $5.1 million of operating income growth, while operating income from organic activities decreased by approximately $10.1 million compared to last year. Management's objective is to maintain a reasonable balance over time between increases in income from operations derived from organic and acquisition growth. For example, for fiscal years 2000 through 2002, income from operations increases from organic and acquisition growth were 52% and 48%, respectively. The inability to achieve this balance this year (as well as the increase in cost of services as a percentage of NSR) was due to a reduction in the utilization of the Company's staff related to three primary factors as follows:

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challenging economic conditions which affected several of the Company's operating centers. Until this fiscal year, these types of market changes were mitigated by increases in higher-margin business. The area most affected was the transportation infrastructure market where the Company relies on funding from state and local government entities;



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the delay in new contract awards for Exit Strategy and other higher-margin programs attributable to economic conditions, general customer uncertainty regarding capital investments and unusual winter conditions; and



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costs associated with substantial hiring and project investments the Company made in key markets which are expected to grow in spite of current economic conditions. Examples include: the planning, design and installation of electric power transmission and distribution systems and the installation of distributed generation power systems; assisting customers in the planning and design of infrastructure security systems; assisting customers in evaluating financial aspects of acquiring or divesting energy related assets; and expansion into the niche market of manufactured gas plant site remediation.

        Management has implemented actions to reduce costs, increase operational efficiencies and align capacity with the current pace of activity. As these actions yield results, and recent investments increasingly yield positive gains, management expects that a closer balance between organic and acquisition growth will again be realized.

        General and administrative expenses (G&A) increased approximately 26.0% in fiscal 2003 primarily due to additional costs necessary to support the Company's growth resulting from acquisitions as well as increased costs for audit and legal services. However, as a percentage of NSR, G&A expenses only increased to 3.0% in fiscal 2003 from 2.8% in fiscal 2002. This demonstrates the Company's ability to generate and manage the increased revenue without adding a proportional amount of overhead, resulting in higher margins for all services performed.

        Depreciation and amortization expense increased approximately 48.7% in fiscal 2003. This increase was primarily attributable to the additional depreciation expense of capital expenditures made throughout the year, the amortization expense related to identifiable intangibles from acquisitions, as well as the additional depreciation expense associated with acquisitions completed in fiscal 2003 and 2002.

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        Interest expense increased by approximately 23.2% in fiscal 2003 compared to last year primarily due to higher average borrowings outstanding against the Company's revolving credit facility to finance acquisitions. The Company's percentage of debt to capitalization ratio of 22.7% continues to remain relatively low, reflecting management's conservative debt philosophy.

        The provision for federal and state income taxes reflects an effective rate of 38.5% in fiscal 2003 compared to 38.3% in fiscal 2002. This small increase was primarily due to higher state income taxes. The Company believes that there will be sufficient taxable income in future periods to enable utilization of available deferred income tax benefits.

        The Company changed its method of accounting for fixed price contracts, effective July 1, 2002. The cumulative effect of the change decreased net income by $2,361 (net of income taxes of $1,478) or $0.17 per diluted share, which was retroactively reflected in the first quarter of fiscal 2003. Before the cumulative effect adjustment, this accounting change had the effect of increasing revenue, net income and diluted earnings per share in fiscal 2003 by $2,451, $1,507 and $0.11, respectively.

2002 Compared to 2001

        Gross revenue increased $88.1 million, or 48.5%, to $269.5 million in fiscal 2002, from $181.5 million in fiscal 2001. NSR increased $55.9 million, or 45%, to $180.1 million in fiscal 2002, from $124.2 million in fiscal 2001. These increases were due to a combination of internal growth arising out of increased demand for the Company's services and the additional revenue from acquisitions made in fiscal 2002 and 2001.

        As discussed above, NSR from acquired companies is considered part of acquisition growth during the twelve months following the date acquired. Approximately 83% of the NSR growth for fiscal 2002 was from acquisitions, while, as discussed below, operating income growth for fiscal 2002 was greater from organic activities. These characteristics were due to:

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The relatively larger size of the two recently acquired companies, compared to the Company's historically smaller size acquisitions.



•

The seasonality of the largest acquisition (SITE-Blauvelt), which added significant NSR with relatively small operating income during the winter period.



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Increased margins provided by the Company's organic business activities.

        Cost of services increased 44.4% in fiscal 2002 compared to 2001 due to the increase in NSR.

        General and administrative expenses (G&A) increased approximately 31.8% in fiscal 2002 primarily from additional costs necessary to support the Company's internal and acquisition growth. However, as a percentage of NSR, G&A expenses decreased from 3.2% in fiscal 2001 to 2.8% in fiscal 2002. This decrease was due to the Company's ability to generate and manage the increased revenue without adding a proportional amount of overhead, resulting in higher margins for all services performed.

        Depreciation and amortization expense decreased approximately 8.3% in fiscal 2002. This decrease was primarily due to the Company's early adopti